20070109Compliance filing.pdf

Avista Corp.
1411 East Mission PO Box3727
Spokane, Washington 99220-3727
Telephone [phone]
Toll Free 800-727-9170
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January 8, 2007 ~~C\0'-' ,-,I .
State of Idaho
Idaho Public Utilities Commission
Statehouse
Boise, ID 83720
Attention: Ms. Jean Jewell, Secretary
RE:A vista Corporate Reorganization to Create a Holding Company;
Case Nos. A VU-06-1 and A VU-06-
Pursuant to Order No. 30091 , in case Nos. AVU-06-1 and AVU-06-, enclosed for filing
with the Commission are an original and seven copies of the Settlement Stipulation, Narrative In
Support of Settlement Stipulation and Appendix A Commitments And Conditions, for A vista
Corporation s Reorganization Proposal filed with the Washington Utilities and Transportation
Commission (WUTC) in Docket No. UE-060273 on January 5 2007. These documents are still
subject to the approval of the WUTc.
This filing is in compliance with the requirement that a copy of any stipulation reached in
another jurisdiction, regarding Avista s corporate reorganization proposal to create a holding
company, be provided to the Commission and other parties within 5 calendar days.
Please direct any questions regarding this filing to Liz Andrews at [phone].
Sincerely,
7Mf
Kelly Norwood
Vice President, State and Federal Regulation
Enclosures
Rob McKenna
ATTORNEY GENERAL OF WASHINGTON
Utilities and Transportation Division
1400 S Evergreen Park Drive SW. PO Box 40128. Olympia WA 98504-0128. [phone]
January 5, 2007
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Carole J. Washburn, Secretary
Washington Utilities and Transportation Commission
1300 S, Evergreen Park Dr. SW
P. O. Box 47250
Olympia, Washington 98504-7250
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Re:Avista Reorganization
Docket No. UE-060273
Dear Ms. Washburn:
Enclosed for filing are an original and seven copies of a Settlement Stipulation (with Appendix
, entitled "Commitments and Conditions ), a Narrative in Support of Settlement Stipulation
and Certificate of Service.
The settlement is signed by A vista, Staff and Public Counsel. Settlement Stipulation at ~2.
While the settlement is not unanimous, the other parties to this docket, ICNU and NWIGU, do
not oppose the settlement. Jd. at ~3.
Pursuant to Paragraph 13 of the Settlement Stipulation, we request that the Commission suspend
the existing procedural schedule in this docket, and schedule hearing dates to review the
proposed settlement.
DONALD T. TROTTER
Senior Counsel
DTT:klg
Enclosure
cc: Parties
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Docket No. U-060273
CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing documents upon the persons and
entities listed on the Service List below by depositing a copy of said document in the United
States mail, addressed as shown on said Service List, with first class postage prepaid.
DATED at Olympia, Washington this 5th day of January, 2007.
Receive Confidential:
For Avista Corporation:
Receive Non-Confidential Only:
For NWIGU:
For Public Counsel:
Edward A. Finklea
Chad Stokes
Cable Huston Benedict
1001 SW Fifth Ave #2000
Portland, OR 97204-1136
Phone: [phone]
Fax: [phone]
E-mail: efinklea(fYchbh.com
cstokes(fYchbh.com
David Meyer
A vista Corporation
PO Box 3727
Spokane W A 99220-3727
Phone: [phone]
Fax: [phone]
Mail: dmeyer~avistacorp.com
Judy Krebs
Public Counsel Section
Attorney General's Office
800 Fifth Avenue, Suite 2000
Seattle, W A 98104-3188
Phone: [phone]
Fax: [phone]
E-mail: iudyk(fY.atg.wa.gov
For ICNU:
Matthew Perkins
Davison Van Cleve
333 SW Taylor #400
Portland OR 97204
Phone [phone]
Fax [phone]
E-mail: mail(fY.dvclaw.com
BEFORE THE WASHINGTON UTILITIES AND TRANSPORT A nON COMMISSION
In the Matter of the Application of Avista
Corporation d/b/a A vista Utilities for an
Order Approving a Corporate
Reorganization To Create a Holding
Company, AVA Formation Corp.
DOCKET UE-060273
SETTLEMENT STIPULATION
OVERVIEW
The Stipulation resolves all issues and should be approved
The Parties to this Settlement Stipulation agree that it represents a fair, just and
reasonable compromise of the issuesraised in this proceeding, that this Settlement
Stipulation ("Stipulation ) is in the public interest, and it satisfies the Commission s "
harm to ratepayers" policy. The Parties further agree that the Commission should approve
this Stipulation with no material changes, in resolution of all issues in this docket.
Therefore, the Parties recommend the Commission approve Avista s Application for
reorganization under the terms set forth in this Stipulation. The Parties understand this
Stipulation is subject to Commission approval.
Parties to the Stipulation
This Stipulation is entered into, by and between Commission Staff, A vista
Corporation, doing business as Avista Utilities ("Avista ), and the Public Counsel Section of
the Attorney General's Office ("Public Counsel"
The other parties to this docket are Intervenors Northwest Industrial Gas Users
(NWIGU) and the Industrial Customers of Northwest Utilities (lCNU), who are not
STIPULATION - 1
signatories. However, NWIGU's counsel (Mr, Finklea) and ICNU's counsel, Mr. Perkins
respectively advised Commission counsel (Mr. Trotter) that NWIGU and ICNU neither
support nor oppose this Stipulation. Consequently, this is a multiparty settlement, as that
term is defined in WAC 480-07-730(3). sap. , 3.
Documents comprising the Stipulation
The Stipulation consists of this document entitled "Settlement Stipulation" and
Appendix A attached hereto, entitled "Commitments and Conditions,
II.NATURE OF AVISTA'S APPLICATION
On February 16 2006, Avista filed its "Application of Avista Corporation
Application ) with the Commission, seeking an order authorizing Avista to conduct a
corporate reorganization, including the formation of a holding company to be known as
A V A Forniation Corp (hereinafter referred to as the-Reorganization ), This Commission
has jurisdiction over such request pursuant to RCW 80,12.
Currently, A vista Corporation, doing business as A vista Utilities, is the utility
offering electric and/or natural gas service in eastern Washington, northern Idaho, Oregon
and Montana. A vista Capital is a subsidiary of A vista Corporation. A vista Capital currently
is the parent corporation of Avista Corporation s non-regulated subsidiary investments and
operations.
A vista proposes to form a holding company called A V A Formation Corp. ("A V A"
! ,
A V A would be the parent corporation of the existing regulated utility, which would be
1 This name will be used in the interim for purposes of designating the holding company, When the new name
is publicly announced, Avista will notifY the Commission and interested parties.
STIPULA nON - 2
called Avista Corporation (doing business as Avista Utilities). Avista Corporation. would
become a separate company under the parent company, A V A.
AVA would also be the parent company of Avista Capital, Inc., which would
continue to hold the non-regulated subsidiary investments and operations, such as Avista
Energy, Advantage IQ (formerly A vista Advantage) and A vista Power.
III.NATURE OF THE STIPULATION
The Stipulation is subject to Commission approval
This Stipulation is subject to Commission approval. The Parties understand and
agree that this Stipulation in no manner binds the Commission in ruling on the Application
until such a time as the Commission approves the Stipulation.
Commitments
Appendix A of this Stipulation contains the complete list of the commitments and
conditions (hereinafter referred to as "Commitments ) Avista agrees to make and abide by to
ensure that the formation and future conduct of the holding company corporate structure
meets the Commission s "no harm to ratepayers" policy? By virtue of executing this
Stipulation, Avista agrees to pelform all of the Commitments set forth in Appendix A
according to the provisions of each Commitment as set forth therein.
