20071218Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
A VISTA CORPORATION DBA A VISTA )
UTILITIES FOR AN ACCOUNTING ORDER )
AUTHORIZING DEFERRL OF SETTLEMENT)LEASE PAYMENTS. )
)
)
CASE NO. AVU-E-07-10
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbur, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice ofComment/rotest Deadline issued on
November 21,2007, submits the following comments.
BACKGROUND
On November 1,2007, Avista Corporation dba Avista Utilties (Avista; Company) fied
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 incured as a result of the recent settlement of a lawsuit in the State
of Montana over the use of the riverbed resulting from the Company's ownership of the Noxon
Rapids and Cabinet Gorge hydroelectric projects located on the Clark Fork River.
STAFF COMMENTS 1 DECEMBER 18, 2007
In October 2003, a lawsuit was originally fied against private owners of hydroelectric
dams in Montana, including A vista. In this lawsuit, the State of Montana alleged that the
hydroelectric facilties 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 Montaa State Cour previously ruled on several pre-trial motions for summar
judgment, finding that, as a matter oflaw, the Clark Fork River was navigable and the State of
Montana owns the riverbeds, that such lands are school trust fud lands, and therefore, the
statutes of limitations have not ru 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 milion owing by A vista for prior trespass since the dams were constructed, and
$8.4 milion owing prospectively on an anual basis.
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 milion per year beginning February 1,2008, 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. On or before June 30, 2016, A vista and the State of
Montana wil determine whether the anual 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.
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 these claims. 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 governental actions. 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.
STAFF COMMENTS 2 DECEMBER 18, 2007
STAFF REVIEW
Staff has reviewed Avista's Application for an Order Authorizing Deferral of Settlement
Lease Payments and recommends approval of the Company's request except for a caring
charge on the deferraL. As noted in its fiing, the Company is requesting an Order allowing for
the deferral of lease payments. Avista notes 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. The Company wil address the
prudence and recovery of the settlement lease payments in its next general rate case, and propose
an appropriate amortization period for future recovery of the deferred costs. Until the next rate
case, approval of this request would not change rates curently charged to customers.
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.
Approximately thirt-four percent of the first anual payment of $4 milion (due Februar 2008
for the year 2007) or $1,366,800 would be recorded to the Idaho Miscellaneous Deferred Debits
account. A vista requests that interest accrue on the Idaho share of the deferrals at the customer
deposit rate. As noted above, in the Company's next general rate case it would propose the
recovery of an amortization of deferred lease payments. The amortization period would begin
with the effective date of the new rates established in the next general rate case. Staff in
previous cases has suggested amortization of similar items begin immediately upon deferraL.
However, Staff agrees with the Company's timing of the amortization of the deferred lease
payments because it is anticipated that the Company wil fie a general rate case within the next
year. In that rate case, the Company and Staff would also address recovery ofthe ongoing lease
payments.
These hydroelectric projects are included in the rates curently charged to its customers.
Avista's most recent general rate case, Case No. AVU-E-04-1, included these projects in the rate
base and expenses upon which Avista's revenue requirement and resulting rates were calculated.
STAFF COMMENTS 3 DECEMBER 18, 2007
Regulatory assets can be established for expenses that are currently not included in rates, yet are
significant enough to warant deferrng until the next general rate case for possible inclusion in
rates at that time. Were a company to propose, in a general rate case, that certin expenses from
past years be included in the curent rates, it would be retroactive ratemaking. In order to be
considered in the general rate case, the utility usually must have an accounting Order allowing
them to defer the costs for possible future recovery. If a utility defers costs for future recovery in
a general rate case, without Commission approval, it would most likely be denied recovery,
because to allow recovery would be retroactive ratemaking. Avista's fiing appropriately
requests such an Order.
In its proposed accounting treatment the Company would accrue interest on the Idaho
share of the deferrals at the customer deposit rate. Staff does not support accruing interest on the
deferraL. Granting the Company deferral of expenses that would likely otherwise be
unrecoverable is suffcient relief to the Company. No law directs the Commission to allow a
carring charge on deferral accounts. The Commission has discretionary authority, affirmed by
the Supreme Cour, in determining whether to approve a caring charge on a deferral account.
Reference Idaho Power Company v. Idaho State Tax Commission, 141 Idaho 323 and Order
No. 30235, page 3 in Case No. IPC-E-06-6.
The Commission evaluates the appropriateness of a carrying charge where a utilty
requests an Order authorizing deferred accounting in advance of the expenditue, or the deferral
account is related to implementation of a program the Commission has ordered. In those
circumstaces, the Commission has an opportity to evaluate the necessity and anticipated
benefit for customers before the Company incurs the expense.
When the Commission has ordered a caring charge for a deferred expense, 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-U-06-3 and Order No. 30469 in Case No.
GNR-U-07-L.
STAFF RECOMMENDATION
Staff recommends approval of Avista's Application for an Order Authorizing Deferral of
Settlement Lease Payments. The deferred accounting pertains to costs to be incured by A vista
as a result of the recent settlement of a lawsuit in the State of Montana over use of the riverbed
STAFF COMMENTS 4 DECEMBER 18,2007
resulting from the Company's ownership of the Noxon Rapids and Cabinet Gorge hydroelectric
projects located on the Clark Fork River. The accounting treatment would be as follows:
. 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 cost until new rates are established in the next
general rate case.
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.
Dated at Boise, Idao, ths ¡/Jy of December 2007.
cott Woodbury
Deputy Attorney General
Technical Staff: Patricia Harms
i:/umisc/comments/avue07. i Oswph
STAFF COMMENTS 5 DECEMBER 18, 2007
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 18TH DAY OF DECEMBER 2007,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-E-07-1O, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DAVID 1. MEYER
VICE PRESIDENT AND CHIEF COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220
E-MAIL: david.meyer(ßavistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE W A 99220
E-MAIL: kelly.norwood(ßavistacorp.com
~tJ.~LŠËTAy
CERTIFICATE OF SERVICE