20040304Revised 8 pages of Application.pdf

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KELLY O. NORWOOD
VICE PRESIDENT, STATE AND FEDERAL REGULATION
A VISTA CORPORATION
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
APPLICATION OF A VISTA CORPORATION
FOR AN ORDER APPROVING THE SALE
OF ITS INTEREST IN THE SKOOKUMCHUCK
HYDROELECTRIC PLANT AND FOR EWG DETERMINATIONS
CASE NO. A VU-04-
APPLICATION OF A VISTA CORPORATION
Amended 3/3/0Ll
Avista Corporation ("Avista ) hereby requests that the Idaho Public Utilities
Commission ("IPUC") authorize A vista to sell its minority ownership interest in the
Skookumchuck dam, hydroelectric plant and related facilities ("Skookumchuck"), should the
Commission decide to exercise its authority over the property sale. Idaho Code Section 61-
328 requires Commission approval only for the sale of property located in the state of Idaho.
The Skookumchuck project is locate in the state of Washington. Avista does not believe that
approval of the sale of non-situs property is required under Idaho Code Section 61-328.
Should the Commission, however, decide to exercise authority over the proposed sale, then
A vista requests that the Commission approve the sale.
A vista also requests that the IPUC issue determinations required for the new
owner/operator to qualify as an Exempt Wholesale Generator ("EWG") under Section 32 of
the Public Utility Holding Company Act of 1935 ("PUHCA"). The purchaser is 2677588
Washington LLC ("Washington LLC"), a limited liability company formed by TransAlta
USA Inc. ("TransAlta
I. INTRODUCTION
The Parties
The Applicant: A vista
A vista is an investor owned utility engaged in the generation, transmission, and
distribution of electricity in certain portions of Northern Idaho and in Eastern Washington.
Avista is further engaged in the distribution of natural gas in certain portions of Northern
Idaho , Eastern and Central Washington, in Northern California, and in Western and Central
Oregon. Avista is subject to the jurisdiction of this Commission with regard to its rates
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
charges, servIces and practices.At December 31 , 2003 A vista provided service to
approximately 326 000 electric customers and 298 000 natural gas customers throughout its
service area. Approximately 110 000 electric customers were served in the state of Idaho.
Communications in reference to this Application should be addressed to:
Kelly O. Norwood
Vice President, State and Federal Reg.
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Fax: [phone]
ke llv .norwood(Ci),avistacoro. com
David 1. Meyer
Senior Vice President and General Counsel
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Fax: [phone]
david. mever(Ci),avistacoro. com
The Owners
Skookumchuck is jointly owned by seven public and private owners (collectively, the
Owners PacifiCorp; Avista; Public Utility District No.1 of Snohomish County,
Washington; Puget Sound Energy, Inc.; City of Tacoma, Washington; City of Seattle
Washington; and Public Utility District No.1 of Grays Harbor County, Washington.
PacifiCorp is the majority owner with a 47.5% ownership share. Avista is a minority owner
with a 17.5% ownership share.
The Purchaser
Washington LLC is a Washington limited liability company and a direct, wholly-
owned subsidiary of TransAlta. TransAlta is the indirect owner of the Centralia Power Plant
a coal-fired generating plant, and the Centralia Coal Mine. In 2000, the Owners sold the
Centralia Power Plant to a direct wholly-owned subsidiary of TransAlta, TECW A Power
Inc., and PacifiCorp sold the Centralia Coal Mine to another direct wholly-owned subsidiary
of TransAlta, TECW A Fuel Inc. TransAlta Centralia Generation LLC, a direct wholly-
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
owned subsidiary of TECW A Power, Inc., owns and operates the Centralia Power Plant as an
EWG.
The Skookumchuck Plant to be Sold
Skookumchuck is a small earth-fill dam and hydroelectric generating plant located in
the vicinity of Centralia, Washington on property adjacent to the Centralia Power Plant. The
Skookumchuck dam was constructed in 1973 as a water storage facility for the Centralia
Power Plant. In 1991 , a hydroelectric unit with a capacity of approximately one megawatt
was installed at the dam. The Skookumchuck assets being sold includes real property and
associated easements and water rights, as well as various equipment. Skookumchuck was
granted an exemption from licensing as a hydropower facility by the Federal Energy
Regulatory Commission ("FERC") pursuant to 16 US.C. 92705(d), which allows
exemptions for facilities less than five megawatts. Skookumchuck is, however, subject to
dam safety regulation by the FERC.