Certain of the Commitments are made by the new, to-be-formed parent corporation
A V A. A vista agrees it has authority to make these commitments on behalf of A V A, and that
upon its formation, A V A will be bound to abide by these commitments.
In re PacifiCorp and Scottish Power PLC. Docket UE-981627, 3rd Supplemental Order on Prehearing
Conference (April 2, 1999) at 2-3.
STIPULA nON -
IV.THE PROCESS FOR APPROVING THE STIPULATION
The Parties recommend approval and agree to support the Stipulation
The Parties recommend the Commission approve this Stipulation in its entirety,
pursuant to WAC 480-07-740 and -750. The Parties agree to support this Stipulation before
the Commission. Each Party agrees it will not appeal any portion of this Stipulation or
Order approving the same, so long as no material changes are made to the Stipulation.
Hearing procedures
The Parties agree that within one business day of the date of execution of-this
Stipulation, Staffwill file this Stipulation with the Commission on behalf of the Parties.
The transmittal letter will ask the Commission to suspend the existing procedural schedule
and schedule hearing dates to review the Stipulation.
The Parties understand the Commission has discretion, consistent with applicable
law, to determine the appropriate procedures for determining whether it will approve this
Stipulation.
Evidence
The Parties agree that the Commission should admit into evidence the direct case
filed by A vista in this docket. 3 Additional evidence will be presented at a hearing on the
settlement to be scheduled by the Commission, or as otherwise directed by the Commission.
3 This evidence consists of the direct testimony and exhibits of Mr. Norwood (Exhibit - (KON-IT) and
Exhibits - (KNO-2) and - (KON-3) and Mr. Malquist (Exhibit - (MKM-l T) and Exhibits (MKM-
2) and - (MKM-3), and the direct testimony of Mr. Andrews (Exhibit - (EMA-IT).
STIPULATION -
Effect of Commission approval without material changes
The Parties agree that if the Commission approves the Stipulation without material
change, this docket will be concluded, subject to any proceedings described in Part IV.F (~~
19-24) below ("'Most favored nations ' provision
Effect of rejection or partial Commission approval of this Stipulation
In the event the Commission rejects any part or all of this Stipulation, or imposes any
additional material terms as a condition of approval of this Stipulation, each Party has the
right to withdraw from this Stipulation. In order to withdraw, a Party must file a written
notice of withdrawal with the Commission and send a copy to the other Parties, within
calendar days of the date of such action by the Commission.
If a PartY withdraws pursuant to the foregoing procedures , this Stipulation is not
effective, and no Party shall be bound or prejudiced by its terms. In that event, each Party is
entitled to seek reconsideration of the Commission s order partially approving the
Stipulation, file testimony as it chooses, cross-examine witnesses, and do all other things
necessary to put on such case as it deems appropriate. The Parties immediately will request
the Commission to promptly convene a prehearing conference to establish a procedural
schedule for the completion of the case. The Parties agree to cooperate in development of a
schedule that concludes the proceeding on the earliest possible date, taking into account the
needs of the Parties to prepare for hearings, to participate in hearings and to prepare briefs.
However, after a Party withdraws, nothing in this Stipulation prevents two or more of the
Parties from filing a settlement of the types described in WAC 480-07-730.
STIPULATION - 5
'~Most favored nations" provision
In the process of approving the Reorganization, other jurisdictions4 may include
terms5 that are not contained in this Stipulation. Accordingly, this Stipulation may be
expanded or modified as a result of regulatory decisions or settlements in those other
jurisdictions .
A vista agrees that the Commission shall have an opportunity and the authority to
consider and adopt in Washington any terms to which Avista agrees or with which Avista is
required to comply in any other jurisdiction, even if such terms are established after the
Commission enters its order approving the Stipulation in this docket.
To facilitate the Commission s consideration and adoption of such terms from other
jurisdictions, the Parties urge the Commission to issue an order accepting this Stipulation as
soon as practicable, but to expressly reserve in such order the right to re-open this
Stipulation to add (without modification of the language thereof except such non-substantive
changes as are necessary to make the term applicable to Washington) terms accepted or
ordered in another jurisdiction.
The Parties recommend the following process related to potential additional terms
originating from regulatory proceedings in other jurisdictions:
The Oregon and Montana commissions have yet to act on Avista s Reorganization applications. On June 30
2006, the Idaho Public Utilities Commission issued an order approving Avista s reorganization application
based on a settlement in that state. In re Application of Avista Corporation, dba Avista Utilitiesfor an Order
Approving a Corporate Reorganization to Create a Holding Company, A VA Formation Corp.Case A VU-
06-1 and A VU-06-1 (Order 30091). The Federal Energy Regulatory Commission has also issued its "Order
Authorizing Djsposition of Jurisdictional Facilities" on April 18, 2006. 1 15 FERC 080.
5 "Terms" is broadly used to refer to provisions, conditions, commitments, covenants, elements etc.
STIPULATION - 6
Within five calendar days after a stipulation with new or amended terms is
filed by A vista with an agency in another jurisdiction, A vista will send a copy
of the stipulation and terms to the Commission and the Parties.
Within five calendar days after an agency in another jurisdiction issues an
order that accepts a stipulation to which A vista is a party or issues an order
that otherwise imposes new or modified terms, the applicable order, together
with all commitments and conditions of any type agreed to by A vista or
ordered by the agency in such other jurisdiction, will be filed with the
Commission and served on the Parties by the most expeditious means
practicaL Within fifteen calendar days after receiving the last such filing
from the other jurisdiction ("Final Filing ), any Party wishing to do so shall
file with the Commission its response filing, including its position as to
whether any terms from the other jurisdiction (without modification ofthe
language thereof except such non-substantive changes as are necessary to
make the term applicable to Washington) should be adopted in Washington
or whether such term would have an adverse impact on the Washington
jurisdictional activities of Avista.
Within five calendar days after any such response filing is filed, any Party to
the docket may file a reply with the Commission. The Parties agree to
support in their filings the issuance by the Commission of an order regarding
the adoption of such terms as soon as practical thereafter, recognizing that the
Reorganization cannot close until final orders from all relevant jurisdictions
STIPULA nON - 7
have been issued. If the Commission adopts any such term, and the term is
material, each Party has the right to withdraw from the Stipulation according
to the procedures in Part IV.E (~~ 17-18) above.
Not later than the Final Filing, Avista will disclose to the Parties any written terms
made in another state jurisdiction (between the date of the filing of the Stipulation and the
receipt of the last order from an agency in a Reorganization docket) that were intended to
encourage approval of the Reorganization or avoid an objection thereto.
The Parties believe other jurisdictions will complete their review of the
Reorganization in time sufficient for this process to be complete by July 31 , 2007. The
parties therefore encourage the Commission to use its best efforts to complete, the foregoing
process by that date.
EFFECTIVE DATE, AffROV AL DEADLINE, EXECUTION
AND OTHER MATTERS
Effective date
The effective date of this Stipulation shall be the date of the completion of the
Reorganization, provided the Commission has approved this Stipulation by that date. The
anticipated date of completion of the Reorg~ization is on or before July 31 , 2007.
Approval deadline
The Commission should approve the Stipulation as soon as practical, subject only to
the procedure under the "most favored nations" procedures discussed in Part IV.F (~~ 19~24)
above. As noted there, the Parties believe other jurisdictions will complete their review of
the Reorganization in time sufficient for the "most favored nations" process to be complete
STIPULATION - 8
by July 31 , 2007. The parties therefore encourage the Commission to use its best efforts to
complete the approval process by that date.
