20060615Stipulation.pdf

David J. Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A vista Corporation
1411 E. Mission Avenue
P. O. Box 3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
A VISTA CORPORATION DBA A VISTA
UTILITIES FOR AN ORDER APPROVING
A CORPORATE REORGANIZATION TO
CREATE A HOLDING COMPANY,
A VA FORMA TION~RP.
CASE NO. A VU-O6-
A VU-O6-
STIPULATION
This Stipulation ("Stipulation ) is entered into by and between A vista Corporation, doing
business as A vista Utilities ("A vista ), and the Idaho Public Utilities Commission Staff ("Staff'
(collectively referred to as the "Parties
I. INTRODUCTION
The terms and conditions of this Stipulation are set forth herein. The Parties agree that
this Stipulation represents a fair, just and reasonable compromise of the issues raised in this
proceeding and that this Stipulation is in the public interest. The Parties, therefore, recommend that
the Public Utilities Commission ("Commission ) approve the Stipulation and all of its terms and
conditions. Reference IDAPA 31.01.01.272 274.
STIPULA nON -
II. BACKGROUND
On February 16,2006, Avista filed an Application with the Commission seeking an
order for authority to conduct a corporate reorganization and form a holding company to be known as
A V A Formation Corp (hereinafter referred to as the "Reorganization ). This Commission has the
jurisdiction over such request pursuant to Idaho Code 9 61-328. The holding company, A V
Formation Corp. (the "Parent Corporation" or "A V A"), would be formed as the parent company of
the existing regulated company, Avista Corporation. The Parent Corporation would also be the
parent company of A vista Capital, Inc., which would continue to hold non-regulated subsidiaries.
On April 28, 2006, the Commission issued its Order No. 30026, providing a Notice of
Application, Notice of Workshop, and a Notice of Modified Procedure.
No petitions to intervene in this proceeding were filed in this matter.
Pursuant to the Commission s Order No. 30026, representatives of the Parties
conducted a workshop on May 16 2006, and engaged in informal settlement discussions with a view
toward resolving the Application in this case.
Based upon the settlement discussions among the Parties as a compromise of the positions in
this case, and for other consideration as set forth below , the Parties agree to the following terms:
A vista Corporation, doing business as A vista Utilities, is currently the corporate parent. The
proposed structure would make A vista Utilities a separate company under the Parent Corporation
and A vista Corporation would no longer exist as an operating entity.
STIPULA nON - 2
III. TERMS OF THE STIPULATION
Appendix A contains the complete list of commitments that A vista agrees to make
related to the formation and future conduct of the holding company corporate structure (hereinafter
referred to as "Commitments ). By virtue of executing this Stipulation, A vista agrees to perform all
of the Commitments set forth in Appendix A according to the provisions of each Commitment as set
forth therein.
In the process of obtaining approvals of the Reorganization in other states, the
Commitments may be expanded or modified as a result of regulatory decisions or settlements.
A vista agrees that the Commission shall have an opportunity and the authority to consider and adopt
in Idaho any commitments or conditions to which A vista agrees or with which A vista is 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 Appendix A to add (without modification of the language thereof
except such non-substantive changes as are necessary to make the commitment or condition
applicable to Idaho) commitments and conditions accepted or ordered in another state jurisdiction.
The Parties recommend the following process related to potential additional commitments and
conditions originating from proceedings in other states:
Within five calendar days after a stipulation with new or amended
commitments is filed by A vista with a commission in another state
STIPULA nON - 3
STIPULA nON - 4
jurisdiction , Applicants will send a copy of the stipulation and
commitments to the Idaho Commission Staff.
Within five calendar days after a commission in another state
jurisdiction issues an order that accepts a stipulation to which A vista is
a party or otherwise imposes new or modified commitments or
conditions, that order, together with all commitments and conditions of
any type agreed to by A vista or ordered by the commission in such
other state, will be filed with the Commission and served on all Parties
to this docket by the most expeditious means practical. Within fifteen
business days after receiving the last such filing from the other states
Final Filing ), any Party to the docket wishing to do so shall file with
the Commission its response, including its position as to whether any of
the covenants, commitments and conditions from the other jurisdictions
(without modification of the language thereof except such non-
substantive changes as are necessary to make the commitment or
condition applicable to Idaho) should be adopted in Idaho.
