20080730Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
ISB NO. 6864
Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
AVISTA CORPORATION FOR AUTHORITY )
TO DEFER COLSTRIP LAWSUIT )SETTLEMENT PAYMENT )
)
)
)
CASE NO. A VU-E-08-3
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Neil Price, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 30591 on July 9, 2008,
submits the following comments.
BACKGROUND
On May 22, 2008, Avista Corporation (Avista; Company) fied an Application with the
Commission seeking an accounting order deferrng the Company's payment of a settlement
associated with a lawsuit over damages caused by the operation of the Colstrip Generating
Project in Colstrip, Montaa. A vista states that it owns a 15 percent interest in Units 3 & 4 of the
Colstrip Generating Project.
A vista estimates that its share of the lawsuit settlement payment, absent any recovery
from applicable insurance carriers, is $2,084,443.
STAFF COMMENTS 1 JUL Y 30, 2008
Avista claims it could potentially recover approximately $734,035 under relevant
insurance policies and thereby reduce its out-of-pocket expense to approximately $1,350,408.
The defendant, Colstrip Generating Project, is curently seeking indemnification from its
insurance carers. The potential outcome of their efforts is not ascertinable.
A vista asserts that the settlement terms represent a favorable resolution of this matter
because it (1) offers a final resolution of more than five years of disputed litigation; (2)
represents a substatial reduction of Avista's potential exposure for "excessive compensatory
and punitive damages"; (3) facilitates Avista's negotiation with the Montaa Department of
Environmental Quality concerning appropriate remediation efforts at the Colstrip facility; and (4)
assists the defendants in limiting any future claims by providing them with "rights of first refusal
with respect to plaintiffs' properties."
Avista requests an "order allowing for the deferral of the settlement payment." The
Company states that it wil more fully "address the prudency and recovery of the settlement
payment, and propose a method of recovery of the settlement paymentL)" minus "any
reimbursement from insurance cariers," in its next general rate case, or any other proceeding the
Commission deems appropriate.
A vista has specifically requested the "authority to defer the Colstrip settlement payment
in Account 186 - Miscellaneous Deferred Debits." The Company states that the "settlement
payment wil be allocated to the Washington and Idaho jurisdictions based on the curent
Production/Transmission allocation of 64.59% to Washington and 35.41 % to Idaho, and placed
in separate Washington and Idaho 186-accounts." The Company would apply the typical
customer deposit rate to Idaho's share of the deferrals.
STAFF REVIEW
Staff has reviewed the Application of A vista Corporation for an Order Authorizing
Deferral of the Colstrip Settlement Payment and recommends approval of the Company's request
except for a carying charge on the deferraL. As noted in its filing, the Company is requesting an
Order allowing for the deferral of the settlement payment. A vista notes that Colstrip is a low-
cost resource that is integral to the Company's resource base. The proposed accounting
treatment would provide the Company with the opportity to recover the costs associated with
its ownership share of Colstrip, while customers receive the benefit from this low cost resource.
The Company wil address the prudence and recovery of the settlement payments in its next
STAFF COMMENTS 2 JUL Y 30, 2008
general rate case filing or other future proceeding, as appropriate. 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 settlement payment will be allocated to the Washington and Idaho
jurisdictions based on the production/transmission allocation of 64.59% to Washington and
35.41 % to Idaho, and placed in separate Washington and Idaho 186-accounts. Absent any
insurance proceeds, approximately thirt-five percent of the settlement payment of $2,084,443
(to be paid on or before May 23, 2008) or $738,101 would be recorded to the Idaho
Miscellaneous Deferred Debits account. Any insurance proceeds would also be allocated to the
Washington and Idaho jurisdictions based on the same production/transmission allocation, and
would reduce the settlement expense. Based onthe Company's interpretation of the relevant
insurance policies, it anticipates it could potentially recover approximately $734,035 of the
settlement payment, and Idaho's share of this would be approximately $259,922, making the
final settlement expense to be deferred in the Idaho 186 account approximately $478,179. 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 the
settlement payment.
This generation resource is included in the rates currently charged to its customers.
Avista's most recent general rate case, Case No. AVU-E-04-1, included this project in the rate
base and expenses upon which A vista's revenue requirement and resulting rates were calculated.
Regulatory assets can be established for expenses that are currently not included in rates,
yet are significant enough to warant deferring 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 certain
expenses from past years be included in the current 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 futue recovery. If a utilty 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 filing
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 otherwse be
STAFF COMMENTS 3 JUL Y 30, 2008
unecoverable is sufficient relief to the Company. No law directs the Commission to allow a
carying charge on deferral accounts. The Commission has discretionar authority, affirmed by
the Supreme Court, 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 may evaluate the appropriateness of a carrying charge when a utilty
requests an Order authorizing deferred accounting in advance of the expenditure, or the deferral
account is related to implementation of a program the Commission has ordered. In those
circumstances, the Commission has an opportunity to evaluate the necessity and anticipated
benefit for customers before the Company incurs the expense.
When the Commission has ordered a carying charge for a deferred expense, the carring
charge has been at the customer deposit rate. The customer deposit rate for 2008 is 5%.
Reference Order No. 30469 in Case No. GNR-U-07-1.
STAFF RECOMMENDATION
Staff recommends approval of A vista's Application for an Order Authorizing Deferral of
the Colstrip Settlement Payment. The deferred accounting pertins to a settlement payment to be
incured by A vista as a result of the recent settlement of a lawsuit in the State of Montana over
alleged damages caused by the Colstrip Generating Project in Colstrip, Montaa. The
accounting treatment would be as follows:
. Record the deferred settlement payment in Account 186 - Miscellaneous Deferred Debits
without interest.
. Record any insurance proceeds in Account 186 - Miscellaneous Deferred Debits, thereby
reducing the amount of the settlement payment.
. Record the settlement payment in separate Washington and Idaho accounts based on the
production/transmission jursdictional allocation.
. Delay recovery of the deferred settlement payment until new rates are established in the
next general rate case or other futue proceeding as appropriate.
Staff recommends that recovery of the settlement payment less any insurance proceeds be
reviewed in the Company's next general rate case. Staff emphasizes that the Company is not
STAFF COMMENTS 4 JUL Y 30, 2008
curently 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.
Respectfully submitted this .~ day of July 2008.
.. IAJJcd~Neice .. "'
Deputy Attorney General
Technical Staff: Kathy Stockton
i:umisc:commentsavue08.3npklsph
STAFF COMMENTS 5 JUL Y 30, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 30TH DAY OF JULY 2008, .
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-08-03, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DA VID 1. MEYER
VICE PRESIDENT AND CHIEF COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE W A 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
il~SECRETAR'
CERTIFICATE OF SERVICE