II. PROPOSED TRANSACTION
The Owners propose to sell and transfer to Washington LLC the Skookumchuck dam
powerhouse, water rights, land, easements and other related assets, including certain fixtures
contracts and other rights. The sale and transfer is governed by the Skookumchuck Facilities
Purchase and Sale Agreement between the Owners and Washington LLC, dated November
2003 (the "Sale Agreement"). A copy of the Sale Agreement is included in Appendix 1.
A copy of the Skookumchuck Dam Management Agreement is attached as Appendix 2.
The aggregate sale price of the transaction is $7.57 million, adjusted for changes in
PacifiCorp s Net Book Value of the Facilities from September 30, 2003 to the Closing Date.
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
See Section 2.3(a) of the Sale Agreement. Avista s share of the sales price is 17.5%, or
approximately $1.32 million on a system basis prior to closing costs.
The new owner/operator intends to continue operation of Skookumchuck to provide
cooling water supply to the Centralia Power Plant, and to produce power from
Skookumchuck either as an EWG or as a qualifying facility under the Public Utility
Regulatory Policies Act of 1978. None of the electrical output of Skookumchuck has been or
will be used to serve Avista s retail customers, except perhaps indirectly through the
wholesale power markets.
At the time the Centralia coal-fired Generating Plant was sold to TransAlta (TECW A
Power Inc.), a Flood Control Committee formed by Lewis and Grays Harbor Counties
Washington and the cities of Centralia, Chehalis and Aberdeen, Washington (the
Committee ) had expressed an interest in acquiring the Skookumchuck Dam and reservoir.
The Committee had been working with the US. Army Corps of Engineers to develop a
comprehensive flood control plan for the basin.In June 1999, a Memorandum of
Understanding ("MOU") between the Owners and the Committee was signed reflecting the
Committee s intent to purchase the facilities. This MOU expired in December 1999, but the
Owners understood that the Committee s intent to acquire the facilities had not changed.
This desire by the Committee to purchase the facilities and the Committee s stated intent to
operate the facilities in a manner that would not be in conflict with the continued operation of
the Centralia Steam Plant caused the Owners to withhold Skookumchuck from the sale of the
Centralia Steam Plant.
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
III. EWG DETERMINATIONS
To qualify as an EWG, the owner/operator must be engaged exclusively in the
business of owning or operating an "eligible facility" and selling electric energy at wholesale.
If the costs of a generation facility were included in the rates of a regulated utility on October
, 1992 (the date of enactment of section 32 ofPUHCA), then in order for the facility to be
considered an "eligible facility," every state commission having jurisdiction over such rates
must specifically determine that allowing the facility to become an eligible facility (1) will
benefit consumers, (2) is in the public interest, and (3) does not violate State law. 15 US.
9 79z-5a(c). Thus, the IPUC and each of PacifiCorp s other state regulatory commissions
which include Avista s other state regulatory commission, the Washington Utilities and
Transportation Commission, would be required to make these determinations regarding the
sale and transfer of the Skookumchuck facilities.
IV. BENEFITS OF TRANSACTION
Skookumchuck has an electrical capacity of 1 MW, but because the facility is
operated for purposes of supplying cooling water to the Centralia Power Plant, it has
relatively low energy output. Over the last eight years, the average annual production has
been 3 013 megawatt-hours. Skookumchuck's bus bar cost in PacifiCorp s fiscal year 2003
(twelve months ending March 31 , 2003) was approximately $250 per MWh. With regard to
this cost per MWh, it is important to remember that the dam was originally built to provide
water supply for the coal plant, and therefore the energy produced by the hydroelectric
generator does not reflect the total value of the project. Skookumchuck is interconnected
with the transmission system of Puget Sound Energy, Inc. ("PSE") and historically all of the
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
power from Skookumchuck has been sold to PSE.
As one of the Owners of Skookumchuck, A vista must pay its proportionate share of
the costs of the facilities.Net plant related to Avista s share of its investment in
Skookumchuck is included in the Company s rate base. Customers will not be harmed by the
proposed transaction and will in fact benefit from it. The forecast of the market price of
power is substantially below the cost of power generated from Skookumchuck. Hence, the
Company s revenue requirement will be lower as a result of the sale of Skookumchuck.
In addition, the proposed transaction eliminates the risk that the Owners will be
required to fund future expenditures for ensuring the structural integrity of the
Skookumchuck dam. The benefits from the proposed sale outweigh the risks and costs of
continuing to own and operate Skookumchuck.