Within five calendar days after any such response filing, 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 commitments and conditions as soon as
practical thereafter, recognizing that the Reorganization cannot close
until final state orders have been issued.
Not later than the Final Filing, A vista will disclose to the Parties any written
commitments, conditions or covenants made in another state jurisdiction (between the date of the
filing of the Stipulation and the receipt of the last state order in the Reorganization docket) intended
to encourage approval of the Reorganization or avoidance of an objection thereto.
The Staff, by signing this Stipulation, acknowledges that A vista has satisfied the
standard under Idaho Code 9 61-328 for approval of the Reorganization and requests that the
Commission issue its order approving the Application and this Stipulation. The Parties encourage
the Commission to enter a final Idaho approval order by July 31 2006.
10. The Parties submit this Stipulation to the Commission and recommend approval in its
entirety pursuant to IDAPA 31.01.01.274. Parties shall support this Stipulation before the
Commission, and no Party shall appeal any portion of this Stipulation or Order approving the same.
If this Stipulation is challenged by any person not a party to the Stipulation, the Parties to this
Stipulation reserve the right to cross-examine witnesses and put on such case as they deem
appropriate to respond fully to the issues presented, including the right to raise issues that are
incorporated in the settlements embodied in this Stipulation. Notwithstanding this reservation of
rights , the Parties to this Stipulation agree that they will continue to support the Commission
adoption of the terms of this Stipulation.
11. The Parties agree that this Stipulation represents a compromise of the positions of the
Parties in this case. Other than the above-referenced positions and any testimony or comments filed
in support of the approval of this Stipulation, and except to the extent necessary for a Party to
explain before the Commission its own statements and positions with respect to the Stipulation, all
STIPULA nON - 5
negotiations relating to this Stipulation shall not be admissible in evidence in this or any other
proceeding regarding this subject matter.
12.Avista acknowledges that the Commission s approval of the Stipulation, the
Commitments or the Application shall not bind the Commission in other proceedings with respect
to the determination of prudence, just and reasonable character, rate or ratemaking treatment, or
public interest of services, accounts, costs, investments, expenditures or actions referenced in these
Commitments.
13. In the event the Commission rejects any part or all of this Stipulation, or imposes any
additional material conditions on approval of this Stipulation, each Party reserves the right, upon
written notice to the Commission and other Parties to this proceeding, within 14 days of the date of
such action by the Commission, to withdraw from this Stipulation. In such case, no Party shall be
bound or prejudiced by the terms of this Stipulation, and each Party shall be entitled to seek
reconsideration of the Commission s order, file testimony as it chooses, cross-examine witnesses
and do all other things necessary to put on such case as it deems appropriate. In such case, the
Parties immediately will request the prompt convening of a prehearing conference for purposes of
establishing a procedural schedule for the completion of the case. The Parties agree to cooperate
development of a schedule that concludes the proceeding on the earliest possible date, taking into
account the needs of the Parties in participating in hearings and preparing briefs.
14.No Party shall be bound, benefited or prejudiced by any 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
STIPULA nON - 6
the validity or invalidity of any particular method, theory or principle of regulation 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. No findings of fact or conclusions of law other than those stated herein
shall be deemed to be implicit in this Stipulation.
15. Subject to Paragraph 16 ofthis Stipulation, the effective date ofthis Stipulation shall be
the date of the completion of the Reorganization.
16. The obligations of Avista under this Stipulation are subject to the Commission
approval of the Application in this docket on terms and conditions acceptable to A vista, in its sole
discretion, and the completion of the Reorganization.
17. To the extent any of the above referenced filing dates fall on a weekend or a holiday,
the filing shall be due on the next business day.
