20040401Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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 HYDRO-ELECTRIC
PLANT AND FOR EWG DETERMINATIONS.
CASE NO. A VU-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
March 10, 2004, submits the following comments.
BACKGROUND
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; Project). Skookumchuck is co-owned by Avista 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.1 of Grays Harbor County (collectively the
STAFF COMMENTS APRIL 1 , 2004
Owners ). PacifiCorp is the majority owner with a 47.5% share. Avista is a minority owner
with a 17.5% share.
Skookumchuck is an earth-filled dam and small electric generation facility located in the
vicinity of Centralia, Washington on property adj acent to the Centralia Power Plant, a large
coal-fired generating facility. 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 constructed at the dam.
A vista has entered into a Purchase and Sale Agreement to sell its interest in the
Skookumchuck hydroelectric plant to 2677588 Washington, LLC, a Washington Limited
Liability Company and a direct wholly-owned subsidiary of TransAlta USA, Inc. (TransAlta).
TransAlta is the indirect owner of the Centralia Power Plant and the Centralia Coal Mine.
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. The Commission approved the sale
of Avista s share of the Centralia Power Plant in Order No. 28297. TransAlta Centralia
Generation LLC, a direct wholly-owned subsidiary ofTECW A Power, Inc., now owns and
operates the Centralia Power Plant as an Exempt Wholesale Generator (EWG).
A vista and the other Owners propose 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. Washington LLC intends to operate the Skookumchuck
Project as an EWG within the meaning of Section 32 of the Public Utility Holding Company
Act of 1935 (PUHCA). To qualify as an EWG, Washington LLC 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 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 USC.
g79z-5a(c). Washington LLC 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.
STAFF COMMENTS APRIL 1 , 2004
Avista 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 of
PUHCA, and seeks approval of proposed accounting treatment of the gain on the sale.
STAFF ANALYSIS
Compliance with State Law
A vista contends that the sale of Skookumchuck to Washington, LLC and allowing the
generating facilities to become an "eligible facility" will not violate Idaho state law. Because
the Project assets are located in the state of Washington, the Company contends that Idaho
property transfer statute Idaho Code 9 61-328 is not applicable to the contemplated sale. Idaho
Code 9 61-328 states in part:
No electric public utility... owning, controlling or operating any property
located in this state which is used in the generation, transmission, distribution
or supply of electric power and energy to the public shall merge, sell, lease
assign or transfer. .. any such property or interest therein, or the operation
management or control thereof... except when authorized to do so by order
of the public utilities commission. (Emphasis added.
Commission Staff has reviewed the referenced u.S. Code language regarding Exempt
Wholesale Generators (see Attachment A, 15 USCA 9 79z-5a). The ownership interest of
Avista in the Skookumchuck facilities are a part ofthe utility's rate base in Idaho on which
A vista receives a return on investment and is now and has been included in the rate base of
Avista since or prior to October 24, 1992. Based on Staffs review of the Idaho Code, Staff
represents that it has discovered no Idaho laws that address the issues raised by this request, and
none prohibit or limit the authority of Washington, LLC as an EWG to operate Skookumchuck
as a wholesale facility.
As discussed in these comments, Staff notes further that although the Proj ect is located
in Washington, this transaction complies with the intent and meets the standards of Idaho Code
g61-328.
STAFF COMMENTS APRIL 1 , 2004
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
by 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.
Benefits to Customers
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) ofthe Sale Agreement. Avista s share of this amount is 17., or
approximately $1.32 million on a system basis prior to closing costs. After taxes and closing
costs, Avista estimates a net gain from the sale of$216 000.
In addition to the relatively small projected financial gain on the sale, Staff believes
there are other factors that should also be considered. First, as one of the Owners, A vista must
pay its proportionate share of the ongoing costs of the Project. The Company contends that
customers will not be harmed if the project is sold because the cost of power generated from
Skookumchuck substantially exceeds the projected cost of market power. Hence, the
Company s revenue requirement will be lower as a result of the sale of Skookumchuck.
