Order No 28876.pdf

Office of the Secretary
Service Date
October 15, 2001
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION DBA AVISTA
UTILITIES—WASHINGTON WATER
POWER DIVISION (IDAHO) FOR
AUTHORITY TO REVISE ELECTRIC
TARIFF SCHEDULE 66—TEMPORARY
POWER COST ADJUSTMENT—IDAHO AND
TO IMPLEMENT A RELATED SURCHARGE.
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CASE NO. AVU-E-01-11

ORDER NO. 28876

Application
On July 18, 2001, Avista Corporation dba Avista Utilities—Washington Water
Power Division (Idaho) filed an Application for authority to implement an electric Schedule 66
Power Cost Adjustment (PCA) surcharge. The Company proposed 14.7% surcharge is in
addition to an existing 4.8% surcharge (Case No. AVU-E-00-9, Order No. 28627) which is
scheduled to expire January 31, 2002. The Company proposed that both surcharges remain in
place until December 31, 2003.
The proposed incremental increase of 14.7% will result in a total annual revenue
surcharge in effect under Schedule 66 of 19.4% or $23.6 million. To further reduce the
Company’s deferred power cost balance, Avista is proposing to accelerate amortization of the
credit balance related to the recent monetization of a Portland General Electric (PGE) sale
agreement. This is the Company’s first filing under its recently modified and expanded PCA
methodology. (Case No. AVU-E-01-1, Order No. 28775.) The Company’s proposed September
15, 2001 effective date for the new surcharge was suspended by Commission Order No. 28817.
Summary of Decision
In this Order the Commission approves a 19.4% Schedule 66 surcharge comprised of
a new 14.7% surcharge effective October 12, 2001 and the continuation of the existing 4.7%
surcharge, both surcharges to expire in one year, i.e., October 11, 2002. We direct the Company
to file a status report 60 days prior to expiration of the term. If that status report and our review
of the actual PCA deferral balance supports continuation of the surcharge, we anticipate
continuation of the surcharge for an additional period.

ORDER NO. 28876 1
In this Order we also authorize the Company to accelerate amortization of a Portland
General Electric (PGE) contract credit over a 15-month period. This credit will offset actual
power cost deferrals and will serve to reduce required rate increases to customers. Without
acceleration of the PGE credit, the overall increase requested would have been 33% instead of
14.7%.
Technical Hearing
A technical hearing in Case No. AVU-E-01-11 was held in Boise, Idaho on
September 24, 2001. The following parties appeared by and through their respective counsel:
Avista Corporation David J. Meyer, Esq.
Potlatch Corporation Conley Ward, Esq.
Commission Staff Scott Woodbury, Esq.
PCA Mechanism
Avista’s Power Cost Adjustment (PCA) has been in place since 1989, during which
time there have been nine rebates to customers and four surcharges. The rebates to customers
have totaled $23.2 million and the surcharges have equaled $12.5 million. Norwood, Tr. p. 152.
The Company’s Idaho PCA mechanism tracks 90% of the difference between actual
net power supply expense and the authorized level of net power supply expense approved in the
last general rate case. The Company’s shareholders absorb the remaining 10% of the difference
in net power posts. Net power supply expense is the total of purchased power expense plus fuel
costs minus wholesale revenues. Norwood, Tr. p. 146; Exh. 5. The Company’s long term
resource decisions (generation additions and purchase and sale contracts with terms longer than
one year) are submitted to the Commission for review and Commission approval. Norwood, Tr.
p. 153; Exh. 5. Avista’s actual PCA deferral balance was, as of June 30, 2001, approximately
$30 million. Norwood, Tr. p. 131. Anticipated power supply cost deferrals in addition to the
actual costs already deferred triggered this filing.
The Company recognizes that the proposed total surcharge of 19.4% exceeds the
10% limit recently approved by the Commission in Avista PCA methodology Case No. AVU-E-
01-01. The Company notes that in that case, however, the Commission approved the Company’s
request to use the 10% of base revenues as a guide rather than a hard and fast rule. At page 13 of
the Commission’s Order No. 28775 dated July 12, 2001, approving modification to the PCA
mechanism, the Commission states:

ORDER NO. 28876 2
As agreed to by the Company and Staff, the limit, not the trigger, on
surcharges or rebates will be raised to $12 million or about 10% of base
revenues. Rather than a hard and fast rule, the Company, if
circumstances arise, may request and seek to justify a different amount.