Execution of the Stipulation
This Stipulation is considered executed when all Parties sign the Stipulation. A
designated and authorized representative may sign the Stipulation on a Party's behalf. The
Parties may execute this Stipulation in counterparts. If the Stipulation is executed in
counterparts, all counterparts shall constitute one agreement. A faxed signature page
containing the signature of a Party is !icceptable as an original signature page signed by that
Party. Each Party shall indicate the date of its signature on the Stipulation.
Integrated Agreement
The Parties have agreed to this Stipulation as an integrated document. This
Stipulation is the Parties' entire agreement on all matters set forth herein , and it supersedes
any and all prior oral and written understandings or agreements in this docket.
The Stipulation will not be construed against any Party as the drafter
The Parties acknowledge that this Stipulation is the product of negotiations and
compromise and shall not be construed against any Party on the basis that it was the drafter
of any or all portions of this Stipulation.
No precedent
Nothing in this Stipulation (or any supporting testimony, presentation or briefing)
shall be cited or construed as precedent or as indicative of a Party's position on a resolved
issue, or asserted or deemed to mean that a Party agreed with or adopted another Party'
STIPULATION - 9
legal or factual assertions in this proceeding. The limitation in this paragraph shall not apply
to any proceeding to enforce the terms of this Stipulation.
No Party shall be bound, benefited or prejudiced by aJiy position asserted in the
negotiation of this Stipulation, except to the extent expressly stated herein, nor shall this
Stipulation be construed as a waiver of the rights of any Party unless such rights are
expressly waived herein. Execution of this Stipulation shall not be deemed to constitute an
acknowledgment by any Party of the validity or invalidity of any particular method, theory or
principle ofregwation or cost recovery.
No Party shall be deemed to have agreed that any method, theory or principle of
regulation or cost recovery employed in arriving at this Stipulation is appropriate for
resolving any issues in any other proceeding in the future.
Inadmissibility of negotiations
The Parties agree this Stipulation represents a compromise of the positions of the
Parties in this case. Except to the extent necessary for a Party to explain before the
Commission its own statements and positions with respect to the Stipulation, each Party
agrees it will not offer into evidence any negotiations relating to this Stipulation in this or
any other proceeding regarding this subject matter. Each Party agrees that such evidence is
not admissible and each Party agrees to oppose the admission of such evidence. This
paragraph does not apply to non-privileged, publicly available documents.
Deadlines
This Stipulation contains certain filing deadlines. If any such deadline falls on a
weekend or a holiday, the filing is due the next business day.
, STIPULATION - 10
Publicity
Each Party agrees to provide all other Parties the right to review in advance of
publication any and all announcements or news releases that any other Party intends to make
about the Stipulation (with the right of review to include a reasonable opportunity to request
changes to the text of such announcements). Each Party also agrees to include in any news
release or alU1ouncement a statement to the effect that the Commission Staffs
recommendation to approve the Stipulation is not binding on the Commission itself.
1"'-
Respectfully submitted this day of January, 2007.
COMMISSION STAFF
By
Donald . Trotter
Senior Counsel, Office of the Attorney General
Counsel for Washington Utilities and Transportation Commission Staff
Date: l(.oS(ot
A VISTA CORPORATION
David J. Meyer
Attorney
Vice President and Chief Counsel of Regulatory and Governmental Affairs for Avista Corp.
Date:
STIPULATION -
PUBLIC COUNSEL SECTION
By ml '1r \i)
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MVUl UvV \;h ,
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Judith ebs l~r(o1-Assistant Attorney General, Office of the Attorney General
Public Counsel Section
Date: \/ ,:)f'( o,?-
STIPULATION - 12
APPENDIX A
COMMITMENTS AND CONDITIONS
VISTA CORPORATE REORGANIZATION
TO FORM A HOLDING COMPANY
(Docket UE-O60273)
1.)Avista Corporation, doing business as Avista Utilities (hereinafter "Avista
Utilities ) will maintain its own books and records, separate !Tom the books
and records of AVA Formation Corp. (herinafter "AVA"). The assets of
A vista Utilities and A V A and their subsidiaries or affiliates will be separately
accounted for. Avista Utilities' financial books and records and state and
federal utility regulatory filings and documents will continue to be available to
the Commission, upon request.
A V A and A vista Utilities will provide the Commission and other parties to
this Docket upon request, access to all books of account as well as all
documents, data, and records of their affiliated interests, which pertain to
transactions between A vista Utilities and its affiliated interests or which are
otherwise relevant to the business of Avista Utilities.
A V A, A vista Utilities and all affIliates will make their employees, officers
directors and agents available to testify before the Commission to provide
information relevant to matters within the jurisdiction of the Commission.
AVA and A vista Utilities agree that one of its independent directors on each
Board of Directors will have had prior experience with respect to the
operation, financial analysis or regulation of the regulated gas or electric
utility industry.
The Commission or its agents may audit the accounting records of A V A and
its subsidiaries that are the bases for charges to Avista Utilities, to determine
the reasonableness of allocation factors used by A V A to assign costs to A vista
Utilities and amounts subject to allocation or direct charges. A V A agrees
cooperate fully with such Commission audits.
A vista Utilities will file on an annual basis a copy of any affiliated interest
report filed in other jurisdictions.
AVA and. Avista Utilities will comply with all applicable Commission statutes
, and regulations regarding affiliated interest transactions, including timely
filing of applications and reports.
Avista Utilities and A V A will not cross-subsidize between the regulated and
non-regulated businesses or between any regulated businesses, and shall
comply with the Commission s applicable orders and rules with respect to
such matters.
Nothing in these Conditions prevents A vista Utilities from having its own
subsidiaries. However, no A V A holding (i.a subsidiary held directly by
A V A or a subsidiary held indirectly by AVA, such as a subsidiary of an A V A
subsidiary) shall be conveyed to Avista Utilities or a subsidiary of Avista
Utilities, without prior Commission approval.
10.Any proposed cost allocation methodology for the allocation of corporate and
affiliate investments, expenses, and overheads, required by law or rule to be
submitted to the Commission for approval, will comply with the following
principles:
a. For services rendered to Avista Utilities or each cost category subject to
allocation to A vista Utilities by A V A or any of its affiliates, A V A must be
able to demonstrate that such service or cost category is necessary to
A vista Utilities for the performance of its regulated operations, is not
duplicative of services already being performed within A vista Utilities
and is reasonable and prudent.
b. Cost allocations to A vista Utilities and its subsidiaries will be based on
generally accepted accounting standards; that is, in general, direct costs
will be charged to specific subsidiaries whenever possible and shared or
indirect costs will be allocated based upon the primary cost-driving
factors.
c. A V A and its subsidiaries will have in place accounting systems adequate
to support the allocation and assignment of costs of executives and other
relevant personnel to Avista Utilities.
d. An audit trail will be maintained such that all costs subject to allocation
can be specifically identified, particularly with respect to their origin.
addition, the audit trail must be adequately supported. Failure to
adequately support any allocated cost may result in denial of its recovery
in rates.
e. Costs which would have been denied recovery in rates had they been
incurred by A vista Utilities regulated operations will likewise be denied
recovery whether they are allocated directly or indirectly through
subsidiaries in the A V A group.
f. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
11.)
