20080806final_order_no_30611.pdf

Office of the Secretary
Service Date
August 6, 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF A VISTA CORPORATION DBA A VISTA
UTILITIES FOR AN ORDER
AUTHORIZING THE ACCOUNTING OF
WIND GENERATION SITE COSTS AS
CONSTRUCTION WORK IN PROGRESS
ORDER NO. 30611
CASE NO. A VU-08-
On June 4, 2008, A vista Corporation filed an Application requesting an order
allowing for costs associated with wind generation site land, land rights, reservation costs, and
other incremental costs associated with site evaluation, selection and acquisition to be accounted
for as construction work in progress (CWIP), and allowing for the accrual of allowance for funds
used during construction (AFUDC).The Application states that in May the Company
purchased permits, studies, lease assignments and wind data for the development of a wind
generation site near Reardan, Washington. The Company is requesting to have all reservation
payments and other costs associated with development of the site accounted for as CWIP. A vista
asserts that Commission authorization is required to account for wind generation site costs in
FERC Account 107-CWIP, because normally this account is used when plant is in the process of
construction. Construction at the site is not expected to begin until 2011. Given the lead time
between the expenditures for site costs, the ordering of equipment and start of construction
A vista states it is necessary to obtain Commission approval to account for these costs in Account
107 -CWIP.
On June 25, 2008, the Commission issued a Notice of Application and Notice of
Modified Procedure that, among other things, established a period for interested parties to file
comments. Written comments were filed only by Staff.
Where construction has not started on the project, the expenditures identified in
A vista s Application are typically booked in asset accounts as land, plant held for future use
research and development or as ordinary expenses. The asset accounts accrue costs that may be
included for recovery in future rates. Under this normal accounting treatment, AFUDC would
not accrue until the assets become part of a work order where actual construction has started.
Avista s Electric Integrated Resource Plan (IRP) filed August of 2007 projects 300
megawatts of wind generation capacity to be added to the Company s generation resources.
ORDER NO. 30611
Current demand for wind sites and equipment needed for the industry to meet various renewable
resource requirements creates a situation justifying deviation from the normal accounting
treatment for these resource acquisition expenditures. To fulfill the wind resources in the IRP
and meet the renewable resource requirements in the most cost effective and efficient manner
A vista has been actively seeking wind sites and property rights. A vista believes increases in
demand for turbines and limited site locations will continue to drive up the costs of wind
generation. Accordingly, Avista believes it is cost effective and prudent to secure land rights and
equipment now, even though actual construction will not begin until 2011.
The Commission finds that Avista s acquisition of sites for later wind development
has merit, justifying deviation from the traditional accounting treatment for these costs.
Accordingly, we approve the Company s Application for an Order allowing costs associated
with wind generation site land, land rights, reservation costs, and other incremental costs
associated with site evaluation, selection and acquisition to be accounted for as construction
work in progress (CWIP). Avista may accrue the allowance for funds used during construction
(AFUDC) in a separate subaccount. A vista is required to file a cost/benefit analysis where the
actual total cost of the wind project including AFUDC is justified and compared to the all-in-cost
of alternatives prior to the total costs being included in rates. Because AFUDC normally does
not accrue on preliminary costs, the analysis of the total actual costs and jurisdictional allocation
review is necessary to evaluate the reasonableness of AFUDC recovery. To facilitate this project
review, Avista must record the AFUDC in a separate subaccount from the other project costs
and maintain workpapers separately identifying the various components of AFUDC, specifically
the borrowed funds.
ORDER
IT IS HEREBY ORDERED that the Commission authorizes Avista to book the
described costs associated with wind generation site land, land rights, reservation costs and other
incremental costs as construction work in progress, and the accrual of funds used during
construction.
IT IS FURTHER ORDERED that Avista is required to utilize a separate subaccount
for the AFUDC and maintain workpapers identifying the components of AFUDc.
IT IS FURTHER ORDERED that Avista is required to file a cost benefit analysis
showing the actual total cost of the wind project, including AFUDC, is reasonable and the
ORDER NO. 30611
jurisdictional allocation is justified compared to the all-in-cost of alternatives prior to inclusion
in rates.
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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
(p
day of August 2008.
MARSHA H. SMITH, COMMISSIONER
/.
JI . KEMPTON CO MISSIONER
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ATTEST:
~LDJea . Jewell
Co mission Secretary
bls/O:A VU-08-04 ws2
ORDER NO. 30611