20080716Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
3: S4
Street Address for Express Mail:
472 WWASHINGTON
BOISE ID 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 ORDER AUTHORIZING )
THE ACCOUNTING OF WIND GENERATION )
SITE COSTS AS CONSTRUCTION WORK IN )PROGRESS. )
)
CASE NO. A VU-E-08-4
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through
its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the
Notice of Application and Notice of Modified Procedure issued in Order No. 30581 on
June 25, 2008, submits the following comments.
BACKGROUND
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 fuds used
during construction (AFUDC)." Avista's Integrated Resource Plan calls for the acquisition of
300 MW of wind generation capacity.
STAFF COMMENTS 1 JULY 16, 2008
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. According to the Application,
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 constrction.
Construction at the site is expected to begin in 2011. Given the lead time between the
expenditures for site costs, the ordering of equipment and star of construction, A vista states it is
necessary to obtain Commission approval to account for these costs in Account 107-CWIP.
STAFF REVIEW
A vista requests authority to account for wind generation site land, land rights, reservation
costs and other incremental costs associated with site evaluation, selection and acquisition as
constrction work in progress and allow the accrual of allowance for fuds used during
construction. Since constrction has not staed on the project, these expenditues are typically
booked in asset accounts as land, plant held for future use, research and development or as
ordinar expenses. The asset accounts accrue costs that may be included for recovery in futue
rates. However, the normal treatment would not accrue AFUDC until the assets become par of a
work order where actual constrction has stared. The ordinar expenses would not normally be
recovered in rates as they would be booked in the year the costs are incured.
A vista's Electric Integrated Resource Plan (IRP) fied August of 2007 included 300
megawatts of wind generation capacity. Avista believes wind generation is curently the most
commercially viable technology to meet renewable portfolio stadards (RPS). At this time
Avista's electric RPS requirements are directed by Washington. When the wind resource is par
of the least cost/least risk portfolio, the allocation of the renewable attributes and associated
value to meet the RPS is the issue when resources are placed in service. When the Washington
requirements result in acquisitions that are no longer in the least cost/least risk portfolio, cost
allocation of the plant also becomes an issue. The above issues will need to be resolved in the
futue before or when the generation facilities or contracts are included in rates.
Current high demand for wind sites and equipment for the industry to meet various RPS
requirements creates one reason why the normal accounting treatment for these expenditures
may not be sufficient. To fulfill the wind resources in the IRP and meet the RPS requirements in
STAFF COMMENTS 2 JULY 16, 2008
the most cost effective and effcient maner, Avista has been actively seeking wind sites and
rights. A vista believes increasing demand for turbines and limitations on site locations will only
continue to increase the costs of wind generation. Therefore, A vista believes it is cost effective
and prudent to secure land rights and equipment now for anticipated constrction to begin in
2011.
Although somewhat speculative, Staff believes Avista's advanced site acquisition activity
has merit and its rationale is reasonable justification to deviate from traditional accounting
treatment. Staff believes there are two reasonable options to encourage A vista to continue
pursuing cost effective wind resources while reasonable options exist. The options Staff
considered are treating expenditures as CWIP or treating them as a regulatory asset. Both are
acceptable accounting treatments.
Staff recommends A vista be required to file a cost!enefit 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. AFUDC is not normally accrued on
the preliminar costs so the analysis of the total actual costs is necessar to evaluate the
reasonableness of AFUDC recovery. This review can be completed under both alternative
accounting treatments. To faciltate this project review, Staff recommends Avista record the
AFUDC in a separate subaccount from the other project costs. Staff also recommends A vista
maintain workpapers separately identifying the various components of AFUDC, specifically the
borrowed fuds.
One option Staff believes is reasonable is to book the expenditues in CWIP as requested
by A vista. This method follows the normal construction process but allows booking the accrual
of AFUDC sooner. Depreciation will begin when the project is placed in service. The benefits
of this method are that it more closely utilzes normal construction accounting processes and
depreciation will automatically begin when the project is placed in service.
Another option Staff believes is reasonable allows Avista to book the described
expenditures as a regulatory asset. This method does not follow the normal construction
accounting and requires specific authorization to begin depreciation. It also requires more
specific regulatory authorization for the facilty to be included in rate base and rates. Staff
recommends this method if the Commission desires a more formal regulatory review and
approval process.
STAFF COMMENTS 3 JULY 16, 2008
Staff believes adequate review of actual project costs including AFUDC and
authorization for inclusion in rates is required under either method. Therefore uness the
Commission desires a more formal process, Staff recommends the expenditues be recorded as
CWIP with a demonstration of prudency and cost effectiveness before inclusion of the costs in
rates.
STAFF RECOMMENDATIONS
Staff recommends the following:
The Commission authorize A vista to book the described costs associated with
wind generation site land, land rights, reservation costs and other incremental costs as CWIP. If
the Commission desires greater formal regulatory review, booking the costs as a regulatory asset
would be recommended.
A vista be required to utilze a separate subaccount for the AFUDC and maintain
workpapers identifying the components of AFUDC.
A vista be required to demonstrate the actual all-in-costs of the project including
AFUDC are reasonable compared to other alternatives in a cost!enefit analysis prior to the
inclusion of the total costs in rates.
Respectfully submitted this \ (r~ day of July 2008.
~~
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Terr Carlock
i:umisc: commentsavue08.4wstc
STAFF COMMENTS 4 JULY 16, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 16TH DAY OF JULY 2008, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-E-08-04, 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(iavistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE WA '99220
E-MAIL: kelly.norwood(iavistacorp.com
J!h.tûL
SECRETARY
CERTIFICATE OF SERVICE