12.
approval if required by law or rule. An Intercompany Administrative
Services Agreement (IASA) will be developed that will include the
corporate and affiliate cost allocation methodologies. The IASA will
filed with the Commission as soon as practicable after the closing of the
transaction. Approval of the IASA will be requested if required by law or
rule, but approval for ratemaking purposes will not be requested in such
filing. Amendments to the IASA will also be filed with the Commission.
g. A V A and A vista Utilities commit to use asymmetrical pricing (i.e., lower
of cost or market for transactions to Avista Utilities and higher of cost or
market for transactions from A vista Utilities) for affiliate charges or costs
if a readily identifiable market' for the goods, services or assets exists, and
if the transaction involves a cost of more than $100 000.
Before December 31, 2009, neither Avista Utilities nor any of its subsidiaries
will enter into any electric or natural gas commodity transactions, either
physical or financial, with A V A or its other affiliates or subsidiaries,
including Avista Energy and Avista Power. This Condition does not affect
any other existing or future limitations on Avista Utilities' energy transactions
or trades imposed by the Commission or otherwise.
A vista Utilities and A V A agree, as a condition of the transaction, to adhere to
FERC's Standards of Conduct (18 C.R. Part 358, as promulgated by Order
No. 2004, with modifications made by Order No(s) 2004-A and 2004-
governing relationships of, and the sharing. of information between, A vista
Utilities' transmission function with any energy and marketing affiliates , and
to adhere, as well, to any Code of Conduct governing relationships between
the wholesale merchant function of A vista Utilities and any affiliated power
marketer (as set forth in Avista's market-based rate schedule on file with
FERC). A vista Utilities and A V A also agree, as a condition of the
transaction, to adhere to FERC's rules governing "shared employees" with
respect to the merchant and transmission function, including maintaining a list
that identifies such shared employees. By agreeing to abide by these federal
regulations as a condition of the transaction, A vista Utilities and A V A agree
that they will not seek an exemption from such rules pursuant to 18 c.F .R. S
358.1(d), without prior Commission approval. The website at
www.oatioasis.com/avat/index.htmi FERC Standards of Conduct," then
Organizational Charts ) provides access to Avista Utilities ' departmental
organizational charts and identifies shared employees within those
departments.
13.A vista Utilities will maintain separate debt and, if outstanding, preferred stock
ratings. A vista Utilities will maintain its own corporate credit rating, as well
as ratings for each long-term debt and preferred stock (if any) issuance.
14.
15.
16.
17.
20.
A vista Utilities and A V A will not advocate for a higher cost of capital as
compared to what A vista Utilities ' cost of capital would have been, absent the
reorganization.
Within three months of closing of the transaction, AVA and A vista Utilities
commit to obtain from one or more rating agencies written confirmation that
Avista Utilities will have its own corporate credit rating, separate and apart
from A V A, as well as separate ratings for each long-tenn debt and preferred
stock (if any) issuance, and that it will not otherwise be consolidated with
A VA for ratings purposes. If the ring-fencing provisions of this stipulation
are insufficient for purposes of obtaining a separate rating for Avista Utilities,
AVA and A vista Utilities will so notify the Commission and propose and
implement, upon Commission approval, such ad~itional ring-fencing
provisions that are sufficient to secure separate corporate ratings for A V A and
A vista Utilities.
A V A and Avista Utilities will exclude all costs of the formation of the
Holding Company from Avista Utilities' utility accounts.
A V A and A vista Utilities will provide the Commission and other parties to
this Docket upon request, with unrestricted access to all written information
provided by and to credit rating agencies that pertains to A vista Utilities or
A V A. A V A will also provide the Commission, and other parties to this
Docket upon request, with unrestricted access to all written information
provided by and to credit rating agencies that pertains to A V A's subsidiaries
to the extent such information may potentially impact A vista Utilities.
18.The capital requirements of A vista Utilities, as detennined to be necessary to
meet its obligation to serve the public, will be given a high priority by the
Board of Directors of AVA and Avista Utilities.
19.A vista Utilities agrees to request the Com:mission order described in RCW
80.08.040(4) for transactions subject to RCW 80.08 that Avista Utilities enters
into following the effective date ofthe Reorganization.
Nothing in these restructuring commitments shall be interpreted as a waiver of
Avista Utilities' or A V A'rights to request confidential treatment for
information that is the subject of any commitments.
21.)Recognizing the importance of increasing the equity component of its capital
structure, Avista Utilities agrees that it will increase the actual utility equity
component to 40% by June 30, 2008. Should it fail to do so, Avista Utilities
agrees that in the next general rate case filed by it after June 30, 2008, it will
use the most current actual utility equity ratio (derived from the most recent
calendar quarter), in lieu of a hypothetical capital structure. To the extent that
A vista Utilities incurs increased power supply or purchased gas costs that are
22.
23.
not recovered in retail rates in a timely manner, it would impair Avista
Utilities' ability to build equity. Accordingly, the calculations to determine
whether the target is met will be adjusted for any additional deferred power
supply or purchased gas costs recorded on its books after January 1 , 2007,
which have been approved for recovery, but over a period longer than
proposed by the Company. The' calculations to determine whether the target
has been met will also be adjusted for any changes to Generally Accepted
Accounting Principles (GAAP) effective subsequent to December 15,2006.
A V A and A vista Utilities commit that A vista Utilities will not make any
dividends to A V A if A vista Utilities ' common equity ratio is below 30% of its
Total Adjusted Capital, without Commission approval. A V A and A vista
Utilities also agree that A vista Utilities will not make any dividends to AVA
that will reduce Avista Utilities' common equity capital below 30% of its
Total Adjusted Capital, without Commission approval. At such time as the
actual utility equity component reaches 40% (see Condition 21 , above), A vista
Utilities will notify the Commission should any dividends to A V A reduce
Avista Utilities' common equity below 35% of its Total Adjusted Capital.
The notice will explain the principal causes of the situation. These
percentages will be adjusted, as necessary, to account for any changes to
Generally Accepted Accounting Principles (GAAP) effective after December
, 2006, as well as for the treatment of deferred power supply or purchased
gas costs, as referenced in Condition 21 , above. For purposes of calculating
the numerator of the percentage, common equity will not include any portion
of Avista Utilities preferred stock issued and outstanding.. Avista Utilities
Total Adjusted Capital is defined as common equity, preferred equity, long-
term debt, short-term debt and capitalized lease obligations.
Through December 31 , 2016, Avista Utilities will provide notice to the
Commission, and to other parties to this Docket upon request, when it
increases the amount of any dividend payment by 10% or more over the
previously-paid dividend.
24.In the event of a credit rating downgrade of Avista Utilities, Avista Utilities
will give notice to the parties in this Docket and schedule a meeting with Staff
within one month of the downgrade to discuss the reason for the downgrade
and Avista Utilities' plans going forward.
25.On or before April 1 , 2008, and on or before every anniversary date thereafter,
A vista Uti1ities will file with the Commission, and will provide to other
parties to this Docket upon request, an annual report for the preceding
calendar year, in which it describes its compliance with Conditions 21 , 22 and
23, concerning the equity component of the capital structure and payment of
dividends.
26.
27.
28.
29.
A vista Utilities, is required to apply to the Commission for approval of
security issuances pursuant to RCW Chapter 80.08. Avista Utilities will not
seek an exemption from this requirement for twelve months following the
closing of this transaction. Staff will evaluate the "all-in-cost" of issuances
for inclusion in rates and the cost of any debt issuance recognized for
ratemaking will not be higher than it otherwise would have been without the
corporate reorganization.
A VA and A vista Utilities will provide the Commission and other parties to
this Docket upon request, access to corporate minutes including Board of
Director s minutes and all committee minutes, along with any related source
documents that are relevant to the business and risk analysis of A vista
Utilities. A vista Utilities and the party requesting access will establish an
agreeable procedure to review these confidential documents in Spokane
Washington.
