20040428Final Order No 29484.pdf

Office of the Secretary
Service Date
April 28, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
VISTA CORPORATION FOR AN ORDER
APPROVING THE SALE OF ITS INTEREST IN
THE SKOOKUMCHUCK HYDROELECTRIC
PLANT AND FOR EWG DETERMINATIONS.
CASE NO. A VU-O4-
ORDER NO. 29484
On February 23, 2004, Avista Corporation (A vista; Company) filed an Application
with the Idaho Public Utilities Commission (Commission) regarding the proposed sale by Avista
of its ownership interest in the Skookumchuck dam, hydroelectric plant and related facilities
(Skookumchuck) to 2677588 Washington, LLC (Washington, LLC). Skookumchuck is a 1-
megawatt (MW) generation facility located in the vicinity of Centralia, Washington on property
adjacent to the Centralia Power Plant, a large coal-fired generating facility. Skookumchuck is
co-owned by A vista Corporation, PacifiCorp, Public Utility District No.1 of Snohomish County,
Puget Sound Energy, Inc., City of Tacoma, City of Seattle, and Public Utility District No. of
Grays Harbor County (collectively the "Owners
A vista requests Commission approval of the Company s sale of its minority
ownership interest in Skookumchuck, seeks a Commission Order making certain public interest
findings required in order for Skookumchuck to qualify as an exempt facility and for the new
owner/operator to qualify as an Exempt Wholesale Generator (EWG) under Section 32
PUHCA, and seeks approval of proposed accounting treatment of the gain on the sale.
In this Order the Commission approves the proposed sale by A vista of its interest
Skookumchuck to 2677588 Washington, LLC. The Commission finds that allowing the
Skookumchuck hydroelectric generating facility to become an "eligible facility" and sell electric
energy at wholesale (1) will benefit consumers, (2) is in the public interest, and (3) does not
violate Idaho state law. Reference 15 US.C. ~ 79z-5a(c). The Commission approves the
Company-proposed accounting treatment and allocation of the after-tax gain on the
Skookumchuck sale and directs the Company to file the final accounting entries associated with
the sale within 45 days of closing.
ORDER NO. 29484
Purchase and Sale Agreement
A vista has entered into a Purchase and Sale Agreement to sell its interest in the
Skookumchuck hydroelectric plant to 2677588 Washington, LLC, a Limited Liability Company
formed by TransAlta USA Inc. (TransAlta). Washington LLC intends to operate
Skookumchuck as an Exempt Wholesale Generator (EWG) within the meaning of Section 32 of
the Public Utility Holding Company Act of 1935 (PUHCA).
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 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-owned subsidiary of TECW A Power, Inc., owns and
operates the Centralia Power Plant as an EWG.
Skookumchuck is a small earth-filled 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 generating plant with a capacity of approximately 1 MW was installed at the
dam. The project was granted an exemption from licensing as a hydropower facility by the
Federal Energy Regulatory Commission (FERC) pursuant to 16 U.C. ~ 2705(d), which allows
exemptions for facilities less than 5 MW. The project is, however, subject to dam safety
regulations by the FERC.
A vista proposes to sell and transfer to Washington LLC the dam, powerhouse, water
rights, land, easements and other assets of Skookumchuck, including certain fixtures, contracts
and other rights. The sale and transfer of Skookumchuck is governed by the Skookumchuck
Facilities Purchase and Sale Agreement between the Owners and Washington LLC, dated
November 25, 2003
, ("
Sale Agreement"), which is included in Appendix 1 to the Application.
The aggregate sale price of the transaction is approximately $7.57 million, adjusted
for changes in PacifiCorp s net book value of the facilities from September 30, 2003 to the
closing date. See Section 2.3(a) of the Sale Agreement. Avista s share of this amount is 17.
or approximately $1.32 million on a system basis prior to closing costs.
