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Kelly O. Norwood
Vice-President, Rates and Regulation
1411 E. Mission Avenue
P. O. Box 3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE SUBMISSION OF THE
STATUS REPORT OF A VISTA CORPORATION
AND APPLICATION FOR A CONTINUATION OF
A POWER COST ADJUSTMENT (PCA)
SURCHARGE
REPLY COMMENTS OF
A VISTA CORPORATION
CASE NO. A VU-02-
I. INTRODUCTION
A vista Corporation doing business as A vista Utilities (hereinafter A vista or Company), at
1411 East Mission Avenue, Spokane, Washington, respectfully files its Reply Comments in the
above-entitled matter.
II. REPLY COMMENTS
The issues raised by Potlatch in their comments are premised on inappropriately applying
hindsight" to power purchase, gas purchase and small generation project decisions made by A vista
to serve its customers. Potlatch contends that Avista would have been better off to have made "its
electric and natural gas purchases at actual contemporaneous wholesale market prices, as measured
by prices at Mid-C and at Sumas, Washington." Potlatch's "hindsight" approach is not the standard
followed by the Commission. The appropriate standard is whether the Company made a reasonable
decision based on the information available to the Company at the time the decision was made. The
REPLY COMMENTS OF A VISTA PAGE
Commission Staff followed this standard in its review of A vista s deferred power costs. Potlatch
chose to ignore the standard in favor of its "hindsight" approach.
Potlatch had ample notice and ample opportunity to conduct its review. Potlatch was put on
notice in October 2001 by Commission Order No. 28876 in Case No. A VU-Ol-ll that the
Company was directed to file a status report on the PCA 60 days prior to October 11 , 2002. The
issues in this filing are not new. The record-low streamflow conditions and unprecedented high
wholesale market prices that led to the high-priced power purchases were discussed in the surcharge
proceeding a year ago. The acquisition of owned and leased small generation projects was also
addressed by A vista in that filing.
A copy of the Company s status report filing, including testimony and exhibits , was delivered
to both Mr. Conley Ward and Mr. Bill Nicholson by overnight mail on August 9 2002. Despite 10
months of advance notice, Potlatch waited 31 days after it received the Company s filing to submit
discovery requests centered on Potlatch's "hindsight" approach. Potlatch has ignored the p0l1ions
of the Company s responses to the Potlatch discovery requests that repeatedly state that it is not
appropriate to compare purchase prices to historical indexes and prices, but that the appropriate
comparison is to prices that existed at the time that purchases were made.
The Company does not agree with Potlatch's comments with regard to capital costs for
completed and cancelled small generation projects. The capital costs associated with the recently
completed Company-owned Boulder Park generating project are not included in the PCA. The
Kettle Falls Bi-fuel units are leased units which addressed resource needs at costs less than then
prevailing market prices , are appropriately included in the PCA, and Commission Staff has
recommended approval of these costs in the PCA.
REPLY COMMENTS OF A VISTA PAGE 2
The Devil's Gap small generation option was for the lease of diesel generators. The lease
was cancelled due to the subsequent decline in market prices. The Staff has determined that the lease
costs were prudently incurred to secure power at a cost lower than market. The Company does not
agree, however, with the Staff's proposal to remove site preparation and setup costs associated with
leased units under the premise that such costs are capital costs. These costs were necessary in siting
the leased units. The Company submits that the costs were necessary, prudently incurred, and should
remain in the PCA deferral.
The Othello small generation project was originally planned to be owned by the Company,
but the project was cancelled and the cost included in the PCA represents the write-down of the
value of the unit. The Othello project write-down costs are not capital costs from the standpoint of
being a completed plant that is currently in service. The Staff has refelTed to the Othello project as
lease costs in their comments at page 6. This is a mischaracterization. The Company believes that
regardless of how the write-down is characterized, the Staff's conclusion is still valid that
, "
... these
costs were reasonably incurred to reduce the overall power cost based on conditions at the time and
should be included in the PCA as discussed above.
Should the Commission decide that the Othello write-down costs be removed from the PCA
deferral balance, the Company respectfully requests that the costs be allowed to be recorded in
Account 182.30-0ther Regulatory Assets to be held for review until its next general case. The initial
decision to pursue the project was prudent based on the energy environment at the time and provided
a value to Idaho customers. Absent Commission authority for defelTal as a regulatory asset, the
Company could be put in the position of expensing the Othello write-down as a CUlTent period cost.
REPLY COMMENTS OF A VISTA PAGE 3
Commission Staff recognized in their comments at page 5 that
, "
A vista pursued various
projects that allowed it to avoid additional high-cost purchases of energy from the short-term
wholesale markets when the projects represented the lowest cost resource options available at the
time.Pages 16 through 18 of Mr. Norwood's testimony discuss the 2001 small generation
resources and the reason for their acquisition. The installation of small generation projects was one
of the measures the Company undertook to mitigate the increased costs to the Company from the
record-low hydroelectric generation conditions and the high wholesale market prices. If the
Company had not pursued the small generation projects, the alternative at the time would have been
to enter into purchase power contracts at the then prevailing prices that were higher than the cost of
the small generation options.
Potlatch's contention that the direct assignment to Idaho of the cost of serving Potlatch may
be inappropriate is without merit. With the expiration of the previous Potlatch contract on December
2001 , Potlatch receives service under the Idaho Extra Large Service - Schedule 25 rate schedule.
The direct assignment of 25 aMW of Potlatch load to Idaho is necessary, as the
production/transmission allocation does not reflect the new service under Schedule 25. The direct
assignment is more fully explained on pages 19 through 21 of Mr. Norwood's testimony. Exhibit
KON-, page 1 of 1 shows the Idaho PCA benefit of the Potlatch contract change to be $1 365 540.
A cost of $30 per MWh was used for the direct assignment cost of the 25 aMW shown on line 2 of
KON-5. The $30 per MWh price is close to the average system cost of power. Therefore, contrary
to Potlatch's allegations, the $30 price per MWh is a fair representation of average system cost and
there is a substantial benefit to Idaho customers. Potlatch ignored the information that was available
in the Company s filing.
REPLY COMMENTS OF A VISTA PAGE 4
III. SUMMARY
Potlatch's request for evidentiary hearings should be dismissed. Potlatch's "hindsight
approach is inappropriate and should not be considered by the Commission in rendering its decision
in this case. The costs of small generation projects were reasonably inculTed and should be allowed
for recovery as proposed. If costs associated with Othello are to be removed from the PCA defelTal
the Company requests that the costs be deferred in Other Regulatory Assets for review in a future
general case. The direct assignment and costing of the 25 aMW of Potlatch load is reasonable and
should be allowed in the PCA.
Dated at Spokane, Washington this 27th day of September 2002.
A VISTA CORPORATION
BY 1~IJ~ .,J in f../?PJ?(
Kelly O. Norwood
Vice-President, Rates and Regulation
REPLY COMMENTS OF A VISTA PAGE 5