Ely, Tr. p. 10. The Company argues that record-low hydroelectric generation has caused it to
make purchases in the short-term wholesale market at unprecedented high prices. The resulting
financial impact on the Company justifies the increase requested. Ely, Tr. pp. 11, 13;
Hirschkorn, Tr. p. 216.
Avista states that a combination of the worst hydroelectric conditions in 73 years and
unprecedented high wholesale market prices and volatility have created the necessity for prompt
rate relief in order to enable it to obtain the financing necessary to support ongoing operations of
the Company. Ely, Tr. pp. 6, 7, 10, 11. Avista states that it has not been able to obtain
construction financing for its Coyote Springs II project because lenders are concerned about the
size of the PCA deferral balances and the absence of rate relief necessary to deal with the
deferred cost balances in a timely manner. Ely, Tr. p. 7. The Company contends that if prompt
relief is not granted, the Company will not be able to complete anticipated financings and will
not be able to meet certain debt covenants. Peterson, Tr. p. 102. As a result, absent concessions
from banks, the Company would not be able to borrow under its main line of credit. Ely, Id.
With the requested surcharge, and recovery of the deferral balances, under current plans, the
Company believes that it would be able to continue to obtain capital to meet its obligations and
complete construction of power resources necessary to meet future loads. Id.
Recent Changes in Conditions and Deferred Cost Balances
Avista reports that its PCA deferral balance has risen substantially. The actual
balance in the deferral account for the Idaho jurisdiction at June 30, 2001 was $30 million.
Absent rate recovery, current Company estimates show a deferral balance for the Idaho
jurisdiction of $69 million at December 31, 2001, $72 million at the end of 2002, and $88
million at the end of 2003. Application Attachment 1, p. 1; Ely, Tr. p. 9; Falkner, Tr. p. 205;
Norwood, Tr. p. 131.
A major portion of the increase in the deferral balance is driven by continued
deterioration in hydroelectric generation. Normal hydroelectric generation is 554 aMW. The
generation for 2001 is currently estimated to be 194 aMW below normal, which is significantly

ORDER NO. 28876 3
below the reduction expected under critical water conditions. Norwood, Tr. p. 128. The record
low hydroelectric conditions required the Company to purchase energy in the forward short-term
wholesale market to replace the lost generation and cover its energy deficiencies. Norwood, Tr.
p. 131. These purchases were made at unprecedented high wholesale market prices and caused
deferral balances to increase substantially. Tr. p. 129; Exh. 3. The decision to cover those
deficiencies in advance was based on the recent volatility of market prices, the warnings of
impending rolling blackouts in California, the persistent refusal of federal regulators to mitigate
market prices and the continuing deterioration of hydroelectric generation conditions. Norwood,
Tr. p. 132. The lack of a record 194 aMW of hydroelectric generation during 2001 has resulted
in an estimated increase in gross power supply cost for Avista of $290 million on a system basis.
Norwood, Tr. p. 132. The combination of the hydroelectric impacts and the market purchases
for 2001, the Company states, is approximately $400 million on a system basis. This exceeds
Avista’s annual gross retail electric revenues on a system basis of approximately $360 million.
Norwood, Tr. p. 133.
In late May and June, wholesale prices declined considerably, due to an increase in
hydro supply, a decrease in wholesale market gas prices, lower demand due to conservation and
temperature and FERC’s price mitigation order issued on June 19, 2001. The substantial decline
in forward market prices has reduced the value of future surplus energy on Avista’s system that
could have been used to offset the increased power costs experienced earlier in the year.
Norwood, Tr. pp. 130, 133, 134; Eliassen, Tr. p. 69; Norwood, Tr. p. 151.
The Company reports that it has taken a number of measures to mitigate the increased
power costs, such as increased operation of its thermal resources, locking in fixed-price
purchases in the prior year, installation of small generation resources, aggressively pursuing
conservation and load curtailment programs, and implementing a hiring freeze and cutting
budgets and salaries. Ely, Tr. p. 12; Norwood, Tr. p. 136; Eliassen, Tr. p. 77. However, the
Company states that the costs associated with the hydroelectric conditions and wholesale market
prices that are largely beyond its control have overwhelmed the benefits these measures have
provided.
Financial Implications
In addition to the cash required to support power cost deferrals, Avista states that it
also has cash needs for funding gas deferrals, for normal construction and capital improvements,

