20071116Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER RED FO RD
CO MMISSI 0 NER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:NOVEMBER 9, 2007
SUBJECT:CASE NO. A VU-07-10 (Avista)
APPLICATION FOR A DEFERRAL ACCOUNTING ORDER
(MONT ANA LEASE PAYMENTS)
On November I , 2007, Avista Corporation dba Avista Utilities (Avista; Company)
filed an Application with the Idaho Public Utilities 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 resulting from the Company s ownership of the Noxon
Rapids and Cabinet Gorge hydroelectric projects located on the Clark Fork River.
Background
In October 2003, a lawsuit was originally 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 oftime 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 oflimitations 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
DECISION MEMORANDUM
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.
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, 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 governrnental 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. Avista 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
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the opportunity to recover the costs associated with owning and operating these projects, while
customers receive the benefit from these low cost resources.
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 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.
Commission Decision
A vista has requested an accounting Order allowing the deferral of Montana lease
payments related to its ownership of the Noxon Rapids and Cabinet Gorge hydroelectric projects
located on the Clark Fork River. The Company requests that the Order be issued by January 11
2008, to facilitate the year-end closing of the Company s accounting records. The Company and
Staff recommend that this matter be processed pursuant to Modified Procedure, i., by written
submission rather than by hearing. Reference Commission Rules of Procedure IDAP A
31.01.01.201-204. Does the Commission agree with the recommended procedure?
Scott Woodbury
blslM:A VU-O7-
DECISION MEMORANDUM