20090123Andrews Direct.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REGULATORY & GOVERNENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727TELEPHONE: [phone]FACSIMILE: [phone]
R--- i: ri r ~, I:'"'t, ~~ \..1 c: i '!t" ro,)
2U09 JAN 23 PM 12: 44
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION FOR THE
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC AN
NATURAL GAS SERVICE TO ELECTRIC
AND NATURAL GAS CUSTOMERS IN THE
STATE OF IDAHO
FOR AVISTA CORPORATION
CASE NO. AVU-E-09-01
CASE NO. AVU-G-09-01
DIRECT TESTIMONY
OF
ELIZABETH M. ANDREWS
(ELECTRIC AND NATURAL GAS)
1
2
3
CONTENTS
Section Page
I Introduction 2
4 II Combined Revenue Requirement sumry 4
III Electric Section 65
6
7
8
Revenue Requirement 14
Standard Commission Basis Adjustments 16
Pro Forma Adj us tmen ts 27
9 IV Natural Gas Section 49
10 Revenue Requirement 50
11 Standard Commission Basis Adjustments 52
12
13
14
Pro Forma Adjustments 59
V Allocation Procedures 65
VI Other 65
15
1617 Exhibit No. 10:
18 Schedule 1 - Electric Revenue Requirement and
19
20
Results of Operations (pgs 1-11)
Schedule 2 - Natural Gas Revenue Requirement and
21 Results of Operations (pgs 1-8)
Andrews, Di 1
Avista Corporation
1
2
I.INTRODUCTION
Q.Please state your name, business address, and
3 present position with Avista Corporation.
4 A.My name is Elizabeth M. Andrews.I am employed
5 by Avista Corporation as Manager of Revenue Requirements in
6 the State and Federal Regulation Department.My business
7 address is 1411 East Mission, Spokane, Washington.
8 Q.Would you please describe your education and
9 business experience?
10 A.I am a 1990 graduate of Eastern washington
11 University with a Bachelor of Arts Degree in Business
12 Administration, majoring in Accounting. That same year, I
13 passed the November Certified Public Accountant exam,
14 earning my CPA License in August 1991.I worked for
15 Lemaster & Daniels, CPAs from 1990 to 1993, before joining
16 the Company in August 1993.I served in various positions
17 within the sections of the Finance Department, including
18 General Ledger Accountant and Systems Support Analyst until
19 2000.In 2000, I was hired into the State and Federal
20 Regulation Department as a Regulatory Analyst until my
21 promotion to Manager of Revenue Requirements in early 2007.
22 i have also attended several utility accounting, ratemaking
23 and leadership courses.
24 Q.As Manager of Revenue Requirements, what are your
25 responsibilities?
Andrews, Di 2
Avista Corporation
1 A.As Manager of Revenue Requirements, aside from
2 special projects, I am responsible for the preparation of
3 normalized revenue requirement and pro forma studies for
4 the various jurisdictions in which the Company provides
5 utility services. During the last eight and a half years I
6 have assisted or lead the Company's electric and/or natural
7 gas general rate filings in Idaho, Washington, and Oregon.
8 Q.What is the scope of your testimony in this
9 proceeding?
10 A.My testimony and exhibits in this proceeding will
11 generally cover accounting and financial data in support of
12 the Company's need for the proposed increase in rates.I
13 will explain pro formed operating results including expense
14 and rate base adjustments made to actual operating results
15 and rate base.
16 I incorporate the Idaho share of the proposed
17 adjustments of several witnesses in this case.For
18 example, Company witnesses Mr. DeFelice sponsors and
19 describes the Company's pro forma 2008 and 2009 capital
20 additions adjustments, and Mr. Storro explains other issues
21 impacting the Company, such as the increased generation
22 plant capital and operating and maintenance (O&M) expenses,
23 including the Colstrip mercury emissions O&M expense.
24 Company witness Mr. Kinney discusses the transmission net
25 expenses, Asset Management Program expenses, and the
Andrews, Di 3
Avista Corporation
1 transmission and distribution capital expenditures included
2 in Mr. DeFelice's pro forma capital adjustments.Lastly,
3 Company witness Mr. Johnson prepared the total system prO
4 forma power supply adjustment, while Ms. Knox sponsors the
5 revenue normalization adjustment.
6 Q.Are you sponsoring any exhibits to be introduced
7 in thi s proceeding?
8
9
10
A.Yes.I am sponsoring Exhibit No. 10, Schedule 1
(Electric) and Schedule 2 (Natural Gas), which were
prepared under my direction.These Exhibi t Schedules
11 consist of worksheets, which show actual 2008 operating
12 results (twelve-month period ending September 30, 2008),
13 pro forma, and proposed electric and natural gas operating
14 results and rate base for the State of Idaho, the Company's
15 calculation of the general revenue requirement,the
16 derivation of the net operating income to gross revenue
17 conversion factor, and the pro forma adjustments proposed
18 in this filing.
19
20
21
II.COMBINED RE REQUIRENT SUMY
Q.Would you please sunarize the results of the
22 Company's pro form study for both the electric and natural
23 gas operating systems for the Idaho jurisdiction?
24 A.Yes.After taking into account all standard
25 Commission Basis adjustments, as well as additional pro
Andrews, Di 4
Avista Corporation
1 forma and normalizing adjustments, the pro forma electric
2 and natural gas rates of return ("ROR") for the Company's
3 Idaho jurisdictional operations are 5.34% and 6.87%,
4 respectively.Both return levels are below the Company's
5 requested rate of return of 8.80%. The incremental revenue
6 requirement for base retail rates, necessary to give the
7 Company an opportunity to earn its requested ROR is
8 $31,233,000 for the electric operations and $2,740,000 for
9 the natural gas operations.The overall base electric
10 increase associated with the Company's request is 14.18%1.
11 However, as explained by Company witness Mr. Hirschkorn,
12 with the reduction of a portion of the Power cost
13 Adjustment (PCA) surcharge of 5.6% planned at the same time
14 the general rate increase will go into effect for
15 customers, the net impact on the residential customers'
16 bill is anticipated to be approximately 8.6%.The base
17 natural gas increase is 2.99%.
18 Q.What is the Company's rate of return that was
19 last authorized by this Commission for it's electric and
20 natural gas operations in Idaho?
21 A.The Company's currently authorized rate of return
22 for its Idaho operations is 8.45% , effective October 1,
23 2008 for both our electric and natural gas systems.
i Percentages reflect the proposed increase to base tariff rates, Mr.
Hirschkorn describes the effect based on present billing rates.
Andrews, Di 5
Avista Corporation
1 III.ELECTRIC SECTION
2 Changes Since the 2007 Test Period
3 Q.On what test period is the Company basing its
4 need for additional electric revenue?
5 A.The test period being used by the Company is the
6 twelve-month period ending September 30, 2008, presented on
7 a pro forma basis.Currently authorized rates are based
8 upon the 2007 test year utilized in Case No. AVU-E-08-01,
9 adjusted on a pro forma basis.
10 Q.By way of sumry, could you please explain the
11 different rates of return that you will be presenting in
12 your testimony?
13 A.Yes. As shown in Illustration No. 1 below, there
14 are three different rates of return that will be discussed.
15 The actual ROR earned by the Company during the test
16 period, the Pro Forma ROR determined in my Exhibit No.11,
Schedul e 1, and the reques ted ROR.17
18
19
20
21
Illustration No.1:
AvistaCorp
Rates of Retu
8.00%
10.00%
6.00%
22
23
24
4.00%
2.00%
0.00%
Actual Pro Form Requested
Andrews, Di 6
Avista Corporation
1 Q.What are the primary factors driving the
2 Company's need for an electric increase?
3 A.Illustration No.2 below,shows the primary
4 factors driving the electric revenue requirement in this
5 case.Additional details regarding these items are
6 provided later in my testimony.
8
Illustration No.2:
Primary Components of Electric Revenue Requirement
7
9
18
Distribution & Other
Expense
11%
Distribution Operation &
Maintenance Costs
Administrative & General Expenses
Production &
Transmission
Expense
38%
Increased Loads
Mid Columbia Purchases
Production O&M - Plant Exp.
& Mercury Abatement Exp.
10
11
Increased Net Plant
Investment!