Respectfully submitted this 11j+f-day of June, 2006.
Idaho Public Utilities Commission Staff
By
Cecelia A. ssner
Deputy Attorney General
A vista Corporation
r/ /.1/
David J. Meyer
Vice President and Chief Counsel of Regulatory and Governmental Affairs
STIPULA nON - 7
Appendix A: Commitments/Conditions
1.)
A VISTA CORPORATE REORGANIZATION
TO FORM A HOLDING COMPANY
(CASE NO. A VU-O6-l/A VU-O6-
Avista Utilities will maintain its own books and records, separate from A V A'
books and records. A vista 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 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 A vista 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.
A V A 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 A vista 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 to
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.
A V A and A vista Utilities will comply with all applicable Commission statutes
and regulations regarding affiliated interest transactions, including timely
filing of applications and reports.
A vista 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.
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 A vista 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 A vista 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 AVA group.
f. Any corporate cost allocation methodology used for rate setting, and
subsequent changes thereto, will be submitted to the Commission for
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 be
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 A vista Utilities and higher of cost or
market for transactions from Avista Utilities) for affiliate charges or costs
not covered by the provisions of any cost sharing agreement, if a readily
10.
11.)
12.
13.
14.
15.
identifiable market for the goods, services or assets exists, and if the
transaction involves a cost of more than $100 000.
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.
Within three months of closing of the transaction, A V A and A vista Utilities
commit to obtain from one or more rating agencies written confirmation that
A vista Utilities will have its own corporate credit rating, separate and apart
from A V A, as well as separate ratings for each long-term debt and preferred
stock (if any) issuance, and that it will not otherwise be consolidated with
A V A for ratings purposes. If the ring-fencing provisions of this stipulation
are insufficient for purposes of obtaining a separate rating for A vista Utilities,
A V A and A vista Utilities will so notify the Commission and propose and
implement, upon Commission approval, such additional ring-fencing
provisions that are sufficient to secure separate corporate ratings for A V A and
A vista Utilities.
A VA and A vista 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 with unrestricted
access to all written information provided by and to credit rating agencies that
pertains to A vista Utilities or A VA. A V A will also provide the Commission
with unrestricted access to all written information provided by and to credit
rating agencies that pertains to A V A'subsidiaries to the extent such
information may potentially impact A vista Utilities.
The capital requirements of A vista Utilities , as determined to be necessary to
meet its obligation to serve the public, will be given a high priority by the
Board of Directors of A V A and A vista Utilities.
Neither A vista Utilities nor its subsidiaries will, on a prospective basis
without prior notification to the Commission, make loans or transfer funds
(other than dividends and payments for inter-company services provided as
part of the normal course of business or routine cash management functions or
current money pool arrangements) to AVA or its affiliates , or assume any
obligation or liability as guarantor, endorser, surety or otherwise for A V A or
its affiliates; provided that this condition will not prevent A vista Utilities from
assuming any obligation or liability on behalf of a subsidiary of A vista
Utilities. Any changes to current money pool arrangements will require
Commission approval. A V A will not pledge any of the assets of the business
of A vista Utilities as backing for any securities which A V A or its affiliates
(but excluding Avista Utilities and its subsidiaries) may issue.
16.
17.
18.
19.
20.
21.)
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.
Equity Building Mechanism: The Company agrees that it will increase the
actual utility equity component to 35% by December 31, 2007 and to 38% by
December 31 , 2008. To the extent the Company incurs increased power
supply or purchased gas costs that are not recovered in retail rates in a timely
manner, it would impair the Company s ability to build equity. Accordingly,
the calculations to determine whether the targets are met will be adjusted for
any additional deferred power supply or purchased gas costs recorded on the
Company s books after January 1 , 2006, which have been approved for
recovery, but over a period longer than proposed by the Company.
