20080114Reply comments.pdf

01'J'~~~'V'ST4.
Corp.
. Jean D. Jewell
ommission Secretar
Idaho Public Utilities Commission
472 W. Washington
Boise, il 83702-5983
Re: Case No. A VU-E-07-10
Comments of Avista Corporation
Dear Ms. Jewell:
Enclosed are an original and seven copies of Avista's comments in the above referenced case.
Avista's comments are in response to Commission Staffs filed comments, dated December 18,
2007. Please forward Avista's comments to the appropriate individuals involved in this case.
Please direct any questions regarding this fiing to Ron McKenzie at [phone].
Sincerely,
~ J...m
Kelly Norwood
Vice President, State and Federal Regulation
Enclosure
c: Scott Woodbury
C.'iÍ;-,
Kelly Norwood
Vice President, State and Federal Regulation
A vista Corporation
1411 East Mission Ave.
Spokane, WA 99202
Phone: [phone]
Fax: [phone]
kelly.norwood~avistacorp.com
jni \ Lt.r-''o\'l
9:;,0
BEFORE THE IDAHO PUBLIC UTILITIES COMMSSION
IN THE MATIER OF THE APPLICATION OF )
AVISTA CORPORATION DBA AVISTA )
UTILITIES FOR AN ACCOUNTING ORDER )
AUTHORIING DEFERR OF SETILEMENT )LEASE PAYMENTS. )
)
)
CASE NO. AVU-E-07-I0
COMMENTS OF AVISTA
CORPORATION
A vista Corporation ("A vista" or "Company") hereby submits comments in response to
the Commission Staffs filed comments, dated December 18,2007, in this Case.
On November 1, 2007, A vista filed an Application with the Idaho Public Utilties
Commission (Commission) requesting an accounting Order authorizing deferral of settlement
lease payments. The deferred accounting request pertains to costs to be incurred as a result of
the recent settlement of a lawsuit in the State of Montana over the use of the riverbed (Riverbed
Settlement) resulting from the Company's ownership of the Noxon Rapids and Cabinet Gorge
hydroelectrc projects located on the Clark Fork River.
Under the Riverbed Settlement, Avista wil pay the State of Montana an annual payment
of $4.0 milion beginning February 1, 2008. As the Company explained in its Application, the
level of the payments, the start date of the payments, as well as other terms and conditions of
settlement, were all integral to the resolution of these claims. Because of the State's insistence
AVISTA CORPORATION COMMENTS Page 1
on an initial payment in Februar 2008 for the year 2007, it is necessary to have defered
accounting to address recovery of these costs.
Avista has requested that the Idaho share of the $4.0 milion payment ($1.37 milion) be
deferred, and the prudence and recovery of the lease payment be addressed in the Company's
upcoming general rate case. The Company proposed to accrue interestl on the payment at the
same rate the Company pays for customer deposits (5.0%), and to begin amortization of the
payment at the conclusion of the general rate case.
On December 18, 2007 the Commission Staff filed comments related to Avista's
Application. In its comments, Staff recommends Commission approval of the Company's
proposed request, with the exception of accruing interest on the payment. We acknowledge and
appreciate Staffs recommendation which recognizes the need for deferred accounting to address
recovery of these costs.
With regard to the interest component, we understand there are past instances where, in
the discretion of the Commission, interest was not accrued on a deferred balance. However, it is
also true that the Commission has recognized the need to provide recover of prudent investment
in utilty assets, and a retu on investment, for assets that wil be used in providing service to
customers. This is also the case where dollars are spent that wil either provide futue benefits to
customers, or wil result in lower costs than would otherwise occur. As explained in the
Company's request, that is the case here where the prudent resolution of the litigation would, in
the Company's best judgment, result in lower costs than otherwise would have occured.
i Other terms are sometimes used synonymously with "accrual of interest," such as "caring charge," "carng
cost," or return on investment.
AVISTA CORPORATION COMMENTS Page 2
Dollars spent historically on conservation or energy effciency is another example. Even
though the dollars spent did not result in an asset owned by the Company to provide service to
customers, the dollars spent on energy efficiency resulted in lower overall costs to customers
than would otherwise occur. Historically the Commission has provided recovery of the costs
associated with energy efficiency, including a carying charge. This aligns the Company's
"interests" (recover of costs) with those of its customers (overall lower costs). On page 2 of
Order No. 25917 in Case Nos. WWP-E-94-10 and WWP-G-94-5, the Order states,
"Traditionally, a utility defers the costs of its DSM programs and then recovers its expenditures
in a general rate proceeding when accumulated DSM expenditures, plus interest (accrued as an
allowance for funds used durng construction-AFUDC), become a component of rate base."