According to Avista, the Project's bus-bar cost in fiscal year 2003 (12 months ending March 31
2003) was approximately $250 per MWh. Market prices are not forecast to approach that level
for any extended period of time in the near future. According to Avista, the expected impact of
the sale is to lower the Company s future revenue requirement by removing the Project from the
Company s rate base and revenue requirement.
Second, A vista notes that the proposed transaction eliminates the risk that the Company
will be required to fund its share of expenditures for ensuring the structural integrity of the
Skookumchuck Dam. The Company believes it is likely that the FERC will mandate dam
modifications to meet stability criteria.
Third, Skookumchuck has an electrical capacity of only 1 MW. Moreover, because the
Project is operated for purposes of supplying cooling water to the Centralia Power Plant, Avista
states that it has relatively low energy output. Over the last eight years, the average annual
production has been approximately 3 000 MWh per year, and over the last four years the output
STAFF COMMENTS APRIL 1 , 2004
has been limited to about 1 000 MWh/year. This represents a very low capacity factor for a
hydroelectric plant. A vista s share of the Plant's output is extremely small in comparison to the
Company s other generating resources.
Finally, the Project no longer represents "core business" assets to any of the current
Owners because they no longer have any ownership interest in the Centralia Steam Plant.
Operation of such a small plant located so far from any other of the Owner s facilities is
problematic.
In summary, A vista contends that the benefits from the proposed sale outweigh the risks
of rising costs of continuing to invest in and operate and maintain Skookumchuck. Continued
operation ofthe Project as a hydroelectric project, the Company contends, would be
uneconomic, and such operation would not be in the public interest. Staff agrees. All things
considered, Staff believes that selling the Project is a lower cost long-term option than
continuing to invest in and operate and maintain the Proj ect.
A vista states that it is informed that Washington LLC will continue operation of the
Project to provide cooling water supply to the Centralia Power Plant and that it will produce
power from the Project either as an EWG or as a Qualifying Facility under PURP A. None of
the electrical output ofthe Project will be used to serve Avista s retail customers, except
perhaps indirectly through the wholesale power markets. The facility is interconnected with the
distribution system ofPuget Sound Energy, Inc. (PSE) and historically all of the power from the
Project has been sold to PSE.
Public Interest Standard
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, Avista states 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.
As always, the public interest standard can be rather difficult to define, but in this case
Staff believes the appropriate measure of whether the public interest standard is met is the effect
of the sale on A vista s ratepayers. Staff agrees that the Company s ratepayers will not be
STAFF COMMENTS APRIL 1 , 2004
harmed by the sale, thus Staff believes that the sale does, in fact, meet the public interest
standard.
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. 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 ratio (accumulated depreciation to gross plant) of 69.70% for
allocating proceeds to ratepayers set forth in Order No. 28297 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. For Avista, a portion of the
Skookumchuck facilities were originally booked as part of the Centralia Power Plant and retired
when Avista s share of that plant was sold. As such, the plant book value on Avista s books for
Skookumchuck is lower and the resulting gain on the sale will be slightly higher than for other
project owners.
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. The credit period will be extended with the final Skookumchuck gain amount added
to the deferral.
Staff recommends A vista 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, Staffrepresents that this
change should be reflected in the current A vista rate proceeding.
STAFF COMMENTS APRIL 1 , 2004
STAFF RECOMMENDATION
Staff recommends approval of the Company s Application to transfer Skookumchuck to
Washington LLC. In addition, to allow the Project to become an "eligible facility" within the
meaning of Section 32 ofPUHCA, Staff recommends that the Commission s Order specifically
state that the proposed sale (1) will benefit consumers, (2) is in the public interest, and (3) does
not violate Idaho state law. Staff also recommends the final accounting entries be filed with the
Commission within 45 days of closing.
Respectfully submitted this 1 ifday of April 2004.
~2J'Scott oodbury
Deputy Attorney General
Technical Staff: Rick Sterling
Terri Carlock
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STAFF COMMENTS APRIL 1 , 2004
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 1ST DAY OF APRIL 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-04-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DAVID J. MEYER
SR VP AND GENERAL COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-mail dmeyer~avistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE W A 99220-3727
E-mail Kelly.norwood~avistacorp.com
CERTIFICATE OF SERVICE