Failure to meet the first target will result in an automatic reduction in base
utility rates (spread uniformly across all classes) of 2% effective April 1
2008. Failure to meet the second target would result in a reduction of 2%
effective April 1 , 2009. If the Company fails to achieve the first target but
meets the second one, the 2% reduction on April 1 , 2008 would be reversed
prospectively as of April 1 , 2009. If it meets the first target but misses the
second, the April 1 , 2009 reduction would remain in effect until its next
general rate case. If the Company misses both targets, the total reduction
would equal 4%, which would remain in effect until the next general rate case.
A V A and Avista Utilities commit that Avista Utilities will not make any
dividends to A V A that will reduce Avista Utilities ' common equity capital
below 25% of its Total Adjusted Capital without Commission approval. This
percentage will be adjusted, as necessary, to account for any changes to
Generally Accepted Accounting Principles (GAAP) after approval of this
transaction. For purposes of calculating the numerator of the percentage
common equity will not include any portion of A vista 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 , A vista Utilities will provide the Commission
notice when it increases the amount of any dividend payment by 10% or more
over the previously-paid dividend.
In the event of a credit rating downgrade of A vista Utilities, the Company will
schedule a meeting with Staff within one month of the downgrade to discuss
the reason for the downgrade and the Company s plans going forward.
On or before April 1 , 2008 , and on or before every anniversary date thereafter
A vista Utilities will provide to the Commission an annual report for the
preceding calendar year, in which it describes its compliance with the
22.
23.
24.
25.
26.
27.
provision of items 17 , 18 and 19, concerning the equity building mechanism
and payment of dividends.
A vista Utilities is required to apply to the Commission for approval of
security issuances pursuant to Idaho Code Title 61, Chapter 9. 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 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 Commission Staff
will establish an agreeable procedure to review these confidential documents
in Spokane, W A upon request.
A VA and A vista Utilities will provide the Commission access to operational
internal and risk audit reports and documentation. A vista Utilities and the
Commission Staff will establish an agreeable procedure to review these
confidential documents upon request.
AVA and A vista Utilities will provide the Commission and Staff with
notification of all publicly announced proposals for divestiture, spin-off, or
sale of any integral A vista Utilities function. AVA and A vista Utilities will
also file for Commission approval of divestiture, spin-off, or sale of any
integral A vista Utilities function, which is subject to IPUC jurisdiction. This
condition does not limit any jurisdiction the Commission may have.
A vista Utilities or A V A will notify the Commission prior to implementation
of plans by Avista 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 A vista
Utilities; or (3) to dissolve an affiliate which has transacted substantial
business with A vista Utilities.
Avista Utilities or A V A will notify the Commission 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 V A; 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.
28.
29.
30.
31.)
A vista Utilities will provide to the Commission, upon request, on an
informational basis, credit rating agency news releases and final reports
regarding A vista Utilities when such reports are known to A vista 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, A vista 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 A vista Utilities will enter into an agreement that incorporates the
ring-fencing provisions set forth herein, which agreement shall be binding
upon A V A and A vista Utilities, and their respecti ve 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 VA 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 V A bankruptcy.
Obtain a non-consolidation opinion.
32.Unless another process is provided by statute, Commission regulations or
approved Avista Utilities ' tariff, A V A and Avista Utilities encourage the
Commission to use the following process for administering the commitments.
The Commission should give A V A and Avista 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 file
33.
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 Avista
Utilities may request, for cause, an extension of these time periods. If A V A
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 Idaho 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.
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF JUNE 2006
SERVED THE FOREGOING MOTION FOR APPROVAL OF STIPULATION AND
STIPULATION, IN CASE NO. A VU-06-I/A VU-06-, BY E-MAILING A COpy
THEREOF AND BY MAILING A COpy THEREOF, POSTAGE PREPAID , TO THE
FOLLOWING:
DA VID 1. MEYER
SR VP AND GENERAL COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-mail dmeyer~avistacorp.com
KELL Y NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE W A 99220-3727
E-mail Kelly.norwood~avistacorp.com
~C:J~
SECRETARY
CERTIFICATE OF SERVICE