In other instances, it is important to note that when the Company has a balance of dollars
that are owed to its customers, a carrying cost is accrued and paid to its customers. This is tre
for ongoing Customer Deposits, as well as the one-time gain from the sale of the Centralia
generating project. The customer portion of the gain from the sale of Centralia was deferred and
credited back to customers over a perod of 6.25 years, including a carying cost. It is reasonable
and appropriate for a carrng charge to be applied in this case, when the dollars are owed to the
Company. In its comments on Page 4, Commission Staff recognized that the Commission has in
some instances approved a carrying charge and stated that, "When the Commission has ordered a
carying charge for a deferred expense, the carrng charge has been at the customer deposit rate.
The customer deposit rate for 2007 and 2008 is 5%." The carrying cost at issue in this filing is
for the time period between the time the payment is made to the State of Montana and the point
in time that the Company begins recovering the cost from customers at the conclusion of the
AVISTA CORPORATION COMMENTS Page 3
upcoming rate case. Avista agrees that a short-term interest rate of 5% would be appropriate for
this short-term period.
With regard to the settlement payment at issue in this case, we believe the settlement
achieved by the Company wil result in lower costs to customers than would otherwise occur. In
this lawsuit, the State of Montana asserted claims of $200 milion for prior trespass back to the
1950s, and future payments of $8.4 milion per year. Though negotiations, Avista was able to
eliminate any prior payments, and reduce future payments to $4.0 milion per year with some
escalation. As noted earlier, the level of the payments, the star date of the payments, as well as
other terms and conditions of settlement, were all integral to the resolution of the litigation. For
its part, the State of Montana was adamant that payment should begin immediately - i.e., on
February 1,2008 - ifit were to forego any payment for $200 milion of prior payments. Clearly,
it would have cost the Company more elsewhere in negotiations to have delayed the
implementation of the first payment.
If accrual of interest in not approved in this proceeding, the Company wil not recover the
cost of resolving this litigation.
2 The payment must be financed until the costs are recovered
from customers, which is a direct cost to the Company.
If accrual of interest is not allowed on early payments in settlement agreements such as
these, the Company would be penalized in the future for negotiating deals that would involve up-
front payments - even though that outcome may be the most favorable for the Company and its
customers. Regardless of the resolution of this issue in this case, however, Avista wil, in any
event, vigorously defend the ownership and operation of its low-cost generation resources for the
2 It is importt to note that Avista has not requested in this fiing deferral of the legal costs associated with the
litigation and settlement of this lawsuit. Avista has already absorbed those costs, which totaled approximately
$760,000.
A VISTA CORPORATION COMMENTS Page 4
benefit of its customers, at the lowest possible cost. The Company simply believes that, when
pursuing the best deal it can get on behalf of its customers, it is appropriate to have the
opportnity to recover the prudently incured costs, including financing costs.
For those investment and expense items which can be anticipated, the Company has some
opportnity to plan ahead for cost recovery through some form of regulatory fiing, such as a
general rate case or limited-scope filing for known cost changes. For example, when a new
power plant is being constrcted we know approximately how much we wil spend and when the
plant wil be completed, and can plan a rate case accordingly, in order to better match the in-
servce date with rate relief. Lawsuits, however, can linger for years until a change in
circumstances can create an opportnity for successful resolution through settlement. These
opportnities, and the ultimate outcomes, are difficult to predict, and therefore, it is also difficult
to plan for timely rate treatment apar from deferred accounting with a carng cost.
While the financing costs in this case are admittedly not major, we have other liigated
matters pending that may be resolved through negotiated settlements, and which may involve
dollars that are significantly higher than those in this filing. It would of great concern if accrual
of interest were disallowed for other settlements that may involve much larger up-front dollars to
successfully resolve the litigation.
In conclusion, the Company appreciates the position of Staff in its memorandum which
does recognize the need for an accounting order deferrng the costs of resolving the litigation for
later recovery, as well as commencing the amortization at the conclusion of the upcoming
general rate case. Nevertheless, the proposed disallowance of a carying cost - although small in
this instance - deprives the Company of the opportnity to recover its costs, and more
AVISTA CORPORATION COMMENTS Page 5
importantly, if applied in future instances where larger dollars are involved, may penalize the
Company for pursuing the most favorable outcome for its customers in resolving litigation.
Respectfully submitted this 11th day of January 2008.
AVISTA CORPORATION
~ ~_i.
KELLY NORWOOD
Vice President, State and Federal Regulation
AVISTA CORPORATION COMMENTS Page 6