A V A and A vista Utilities will provide the Commission, and other parties to
this Docket upon request, access to operational, internal and risk audit reports
and documentation. A vista Utilities and the party requesting access will
establish an agreeable procedure to review these confidential documents upon
request.
A V A and A vista Utilities will notify the Commission, and other parties to this
Docket upon request, of all publicly announced proposals for divestiture, spin-
off, or sale of any integral A vista Utilities function. A V A and A vista Utilities
will also file for Commission approval of divestiture, spin-off, or sale of any
integral Avista Utilities function, which is subject to WUTC jurisdiction. This
condition does not limit any jurisdiction the Commission may have.
30.A vista Utilities or A V A will notify the Commission, and other parties to this
Docket upon request, prior to implementation of plans by A vista Utilities or
A V A: (1) to form an affiliate for the purpose of transacting business with
Avista Utilities' regulated operations; (2) to commence new business
transactions between an existing affiliate and Avista Utilities; or (3) to
dissolve an affiliate which has transacted substantial business with A vista
Utilities.
31.)A vista Utilities or A V A will notify the Commission, and other parties to this
Docket upon request, subsequent to A V A's or Avista Utilities' board approval
and as soon as practicable following any public announcement of: (1) any
acquisition of a regulated or unregulated business representing 5 percent or
more of the capitalization of A VA; or (2) the change in effective control or
acquisition of any material part or all of A vista Utilities by any other firm
whether by merger, combination, transfer of stock or assets.
32.
33.
34.
35.
Upon request, A vista Utilities will provide to the Commission, and other
parties to this Docket on an informational basis, credit rating agency news
releases and final reports regarding A vista Utilities when such reports are
known to Avista Utilities and are available to the public.
A V A and A vista Utilities commit that in the event that A vista Utilities obtains
a loan from its parent company or any affiliated company, Avista Utilities
will, in any subsequent rate proceeding demonstrate that the debt obligation
interest, terms, and conditions are comparable to or less than what A vista
Utilities could have obtained in the market at the time the debt was obtained
by A vista Utilities, that the loan is on reasonable terms and without markup to
the holding company s cost of funds, and that the debt procurement will not
interfere with any ring-fencing mechanisms that secure the utility.
A V A and Avista Utilities will enter into an agreement that incorporates the
ring-fencing provisions set forth herein, which' agreement shall be binding
upon AVA and Avista Utilities, and their respective Boards of Directors. This
agreement will be filed with the Commission within three months of closing
of the transaction. A V A and A vista Utilities commit that no amendments
revisions or modifications will be made to this agreement or any ring-fencing
provisions without prior Commission approval for the sole purpose of
addressing the ring-fencing provisions.
Within three months of closing of the transaction, A V A commits to obtain a
non-consolidation opinion that demonstrates that the ring-fencing around
A vista Utilities is sufficient to prevent A vista Utilities from being pulled into
an A V A bankruptcy. A V A commits to promptly file such opinion with the
Commission. If the ring-fencing provisions of this agreement are insufficient
to obtain a non-consolidation opinion, A V A agrees to promptly undertake the
following actions:
Notify the Commission of this inability to obtain a non-
consolidation opinion.
Propose and implement, upon Commission approval, such
ring-fencing provisions that are sufficient to prevent Avista
Utilities from being pulled into an A VA bankruptcy.
Obtain a non-consolidation opinion.
36.Unless another process is provided by statute Commission regulations or
approved A vista Utilities' tariff, A V A and A vista Utilities encourage the
Commission to use the following process for administering the commitments.
The Commission should give A V A and A vista Utilities written notification of
any violation by either company of the commitments made in this application.
If such failure is corrected within ten (10) business days for failure to me
37.
reports, or five (5) business days for other violations, the Commission should
take no action. The Commission shall have the authority to determine if the
corrective action has satisfied or corrected the violation. A V A or A vista
Utilities may request, for cause, an extension of these time periods. If AVA
. or A vista Utilities fails to correct such violations within the specified time
frames as modified by any Commission-approved extensions, the
Commission may seek to assess penalties for violation of a Commission order
against either A V A or A vista Utilities, as allowed under state laws and
regulations.
The Applicants agree that the Commission shall have an opportunity and the
authority to consider and adopt in Washington any commitments or conditions
to which the Applicants agree or with which the Applicants are required to
comply in other jurisdictions, even if such commitments and conditions are
agreed to after the Commission enters its order in this docket. To facilitate the
Commission s consideration and adoption of the commitments and conditions
from other jurisdictions, the Parties urge the Commission to issue an order
accepting this Stipulation as soon as practical, but to reserve in such order the
explicit right to re-open to add commitments and conditions accepted or
ordered in another state jurisdiction.
38.A V A and A vista Utilities acknowledge and agree that the Commission retains
its authority over A vista Utilities in the event of either voluntary or
involuntary bankruptcy proceedings affecting either A V A or A vista Utilities
and that such authority is not preempted by applicable bankruptcy laws. Such
Commission authorities are acknowledged to expressly include regulation of
the issuance of securities (RCW 80.08), the mortgage or pledge of assets
(RCW 80.12), and the disposition or sale of assets by A vista Utilities (RCW
80.12). Notwithstanding any bankruptcy, reorganization, or other insolvency
proceedings with respect to A VA, AVA agrees it shall not acquiesce, petition
or otherwise invoke or cause A vista Utilities to invoke the process of any
court or government authority for the purpose of commencing or sustaining a
case against A vista Utilities under any federal or state bankruptcy, insolvency
or similar law, or ordering the winding up of the affairs of or the liquidation of
Avista Utilities (and will oppose, to the extent permitted by law, any such
process), so long as Avista Utilities remains otherwise fmancially healthy.
01/05/2007 15:51 FAX [phone] AVIST A CORP ~ 001/002
I. .Publicity
Each Party agrees to provide aU other P~es the right to review in advance of
publication any and all announcements or news releases that any other Party intends to make
about the Stipulation (with the right of review to inc1ude a reasonable opportunity to request
changes to the text of such announcements). Each Party also agrees to include in any news
release or announcement a. statement to the effect that the Commission Statps
recommendation to approve the Stipulation is not binding on the Commission itself.
Respectfully submitted this day of January, 2007.
COMMISSION STAFF
Donald T. Trotter
Senior Counsel, Office of the Attorney General
Counsel for Washington Utilities and Transportation Commission Staff
Date:
A VISTA CORPORATION
By Davi yer
Attorney
Vice Preside~ and yruef Counsel of Regulatory and Governmental Affairs for A vista Corp.
Date: /or
/"
STIPULATION -
BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION
In the Matter of the Application of A vista
Corporation d/b/a Avista Utilities for an
Order Approving a Corporate
Reorganization To Create a Holding
Company, AVA Formation Corp.
DOCKET UE-060273
NARRATIVE IN SUPPORT OF
SETTLEMENT STIPULATION
I. PRELIMINARY MATTERS
This Narrative Supporting Settlement Stipulation ("Narrative ) is filed pursuant to
WAC 480-07-740(2) (a), on behalf of the parties signing the Settlement Stipulation
Stipulation ) also filed today in this docket. This Narrative summarizes many aspects of
the Stipulation. It is not intended to modify any terms of the Stipulation.
Parties to the Stipulation
The parties to the Stipulation are the signatories: Commission Staff ("Staff'), A vista
Corporation, doing business as Avista Utilities ("Avista"), and the Public Counsel Section of
the Attorney General's Office ("Public Counsel") (individually, "Party"; collectively, "the
Parties
The other parties to this docket, Intervenors Northwest Industrial Gas Users
(NWIGU) and the Industrial Customers of Northwest Utilities (ICNU), are not signatories.