35%
Generation Upgrades
-Hydro & Theral
Transmission Upgrades
Distrbution
Propert Tax on CS2
12
13
14
15
16
17
19 i includes return on investment, depreciation and
taxes, offset by the tax benefit of interest.
Hydro Relicensing &
Compliance Issues
16%
Spokane River Relicensing
CDA Tribe Settlement
20
21 Q.Please describe the primary factors driving the
22 Company's need for an electric increase?
23 A.There are numerous factors that have impacted the
24 Company's Idaho electric results of operations since the
25 last rate case.Net Operating Income ("NOI") has declined
Andrews, Di 7
Avista Corporation
1 approximately $6 million, or 13.4%, and total rate base has
2 increased approximately $47.1 million, or 8.9%.During
3 this same time period, the average number of customers has
4 increased by nearly 2%. The Company's electric request is
5 driven by changes in various operating cost components as
6 shown by the pie chart (Illustration No. 2 above),
7 primarily power supply costs, plant investment or rate base
8 growth associated with generation,transmission and
9 distribution plant (including pro forma capital spending
10 requirements during 2009) and by various hydro relicensing
11 efforts impacting the Utility.
12 Q.Please explain each of the four components or
13 segments shown in Chart No. 2 above.
14
15
A.The first segment, Production and Transmission
Expense increases,as explained below,comprise
16 approximately 35% of the overall request. The next largest
17 segment is Increased Net Plant Investment.As already
18 noted, net rate base for the Idaho jurisdiction increased
19 approximately $47.1 million, or 8.9%, of which $15.1
20 million comprise of additional "gross" generation plant,
21 both hydro and thermal, and transmission plant.In
22 addition, gross distribution plant increased $26.2 million,
23 or 7.2%, partially due to the 2% customer growth.The
24 depreciation recovery, taxes associated with plant, and the
25 return on additional plant investment offset by the tax
Andrews, Di 8
Avista Corporation
1 benefit of interest (excluding rate base associated with
2 hydro relicensing efforts noted below) ,make up
3 approximately 35% of the overall Company request.
4 Additional plant investment relating to the hydro
5 relicensing and compliance efforts pro formed into this
6 case make up approximately 19% of the overall request, and
7 include the intangible net rate base and expenses
8 associated with the Spokane River relicensing and Coeur
9 d'Alene Tribe (CDA Tribe) Settlement agreement.The
10 majority of these charges were reviewed in the Company's
11 previous general electric rate case proceeding, Case No.
12 AVU-E-08-01, and were approved for deferral and later
13 recovery following completion of the agreement with the CDA
14 Tribe, and receipt of the new license for the Spokane
15 River.Specifically, the Company was allowed to defer the
16 amortization of these charges, including a carrying charge
17 on the deferrals and unamortized balance, and include
18 recovery of these costs in its next general rate case. (See
19 Order No. 30647)As explained further in my testimony,
20 these amounts have been included for recovery in this
21 general rate case filing.
22 The remaining cost category, Distribution and Other
23 Expense, which includes increases to all other operating
24 categories,such as distribution expenses,customer
Andrews, Di 9
Avista Corporation
1 service,and administrative and general,totals
2 approximately 11% of the overall request.
3 Q.Could you please provide additional details
4 related to the changes in Production and Transmission
5 expense?
6 A.As discussed in Mr. Johnson's testimony, the
7 level of Idaho's share of power supply expense has
8 increased by approximately $11.8 million ($33.2 million on
9 a system basis) from the level currently in base rates.
10 This increase in pro forma power supply expense over
11 the expense currently in base rates is based on numerous
12 factors., including higher retail loads, reduced hydro
13 generation due to the elimination of the rate mitigation
14 adjustment (included in the Company's last Idaho electric
15 general rate case in Docket No. AVU-E-08-01) and the
16 expiration of the Mid-Columbia (Wanapum)contract in
17 November 2009.
18 Pro forma retail loads are 22.7 aM higher than loads
19 that current rates are based on.The increased loads are
20 due to two factors. One is the natural increase in retail
21 loads of approximately 14.3 aMW. The other 8.4 aMW of load
22 increase is due to the reduction in Potlatch generation.
23 Hydro generation is also lower than the level in current
24 base rates by a reduction of 29.8 aMW (system).Mr.
Andrews, Di 10
Avista Corporation
1 Johnson discusses these differences in detail in his
2 testimony.
3 Q.Could you please identify the main components of
4 the "Distribution &: Other" segment shown in the chart
5 above?
6
7
A.Yes.A number of expense items have increased
since 2007, which have been included in this case.For
8 example, employee benefits such as wages, pension and
9 medical insurance expenses have increased, as well as other
10 administrative and general expenses such as those related
11 to the Company's information services.
12 We are utilizing a twelve-month ending September 30,
13 2008 test year, since that is the most recent normalized
14 financial information the Company has available; however,
15 new general electric rates resulting from this filing are
16 not expected to go into effect until mid-2009.
17 Accordingly, the Company has included a number of pro forma
18 adjustments to capture some of the measurable cost changes
19 that the Company will experience from the test year.
20 Q.What were the major components of the $47.2
21 million increase in total rate base?
22 A.Looking at the changes to "gross" plant in
23 service shows that gross plant increased almost $75.7
24 million (Idaho), or 7.9%, as compared to what is currently
25 included in rates. Included in this "gross" plant total is
Andrews, Di 11
Avista Corporation
1 $28.6 million of pro forma capital recorded in intangible
2 plant, mainly associated with the Spokane River relicensing
3 and Coeur d'Alene Tribe Settlement agreement or
4 approximately 37.8% of the total change to "gross" plant.
5 To continue to meet the energy and reliability needs
6 of our customers, the Company has invested additional
7 amounts in thermal and hydro generating facilities, as well
8 as additional transmission investment.The total
9 production and transmission plant investment included in
10 this case (discussed later in my testimony) totaled
11 approximately $15.1 million or 20% of the total change to
12 "gross" plant.
13 The specific pro forma capital expenditures undertaken
14 by the Company to upgrade its generation and transmission
15 facilities and improve operating efficiency and
16 reliability, are discussed further by Mr. Storro regarding
17 production assets, and Mr. Kinney regarding transmission
18 assets.Mr.Kinney also discusses the pro forma
19 distribution proj ects.
20 Q.What other rate base additions are included in
21 Total Rate Base?
22 A.Distribution "gross"plant increased $26.2
23 million or 7.2% above the current level included in rates,
24 in part due to the approximate 2% average customer growth
25 from 2007 through 2008, while general "gross" plant
Andrews, Di 12
Avista Corporation
1 increased $5.7 million or 10.3% above the current level
2 included in rates.
3 Later in my testimony, i will address the Spokane
4 River relicensing and Coeur d' Alene Tribe Settlement
5 agreement pro forma adjustments, and the additional net
6 rate base adjustments labeled "Pro Forma Capital Additions
7 2008" and "Pro Forma Capital Additions 2009" included in
8 Exhibi t No. 10, Schedule 1 pages 8 and 9.This exhibi t
9 explains the detail behind the normalizing and pro forma
10 net operating income and rate base adjustments.
11 The figures listed above are "gross" plant investment
12 changes.Again,taking into account increases to
13 Accumulated Depreciation and Amortization and Deferred
14 Federal Income Tax offsets, this produces the net $47.2
15 million, or 8.9% increase to Total Rate Base. Depreciation
16 expense, which has largely followed the 7.9% growth in
17 gross plant-in-service, has increased $4.2 million.
18
19
Q.Mr. DeFelice sponsors the pro forma capi tal
adjustments included in this case.Could you please
20 briefly describe the conclusions drawn by Mr. DeFelice
21 regarding the increased capital investment?
22 A.Yes.As described in Mr. DeFelice's testimony,
23 the Company is making substantial levels of capital
24 investment in its electric and natural gas system
25 infrastructure to address customer growth, replacement and
Andrews, Di 13
Avista Corporation
1 maintenance of Avista' s aging system, and to provide for
2 increased reliability and safety requirements. As soon as
3 this new plant is placed in service, the Company must start
4 depreciating the new plant and incur other costs related to
5 the investment. Unless this new investment is reflected in
6 retail rates in a timely manner, it has a negative impact
7 on Avista' s earnings, particularly because the new plant is
8 typically far more costly to install than the cost of
9 similar plant that was embedded in rates decades earlier.