ORDER NO. 28876 4
for the completion of construction of Coyote Springs II and a number of small generation
projects, to fund conservation programs, and to repay maturing securities. Exhibit 7, page 1
includes a chart showing total electric and natural gas deferral balances for both the Washington
and Idaho jurisdictions for each month of 2001. The chart shows total electric and natural gas
deferral balances of $318 million at December 31, 2001. Current estimates are that without a
surcharge, utility financing needs will total $434 million from now until the end of 2002,
primarily to fund energy costs, required utility construction, including generation projects, and
debt and preferred stock maturities. Eliassen, Tr. p. 72. Investor concerns surrounding cash
flows, deferral balances and the ability to recover costs in a timely manner have already had an
impact on the Company’s financing. The Company states that it will be unable to complete any
financings absent substantial progress toward recovery of the deferral balances, including an
immediate increase in rates. Eliassen, Tr. p. 69. Banks have told Avista that they will not
complete construction financing of Coyote Springs II based on the Company’s current credit
risk. Peterson, Tr. p. 105.
Avista notes that it currently has an investment grade rating of BBB- with a negative
outlook for its senior unsecured debt. The Company’s financial indicators have been
deteriorating and without additional equity financing and approved cash flows from operations,
projected 2001 financial indicators as depicted in Exhibit 8, pages 5-9 are not adequate to
maintain an investment grade credit rating. Peterson, Tr. p. 107. Institutional investors such as
pension fund managers are much less likely to purchase securities with ratings below investment
grade. As a result, the Company contends that a drop below investment grade would have a
significant impact on the Company and its customers by causing a substantial increase in
borrowing costs to finance the business. Id. Commission support and action through a
surcharge, the Company maintains, is critical to enable the Company to complete financings
needed for continued utility operations and to help mitigate potential reductions in credit ratings.
Eliassen, Tr. p. 73.
Proposed Tariff Changes
The rates set forth in the Company’s proposed PCA Schedule 66 reflect an annual
revenue surcharge amount of $23.6 million or 19.4%. Ely, Tr. p. 9; Hirschkorn, Tr. p. 217. As
previously indicated, the present Schedule 66 includes a surcharge of $5.7 million or
approximately 4.8%, which is scheduled to expire January 31, 2002. The proposed incremental

ORDER NO. 28876 5
rate increase to customers is approximately 14.7%. Ely, Id. In developing the surcharge of
14.7%, the Company states that it attempted to achieve a balance of mitigating the overall impact
to customers, while also reducing the deferral balance to zero as quickly as possible to address
the concerns of the financial community. Id.; Falkner, Tr. p. 205. The Company is proposing to
use the deferred credit on the Company’s balance sheet related to the monetization of the
Portland General Electric (PGE) contract credit as an offset to the power cost deferral balance to
reduce the overall rate impact to customers. The Company is then proposing that the remaining
balance of the deferred costs be recovered by the end of 2003 through the PCA increase. Ely, Id.
The Company is currently amortizing the PGE monetization credit balance over a 16-
year period (1999-2014) to match the original revenue stream under the PGE contract. The
Company is proposing in this filing to accelerate the amortization of the PGE credit balance,
beginning in October 2001, and apply the increased amortization against the deferred power cost
balance, which would reduce the amount of deferred power costs that must be collected from
customers through the surcharge. The Company is proposing that the amortization be increased
to a level that would cause the PGE balance on Avista’s balance sheet on October 1, 2001, to be
fully amortized by December 31, 2002. By using the PGE credits over 15 months rather than 22
months, the overall surcharge to customers is decreased. The accelerated amortization of the
PGE balance will not improve the Company’s cash flow, because these entries are non-cash
accounting entries, but it will improve the financial health of the Company by more quickly
reducing the deferred balance. The accelerated amortization of the PGE balance will reduce the
deferred power cost balance by $34.6 million by December 31, 2002. Without the PGE credit,
the overall increase requested would be approximately 33%. Falkner, Tr. pp. 208, 209.
After reducing power cost deferrals by the accelerated amortization of the PGE
balance, the Company calculated the additional surcharge necessary to reduce the deferred power
cost balance to zero by December 31, 2003. As part of the overall proposal, the present
surcharge of $5.7 million under Schedule 66 (or 4.8%) is incorporated in the proposed Schedule
66 rates and would not expire at the end of January 2002, but would continue through
December 31, 2003.
December 31, 2003 was chosen in an effort to balance a number of competing
considerations including the size of the surcharge, the duration of deferral balance recovery, the
need to immediately improve the financial health of the Company, as well as taking into