. However, NWIGU's counsel (Mr. Finklea) and ICNU's counsel, Mr. Perkins, respectively
advised Commission counsel (Mr. Trotter) that NWIGU and ICNU neither support nor
oppose this Stipulation. Consequently, this is a multiparty settlement, as that term is defined
in WAC 480-07-730(3). Stip. ~ 3.
NARRATIVE SUPPORTING SETILEMENT -
Status of ApI;'rovals in Other Jurisdictions
On June 30, 2006, the Idaho Public Utilities Commission issued an order approving
Avista s reorganization application, based on a settlement in that state.! The Federal Energy
Regulatory Commission has also issued its "Order Authorizing Disposition of Jurisdictional
Facilities" on April 18, 2006.2 The Oregon and Montana commissions have yet to act on
Avista's Reorganization applications.
Record for Commission Decision
The Parties do not intend to file documentation supportmg the Stipulation in addition
to the Stipulation, this Narrative, and the proposed testimony and exhibits on file in this
docket. sap. ~ 15. The Parties will be prepared to respond to questions from the
Commission at any hearing on the Stipulation, and the Parties are willing to provide
additional supporting documents should the Commission deem that necessary or
appropriate. To that end, the parties propose to make available a panel of witnesses
consisting of representatives of each signatory party, in order to respond to questions from
the Commissioners at the time of hearing.
Procedural Needs
The Company wants the Reorganization to occur by July 31 , 2007. That date is
primarily due to the pendency of approval dockets in other jurisdictions. The Parties urge
the Commission to schedule proceedings to consider the Stipulation as soon as practicable.
The Stipulation contains a "most favored nations" provision that sets forth procedures for
considering any additional terms ordered by other jurisdictions. Stip. ~~ 26 & 19-24.
In re Application of Avista Corporation, dba Avista Utilities for an Order Approving a Corporate
Reorganization to Create a Holding Company, AVA Formation Corp., Case A VU-06-1 and A VU-06-
(Order 30091).
115 FERC f62 080.
NARRATIVE SUPPORTING SETTLEMENT - 2
II. NATURE OF THE TRANSACTION
On February 16 2006, Avista filed its "Application of Avista Corporation
Application ) with the Commission, seeking an order authorizing Avista to conduct a
corporate reorganization, including the formation of a holding company to be known as
A V A Formation Corp (hereinafter referred to as the "Reorganization 3 This Commission
has jurisdiction over such request pursuant to RCW 80.12.
Currently, Avista Corporation, doing business as Avista Utilities, is the utility
offering electric and/or gas service in eastern Washington, northern Idaho, Oregon and
Montana. A vista Capital is a subsidiary of A vista Corporation. A vista Capital currently is
the parent corporation of Avista Corporation s non-regulated subsidiary investments and
operations.
Avista proposes to form a holding company called A V A Formation Corp. ("A V A"
A V A would be the parent corporation ofthe existing regulated utility, which would be
called A vista Corporation (doing business as A vista Utilities). A vista Corporation would
become a separate company under the parent company, A V A.
A V A would also be the parent company of A vista Capital, Inc., which would
continue to hold the non-regulated subsidiary investments and operations, such as A vista
Energy, Advantage IQ (formerly Avista Advantage) and Avista Power.
ill.OVERVIEW OF THE PROPOSED SETTLEMENT STIPULATION
The Stipulation is subject to Commission approval. Stip. ~~ 1 & 9. The Stipulation
consists of two documents: the document entitled "Settlement Stipulation;" and Appendix A
attached thereto. Stip. ~ 4.
3 This name will be used in the interim for purposes of designating the holding company. When the new name
is publicly announced, Avista will notify the Commission and interested parties.
NARRATIVE SUPPORTING SETTLEMENT - 3
The Commitments are contained in Stipulation Appendix A
Appendix A of the Stipulation contains a list of Commitments the Company agrees
to meet as a condition of approval. That document speaks for itself. Offered here is a short
summary of some of the key provisions.
Avista Utilities will keep separate books and records and will not cross-subsidize, or
be cross-subsidized, by non-regulated businesses of its parent. Stip. Appendix A,
Commitments 1 & 8. An agreed set of inter-company cost allocation principles is included.
Id., Commitment 10.
A vista Utilities will maintain its own debt, preferred stock, and corporate credit
ratings. Id, Commitment 13. The utility's equity will be funded by its parent, who agrees to .
hold as a high priority the utility's capital requirements. Id., Commitment 18.
Avista Utilities agrees to increase its equity ratio to 40% by June 30,2008 , and will
not pay dividends to the extent doing so would reduce its equity ratio below 30%.
Id.,
Commitments 21 & 22. This is a more aggressive schedule than required by the settlement
the Commission approved in Dockets UE-050482 and UG-050483.
AVA will provide a "non-consolidation opinion" within three months of the closing
of the transaction that demonstrates thatAvista Utilities will be sufficiently separate so as
not to be pulled into a holding company bankruptcy. Id., Commitment 35. A V A also agrees
it will not support any attempt to cause Avista Utilities to be involved in a bankruptcy, so
long as Avista Utilities is financially healthy. Id., Commitment 38.
Finally, there are several provisions under which A V A and Avista Utilities agree to
provide information or other reports to the Commission of ongoing developments, which
4 The Commission approved an "equity building mechanism" that would result in at least a 38% equity ratio by
December 31 2008. Settlement Agreement at ~ 8, approved in Utilities Transp. Comm 'n v. Avista
CO/paration, Dockets UE-050482 and UG-O50483, Order 05 (December 21. 2005).
NARRATIVE SUPPORTING SETTLEMENT. 4
will help the Commission to better regulate the utility and protect consumers into the future.
g., Commitments , 5, 17 28 & 32 (access to books and information), Commitment
(access to personnel), Commitment 23 (notice of dividend increase of 0 percent or more),
Commitment 24 (notice of credit rating downgrade), and Commitment 31 (notice of
acquisitions).
The docket would be resolved and concluded
If the Commission approves the Stipulation, this docket would be concluded, subject
only to the possibility of invoking certain described procedures if material terms are added
by other jurisdictions. Stip. ~~ 16 & 19-25.
Effective date and approval procedures
Because the Stipulation contains commitments A vista will implement only upon the
completion of the reorganization, the Stipulation should only be effective when and if the
reorganization occurs. That date is expected to be by July 31 , 2007.
The approval process is addressed in ~~ 12-24 of the Stipulation. Ifthe Commission
approves the Stipulation in its entirety, the docket is complete, subject only to procedures
under the "most favored nations" provisions. Stip. ~ 16. If the Commission issues an order
approving the Stipulation with a material change, the Stipulation is not effective if a party
files a timely withdrawal from the Stipulation. The matter would then be set for hearing,
although subsequent settlements are not precluded. Stip, ~~ 17-18.
The Stipulation is the entire agreement of the Parties, and the Parties recommend the
Commission approve it in its entirety. Stip. ~~ 1 & 12. The Stipulation sets no precedent.
sap.
~~
30-32.
NARRATIVE SUPPORTING SETILEMENT - 5
IV. STATEMENT WHY THE PROPOSED SETTLEMENT IS IN THE
PARTIES' INTEREST AND/OR THE PUBLIC INTEREST
WAC 480-07.740(2)(a) requires this Narrative to include a "statement of parties
views about why the proposal satisfies both their interests and the public interest." Each
Party or, in some cases, a group of Parties, has contributed the following separate
statements:
Statement by A vista
The holding company structure is a well-established fonn of organization for
companies engaging in multiple lines of business, and is increasingly prevalent in the utility
industry. Many utilities are organized under a public holding company structure and Avista
is one of the few investor-owned utilities in the Pacific Northwest that is not currently
organized under a holding company structure.