10 As plant is completed and is providing service to
11 customers, it is appropriate for the Company to receive
12 timely recovery of the costs associated with that plant.
13
14 Revenue Requirement
15 Q.Would you please explain what is shown in Exhibit
16 No. 10, Schedule 1?
17 A.Yes. Exhibit No. 10, Schedule 1 shows actual and
18 pro forma electric operating results and rate base for the
19 test period for the State of Idaho.Colum (b) of page 1
20 of Exhibit No. 10, Schedule 1 shows 2008 (twelve-month
21 ending September 30, 2008) operating results and components
22 of the average-of-monthly-average rate base as recorded;
23 column (c) is the total of all adjustments to net operating
24 income and rate base; and colum (d) is pro forma results
25 of operations, all under existing rates. Colum (e) shows
Andrews, Di 14
Avista Corporation
1 the revenue increase required which would allow the Company
2 to earn an 8.80% rate of return.Column (f) reflects pro
3 forma electric operating results with the requested
4 increase of $31,233,000.The restating adjustments shown
5 in colums c through w, of pages 4 through 7 of Exhibit No.
6 10, Schedule 1, are consistent with the treatment reflected
7 in the prior Commission Orders in Case Nos. AVU-E-04-01,
8 AVU-E-08-01 and current regulatory principles.
9 Q.Would you please explain page 2 of Exibit No.
10 10, Schedule 1?
11 A.Yes.Page 2 shows the calculation of the
12 $31,233,000 revenue requirement at the requested 8.80% rate
13 of return.
14 Q.Would you now please explain page 3 of Exibit
15 No. 10, Schedule 1?
16
17
A.Yes.Page 3 shows the derivation of the net
operating income to gross revenue conversion factor.The
18 conversion factor takes into account uncollectible accounts
19 receivable, Commission fees and Idaho State excise taxes.
20 Federal income taxes are reflected at 35%.
21 Q.Now turning to pages 4 through 9 of your Exhibit
22 No. 10, Schedule 1, would you please explain what those
23 pages show?
24 A.Yes. Page 4 begins with actual operating results
25 and rate base for the twelve-month period ending September
Andrews, Di 15
Avista Corporation
1 30, 2008 test period in column (b). Individual normalizing
2 adjustments consistent with prior regulatory treatment
3 (standard Commission Basis adjustments) begin in column (c)
4 on page 4 and continue through colum (w) on page 7.
5 Individual pro forma and additional normalizing adjustments
6 begin in column (PF1) on page 7 and continue through column
7 (PF22) on page 11.The final column on page 11 (PFT) is
8 the total pro forma operating results and rate base for the
9 test period. Additional details related to each adjustment
10 described below are provided in accompanying workpapers.
11
12 Standard Comission Basis Adjustments
13 Q.Would you please explain each of these
14 adjustments, the reason for the adjustment and its effect
15 on test period State of Idaho net operating income and/or
16 rate base?
17 A.Yes, but before I begin, I will note that in
18 addition to the explanation of adjustments provided herein,
19 the Company has also provided workpapers outlining
20 additional details related to each of the adjustments.
21 The first adjustment, column (c) on page 4, entitled
22 Deferred FIT Rate Base, reflects the rate base reduction
23 for Idaho's portion of deferred taxes.The adj us tmen t
24 reflects the deferred tax balances arising from accelerated
25 tax depreciation (Accelerated Cost Recovery System, or
Andrews, Di 16
Avista Corporation
1 ACRS, and Modified Accelerated Cost Recovery, or MACRS),
2 bond refinancing premiums, and contributions in aid of
3 construction.These amounts are reflected on the average
4 of monthly average balance basis. The effect on Idaho rate
5 base is a reduction of $82,407,000.
6 The adjustment in colum (d), Deferred Gain on Office
7 Building, reflects the rate base reduction for Idaho's
8 portion of the net of tax, unamortized gain on the sale of
9 the Company's general office facility.The facility was
10 sold in December 1986 and leased back by the Company.
11 Although the Company repurchased the building in November
12 2005, the Company opted to continue to amortize the
13 deferred gain over the remaining amortization period
14 scheduled to end in 2011. The effect on Idaho rate base is
15 a reduction of $164,000.
16
17
18
19
The adjustment in colum (e) , Colstrip 3 AFU
Elimination,is a reallocation of rate base and
depreciation expense between jurisdictions.In Cause Nos.
U-81-15 and U-82-10,the Washington Utilities and
20 Transportation Commission (WUTC) allowed the Company a
21 return on a portion of Colstrip Unit 3 construction work in
22 progress ("CWIP"). A much smaller amount of Colstrip Unit
23 3 CWIP was allowed in rate base in Case U-1008-144 by the
24 I PUC . The Company eliminated the AFUDC associated with the
25 portion of CWIP allowed in rate base in each jurisdiction.
Andrews, Di 17
Avista Corporation
1 Since production facilities are allocated on the
2 Production/Transmission formula, the allocation of AFUDC is
3 reversed and a direct assignent is made.The rate base
4 adjustment reflects the average of monthly averages amount
5
6
for the test period.The effect on Idaho net operating
income is a decrease of $202,000.The effect of the
7 reallocation on Idaho rate base is an increase of
8 $1,956,000.
9 The adjustment in column (f), Colstrip Comon AFUDC,
10 is also associated with the Colstrip plants in Montana, and
11 increases rate base.Differing amounts of Colstrip common
12 facilities were excluded from rate base by this Commission
13 and the WUTC until Colstrip unit 4 was placed in service.
14 The Company was allowed to accrue AFUDC on the Colstrip
15 common facilities during the time that they were excluded
16 from rate base.It is necessary to directly assign the
17 AFUDC because of the differing amounts of common facilities
18 excluded from rate base by this Commission and the WUTC.
19 In September 1988, an entry was made to comply wi th a
20 Federal Energy Regulatory Commission ("FERC")Audit
21 Exception, which transferred Colstrip common AFUDC from the
22 plant accounts to account 186.These amounts reflect a
23 direct assignment of rate base for the appropriate average
24 of monthly averages amounts of Colstrip common AFUDC to the
25 washington and Idaho jurisdictions.Amortization expense
Andrews, Di 18
Avista Corporation
1 associated with the Colstrip common AFUDC is charged
2 directly to the washington and Idaho jurisdictions through
3 Account 406 and is a component of the actual results of
4 operations.The rate base adjustment reflects the average
5 of monthly averages amount for the test period. The effect
6 on Idaho rate base is an increase of $925,000.
7 The adjustment in column (g), Kettle Falls &: Boulder
8 Park Disallowances, decreases rate base.The amounts
9 reflect the Kettle Falls generating plant disallowance
10 ordered by this Commission in Case No. U-1008-18-5 and the
11 Boulder Park plant disallowance ordered by the IPUC in case
12 No. AVU-E-04-1.This Commission disallowed a rate of
13 return on $3,009,445 of investment in Kettle Falls, and
14 $2,600,000 million of investment in Boulder Park.The
15 disallowed investment and related accumulated depreciation
16 are removed.These amounts are a component of actual
17 results of operations. The effect on Idaho rate base is a
18 decrease of $2,233,000.
19 The adjustment in column (h), Customer Advances,
20 decreases rate base for moneys advanced by customers for
21 line extensions, as they will most likely be recorded as
22 contributions in aid of construction at some future time.
23 The effect on Idaho rate base is a decrease of $885,000.
24 Q.Please turn to page 5 and explain the adjustments
25 shown there.
Andrews, Di 19
Avista Corporation
1 A.Page 5 starts with the adjustment in colum (i),
2 Weatherization and DSM Investment, which includes in rate
3 base balances (net of amortization) of weatherization
4 grants, the model conservation program costs and electric
5 demand side management (DSM) program costs upon which AFUCE
6 is no longer being accrued and full amortization was
7
8
implemented beginning August 1994.These amounts are a
component of actual results of operations.The effect on
9 Idaho rate base is an increase of $1,669,000.
10 Q.Would you please explain how energy efficiency-
11 related expenditures impact the revenue requirement in this
12 case?