ORDER NO. 29484
A vista is informed that the new owner/operator will continue operation of the Project
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 will be used to serve
Avista s retail customers, except perhaps indirectly through the wholesale power markets.
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.
the costs of a generation facility were included in the rates of a regulated utility on October 24
1992 (the date of enactment of Section 32 of PUHCA), 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 U.
~ 79z-5a(c). Thus, the Commission and each of Avista s other state regulatory commissions
must make these determinations regarding A vista s sale and transfer of Skookumchuck.
Benefits of Transaction
A vista proposes to transfer its interest in Skookumchuck to Washington LLC because
the sale is a lower cost option than continuing to invest in and operate and maintain
Skookumchuck.
Skookumchuck has an electrical capacity of 1 MW, but because it is operated for
purposes of supplying cooling water to the Centralia Power Plant, A vista states that it has
relatively low energy output. The Company contends that the sale will not harm the public
interest because competitive markets will be unaffected by the sale. Over the last eight years, the
average annual production of Skookumchuck has been 3 013 MWh. Skookumchuck's bus-bar
cost in fiscal year 2003 (12 months ending March 31 , 2003) was approximately $255 per MWh.
The facility is interconnected with the distribution system ofPuget Sound Energy, Inc. (PSE) and
historically all of the 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. Net plant related to Avista s share of its investment in Skookumchuck is included in
the Company s rate base. The Company contends that customers will not be harmed if the
project is sold because the cost of power generated from Skookumchuck substantially exceeds
ORDER NO. 29484
the projected cost of market power. Hence, the Company s revenue requirement will be lower as
a result of the sale of Skookumchuck.
The proposed transaction eliminates the risk that A visa will be required to fund its
share of future expenditures for ensuring the continued structural integrity of the Skookumchuck
Dam. A vista contends that the benefits from the proposed sale outweigh the risks of rising costs
of continuing to own and operate Skookumchuck. Continued operation of Skookumchuck as a
hydroelectric project, the Company contends, would be uneconomic, and such operation would
not be in the public interest.
A vista contends that the transfer of Skookumchuck to Washington LLC is in the
public interest because it will benefit Avista s customers by lowering the Company s cost 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 increasing the electrical output of the Centralia Power Plant for the benefit of all
electricity consumers.
Because Skookumchuck assets are located in the State of Washington, A vista
contends that Idaho s property transfer statute Idaho Code ~ 61-328, is not applicable to the
contemplated sale. Should the Commission, however, decide to exercise its authority over the
proposed sale, A vista requests that the Commission approve the sale.
Proposed Ratemaking Treatment
A vista 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. Avista proposes to allocate the after-tax Skookumchuck gain between jurisdictions
and between ratepayers and shareholders in the same manner that A vista s after-tax gain on the
sale of the Centralia Power Plant was allocated in Case No. A VU-99-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.
ORDER NO. 29484
'. I
A vista 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.
Timing of Approval
The new owner/operator of Skookumchuck, the Company contends, cannot process
its EWG application with the FERC until all of the Company s regulatory commissions have
made the three determinations required by Section 32 ofPUHCA. Accordingly, Avista requests
that the Commission process its Application expeditiously.
Appendices to Application
Attached to the Company s Application are the following Appendices:
(1) The Skookumchuck Facilities Purchase and Sale Agreement;
(2) The Skookumchuck Dam Management Agreement; and
(3) The prefiled direct testimony of Ronald R. Peterson, Avista Vice
President of Energy Resources and Optimization describing the proposed
sale and the reasons for the sale; the request for Commission EWG
determinations; the proposed ratemaking treatment of the sale including
the allocation of the gain between ratepayers and shareholders; and the
Company s proposal that the ratepayers ' share of the after-tax gain be
added to the balance of the deferred gain on the Centralia Power Plant
which is currently being passed on to ratepayers.
