20080808Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:NEIL PRICE
DEPUTY ATTORNEY GENERAL
DATE:AUGUST 6, 2008
SUBJECT:A VISTA'S APPLICATION FOR AUTHORIZATION TO DEFER COLSTRIP
LAWSUIT SETTLEMENT PAYMENT; CASE NO. A VU-08-
On May 22 2008, Avista Corporation ("Avista" or "Company ) filed an Application with
the Idaho Public Utilities Commission ("Commission ) seeking an accounting order authorizing the
Company to defer payment of its portion of a lawsuit settlement payment originating from litigation
involving the Colstrip Generating Project in Colstrip, Montana. Pursuant to Idaho Code 9 61-524
the Commission is empowered to establish a system of accounts to be kept by public utilities subject
to its jurisdiction. On July 9, 2008 , the Commission issued a Notice of Application and Modified
Procedure. The Commission Staff was the only party to submit comments regarding Avista
Application.
THE APPLICATION
In May 2003 , varIOUS parties (all of which are residents or businesses of Colstrip,
Montana) filed a consolidated complaint against the owners of the Colstrip Generating Project
(Colstrip) in Montana District Court. A vista states that it owns a 15 percent interest in Units 3 & 4 of
the Colstrip Generating Project. The plaintiffs alleged damages to buildings as a result of rising
groundwater, as well as damages from contaminated waters leaking from the holding ponds of
Colstrip. The plaintiffs sought compensatory and punitive damages for abatement, unjust
emichment, trespass, property diminution, and emotional distress.
A vista estimates that its share of the lawsuit settlement payment, absent any recovery
from applicable insurance carriers, is $2 084 443. Avista claims that it could potentially recover
DECISION MEMORANDUM
approximately $734 035 under the relevant insurance policies and thereby reduce its out of pocket
expense to approximately $1 350 408. The Defendant, Colstrip Generating Project, is currently
seeking indemnification from its insurance carriers. A vista does not hazard a guess as to the possible
outcome.
A vista asserts that the settlement terms represent a favorable resolution of this matter
becC1;use it (1) offers a final resolution of more than five years of disputed litigation; (2) represents a
substantial reduction of Avista s potential exposure for "excessive compensatory and punitive
damages ; (3) facilitates Avista s negotiation with the Montana 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.
A vista requests an "order allowing for the deferral of the settlement payment.The
Company states that it will more fully "address the prudency and recovery of the settlement payment
and propose a method of recovery of the settlement payment(,J" minus "any reimbursement from
insurance carriers " in its next general rate case, or any other proceeding the Commission deems
appropriate. Id.
The Company specifically requests the "authority to defer the Colstrip settlement payment
in Account 186 - Miscellaneous Deferred Debits.Id. The Company states that the "settlement
payment will be allocated to the Washington and Idaho jurisdictions based on the current
Production/Transmission allocation of 64.59% to Washington and 35.41 % to Idaho, and placed in
separate Washington and Idaho 186-accounts.Id. The Company would apply the typical customer
deposit rate to Idaho s share of the deferrals. Id.
COMMENTS
Staff reviewed Avista s Application for an order authorizing a deferral of the Colstrip
Lawsuit Settlement Payment and recommends that the Company be permitted to defer its share of the
settlement payment. Staff believes that the Application is appropriate because absent an accounting
order the Company would most likely not be allowed recovery for past expenses in its next general
rate case. However, Staff does not support Avista s request for a carrying charge on the Idaho share
of the deferrals.
Staff notes that approving the Company s request for a deferral "would not change rates
currently charged to customers." Staff Comments at 3. The deferral amount would be diverted into
DECISION MEMORANDUM
Account 186 - Miscellaneous Deferred Debits and allocated to the Idaho and Washington
jurisdictions at the production/transmission allocation percentage of 64.59% for Washington and
35.41 % for Idaho. Id. The Idaho jurisdictional share of the $2 084 443 settlement payment would be
approximately $738 101 , less any insurance proceeds. Id. A vista estimates that it could recover
approximately $259 922 under relevant insurance policies, lowering the Idaho total to approximately
$478 179. Id. A vista included the Colstrip project in the rate base and expenses upon which A vista
revenue requirement and resulting rates were calculated. Id.; see also Case No. A VU-04-
As mentioned above, Staff does not support "Avista s proposed accounting treatment"
that would allow the Company to "accrue interest on the Idaho share of the deferrals at the customer
deposit rate.Id. at 3. Staff believes that "granting the Company deferral of expenses that would
likely otherwise be umecoverable is s~fficient relief to the Company.Id. at 3-
Thus, Staff recommends that the Commission authorize the following:
1. Deferral of the settlement payment into Account 186 - Misc. Deferred Debits
without interest;
2. Record any insurance proceeds received by the Company in Account 186 -
Misc. Deferred Debits, reducing the total amount of the settlement payment;
3. Record the amounts in Account 186 - Misc. Deferred Debits according to the
aforementioned Idaho and Washington production/transmission jurisdictional
allocation; and
4. Delay any recovery for the amount of the deferral until the next general rate
case or other proceeding as the Commission deems appropriate.
COMMISSION DECISION
Does the Commission wish to approve Avista s Application for an accounting order
authorizing the Company to defer payment of its portion of a lawsuit settlement payment originating
from litigation involving the Colstrip Generating Project in Colstrip, Montana? Does the
Commission wish to approve Avista s request to institute a carrying charge on Idaho s jurisdictional
share of the deferral amount?
fI1S"rice
Deputy Attorney General
M:A VU-O8-np2
DECISION MEMORANDUM