ORDER NO. 28876 6
consideration the timing of the need for additional power resources. A surcharge period shorter
than December 2003, the Company states, would improve the financial health of the Company
sooner, but would result in a significantly higher surcharge rate increase. A surcharge period
beyond 2003 would extend into a period when the Company shows a need for new firm energy
resources. The Company’s existing 200 MW purchase from TransAlta expires in December
2003, and Avista will need additional firm energy resources beginning in 2004. The costs
associated with these new resources, the Company states, may cause an increase in retail rates,
therefore, the Company is proposing a surcharge period that ends prior to 2004. Falkner, Tr. p.
206.
The Company recognizes that a portion of the costs included in the 27-month
recovery plan (through December 2003) is projected at this time. Projections were utilized in the
initial determination of the surcharge level. However, only actual cost differences will be
recovered. Avista proposes that the surcharge rates under Tariff Schedule 66 be adjusted or
trued up in the future based on actual deferred power costs. The Company has included
language under the proposed tariff addressing periodic review and adjustment of the rates by the
Commission. Falkner, Tr. pp. 206, 207; Norwood, Tr. p. 153.
The Company proposes to recover the surcharge amount on a uniform percentage
basis to all general service schedules. The annual revenue surcharge by service schedule is then
applied only to the energy charge(s) within each schedule. The resulting increase for a
residential Schedule 1 customer using 1,000 kWh per month would be 13.7%, or $7.55 per
month. The percentage increase for a customer using 600 kWh per month would be 12.7%, or
$4.16 per month. The increase for a customer using 1,400 kWh per month would be 14.1%, or
$10.94 per month. Hirschkorn, Tr. p. 218; Exh. 10.
As service Schedules 11, 21 and 25 contained only a single energy block, the
application of the surcharge is more straightforward. For pumping service Schedules 31 and 32,
the Company proposes application of the surcharge on an equal cents per kWh basis to the
energy block rates under the schedule. The rates under the schedule are presently on a declining
block basis, with an implied demand charge included in the first block rate. For street and area
lighting Schedules 41 to 49, the proposed increase is being applied on a uniform percentage basis
to the present rates under those schedules. Exh. 10.

ORDER NO. 28876 7
Potlatch
Potlatch recommends that a “prudency review” be initiated with respect to authorized
recovery of any power cost expense. In such a review, the prudence of Avista’s resource
management and power supply purchases would be examined as well as the Company’s cost
mitigation efforts. Peseau, Tr. pp. 228, 229, 233-235. Avista, Potlatch contends, also needs to
explain and justify the extent to which its unregulated businesses have contributed to its current
financial difficulties. Peseau, Tr. p. 235. Any emergency relief granted the Company, Potlatch
contends, should be subject to refund if there are any questions about either the reasons for, or
size of, the request. Peseau, Tr. p. 228.
While Potlatch admits that Avista is dealing with record low streamflows and rising
market prices, Potlatch questions Avista’s strategy and actions. Avista, it states, “went long” on
term power supplies at fixed prices in the hope of hedging potentially higher summer 2001 prices
and to have surplus power from new generating plants to sell into the wholesale market at a
significant profit in 2002 and 2003. Unfortunately, it states, a different market strategy would
now appear to have been a better alternative. Peseau, Tr. pp. 229, 230.
Avista rejects Potlatch’s contention that the Company purchased more power than it
needed. Purchases, Avista maintains, were made to cover the deficiencies caused by the low
hydro conditions; not to create a “long” position. Norwood, Tr. pp. 149, 150, 186. Regarding
the relationship between Avista’s regulated (Avista Utilities) and unregulated (Avista Energy)
trading activities, Avista states that no information is exchanged, no transactions for the utility
are conducted by Avista Energy and that Avista Energy does not trade or market any utility
resources. The operations, it maintains, are totally independent and unconnected. Norwood, Tr.
p. 154; Ely, Tr. pp. 32, 33, 35.
Commission Staff
Based on its review and audit, Staff concludes that the Company correctly applied the
PCA methodologies approved by the Commission in its previous Orders. Staff recommends
approval of the proposed surcharge. Hessing, Tr. pp. 267, 268, 279, 280; Stockton, Tr. p. 247.
The recent adjustments to the PCA methodology authorized in Order No. 28775, Staff states, are
(1) an Idaho retail revenue adjustment, (2) a Centralia capital and operation maintenance credit,
(3) a PGE capacity revenue true-up, and (4) accumulated interest during the deferral period.
Staff notes that the Commission subsequently also approved PCA deferral treatment for three