On March 10, 2004, the Commission issued Notices of Application and Modified
Procedure in Case No. A VU-04-2. The deadline for filing written comments was April 1
2004. Comments were filed bj Commission Staff and an interested party. The commenting
party questions the wisdom of selling off power generating facilities to gain short-term profits at
a time when more regional power is needed. The party suggests that the Commission require
A vista to show how the utility intends to replace the po~er generating capacity of
Skookumchuck before it is allowed to abandon the facility. If a utility can sell off small facilities
today, what will they try to sell off next, he queries?
Commission Staff recommends approval of the Company s Application to transfer its
ownership interest in Skookumchuck to Washington LLC. In addition, to allow the project to
become an "eligible facility" within the meaning of Section 32 of PUHCA, Staff recommends
ORDER NO. 29484
that the Commission s Order specifically state that the sale (1) will benefit customers, (2) is in
the public interest, and (3) does not violate Idaho state law. Staff approves of the Company-
proposed ratemaking treatment and recommends that the final accounting entries associated with
the sale be filed with the Commission within 45 days of closing.
Based on Staff s review of the Idaho Code, Staff represent~ that it has discovered no
Idaho laws that address the issues raised by Avista s request, and none that prohibit or limit the
authority of Washington, LLC, as an EWG, to operate Skookumchuck as a wholesale facility.
Staff notes further that although the project is located in Washington, the transaction complies
with the intent and meets the standards of Idaho Code ~ 61-328. In compliance therewith, Staff
represents:
a. That the transaction is consistent with the public interest;
b. That the cost of and rates for supplying service will not be increased
reason of such transaction; and
c. That the applicant for such acquisition or transfer has the bona fide intent
and financial ability to operate and maintain said property in the public
servIce.
Staff agrees with the Company s contention that the benefits from the proposed sale
outweigh the risks of rising costs of continuing to invest in and operate and maintain
Skookumchuck.
...
The cost of power generated from Skookumchuck substantially exceeds the
projected cost of market power. The proposed transaction eliminates the risk that the Company
will be required to fund its share of expenditures for ensuring the continued structural integrity of
the Skookumchuck dam.Skookumchuck has an electrical capacity of only 1 MW and is
operated for principal purposes of supplying cooling water to the adjacent Centralia Power Plant.
As a result, Skookumchuck has a relatively low energy output and a very low capacity factor.
Finally, the project no longer represents a "core business" asset to Avista or any of the current
Owners because the Owners no longer have an ownership interest in the Centralia Power Plant.
Staff agrees with A vista s contention that A vista s ratepayers will not be harmed by
the sale and that continued operation of Skookumchuck by A vista would be uneconomic and not
in the public interest.
A vista 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
ORDER NO. 29484
$216 000. Avista proposes to allocate the after-tax Skookumchuck gain between jurisdictions
and between ratepayers and shareholders in the same manner that A vista s after-tax gain on the
sale of the Centralia power plant was allocated in Case No. A VU-99-6. Avista is proposing
that the estimated portion of the Skookumchuck after-tax gain allocated to ratepayers 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. Staff concurs
with the Company-proposed ratemaking treatment and recommends that Avista be directed to
file the final accounting entries associated with the sale within 45 days of closing. Any revenue
requirement reduction from not operating the project will be reflected in Avista s results of
operation. As such, Staff represents that this change should be reflected in the current A vista
rate proceeding.
Commission Findings
The Commission has reviewed the filings of record in Case No. A VU-04-
including the Application and accompanying testimony and exhibits, the filed public comments
and the comments and recommendations of Commission Staff. Based on our review of the
record in this case, we continue to find Modified Procedure regarding the issue ofEWG "eligible
facility" status to be reasonable. Reference IDAPA 31.01.01.204.
A vista apprises the Commission in this case of the proposed sale by the utility of its
minority ownership interest in Skookumchuck, a small hydroelectric plant located in the State of
Washington, LLC. As set forth in A vista s Application, the purchaser of Skookumchuck
2677588 Washington, LLC, intends to seek FERC approval to own and operate the
Skookumchuck hydroelectric plant facilities with Exempt Wholesale Generator (EWG) status.
