20080124final_order_no_30492.pdf

Office of the Secretary
Service Date
January 24, 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION DBA AVISTA
UTILITIES FOR AN ACCOUNTING
ORDER AUTHORIZING DEFERRAL OF
SETTLEMENT LEASE PAYMENTS
CASE NO. A VU-07-
ORDER NO. 30492
On November 1 , 2007, Avista Corporation dba Avista Utilities (A vista; Company)
filed an Application with the Idaho Public Utilities Commission (Commission) requesting an
accounting order authorizing deferral of settlement lease payments and interest accruals. 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 related to the Company
ownership of the Noxon Rapids and Cabinet Gorge hydroelectric projects located on the Clark
Fork River. Without prior approval of deferral, a utility request for recovery of interim costs in
its next general rate case could be denied under regulatory principles that prohibit retroactive
ratemaking. The Commission in this Order authorizes the deferral of settlement lease payments
and defers a decision on interest.
Background
In October 2003 , a lawsuit was filed against private owners of hydroelectric dams in
Montana, including A vista. In this lawsuit, the State of Montana alleged that the hydroelectric
facilities are located on state-owned riverbeds and the owners of the dams have never paid lease
payments to the State for occupying such lands. The lawsuit requested lease payments
prospectively and also requested damages for trespassing and unjust enrichment for periods of
time dating back to the construction of the respective dams in the 1950s.
The Montana State Court previously ruled on several pre-trial motions for summary
judgment, finding that, as a matter of law, the Clark Fork River was navigable and the State of
Montana owns the riverbeds, that such lands are school trust fund lands, and therefore, the
statutes of limitations have not run on the State of Montana s claims for prior damages. This left
only the issue of damages to be decided at time of trial, set for October 22, 2007, with the State
asserting $200 million owing by A vista for prior trespass since the dams were constructed, and
$8.4 million owing prospectively on an annual basis.
ORDER NO. 30492
On October 19 2007, the Company reached a settlement with the State of Montana
resolving this matter. Application, Appendix 2
, "
Memorandum of Negotiated Settlement
Terms.Pursuant to the settlement, Avista has agreed to make lease payments in the initial
amount of $4 million per year beginning February I , 2008, for the calendar year 2007 , and
continuing through calendar year 2016, adjusted each year by the Consumer Price Index (CPI),
with no payment for prior damage claims.
The level of the payments and 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 on an initial payment in February 2008 for the year 2007, Avista contends it is
necessary to have deferred accounting to address recovery of these costs.
On or before June 30, 2016, Avista and the State of Montana will determine whether
the annual lease payments remain consistent with the principles of law as applied to the facts and
negotiate an adjusted lease payment for the remaining term of Avista s Federal Energy
Regulatory Commission (FERC) license for its hydroelectric facilities on the Clark Fork River
which expires in 2046. If A vista and the State of Montana do not agree on an adjusted lease
payment, the parties will engage in advisory arbitration and submit the arbitrator
recommendation to the State Board of Land Commissioners (Land Board) for approval. The
settlement also contains provisions that could reduce the amount of Avista s lease payments as a
result of future judicial determinations in related cases or governmental actions.
A vista Corporation and the State of Montana will request a consent decree from the
Montana State Court adopting the terms of settlement, as well as final approval by the State
Land Board.
In this filing, the Company is requesting an Order allowing for the deferral of lease
payments. In the Company s next general rate case it will address the prudence and recovery of
the settlement lease payments and propose an appropriate amortization period for future recovery
of the deferred costs. A vista contends that the Noxon Rapids and Cabinet Gorge hydroelectric
projects are the Company s lowest-cost resources and are integral to the Company s resource
base. The proposed accounting treatment would provide the Company with the opportunity to
recover the costs associated with owning and operating these projects while customers receive
the benefit from these low-cost resources.
ORDER NO. 30492
Proposed Accounting Treatment
A vista requests authority to defer the lease payments in Account 186 -
Miscellaneous Deferred Debits. The lease payments would be allocated to the Washington and
Idaho jurisdictions based on the production/transmission allocation in effect at the time that the
deferrals are made and placed in separate Washington and Idaho 186 - Accounts. Interest would
accrue on the Idaho share of the deferrals ($1.37 million) at the customer deposit rate. In the
Company s next general rate case, the Company would propose the recovery of an amortization
of deferred lease payments and accrued interest that would be deferred prior to the effective date
of rates established in the next general rate case. The amortization period would begin with the
effective date of the new rates established in the next general rate case. In that rate case, the
Company would also address recovery of the ongoing lease payments.
On November 21 , 2007, the Commission issued a Notice of Application and
Modified Procedure in Case No. A VU-07-10. The deadline for filing written comments was
December 19, 2007. The Commission Staff was the only party to file comments. Staff
recommends approval of the Company s request except for accrual of interest on the deferral.
Avista in reply comments filed on January 14 2008 , argues the equity of permitting the accrual
of interest from the time the initial $4 million annual payment is made to the State of Montana on
February 1 , 2008 until such time as deferred lease payments are included in rates following a
review in the Company s next general rate case.
In recommending denial of the Company s request for accrual of interest on the
deferral, Staff contends that granting the Company the right to defer the underlying settlement
payments is sufficient relief. No law, Staff states, directs the Commission to allow a carrying
charge (accrual of interest) on deferral accounts. The Commission, Staff contends, has
discretionary authority, affirmed by the Idaho Supreme Court, in determining whether to approve
a carrying charge on a deferral account. Reference Idaho Power Company v. Idaho State Tax
Commission 141 Idaho 316 at 323; and Order No. 30235, p. 3, in Case No. IPC-06-06.