ORDER NO. 28876 8
separate Avista energy buy-back programs. Hessing, Tr. p. 271. Not previously approved but
requested is recovery of emissions-related expenses associated with increasing the allowable
operating hours for the Company’s Northeast Combustion Turbine. Staff supports their
inclusion. Hessing, Tr. pp. 271, 272; Stockton, Tr. pp. 252, 253.
Centralia 90/10 Adjustment
Regarding the Centralia capital and O&M credit, Staff notes that current base rates
reflect the Centralia capital costs such as return on investment and Centralia O&M expense. In
order to be consistent, Staff states that base rates need to be adjusted to reflect current conditions.
The Centralia credit is designed to offset the Centralia revenue requirement that is still part of
base rates. The Centralia credit, Staff contends, should not be subject to 90/10 sharing. Hessing,
Tr. p. 274. The Company agrees. Stockton, Tr. p. 249. The related adjustment is $140,900.
Exh. 102, line 31.
Periodic True-Up
Calculation of the surcharge level requested, Staff notes, is based on a number of
assumptions. As such, it will not be completely accurate. Two critical assumptions subject to
inaccuracy are market prices and streamflow levels. Staff nonetheless believes that it is
reasonable to use this information to establish PCA rates as long as differences between PCA
revenues and deferrals are trued-up. Hessing, Tr. p. 276. Staff recommends a true-up to actuals
at 12 and 24 months and an adjustment to the surcharge amount if required. Hessing, Tr. p. 276.
Interest Calculation on Deferral Balance
Staff recommends that the Company calculate interest on the deferral balance using
simple interest, computed on the balance at the end of the month. The Company in its
Application uses a compound interest calculation on an average monthly balance. In the
Commission’s Order No. 28775 the Commission states: “As agreed to by the Company and
Staff, monthly accumulation in the PCA deferral account (including unamortized balance of
future rebates and surcharges) will accrue interest at the same rate as the Commission approved
interest rate on deposits.” Staff interprets the “monthly accumulation in the PCA deferral
account” to be the power costs that have been deferred not including any interest previously
calculated on the power cost expenditures. Staff notes that the Company’s newly modified PCA
mechanism has been modeled largely after Idaho Power’s PCA mechanism. In Idaho Power’s
PCA mechanism, simple interest is applied to power supply costs in the deferral account, using