The Skookumchuck generation facilities, we find, are currently in the Company
Idaho jurisdiction rate base. A vista electric retail rates in this State thus provide the Company
with a return on its Skookumchuck investment. Because of this, 15 U.C. ~ 79z-5a(c) requires
Washington, LLC to include in its EWG application to FERC a statement that this Commission
has determined that allowing the plant to be a wholesale facility operated by an EWG (1) will
benefit consumers; (2) is in the public interest, and (3) does not violate state law.
The appropriateness of a utility selling generating resources when regional electricity
needs are increasing was an issue raised by a commenting party. The same issue was raised in
PacifiCorp s related Skookumchuck filing, Case No. PAC-04-1. Framed differently, the issue
ORDER NO. 29484
is whether the proposed sale is in the public interest. In response here, as in PacifiCorp Order
No. 29453, we note that Skookumchuck has an electrical generating capacity of only 1
megawatt. Moreover, because the Skookumchuck dam is operated for the primary purpose of
supplying cooling water to the adjacent Centralia Power Plant, the Skookumchuck hydroelectric
plant has a relative low energy output. Skookumchuck is no longer a "core business" asset for
any of the current Owners. This is because A vista and the Skookumchuck Owners no longer
have any ownership interest in the adjacent Centralia Power Plant. Continued operation and
maintenance by A vista of such a small hydroelectric plant and dam, we find, does not make
economic sense and is not in the public interest.
This Commission has jurisdiction over the Idaho rates and charges of A vista. As we
indicated above, a portion of those rates and charges represents recovery of Avista s rate base
investment in the Skookumchuck generation facilities. We find that the proposed sale by A vista
of its ownership interest in Skookumchuck is in the public interest and the interest of the
Company s Idaho customers. We further find that the proposed sale of Skookumchuck by
Avista to 2677588 Washington, LLC and Company filing complies with the intent and meets the
standards of Idaho Code ~ 61-328(3)a-c. Based on the filings of record in Case No. A VU-04-
, the Commission finds the EWG "eligible facility" determinations required under 15 U.C. ~
79z-5a(c) to be factual.
We find Idaho s jurisdictional share (33.01%) of the after-tax gain of the
Skookumchuck sale to be approximately $216 000. The Company proposes to allocate the gain
between ratepayers and shareholders in the same manner that gain was allocated in the sale of its
interest in the Centralia Power Plant. We find the Company-proposed ratemaking treatment and
allocation of after-tax gain to be reasonable. Final accounting entries associated with the sale
should be filed with the Commission within 45 days of closing.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over the Application of A vista
Corporation, an electric utility, and the issues presented therein pursuant to the authority and
power granted under Title 61 of the Idaho Code and the Commission s Rules of Procedure
IDAPA 31.01.01.000 et seq.
ORDER NO. 29484
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby make the following determinations:
The Commission by this Order further approves the proposed sale by A vista of its
interest in the Skookumchuck Project facilities to 2677588 Washington, LLC. We also approve
the ratemaking treatment and allocation proposed by the Company for Idaho s jurisdictional
share of after-tax gain. Avista is directed to file the final accounting entries associated with the
sale of Skookumchuck Project facilities with the Commission within 45 days of closing.
II.
Avista s Application for EWG determinations under 15 US.C. ~ 79z-5a(c) is granted
and the Commission accordingly finds that allowing the Skookumchuck hydroelectric generation
facility to become an "eligible facility" and sell electric energy at wholesale (1) will benefit
consumers, (2) is in the public interest, and (3) does not violate Idaho state law.
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. 29484
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :l.8 f1..
day of April 2004.
P ULKJ L ER, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
d~R
ATTEST:
~CJJe . Jewell
Commission Secretary
bls/O:A VUE0402 sw
ORDER NO. 29484