Avista considers it to be in the best interest of the Company, its customers, and its
shareholders, to change the corporate structure of A vista into aholding company structure.
This Reorganization would provide additional protection for ratepayers by "ring-fencing" or
further separating utility operations from the Company s other non-regulated businesses.
Such separation would further insulate A vista Utilities and its customers from the risks
associated with operating other businesses, while at the same time, permitting greater
financing flexibility afforded by a holding company structure.
5, Other utilities in the Pacific Northwest have received approvals for holding company structure
reorganizations in recent years. For example, the WVTC in 2000 approved, with conditions, Puget Sound
Energy s proposed corporate reorganization to create a holding company structure. (See Docket UE-991779)
In 1998, the Idaho Power Company received approval, with conditions, from the IPUC (Order 27348 in Case
IPC-97-ll), and the OPUC (Order No. 98-056 in Docket No. UM 877) of their application to form a holding
company and the execution ora Share Exchange Agreement. (See also, Order 07, "Final Order Approving
and Adopting Settlement Stipulation," In re Joint Application of MEHC and PacifiCorp,_Docket VE-OSl 090
(February 22, 2006)).
NARRATIVE SUPPORTING SETTLEMENT - 6
The proposed Reorganization would not entail the transfer of Utility assets, nor
would it adversely affect the financial, technical, and managerial abilities of A vista Utilities.
A vista customers would see no change in the Utility or its operations, because the Utility
would continue to provide the same high-quality service as before the Reorganization. After
the Reorganization, Avista Utilities would continue to be subject to the same regulatory
jurisdiction of the Commission as to rates, services, accounting and other general matters of
utility operations.
The benefits of a holding company structure may be generally summarized as
follows: Avista s utility operations will be better separated from the non-utility businesses,
making cross subsidization easier to avoid and further ensuring that non-utility business risk
will not affect utility operations. Accordingly, the new structure will provide better legal
protection for Avista Utilities from liabilities arising from other segments of Avista
businesses. Also, the new structure will permit investors, analysts, and rating agencies to
more easily analyze and value the company s individual lines of business. Finally, capital
structures and financing techniques may be used that are better suited to the particular
requirements, characteristics and risks of the utility and non-utility businesses. Such
structures and techniques should increase financial flexibility without adversely affecting the
capital structure or creditworthiness of the utility and non-utility businesses. In conclusion
Avista s current corporate structure simply cannot accommodate the same degree of
financial and legal separation as can a holding company structure.
Statement by Commission Staff
Avista Corporation is seeking Commission approval to form a holding company.
Currently, the utility, Avista Utilities, is an operating division of Avista Corporation rather
NARRATIVE SUPPORTING SETTLEMENT - 7
than aseparate legal entity. As a result of the proposed holding company structure, the
utility will become a separate legal entity. The utility will be called Avista Corporation
(doing business as Avista Utilities). The utility's parent corporation will be called A V
Formation Corp. (A V A), though that name is temporary.
Staff s goal was to assure the resolution of this docket is fair and just.' The result is
an agreement Staff supports as solidly in the public interest.
Perhaps the most significant impact of this reorganization is that Avista Utilities will
be a separate legal entity. It will issue its own securities, with its equity wholly-owned by
A V A. Avista Utilities' common equity will be issued by A V A a.Q.d transferred to Avista
Utilities as needed to maintain a reasonable capital structure for the utility. Consequently,
A vista Utilities' credit profile will be based on its own, stand-alone credit characteristics
rather than A vista as a whole. This is recognized in Stipulation Appendix A, Commitments
13 and 15.
This presents a potential benefit and a corresponding challenge. The primary long
term benefit to Avista Utilities is that it win be separated from the impacts of the non-utility
operations of Avista Corporation. For ratepayers to realize this benefit, however, the
challenge is to get A vista Utilities on as firm a financial footing as possible, as soon as
possible. .
In this regard, the Stipulation calls for A vista Utilities to have a 40% equity ratio by
June 30, 2008. Stip. Appendix A, Commitment 21. The Stipulation also has an "anti-
raiding" provision that prevents Avista Utilities from issuing dividends to A V A if Avista
6 The commitments in this settlement are comparable to those made by MidAmerican Energy Holdings
Company (MEHC) and PacifiCorp in the agreement approved by the Commission in 2006.
See Order 07,
Final Order Approving and Adopting Settlement Stipulation In re Joint Application of MEHC and
PacifiCorp,_Docket UE-051 090 (February 22, 2006)).
NARRATIVE SUPPORTING SETILEMENT - 8
Utilities' equity ratio is below 30%, or if issuing the dividends would cause Avista Utilities
equity ratio to fall below 30%. Slip. Appendix A, Commitment 22.
For Staff, Commitments 21 and 22 are the central provisions of the Stipulation
because they are concrete ratepayer protections designed to assure that ratepayers benefit
from being a "stand alone" company from a corporate credit perspective.
Two other critical commitments are: 1) Avista Utilities and A V A's agreement to
obtain a non-consolidation opinion that demonstrates that the "ring-fencing" around Avista
Utilities "is sufficient to prevent Avista Utilities from being pulled into an A V
bankruptcy (Sap. Appendix A, Commitment 35); and 2) A V A's agreement not to acquiesce
or seek to include Avista Utilities, in any A V A bankruptcy, so long as Avista Utilities is
fmancially healthy. Stip. Appendix A, Commitment 38.
The non-consolidation opinion is a legal opinion from an outside law firm that the
ring fencing is sufficient to prevent Avista Utilities from being drawn into the bankruptcy of
another entity or entities in the "corporate tree." AVA also agrees it will not take steps to
include Avista Utilities in such a bankruptcy.
Other important provisions include Avista s commitment to use "asymmetric
pricing" for affiliate charges (i.e., lower of cost or market for purchases from affiliates and
higher of cost or market for sales to affiliates). Stip. Appendix A, Commitment 10. This
favorable pricing formula is not required by existing statutes.
Finally, there are procedural elements such as a "most favored nations" provision
which assures that if any jurisdiction yet to approve this reorganization prescribes or
approves additional conditions, this state can take advantage of that, subject to the
procedures outlined in the Stipulation at ~~ 19-24.
NARRATIVE SUPPORTING SETTLEMENT - 9
In sum, Staff supports the settlement as in the public interest, and urges the
Commission to approve the settlement without material change.
Statement by Public Counsel
Public Counsel believes that the Settlement Stipulation and the ring fencing
provisions contained in Appendix A are appropriate and in the public interest. Public
Counsel asks the Commission to adopt the Agreement for the reasons outlined below.
The Commission has jurisdiction over this proposed reorganization, including the
authority to reject A vista Utilities' Application if it is not in the public interest. Public
CoUnsel believes that Avista s Application without the conditions attached as Appendix A to
the Settlement Stipulation is not in the public interest because it increases customer risks
without offering any real countervailing benefits to counteract these risks.
Specifically, without sufficient ring fencing provisions to protect the regulated
utility's financial exposure within the new corporate structure, the proposed reorganization
potentially threatens the financial health of Avista Utilities. In particular, Public Counsel is
concerned about a failure to vigilantly maintain separate books, records and assets to the
detriment of Avista Utilities. If A V A were to go bankrupt, the failure to keep separate
books, records and assets could financially expose Avista Utilities to A V A's bankruptcy.