ORDER NO. 28876 9
the end of month balance. Staff contends that this method is the appropriate way to apply
interest charges to the deferral balance. Stockton, Tr. p. 248. The Company notes that interest
on Avista’s deferred gas costs is compounded and is calculated on the average balance of
deferred costs for the month. Tr. pp. 260, 261. The impact of applying simple interest on the
ending month balance is $69,547 at June 30, 2001. Exh. 102, line 30.
Power Cost Deferral Amount—June 30, 2001 Calculation
The total power cost deferral (June 30, 2001) calculated by the Company in its filing
is $30,007,057. The Centralia adjustment agreed to is ($140,900). Staff calculates the deferral
balance to be $29,796,610. Still in dispute is the interest adjustment recommended by Staff,
($69,547). Stockton, Tr. p. 249. The Company contends that there should be no interest
adjustment.
Public Testimony and Comments
On October 3, 2001, the Commission held a hearing in Coeur d’Alene for the purpose
of taking public testimony. Customers were also provided the opportunity to submit written and
e-mail comments. Comments were received from Kootenai Environmental Alliance, Senator
John W. Goedde, representatives of area businesses and unions and many customers. We
address their comments in our findings.
Commission Findings
Not all factors contributing to the increase in the PCA deferral balance are beyond the
control of the Company. Avista controls the timing of its purchases, controls the extent to which
it hedges against price changes, and controls the extent to which the Company is in a net deficit
resource position. Ely, Tr. pp. 35, 36. The concern of lenders is not solely with the Company’s
regulated operations, but also with its unregulated operations. Ely, Tr. p. 37. We are assured
that the Company’s focus in the future as evidenced by recent restructuring efforts will be around
energy, and energy-related products. Ely, Tr. pp. 38, 39.
The energy crisis that triggered the Company’s filing is not over yet. Regulators and
utilities are still struggling with its impacts. The Northwest region is still short of power, perhaps
by as much as 3,000 megawatts. Ely, Tr. p. 44. It remains to be seen whether sufficient
generation resources in the region will be built. Utility load requirements are also changing.
Avista states its summer and winter peaks are now nearly evenly balanced. Ely, Tr. p. 45. While

ORDER NO. 28876 10
hydro conditions will probably improve, it takes time to refill reservoirs and restore ground water
levels.
Prudence Review
Potlatch at hearing and the Kootenai Environmental Alliance in written comments
recommend that the Commission engage in a more thorough review of Avista’s power cost
transactions and expenses. Potlatch recommends that our review extend to the prudence of the
Company’s resource management decisions and mitigation efforts. In the Company’s most
recent PCA methodology case, Potlatch noted that the expanded methodology raised the stakes
in PCA proceedings. In that case we found that the continued appropriateness of Modified
Procedure for PCA filings was an issue that could be raised in the Company’s next PCA filing.
Order No. 28775. It is noteworthy that this case was filed and processed not under Modified
Procedure, but instead with formal and public hearings.
We are well aware of the events that precipitated the Company’s filing. It was an
energy crisis of regional and even national proportion. The Company’s actions have been
reasonable for a regulated utility with an obligation to serve and to provide reliable low cost
power. Our duty is to assess the Company’s actions based on the information available at the
time that the decisions were made. Testimony and evidence in this case did not disclose
information that would prompt further investigation. Thus, the Commission finds that an
additional surcharge should be implemented at this time. With the surcharge that we implement
now we authorize recovery of actual power costs of $30 million. We find that a further prudence
review of these actual expenses is not required. Power costs incurred after June 30, 2001 and
placed into deferral accounts will be reviewed prior to continuation of the surcharge for a second
year.
Surcharge/PGE Contract Credit
The Company’s existing retail rates include power costs based on the assumption that
short-term purchases can be made in the range of $20/MWh to $25/MWh. Tr. p. 131.
Wholesale market prices for Avista during 2001 have averaged $171/MWh. Tr. p. 132. The
Company’s generation shortfall is an estimated 194 aMW. Some relief is necessary.
The Company requests a 14.7% new surcharge and continuation of a 4.7% existing
surcharge. The total of both surcharges is 19.4%. The Company has requested a 27-month