(Deferral of costs related to the development of Grid West.)
When a utility requests an order authorizing deferred accounting in advance of the
expenditure, the Commission is provided an opportunity to evaluate the necessity and anticipated
benefit for customers before the Company incurs the expense. When the Commission has
ORDER NO. 30492
ordered a carrying charge for a deferred expense , Staff notes that the carrying charge has been at
the customer deposit rate. The customer deposit rate for 2007 and 2008 is 5%. Reference Order
No. 30200 in Case No. GNR-06-03 and Order No. 30469 in Case No. GNR-07-01.
Staff recommends that recovery of an amortization of deferred lease payments be
reviewed in the Company s next general rate case. Staff emphasizes that the Company is not
currently seeking recovery of these costs and Staff makes no assurances on the level of these
costs to be recommended for recovery during the Company s next general rate case.
In its reply comments, A vista acknowledges that there are past instances where, in
the discretion of the Commission, interest was not accrued on a deferred balance. However, it is
also true, A vista states, that the Commission has recognized the need to provide recovery of
prudent investment in utility assets, and a return on investment, for assets that will be used in
providing service to customers. This is also the case where dollars are spent that will either
provide future benefits to customers, or will result in lower costs than would otherwise occur.
A vista believes that that is the case here, where the prudent resolution of the litigation has
resulted, in the Company s best judgment, in lower costs than otherwise would have occurred.
The Company notes that in the underlying lawsuit, the State of Montana asserted
claims of $200 million for prior trespass back to the 1950s, and future payments of $8.4 million
per year. Through negotiations, A vista was able to eliminate any prior payments, and reduced
future payments to $4 million per year with some escalation. The State of Montana was
adamant, however, that payment should begin immediately, i., on February 1 2008.
If accrual of interest is not approved in this proceeding, A vista states that it will not
recover the cost of resolving this litigation. The payment to Montana, the Company contends
must be financed until the costs are recovered from customers, which is a direct cost to the
Company. The Company believes that, when pursuing the best deal it can get on behalf of its
customers, it is appropriate to have the opportunity to recover the prudently incurred costs
including financing costs. For those investment and expense items which can be anticipated, the
Company has some opportunity to plan ahead for cost recovery through some form of regulatory
filing. Lawsuits, however, the Company contends, may linger for years until a change in
circumstances creates an opportunity for successful resolution through settlement. These
opportunities, and the ultimate outcomes, are difficult to predict; therefore, it is also difficult to
plan for timely rate treatment apart from deferred accounting with a carrying cost.
ORDER NO. 30492
Commission Findings
The Commission has reviewed the filings of record in Case No. A VU-07-
including the underlying Application, the comments and recommendations of Commission Staff
and the Company s reply. Based on our review of the record, we continue to find it reasonable
to process this case pursuant to Modified Procedure. IDAPA 31.01.01.204.
A vista has filed an Application for an order authorizing deferral of settlement lease
payments. The proposed accounting treatment would provide the Company with the opportunity
to recover February 2008 settlement lease payments in its next general rate case. Without a
deferral order, recovery could be denied under principles of retroactive ratemaking. The
deferred accounting pertains to costs to be incurred by A vista as a result of the recent settlement
of a lawsuit in the State of Montana over use of the riverbed related to the Company s ownership
of the Noxon Rapids and Cabinet Gorge hydroelectric projects located on the Clark Fork River.
Staff agrees with the Company s proposed accounting treatment with the exception of the
Company proposal to accrue interest on the Idaho share of the deferrals ($1.37 million) at the
customer deposit rate.
The Commission finds it reasonable to authorize the deferral of settlement lease
payments until the Company s next general rate case. The Commission notes that Avista on
January 17, 2008 , filed a Notice of Intent to file a combined electric and natural gas general rate
case on or after April 1 , 2008. Reference IDAPA 31.01.01.122. In authorizing deferral, we note
that the Company is not seeking immediate recovery of these costs. The Commission makes
assurances on the level of costs that it will approve for recovery.
The Company also requests that it be allowed to accrue interest on the Idaho share of
deferrals. If accrual of interest is not approved in this proceeding the Company contends that it
will not recover the costs of resolving this litigation. Recognizing that the Company has filed a
Notice of Intent to file a general rate case, we find it unnecessary to make a decision at this time
regarding accrual of interest. Because we expect the Company s rate case to be resolved by
year-end 2008 , we find that a delay in making a decision on interest will not adversely affect the
Company s financial statements.
In authorizing the deferral of settlement lease payments, the accounting treatment
that we authorize is as follows:
ORDER NO. 30492
Record the deferred lease payments in Account 186 - Miscellaneous
Deferred Debits without Interest.
Record the lease payments in separate Washington and Idaho accounts
based on the production/transmission jurisdictional allocation in effect at
the time that the deferrals are made.
Delay amortization of the deferred costs until new rates are established in
the next general rate case.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over A vista Corporation dba
Avista Utilities, an electric utility, pursuant to authority granted in Title 61 ofthe Idaho Code and
the Commission s Rules of Procedure.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby approve a deferral of settlement lease
payments in the manner described above.
IT IS FURTHER ORDERED that the Commission s determination regarding
authorized recovery of settlement expense including any amortization period and interest will be
decided as part ofthe general rate case that A vista has indicated it will file later this year.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
ORDER NO. 30492
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;J. 'f rt..
day of January 2008.
~~~P~D~T
MARSHA H. SMITH, COMMISSIONER
JI
-=
TON, C MMISSIONER
-------
ATTEST:
~ili ((fAJe D. Jewell
Commission Secretary
bls/O:A VU-07-1 O
ORDER NO. 30492