13 A.Yes.The unamortized balance of energy
14 efficiency management investment incurred prior to 1995 is
15 included in the results of operations and is a rate base
16 item in the colum (i) adjustment just described.DSM
17 expenditures incurred after March 13, 1995 have been offset
18 by revenues from the Company's energy efficiency tariff
19 rider, Schedule 91, and are not included in the revenue
20 requirement.
21 As the Commission is aware, the Company's tariff rider
22 under Schedule 91 was the first non-bypassable distribution
23 charge in the United States to fund energy efficiency. Mr.
24 Folsom provides additional detail and addresses the
25 prudence of the expenditures under this tariff.
Andrews, Di 20
Avista Corporation
1 Q.Please continue with your explanation of the
2 adjustments on page 5.
3 A.The next column entitled Subtotal Actual
4 represents actual operating results and rate base plus the
5 standard rate base adjustments.
6 The adjustment in colum (j), Depreciation True-up,
7 reflects a decrease in depreciation expense due to the
8 utilization of new depreciation rates effective January 1,
9 2008 as approved by Order No. 30498 in Case No. AVU-E-07-
10 11.These rates became effective after the three months
11 (October through December 2007) included in the test
12 period.This adjustment annualizes the current effective
13 rates for the test period. This adjustment increases Idaho
14 net operating income by $119,000.
15 The adjustment in column (k), Eliminate B &: 0 Taxes,
16 eliminates the revenues and expenses associated with local
17 business and occupation (B & 0) taxes, which the Company is
18 allowed to pass through to its Idaho customers.The
19 adjustment eliminates any timing mismatch that exists
20 between the revenues and expenses by eliminating the
21 revenues and expenses in their entirety.B & 0 taxes are
22 passed through on a separate schedule, which is not part of
23 this proceeding. The effect of this adjustment is to
24 decrease Idaho net operating income by $3,000.
Andrews, Di 21
Avista Corporation
1 The adjustment in column (1), Property Tax, restates
2 the test period accrued levels of property taxes to the
3 most current information available and eliminates any
4 adjustments related to the prior year.This adjustment
5 includes the increase in property taxes in 2009 related to
6 the Company's Coyote Springs plant located in Oregon.
7 Previously the Company had been excluded from this property
8 tax assessment for five years under a tax abatement as a
9 result of the plant being located in the Columbia River
10 Enterprise Zone in Oregon.The effect of this particular
11 adjustment is to decrease Idaho net operating income by
12 $1,171,000.
13 The adjustment in colum (m), Uncollectible Expense,
14 restates the accrued expense to the actual level of net
15 write-offs for the test period.The effect of this
16 adjustment is to increase Idaho net operating income by
17 $37,000.
18 The adjustment in colum (n), Regulatory Expense,
19 restates recorded 2008 regulatory expense to reflect the
20 IPUC assessment rates applied to expected revenues for the
21 2008 period and the actual levels of FERC fees paid during
22 the test period.The effect of this adjustment is to
23 decrease Idaho net operating income by $26,000.
24 Q.Please turn to page 6 and explain the adjustments
25 shown there.
Andrews, Di 22
Avista Corporation
1 A.The adjustment in column (0) ,Injuries and
2 Damages, is a restating adjustment that replaces the
3 accrual with the six-year rolling average of actual
4 injuries and damages payments not covered by insurance2. A
5 six-year rolling average and the reserve method of
6 accounting for injuries and damages, net of insurance
7 proceeds, is a practical methodology to deal wi th these
8 normal utility operating expenses that happen to occur on
9 an irregular basis and differ markedly in materiality.
10 This methodology was accepted by the Idaho Commission in
11 Case No. WWP-E-98-11.The effect of this adjustment is to
12 decrease Idaho net operating income by $15,000.
13 The adjustment in colum (p), FIT, adjusts the FIT
14 calculated at 35% within Results of Operations by removing
15 the effect of certain Schedule M items, matching the
16 jurisdictional allocation of other Schedule M items to
17 related Results of Operations allocations and to adjust the
18 production tax credits for pro forma qualified generation.
19 This adjustment also reflects the proper level of deferred
20 tax expense for the test period.The net effect of this
21 adjustment, all based upon a Federal tax rate of 35%, is to
22 increase Idaho net operating income by $454,000.
2 Due to the twelve months ending September 30, 2008 test period
utilized in this case, the Company computed the six-year average using
twelve-months ended actuals through November 2008 (most current data
available at time of adjustment) for its 2008 electric and natural gasbalances.
Andrews, Di 23
Avista Corporation
1 The adjustment in column (q), Idaho. PCA, removes the
2 effects of the financial accounting for the Power Cost
3 Adjustment (PCA).The PCA normalizes and defers certain
4 power supply costs on an ongoing basis between general rate
5 filings. Certain differences in actual power supply costs,
6 compared to those included in base retail rates are
7 deferred and then surcharged or rebated to customers in a
8 future period. Revenue adjustments due to the PCA and the
9 power cost deferrals affect actual results of operations
10 and need to be eliminated to produce a normal period.
11 (Actual revenu.èS and power supply costs are normalized in(
12 adjustments in column (u) and column (PF1), respectively.
13 The effect of this adjustment is to decrease Idaho net
14 operating income by $9,591,000.
15 The adjustment in colum (r), Nez Perce Settlement
16 Adjustment, reflects a decrease in Production operating
17 expenses.An agreement was entered into between the
18 Company and the Nez Perce Tribe to settle certain issues
19
20
regarding earlier owned and operated hydroelectric
generating facilities of the Company.This adjustment
21 directly assigns the Nez Perce Settlement expenses to the
22 washington and Idaho jurisdictions. This is necessary due
23 to differing regulatory treatment in Idaho Case No. WWP-E-
24 98-11 and Washington Docket No. UE-991606.The effect of
Andrews, Di 24
Avista Corporation
1 this adjustment is to increase Idaho net operating income
2 by $8,000.
3 The adjustment in column (s), Eliminate A/R Expenses,
4 A/R representing Accounts Receivable, removes expenses
5 associated with the sale of customer accounts receivable.
6 The effect of this adjustment is to increase Idaho net
7 operating income by $190,000.
8 The adjustment in column (t), Miscellaneous Restating
9 Adjustments, removes a number of non-operating or non-
10 utility expenses associated with advertising, sponsorships
11 and dues and donations included in error in the test period
12 actual resul ts .The effect of this adjustment is to
13 increase Idaho net operating income by $73,000.
14 The adjustment in colum (u), Revenue Normlization,
15 is a 3-fold adjustment taking into account known and
16 measurable changes that include revenue repricing
17 (including the current authorized rates approved in Case
18 No. AVU-E-08-01), weather normalization and a recalculation
19 of unbilled revenue. Schedule 91 Tariff Rider and Schedule
20 59 Residential Exchange are excluded from pro forma
21
22
revenues,and the related amortization expense is
eliminated as well.Ms.Knox is sponsoring this
23 adjustment. The effect of this particular adjustment is to
24 increase Idaho net operating income by $14,065,000.
Andrews, Di 25
Avista Corporation
1 Q.Please continue on page 7 with your explanation
2 of the adjustments.
3 A.The adjustment in column (v), Clark Fork PM&:E,
4 adjusts the level of amortization expense included in the
5 test period based on the balancing account method
6 previously authorized by the Commission for the Clark Fork
7 Protection, Mitigation, and Enhancement (PM&E) expenses, to
8 the Company's current authorized level of expense based on
9 the flow through of actual expenditures plus one-fifth of
10 the 5-year amortization of the remaining outstanding
11 balance in the balancing account at September 30, 2008, as
12 approved in Case No. AVU-E-08-01. This adjustment uses the
13 level of PM&E expenses planned for the 2009/2010 rate
14
15
period for the amoun t 0 f flow through of actual
expendi tures .Mr. Storro discusses in his testimony the
16 additional PM&E expenditures planned for the rate period.
17 The effect of this adjustment is to decrease Idaho net
18 operating income by $649,000.
19 The adjustment in the colum (w)Restate Debt
20 Interest, restates debt interest using the Company's pro
21 forma weighted average cost of debt, as outlined in the
22 testimony and exhibits of Company witness Mr. Theis, and
23 applied to Idaho's pro forma level of rate base, produces a
24 pro forma level of tax deductible interest expense.The
25 Federal income tax effect of the restated level of interest
Andrews, Di 26
Avista Corporation
1 for the test period decreases Idaho net operating income by
2 $1,985,000.