The reorganization also creates the possibility of cross-subsidy between the regulated
and non-regulated businesses of Avista Utilities and A V A. This includes an improper
allocation of shared costs.
In addition, Avista s Petition potentially jeopardizes Avista Utilities' cost of capital
since the regulated utility will be independent of credit ratings assigned to A V A. While this
will likely be advantageous to Avista Utilities, the regulated utility enjoys significantly
NARRATIVE SUPPORTING SEITLEMENT - 10
higher capital needs than other members of the AVA corporate family and therefore, a
higher cost of capital would have a greater effect on A vista Utilities.
Moreover, Avista continues to maintain a level of common equity well below the
forty-percent (40%) allowed for rate-setting purposes in its last general rate case. The
failure to ensure Increased capitalization upon the reorganization leaves open the possibility
that A vista Utilities will fail to meet the common equity level ordered by the Commission
and embedded in rates.
Public Counsel is also concerned with energy trading transactions between A VA,
A vista Utilities and their subsidiaries. The concern arises from the potential for inside
information that mayor may not be intentionally shared but results in less than optimal
market transactions for the regulated utility. Such transactions have been difficult to trace
and evaluate. Often the problem arises where there are shared employees between affiliated
companies and where employees lack of clear policy guidance regarding restrictions on
information sharing.
Public Counsel believes the conditions in the Settlement Stipulation will likely
mitigate these problems and allow the petition to be in the public interest. For instance, the
Agreement requires that A vista Utilities and A V A maintain separate books and be subject to
audit by the Commission. A V A and A vista Utilities must also comply with all applicable
Commission statutes and regulations regarding affiliated interest transactions. The two
companies are prohibited from cross-subsidizing, and must strictly observe a proper
allocation of shared costs. Any extension of credit or issuance of bonds between the two
companies is prohibited unless approved subject to RCW 80.12. For applicable affiliate
transactions, A V A and A vista Utilities agree to use "lower of cost or market" standard for
NARRATIVE SUPPORTING SETTLEMENT - 11
transactions to A vista Utilities and the "higher of cost or market" standard for transactions
from Avista Utilities. Finally, A vista Utilities is restricted from paying dividends in
situations where the payment of such dividends threatens Avista Utilities financial well-
being.
With regard to the cost of capital, Avista agrees to hold ratepayers harmless for any
increase in the cost of capital associated with the reorganization. A vista Utilities will
maintain separate debt and its own corporate credit rating. Should this fail to occur
provisions are in place to establish potentially greater ring fencing provisions. In addition
Avista Utilities pledges to increase its common equity ratio to forty-percent (40%) by June
30, 2008 or the Company will be required to use its actual capital structure in the next
general rate case subsequent to that date. A vista Utilities also agrees that if its common
equity ratio falls below thirty-percent (30%) it cannot pay dividends without prior
Commission approval. Once the Company reaches its goal of forty-percent (40%) equity, it
must report to the Commission if its common equity ratio falls below thirty-five (35%) and
explain why the Company s equity has fallen.
To address the energy trading concern, as A vista Utilities transitions into a new
holding company structure, neither A vista Utilities nor any of its subsidiaries will enter into
any electric or natural gas commodity transactions, either physical or financial, with A V A or
its other affiliates or subsidiaries, including Avista Energy and Avista Power before
December 31 , 2009. This condition will not affect any other existing or future limitations on ,
Avista Utilities' energy transactions or trades imposed by the Commission or otherwise.
Additionally, Avista Utilities and A V A agree, as a condition of the transaction, to adhere to
FERC's Standards of Conduct governing the relationship between Avista Utilities
NARRATIVE SUPPORTING SETTLEMENT - 12
transmission function with any of its energy and marketing affiliates, the wholesale
merchant function of A vista Utilities and any affiliated power marketer. A vista Utilities and
A VA also agree, as a condition of the transaction, to adhere to FERC' s rules governing
shared employees" with respect to the merchant and transmission function, including
maintaining a list that identifies such shared employee. The purpose of these provisions in
the Settlement Stipulation is to ensure that the Commission will have jurisdiction to enforce
these FERC requirements as a ring fencing protection warranted by the reorganization.
In conclusion, the Agreement satisfies Public Counsel's interests because it sets forth
sufficient conditions that are likely to mitigate the potential negative consequences of the
reorganization. First, A vista Utilities will be subject to ring fencing provisions that protect
its customers ' financial exposure , including protection from lower corporate credit ratings
due to the reorganization. Second, A V A and A vista Utilities have agreed to limit cash
transfers to A V A from A vista Utilities in those instances required to protect the financial
health of the regulated utility. Third, AVA andAvista Utilities have agreed to affiliate
transaction standards that exceed those required by Commission rules. Fourth, the
Settlement provides that A vista Utilities will not seek recovery from ratepayers for the cost
of the reorganization. Finally, the Settlement adopts by reference those protections
established by the Federal Energy Regulatory Commission for the purpose of regulating
electric or natural gas commodity transactions between affiliates or subsidiaries of A vista
Utilities.
NARRATIVE SUPPORTING SETTLEMENT. 13
SUMMARY OF LEGAL POINTS THAT BEAR
ON THE PROPOSED SETTLEMENT
The Parties do not believe there is anything significant to discuss under this topic
listed in WAC 480-07-740(2)(a).
VI. CONCLUSIONS
The Parties respectfully request the Commission approve the Settlement Stipulation
filed in this docket. The Parties understand the Commission has certain discretion regarding
the timing and procedures it will use to evaluate and reach a decision whether to approve the
Stipulation.-r'\ DATED this day of January, 2007.
COMM
t\ION STAFF
By U 1V\/4j)vV\
Donald T. Trotter
Senior Counsel, Office of the Attorney General
Counsel for Washington Utilities and Transportation Commission Staff
Date: 1(c::J)" ( L~T
VISTA CORPORATION
David J. Meyer
Attorney
Vice President and Chief Counsel of Regulatory and Governmental Affairs for Avista Corp.
Date:
PUBLIC COUNSEL SECTION
By 1J~ "".fA) j~ b6 -\-&.0.,\0..",
Judith ebs q),J\\AOI'\l.::'\-\=~ \/~
Assistant Attorney General, Office of the Attorney General
Public Couns71 Section
Date: \ 0 5' ( !) q.
NARRATIVE SUPPORTING SETTLEMENT - 14
01/05/2007 15:51 FAX [phone] AVISTA CORP ~ 0021002
SUMMARY OF LEGAL POINTS THAT BEAR
ON THE PROPOSED SETTLEMENT
The Parties do not believe there is anything significant to discuss under this topic
Hsted in WAC 480-07-740(2)(a).
VI. CONCLUSIONS
The Parties respectfully request the Commission approve the Settlement Stipulation
filed in this docket. The Parties understand the Commission has certain discretion regarding
the timing and procedures it wiII use to evaluate and reach a decision whether to approve the
Stipulation.
DATED this day of January, 2007.
COMMISSION STAFF
Donald T. Trotter
Senior Counsel, Office of the Attorney GeneTal
Counsel for Washington Utilities and Transportation Commission Staff
Date:
AVISTA CORPORATION
L/ ~
~ /
David J. MeYUAttorney
Vice President and Chief Counsel of Regulatory and Governmental Affairs for A vista Corp.
Date: /0:'-/07
PUBLIC COUNSEL SECTION
Judith Krebs
Assistant Attorney Qeneral) Office of the Attorney General
Public Counsel Section
Date:
NARRATIVE SUPPORTING SETTLEMENT - 14