ORDER NO. 28876 11
surcharge period through December 2003 with periodic true-ups to actual deferrals. Staff
recommends approval of the Company’s request with true-ups at 12 and 24 months.
The Commission finds the June 30, 2001 deferral balance to be $30 million. That
was the actual balance included in the Company’s Application. We also recognize that the
surcharge requested will only recover an estimated $23,568,000 in revenue per year. We are
uncomfortable with authorizing the extended surcharge period requested by the Company. We
instead find it reasonable at this time to implement a surcharge based on actual deferred balances
and the amount of surcharge requested and to limit the initial authorized surcharge period to 12
months, a period consistent with existing PCA methodology. The Company will continue cost
deferrals in the PCA accounts and is directed to file a status report in this case docket for
Commission review 60 days prior to the expiration of the one-year term. If the status report and
our review of the actual PCA deferral balance supports continuation of the surcharge, we
anticipate continuation of the surcharge for an additional term.
We also in this case find it reasonable to authorize the accelerated amortization of the
PGE contract credit for the 15-month period requested by Avista. This credit will offset actual
deferrals and will serve to reduce the deferral balance more quickly. This will reduce the
increases required from customers and improve the Company’s financial indicators, thus
benefiting both the Company and its customers.
The Commission also anticipates that the surcharge we authorize in this case and the
procedure we define for authorizing an extension will forestall any additional requests by the
Company for PCA trigger adjustments during the approved surcharge term.
Surcharge—Affordability
At the Commission’s hearing in Coeur d’Alene, customers requested that the
Commission require Avista to tighten its belt. Bad corporate decisions, the customers contend,
are management’s problems; they shouldn’t be the ratepayers problems. We were reminded that
the only thing that stands between the customer and the Company is this Commission. It is little
comfort for customers to know that they have some of the relatively lowest rates in the country.
The area is losing businesses. Mills are shutting down, jobs are being lost, wages are frozen,
employees are taking cut backs in hours, companies are closing their doors. Senior citizens and
the poor, we are advised, are being forced to choose between heat and food or heat and medicine.

ORDER NO. 28876 12
Avista has an obligation to furnish, provide and maintain adequate, efficient, just and
reasonable service to its customers. Idaho Code § 61-302. This Commission has an obligation
to see that rates for service are just to the utility and reasonable to the customer. In this case
Avista represents that the financial viability of Avista Corporation is threatened. Indeed, the
Company’s financial ratings have already been downgraded. Lenders are wary of extending
further credit without some improvement in the Company’s financial indicators. The accrued
amount in the Company’s deferral account and the size of the surcharge requested are
extraordinary. There is no doubt that the surcharge level requested will impose a hardship on
many of the Company’s customers. Neither this Commission nor the Company are insensitive to
the economic situation in northern Idaho. Letters from customers and articles from newspapers
drive this point home and are vivid reminders of the economic hardship and unemployment that
exists. The Commission notes that there are financial assistance programs available to eligible
customers, i.e., (1) the LIHEAP energy assistance program, (2) Project Share, (3) County welfare
benefits, (4) the CARES program which assists elderly and disabled customers, (5) Avista’s
comfort level billing program, and (6) a winter moratorium on disconnects. Graves, Tr. pp. 299-
302.
The Company acknowledges that its rate increases are a hardship to many of its
customers. Ely, Tr. pp. 50, 51. The Company for its part is tightening its belt and is assessing its
operations, activities and functions for savings. The Company has asked all of its officers and
managers to take a pay cut. Ely, Tr. pp. 53, 56. The Company has also since July put on a hiring
freeze and eliminated cell phones, unnecessary travel and training, cafeteria subsidies, and all
assigned vehicles. It has also ceased buying software, hardware, tool inventory and
communication equipment. It is further evaluating reducing or minimizing grounds,
maintenance and janitorial services. All of these actions, the Company states are for its survival
and to demonstrate its commitment to its customers. Ely, Tr. p. 59.
Interest
The Commission finds Staff’s proposal regarding simple interest rather than
compound interest to be reasonable. Applying simple interest on the month-end deferral balance
is also accepted as reasonable. We thus find it reasonable to approve the related adjustment.

ORDER NO. 28876 13
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Avista Corporation dba
Avista Utilities—Washington Water Power Division (Idaho), an electric utility, and the issues
presented in Case No. AVU-E-01-11 pursuant to the authority granted in Idaho Code, Title 61
and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby approve the 19.4% Schedule 66
surcharge comprised of a new 14.7% surcharge for effective date October 12, 2001 and
continuation of an existing 4.7% surcharge, both surcharges to expire in one year, i.e., October
11, 2002. See Attachment. The Company is directed to file a status report 60 days prior to
expiration of the term.
IT IS FURTHER ORDERED and the Company is authorized to accelerate
amortization of the credit balance related to the monetization of the Portland General Electric
(PGE) sale agreement. The amortization period we approve is 15 months.
IT IS FURTHER ORDERED and the Company is directed to calculate interest on the
PCA deferral balance using simple interest computed on the end of month power cost balance.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.

ORDER NO. 28876 14
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of October 2001.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary
bls/O:AVUE0111_sw5

ORDER NO. 28876 15