3 The column entitled Restated Total, subtotals all the
4 preceding columns (b) through column (w), exclusive of the
5 previously discussed subtotal colum.These totals
6 represent actual operating results and rate base plus the
7 standard normalizing adjustments that the Company includes
8 in its Commission Basis reports except power supply3.
9
10 Pro Forma Adjustments
11 Q.Please explain the significance of the 22 colums
12 subsequent to the colum entitled Restated Total that
13 begins at page 7 in your Exibit No. 10, Schedule 1.
14 A.The adjustments subsequent to the Restated Total
15 colum are pro forma adjustments that recognize the
16 jurisdictional impacts of items that will impact the pro
17 forma operating period levels for known and measurable
18 changes.They encompass revenue and expense items as well
19 as additional capital projects.These adjustments bring
20 the operating results and rate base to the final pro forma
21 level for the rate year.
3 The restated total also includes the additional property tax on CS2
required starting in 2009 included in the property tax restating
adjustment colum (l), and additional PM&E expenses above the testperiod planned for the rate period in colum (v).
Andrews, Di 27
Avista Corporation
1 Q.Please continue with your explanation of the
2 adjustments starting on page 7, subsequent to the Restated
3 Total colum.
4 A.The adjustment in column (PF1), Pro Form Power
5 Supply, was made under the direction of Mr. Johnson and is
6 explained in detail in his testimony.This adjustment
7 includes pro forma power supply related revenue and
8 expenses to reflect the twelve-month period July 1, 2009
9 through June 30, 2010.Mr. Johnson's testimony outlines
10 the system level of pro forma power supply details that are
11 included in this adjustment.This adjustment calculates
12 the Idaho jurisdictional share of those figures included in
13 the base Results of Operations.The net effect of the
14 power supply adjustments decreases Idaho net operating
15 income by $6,285,000.
16 The adjustment in column (PF2), Pro Form Production
17 Property Adjustment, adjusts pro formed production and
18 transmission revenues, expenses, and rate base by a factor
19 that reflects the ratio of 2008 Idaho test year retail load
20 divided by the pro forma period Idaho retail load. Capital
21 additions have been pro formed to December 2009 whereas the
22 remainder of the pro forma adjustments reflect costs for
23 the twelve months ended June 2010 level.Therefore a
24 factor reflecting 2009 calendar Idaho retail load was used
25 to determine the factor for pro formed capital costs and
Andrews, Di 28
Avista Corporation
1 the 2009/2010 rate year Idaho retail load was used to
2 determine the factor for all. other pro formed production
3 and transmission costs.The adjustment is made to avoid
4 the over-recovery of pro formed production and transmission
5 costs, since the revenue requirement associated with those
6 costs is being spread to test year retail load. The use of
7 a production property adjustment in conjunction with pro
8 forma rate year loads for power supply results in a better
9 matching of revenues and expenses during the period that
10 new retail rates from the case will be in effect.The
11 effect of this adjustment on Idaho net operating income is
12 an increase of $3,336,000.The effect on Idaho rate base
13 is a decrease of $10,202,000.
14 The adjustment in colum (PF3), Pro Forma Labor-Non-
15 Exec, reflects known and measurable changes to test period
16 union and non-union wages and salaries, excluding executive
17 salaries, which are handled separately in PF4. Test period
18 wages and salaries are restated as if the wage and salary
19 increase in March 2009 were in place for 8 months and the
20 March 2010 increase was in place for 4 months of the pro
21 forma period ending June 30, 2010. The methodology behind
22 this adjustment is consistent with that used in Case No.
23 AVU-E-04-01.The effect of this adjustment on Idaho net
24 operating income is a decrease of $694,000.
Andrews, Di 29
Avista Corporation
1 The adjustment in colum (PF4), Pro Forma Labor-
2 Executive,reflects known and measurable changes to
3 executive compensation. Test period wages and salaries are
4 restated to the 2010 expected level. This adjustment takes
5 into account changes in executive staffing made during 2008
6 and includes compensation for the planned executive team in
7 the pro forma period only.Compensation costs for non-
8 utility operations are excluded as executives routinely
9 charge a portion of their time to non-utility operations,
10 commensurate with the amount of time spent on such
11 activities. The current executives' salary allocations are
12 set at their expected pro forma test period utility/non-
13 utility percentage splits.The methodology behind this
14 adjustment is consistent with that used in the last general
15 case, Case No. AVU-E-08-01. The impact of this adjustment
16 on Idaho net operating income is a decrease of $83,000.
17 Q.Please turn to page 8 and explain the adjustments
18 shown there.
19 A.The adjustment in column (PF5) ,Pro Form
20 Transmission Rev/Exp, was made under the direction of Mr.
21 Kinney and is explained in detail in his testimony.This
22 adjustment includes pro forma transmission-related revenues
23 and expenses to reflect the twelve-month period July 1,
24 2009 through June 30, 2010.The net effect of the
Andrews, Di 30
Avista Corporation
1 transmission revenue and expense adjustments increases
2 Idaho net operating income by $5,000.
3 The adj us tmen t in co 1 umn ( PF 6), Pro Form Capital
4 Additions 2008, pro forms in the capital cost and expenses
5 associated with adjusting the twelve-month ending Septemer
6 2008 average-monthly-average plant related balances to
7 expected end-of-period balances for plant in service at
8 December 31, 2008.The capital costs have been included
9 for the December 31, 2008 pro forma period with the
10 associated depreciation expense and property tax, as well
11 as the appropriate accumulated depreciation and deferred
12 income tax rate base offsets.This adjustment was made
13 under the direction of Mr. DeFelice and is described
14 further in his testimony.This adjustment is also
15 consistent with that approved in the most recent Idaho
16 general rate case proceeding, Case No. AVU-E-08-01, which
17 approved the Company's expected net rate base balance as of
18 December 31, 2008.The production property adjustment is
19 also applied to the production and transmission components
20 of these additions as discussed further by Ms. Knox. This
21 adjustment decreases Idaho net operating income by $160,000
22 and increases rate base by $3,658,000.
23 The adjustment in column (PF7), Pro Form Capital
24 Additions 2009, pro forms in the capital cost and expenses
25 associated with pro forming in capital expenditures for
Andrews, Di 31
Avista Corporation
1 2009.This adjustment includes projects expected to be
2 completed and transferred to plant-in-service by December
3 31, 2009, and thus were normalized to reflect annual
amounts.The capital costs have been included for the4
5 appropriate pro forma period with the associated
6 depreciation expense and property tax, as well as the
7 appropriate accumulated depreciation and deferred income
8 tax rate base offsets.This adjustment also reduces the
9 2008 vintage plant net rate base (including accumulated
10 depreciation and deferred FIT) to an end of period December
11 31, 2009 adjusted balance.This adjustment was also made
12 under the direction of Mr. DeFelice and is described
13
14
further in his testimony.The production property
adjustment is also applied to the production and
15 transmission components of these additions as discussed
16 further by Ms. Knox.This adjustment decreases Idaho net
17 operating income by $1,692,000 and increases rate base by
18 $16,896,000.
19 The adjustment in colum (PF8), Pro Form informtion
20 Services, pro forms in the administrative and general (A&G)
21 expenses associated with incremental known and measureable
22 changes for labor and non-labor informational services
23 costs planned for 2009 above the test period. As explained
24 by Company witness Mr. Kopczynski, these expenditures are
25 related to 1) additional labor dollars required to support
Andrews, Di 32
Avista Corporation
1 applications utilized by the Company in recent years, such
2 as the mobile dispatch and outage management applications,
3 improved web application support, and additional required
4 security and compliance requirements; and 2) additional
5 non-labor dollars required for hosting fees, application
6 fees, software maintenance and license fees, and new and
7
8
replacement software and hardware for business
applications.This adjustment decreases Idaho net
9 operating income by $448,000.
10 The adjustment in colum (PF9), Pro Form Asset
11 Management, pro forms in the O&M expense associated with
12 the Asset Management Program as described further by Mr.
13 Kinney. This adjustment is consistent with the methodology
14 approved in Case No. AVU-E-08-01.This adjustment
15 decreases Idaho net operating income by $481,000.