Moreover, the sale will not harm the public interest because competitive markets will
be unaffected by the sale. A 1 MW plant with only 3 000 MWhs of annual production would
not have a measurable impact on western electricity supply or any impact on wholesale
electricity prices.
Hence, the transfer of Skookumchuck to Washington LLC is in the public interest
because it will benefit Avista s customers by lowering the Company s costs of providing
electrical service. In addition, the transfer will give TransAlta greater control of the water
flows in the Skookumchuck River for providing cooling water to the Centralia Power Plant
thus supporting the electrical output of the Centralia Power Plant for the benefit of all
electricity consumers.
Avista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
V. OTHER MATTERS
Proposed Ratemaking Treatment
Avista projects that the sale of Skookumchuck will result in a small after-tax gain.
The Idaho jurisdictional share (33.01 %) of the after-tax gain is projected to be approximately
$216 000. Actual figures will not be known until the transaction closes. Avista proposes to
allocate the after-tax Skookumchuck gain between jurisdictions and between ratepayers and
shareholders in the same manner that Avista s after-tax gain on the sale of the Centralia
Power Plant was allocated in Case No. A VU-99-6. Applying the depreciation reserve
method (the ratio of accumulated depreciation to gross plant) of 69.70% for allocating
proceeds to ratepayers set forth in the order approving the sale of the Centralia Power Plant to
the estimated Idaho share of the Skookumchuck after-tax gain of approximately $216 000
yields an allocation to ratepayers of approximately $151 000 and an allocation to
shareholders of approximately $65 000. The calculation and allocation of the estimated gain
is attached as Exhibit No.1 to the testimony of Ronald R. Peterson.
Avista is proposing that the estimated portion of the Skookumchuck after-tax gain
allocated to ratepayers of approximately $151 000 be deferred and added to the deferred gain
on the Centralia Power Plant which is currently being passed on to ratepayers through a rate
credit on Schedule 65 - Temporary Rate Adjustment. The Centralia gain rate credit was
originally put into effect on August 1 , 2000 and will expire when the deferred gain has been
passed on to customers.
A portion of the Skookumchuck facilities was treated as thermal property since it
provided a cooling water source to the Centralia Power Plant and was retired as part of the
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
Centralia Power Plant when that plant was sold. Hence, the gain recognized on the sale of
the Centralia Power Plant was slightly lower than it would have been if none of the
Skookumchuck facilities had been retired at that time.The gain on the sale of the
Skookumchuck facilities is now slightly higher due to the earlier, partial retirement.
In the IPUC's order approving the sale of the Centralia Power Plant it adopted a
methodology to allocate the gain between ratepayers and shareholders based on the ratio of
accumulated depreciation to gross plant. This methodology resulted in an allocation of
69.7% of the gain to ratepayers and 30.3% to shareholders.
The ratio of accumulated depreciation to gross plant of the Skookumchuck plant
currently being retired is approximately 44%. Applying 44% to the after-tax gain on the
proposed sale of Skookumchuck would result in a lesser amount of gain being allocated to
ratepayers than the allocated gain that results from using the 69.70% Centralia allocation.
The Company is proposing to use the higher 69.70% Centralia allocation to ratepayers in the
interest of minimizing the issues in this case regarding the allocation of the gain.
Timing of Approval
The new owner/operator of Skookumchuck cannot process its EWG application with
the FERC until all of the state regulatory commissions have ruled on the EWG status request.
Accordingly, Avista respectfully requests that the Commission process this matter and issue
its Order as expeditiously as possible.
Appendices to Application
The prefiled testimony of Ronald R. Peterson describes the proposed sale and the
reasons for the sale. Mr. Peterson s Exhibit No.1 shows plant balances being retired and the
Avista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04
calculation and allocation of the estimated gain.
VI.REQUEST
A vista requests a Commission order:
(a)Approving the proposed sale of Avista s interests in the Skookumchuck
facilities in accordance with the Sale Agreement, should the Commission decide to exercise
authority over the proposed sale;
(b)Determining that the proposed transfer of Skookumchuck to Washington LLC
and allowing the facility to become an "eligible facility" within the meaning of section 32 of
PUHCA (1) will benefit consumers, (2) is in the public interest and (3) does not violate Idaho
State law;
(c)Approving the proposed accounting treatment of the gain on the sale; and
(d)Granting such other relief as the Commission deems necessary and proper.
A vista Application - Skookumchuck
Case No. A VU-04-Amended 3/3/04