16 The adjustment in colum (PF10), Pro Forma Spokane
17 River Relicensing, includes the costs associated with the
18 Company's Spokane River relicensing efforts and the CDA
19 Tribe settlement 4 (e) relicensing conditions and accrued
20 interest as described further in my workpapers.These
21 costs include actual life-to-date expenditures from April
22 2001 through December 31, 2008, and 2009 pro forma
23 expendi tures through June 30, 2009.Company witness Mr.
24 Storro provides additional details regarding the status of
25 the Spokane River Relicensing efforts and explains that the
Andrews, Di 33
Avista Corporation
1 Company anticipates a final license approved by the Federal
2 Energy Regulatory Commission (FERC) by June 30, 2009. The
3 majority of these charges were reviewed in the Company's
4 previous general electric rate case proceeding, Case No.
5 AVU-E-08-01.Through the Settlement agreement approved by
6 the Commission in that case, the Company was allowed to
7 defer the amortization of these charges, including a
8 carrying charge on the deferrals and unamortized balance,
9 and include recovery of these costs in its next general
10 rate case.
11 Subsequent to the conclusion of Case No. AVU-E-08-01,
12 and during review of the total current actual expenditures
13 to-date for the Spokane River Relicensing efforts, it was
14 discovered that the Company had inadvertently failed to
15 continue to compute and accrue AFUDC after December 31,
16 2004 on the certain expenditures that had been recorded for
17 the years 1999 to 2004. (In other words, AFUDC was not
18 recorded for the period January 2005 through November 2008
19 on amounts spent in 1999 through 2004.)This error was
20 discovered in December 2008 and corrected, accruing an
21 addi tional amount of approximately $3.0 million.This
22 correction caused an increase in costs included in this
23 case, above that approved in Case No. AVU-E-08-01, of
24 approximately $1.1 million (Idaho share) to accrue for the
25 missed AFUDC from January 2005 through November 2008 on the
Andrews, Di 34
Avista Corporation
1 1999 through 2004 balance.This adjustment, including the
2 AFUDC correction, decreases Idaho net operating income by
3 $1,348,000 and increases rate base by $12,184,000.
4 Q.Please turn to page 9 and explain the adjustments
5 shown there.
6 A.The adjustment in column (PF11), Pro Form Coeur
7 d' Alene Tribe Settlement, includes costs associated with
8 the Lake Coeur d' Alene Tribe (CDA Tribe) settlement
9 agreement.Mr.Storro describes further the final
10 agreement between the Company and the CDA Tribe.The
11 settlement includes the payment of $25.0 million in
12 December 2008, $10.0 million in 2009 and $4.0 million in
13 2010 for resolution of the past trespass and §10 (e)
14 charges.The future §10 (e) payments are $400,000 flat
15 annual payments for the first 21 years of the new Spokane
16 River license, starting in December 2008, and $700,000 flat
17 annual payments for the remaining years of the license.
18 The agreed upon settlement and payments were reviewed in
19
20
the company's previous electric general rate case
proceeding, Case No. AVU-E-08-01.As approved by the
21 Commission's Order No. 30647, the Company is allowed to
22 defer the amortization of the initial 2008 payments,
23 including a carrying charge on the deferrals and
24 unamortized balance, and include recovery of these costs in
25 its next general rate case.These deferred payments,
Andrews, Di 35
Avista Corporation
1 including a return on the balance, are planned to be
2 amortized over the average remaining life of the Post Falls
3 Project, or 45 years.The pro forma adjustment includes
4 one year amortization of the deferred balance, and the 2009
5 annual payment of $400,000.This adjustment decreases
6 Idaho net operating income by $257,000 and increases rate
7 base by $7,861,000.
8 The adjustment in column (PF12), Pro Form Montana
9 Riverbed Lease, includes costs associated with the Montana
10 Riverbed lease settlement. In this settlement, the Company
11 agreed to pay the State of Montana $4.0 million annually
12 beginning in 2007, with annual inflation adjustments, for a
13 10-year period for leasing the riverbed under the Noxon
14 Rapids Proj ect and the Montana portion of the Cabinet Gorge
15
16
Project.The first two annual payments were deferred by
Avista as approved in Case No. AVU-E-07-10.In Case No.
17 AVU-E-08-01 (see Order No. 30647), the Commission approved
18 the Company's proposed accounting treatment of the deferred
19 payments, including accrued interest, to be amortized over
20 the remaining eight years of the agreement starting October
21 1, 2008.This adjustment includes one-eighth of the
22 deferred balance amortization and the annual lease payment
23 expense.This adjustment decreases Idaho net operating
24 income by $1,231,000 and increases rate base by $1,583,000.
Andrews, Di 36
Avista Corporation
1 The adjustment in colum (PF13), pro Forma Colstrip
2 Mercury Emission O&:M, includes the pro forma period O&M
3 costs associated with the mercury control project at
4
5
Colstrip as further described by Mr. Storro.This
adjustment decreases Idaho net operating income by
6 $383,000.
7 The adjustment in colum (PF14), Pro Form incentives,
8 adjusts the test year incentive expense to the 2008
9 incentive expense expected to be paid in 2009 for the 2008
10 incentive plan. The Company's main employee incentive plan
11 uses Customer Satisfaction and Reliability targets as the
12 initial step in issuing incentive payouts. Actual payouts
13 are dictated by utility O&M cost savings.Since the
14 executive plan is slightly different than the main employee
15 incentive plan, this adjustment removes any part of the
16 2008 executive incentive payout that was "not" based on the
17 Customer Satisfaction and Reliability targets.This pro
18 forma adjustment further adjusts incentive expenses to a 6
19 year average.The impact of this adjustment on Idaho net
20 operating income is a decrease of $189,000.
21 Q.Please explain how the Company computed its 6-
22 year average.
23 A.Actual incentives paid and the associated payroll
24 taxes accrued for years 2003 through 2007 were adjusted by
25 the Consumer Price Index (CPI) annual average for the
Andrews, Di 37
Avista Corporation
1 calendar year the incentives were paid, to reflect those
2 costs in 2008 dollars.The computed six-year average of
3 2003 through 2008 incentives was compared to incentive
4 expense included in the test period to determine the pro
5 forma adjustment.
6 Q.Why did the Company choose to use a 6 -year
7 average?
8 A.Since annual Company incentive plan payouts can
9 often vary year-to-year, the Company has chosen to propose
10 an average of annual payouts.Often where there are
11 revenues or expenses that can vary significantly from year-
12 to-year and therefore uncertain as to the appropriate
13 level, the Commission has utilized or approved averages to
14 properly reflect a fair and reasonable level of revenue or
15 expense to be included in customers' rates.In 2002 the
16 Company changed its incentive plan to be based on Customer
17 Satisfaction and Reliability targets, and the requirement
18 that O&M savings must occur in order for there to be any
19 payout.This is significantly different than the plans
20 prior to 2002 based on earnings targets of the Company.
21 Utilizing a 6-year average, using years 2003 through 2008,
22 includes common incentive plans that are comparable from
23 year-to-year, and is consistent with other average methods
24 utilized by this Commission.
Andrews, Di 38
Avista Corporation
1 Q.Please explain other examples where the use of an
2 average has been used by the Company to determine the
3 appropriate level of revenue or expense to include in its
4 general rate case filings?
5 A.A few examples come to mind regarding
6 transmission revenue adjustments. For example, the Company
7 uses a five-year average for OASIS wheeling revenues
8 because these revenues vary year to year depending on
9 electric energy market conditions.Avista has, in the
10 current and previous rate cases, used the most recent five-
11 year average as being representative of future expectations
12 unless there are known events or factors that occurred
13 during the period that would cause the average to not be
14 representative of future expectations.
15 A second transmission revenue example includes the
16 adjustment for Dry Gulch revenue.The current methodology
17 used to normalize Dry Gulch revenue is a five-year average
18 of actual revenue.A five-year average is used since the
19 revenue can vary from year to year.The revenue is
20 calculated using a 12-month rolling ratchet based on
21 monthly peak demands.Load peaks are very sensitive to
22 temperatures, which vary from year to year.
23 A third example,regarding injuries and damages
24 expense,includes the restating adjustment described
25 earlier in my testimony that replaces the amount accrued in
Andrews, Di 39
Avista Corporation
1 the test period with a six-year rolling average of actual
2 payments for injuries and damages not covered by insurance.
3 Q.Please continue your explanation of the
4 adjustment colums on page 9.
5 A.The adjustment in column (PF15), Pro Form CS2
6 Levelized Adjustment, defers a portion of the return on
7 Coyote Springs 2 (CS2) in early years for recovery in later
8 years in order to levelize the revenue requirement on CS2
9 plant investment over a ten-year period.In the Company i s
10 electric general rate case, Case No. AVU-E-04-1, this
11 method was approved by the IPUC in Order No. 29602.This
12 adjustment restates the test period amount of negative
13 amortization expense, inclusive of the carrying charge on
14 the deferred return, to the amount that will be recorded in
15 the rate year.The change in deferred income tax expense
16 from the test period to the rate period is also reflected.
17 In the 2009 rate year the deferred return begins to be
18 recovered, although the carrying cost on the deferred
19 return exceeds the recovery of the deferred return for that
20 period.The levelization adjustment is necessary, since
21 the CS2 net plant upon which the levelization adjustment is
22 based, is proformed to the rate period.Hence, the
23 levelization adjustment also needs to be proformed to the
24 rate period. This adjustment reduces net operating income
25 by $129,000.
Andrews, Di 40
Avista Corporation
1 Q.Please turn to page 10 and explain the
2 adjustments shown there.
3 A.The adj us tmen t in co 1 umn ( PF 16), Pro Form Idaho
4 Advanced Meter Reading (AM), includes the capital costs
5 associa ted wi th the Company's Idaho AMR proj ect .In the
6 I PUC ' s Order No. 29602, in Case No. AVU-E-04-01, the
7 Commission supported the Company's plans to install AMR and
authorized the Company-reques ted deferred accounting8
9 treatment for its related investment.In the Company's
10 most recent case, Case No. AVU-E-08-01 in Order No. 30647,
11 the Commission reviewed and approved these deferred costs
12 associated with the Company's investment in AMR as prudent.
13 This adjustment includes the amortization of the AM
14 investment, including actual life-to-date expenditures from
15 January 2005 through November 30, 2008 and expected charges
16 for December 2008.This adjustment decreases Idaho net
17 operating income by $689,000 and increases rate base by
18 $21,436,000.
19 The adjustment in colum (PF17), pro Form O&:M Plant
20 expense, adjusts for incremental non-labor generation plant
21 O&M costs planned for 2009/2010 above the test period. As
22 further explained by Mr.Storro,these additional
23 expendi tures are mainly due to maj or O&M expendi tures
24 planned for the Company's two thermal generation plants,
25 Colstrip and Kettle Falls, and its Rathdrum CT peaking
Andrews, Di 41
Avista Corporation
1 generation plant.This adjustment decreases Idaho net
2 operating income by $899,000.
3 The adjustment in column (PF18), Pro Form Employee
4 Benefits, adjusts for changes in both the Company's pension
5 and medical insurance expense and decreases Idaho net
6 operating income by $944,000.
7 Q.Please describe the pension expense portion of
8 the Employee Benefits adjustment and Idaho's share of this
9 expense.
10 A.The Company's pension expense portion of this
11 adjustment is determined in accordance with Financial
12 Accounting Standard 87 ("FAS-87"), and has increased on a
13 system basis from $12.1 million for the actual test year
14 costs for the twelve months ended September 30, 2008, to
15 $18.4 million for 2009. At this time the amounts included
16 in this case are estimated with the most current available
17 data as of December 2008.Preliminary Pension expense is
18 determined by an outside actuarial firm, in accordance with
19 FAS-87, and provided to the Company late in the first
20 quarter of each year.These calculations and assumptions
21 are reviewed by the Company's outside accounting firm
22 annually for reasonableness and comparability to other
23 companies.Due to the timing of this report, addi tional
24 information may become known during the course of these
Andrews, Di 42
Avista Corporation
1 proceedings that may require a modification to this
2 adjustment.
3 As explained by Company wi tness Mr. Thies,the
4 increase in pension expense is due primarily to the
5 investment performance of plan assets during the major
6 downturn in the financial markets experienced during the
7 past year.In addition, the Pension Protection Act (PPA)
8 of 2006 requires companies to annually increase the funding
9 level of their pension plans in order to eventually achieve
10 a fully funded plan.
11 As explained by Mr. Thies, Avista is very disciplined
12 in its plan asset allocation and believes that its approach
13 has helped to arrest what could have been an even greater
14 decline in plan assets value. Many companies with Defined
15 Benefit Pension Plans have experienced similar asset value
16 declines and increased funding levels as a result of
17 general market conditions, as discussed by Mr. Thies.
18 The pension levels noted above are for the Company as
19 a whole. Pension expense, as with other employee benefits,
20 is "loaded" onto actual labor costs, which are then
21 assigned to various functional expense categories and
22 accounts through the payroll process.Historically,
23 approximately 60% of labor is recorded as O&M expense and
24 40% is recorded as capital.In our adjustment, a detailed
25 analysis of labor charges was performed to more accurately
Andrews, Di 43
Avista Corporation
1 determine the Idaho O&M percentage of overall labor. Based
2 on this analysis, Idaho's share of the electric pension
3 expense (pre-tax) amount included in this adjustment is
4 approximately $940,000.
5 Q.Please now describe the medical insurance expense
6 portion of the Employee Benefits adjustment and idaho's
7 share of this expense.
8 A.The Company's medical insurance expense portion
9 of this adjustment adjusts for the medical insurance costs
10 planned for 2009 above the test period. Medical insurance
11 expense has increased on a system basis from $14.3 million
12 for the actual test year costs for the twelve months ended
13 September 30, 2008 to $17.9 million proj ected for 2009.
14 This increased cost is mainly due to increased large claims
15 activity driven by various diagnostic categories such as
16 cancer and heart disease, and an increase in the average
17 age of our membership.
18 Avista has taken measures to decrease its self-funded
19 plan costs.These measures include increasing the stop
20 loss insurance reimbursement level, which decreases the
21 premium expense with Avista' s third party administrator.
22 Avista also negotiated a new contract with its prescription
23 benefit administrator and its third party administrator
24 (TPA) to pass through the drug manufacturer rebates (in the
25 past these rebates were left with the TPA).Also, Avista
Andrews, Di 44
Avista Corporation
1 is converting to a Preferred Provider Organization (PPO)
2 program for its dental plan that provides savings to the
3 participant, similar to medical plans with a PPO program.
4 In addition to these current measures, Avista has made
5 changes to co-pay levels and out of pocket maximums over
6 the past five years to help reduce plan costs.
7 Again, as with other employee benefits, medical
8 insurance expense is "loaded" onto actual labor costs,
9 which are then assigned to various functional expense
10 categories and accounts through the payroll process.
11 Historically, approximately 60% of labor is recorded as O&M
12 expense and 40% is recorded as capital.Idaho's share of
13 the electric medical insurance expense (pre-tax) amount
14 included in this adjustment is approximately $530,000.
15 Q.Please continue your explanation of the
16 adjustment colums on page 10.
17 The adjustment in Column (PF19), Pro Forma Insurance,
18 adjusts the test period insurance expense for general
19 liabili ty, directors and officers ("D&O") liability, and
20 property to the actual cost of insurance policies that are
21 in effect for 2009.Costs of system-wide insurance
22 policies for 2009 varied from 2008, mainly for General
23 Liability and Property insurance cost, which increased
24 approximately $730,000 (system expense), due to increased
25 coverage, Avista' s growth, and higher premium rates.
Andrews, Di 45
Avista Corporation
1 Property insurance rates were volatile because of extensive
2 energy industry property damage in 2008 and adverse
3 investment returns at insurance companies. Insurance costs
4 that are properly charged to non-utility operations have
5 been excluded from this adjustment.This adjustment
6 decreases Idaho net operating income by $97,000.
7 The adjustment in Column (PF20), Pro Form Chicago
8 Climate Exchange, adjusts other revenue for Idaho's share
9 of the revenues, net of expenses, from the sales of Carbon
10 Financial Instruments (CFIs)on the Chicago Climate
11 Exchange.In Order No. 30647 (Case No. AVU-E-08-01), the
12 Commission approved the amortization of the net revenues
13
14
over a two-year period beginning in October 2008.This
adjustment increases Idaho net operating income by
15 $273,000.
16 Q.Please turn to page 11 and explain the
17 adjustments shown there.
18 A.The adjustment in column (PF21) , Pro Form
19 wartsila Amortization, reflects a five-year amortization of
20 the estimated unrecovered investment in two 4 MW
21 reciprocating engine generators originally planned to be
22 installed at Boulder Park, a small natural gas-fired
23 generating facility.During the period December 2004
24 through February 2005 Avista and Commission Staff discussed
25 possible accounting treatment related to the planned sale
Andrews, Di 46
Avista Corporation
1 of the Wartsila units.In February 2005 the Staff
2 indicated by letter that it would support a five-year
3 amortization of the unrecovered costs, with no return on
4 the unamortized balance, and that the inclusion of the
5 amortization expense in rates would be addressed in a
6 future proceeding.
7 In 2008 a buyer agreed to purchase the units for net
8 proceeds to the Company of $1 million, as compared to the
9 book value of $3.65 million. However, the buyer defaulted
10 and only one uni t was del i vered wi th net proceeds to the
11 Company of $670,000. The second unit remains unsold. The
12 buyer is trying to raise the remaining $330,000 to purchase
13 the second unit. The amortization amount in the adjustment
14 assumes that the second unit will be sold for the $330,000.
15 Additional information may become known during the course
16 of these proceedings that may require a modification to the
17 adjustment.This adjustment decreases Idaho net operating
18 income by $120,000.
19 The adjustment in colum (PF22), Pro Form Colstrip
20 Lawsuit Settlement, reflects a two-year amortization of the
21 Company's share of the lawsuit settlement amount.On May
22 22, 2008, the Company filed an application seeking an
23 accounting order to defer the settlement payment.On
24 September 12, 2008, the Commission authorized deferred
25 accounting treatment in Order No. 30638, Case No. AVU-E-08-
Andrews, Di 47
Avista Corporation
1 03.Staff's recommendation No. 4 on page 3 of the Order
2 recommends delaying any recovery for the amount of the
3 deferral until the next general rate case or other
4 proceeding as the Commission deems appropriate.
5 Avista may recover a portion of the settlement amount
6
7
under relevant insurance policies.The amount and timing
of any insurance proceeds is not known at this time.The
8 adjustment can be revised as additional information
9
10
regarding insurance proceeds becomes known.This
adjustment decreases Idaho net operating income by
11 $240,000.
12 The last colum, Pro Forma Total, reflects total pro
13 forma results of operations and rate base consisting of
14 test period actual results (twelve-months ending September
15 30, 2008) and the total of all adjustments.
16 Q.Referring back to page 1, line 42, of Exhibit No.
17 10, Schedule 1, what was the actual and pro form electric
18 rate of return realized by the Company during the test
19 period?
20 A.For the State of Idaho, the actual test period
21 rate of return was 6.99%. The pro forma rate of return is
22 5.34% under present rates. Thus, the Company does not, on
23 a pro forma basis for the test period, realize the 8.80%
24 rate of return requested by the Company in this case.
Andrews, Di 48
Avista Corporation
1 Q.How much additional net operating income would be
2 required for the State of Idaho electric operations to
3 allow the Company an opportunity to earn its proposed 8.80%
4 rate of return on a pro form basis?
5 A.The net operating income deficiency amounts to
6 $19,951,000, as shown on line 5, page 2 of Exhibit No. 10,
7 Schedule 1. The resulting revenue requirement is shown on
8 line 7 and amounts to $31,233,000, or an increase of 14.18%
9 over pro forma general business revenues.
10
11
12
IV.NATURA GAS SECTION
Q.On what test period is the Company basing its
13 need for additional natural gas revenue?
14 A.The test period being used by the Company is the
15 twelve-month period ending September 30, 2008, presented on
16 a pro forma basis.Currently authorized rates are based
17 upon the 2007 test year utilized in case No. AVU-G-08-01,
18 as adjusted on a pro forma basis.
19 Q.Could you please explain the different rates of
20 return shown in your natural gas results presented in your
21 testimony?
22
23
24
A.Yes.As discussed previously in the Electric
Section,there are three different rates of return
calculated.The actual ROR earned by the Company during
25 the test period, the Pro Forma ROR determined in my Exhibit
Andrews, Di 49
Avista Corporation
1 No. 10, Schedule 2, and the requested ROR. For convenience
2 of comparison, please refer to Illustration No. 3 below
3 depicting these results for the Natural Gas Section:
45 Illustration No.3:
6
7
Avista Corp
Rates of Retu
8
9
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
6.41%
10
11
12
13
Actual Pro Forma Request
Q.What are the primary factors driving the
14 Company's need for additional natural gas revenues?
15 A.The Company's natural gas request is driven by
16 changes in various operating cost components, mainly
17 distribution operation and maintenance and administrative
18
19
and general expendi tures .This causes an increase in the
fixed costs of providing gas service to customers.I
20 describe the pro forma adjustments included in this case
21 later in my testimony.
22
23 Revenue Requirement
24 Q.Would you please explain what is shown in Exibit
25 No. 10, Schedule 2?
Andrews, Di 50
Avista Corporation
1 A. Exhibit No. 10, Schedule 2 shows actual and pro
2 forma gas operating results and rate base for the test
3 period for the State of Idaho.Colum (b) of page 1 of
4 Exhibit No. 10, Schedule 2 shows test period operating
5 results (twelve-months ended September 30, 2008) and
6 components of the average-monthly-average rate base as
7 recorded¡ column (c) is the total of all adjustments to net
8 operating income and rate base¡ and colum (d) is pro forma
9 resul ts of operations, all under existing rates.Colum
10 (e) shows the revenue increase required which would allow
11 the Company to earn' an 8.80% rate of return.Colum (f)
12 reflects pro forma gas operating results with the requested
13 increase of $2,740,000.
14 Q.Would you please explain page 2 of Exhibit No.
15 10, Schedule 2?
16 A.Yes.Page 2 shows the calculation of the
17 $2,740,000 revenue requirement at the requested 8.80% rate
18 of return.
19 Q.Would you now please explain page 3 of Exhibit
20 No. 10, schedule 2?
21
22
A.Yes.Page 3 shows the derivation of the net
operating income to gross revenue conversion factor.The
23 conversion factor takes into account uncollectible accounts
24 receivable, Commission fees and Idaho State excise taxes.
25 Federal income taxes are reflected at 35%.
Andrews, Di 51
Avista Corporation
1 Q.Now turning to pages 4 through 8 of your Exhibit
2 No. 10, Schedule 2, would you please explain what those
3 pages show?
4 A.Yes. Page 4 begins with actual operating results
5 and rate base for the test period (twelve-months ending
6 September 30, 2008) in column (b).Individual normalizing
7 adjustments consistent with prior regulatory treatment
8 (standard Commission Basis adjustments) begin in colum (c)
9 on page 4 and continue through colum (r) on page 6.
10 Individual pro forma and additional normalizing adjustments
11 begin in colum (PF1) on page 6 and continue through colum
12 (PF10) on page 8. The final column on page 8 is the total
13 pro forma operating results and rate base for the test
14 period.Additional details related to each adjustment
15 described below are provided in accompanying work papers.
16
17 Standard Commission Basis Adjustments
18 Q.Would you please explain each of these
19 adjustments, the reason for the adjustment and its effect
20 on test period State of Idaho net operating income and/or
21 rate base?
22 A.Yes, the restating adjustments shown in columns c
23 through r are consistent with methodologies employed in our
24 prior cases and current regulatory principles.
Andrews, Di 52
Avista Corporation
1 The first adjustment, column (c) on page 4, entitled
2 Deferred FIT Rate Base, reflects the rate base reduction
3 for Idaho's portion of deferred taxes.The adj us tmen t
4 reflects the deferred tax balances arising from accelerated
5 tax depreciation (Accelerated Cost Recovery System, or
6 ACRS, and Modified Accelerated Cost Recovery, or MACRS),
7 bond refinancing premiums, and contributions in aid of
8 construction.These amounts are reflected on the average
9 of monthly average balance basis. The effect on Idaho rate
10 base is a reduction of $14,220,000.
11 The adjustment in colum (d), Deferred Gain on Office
12 Building, reflects the rate base reduction for Idaho's
13 portion of the net of tax, unamortized gain on the sale of
14 the Company's general office facility.The facility was
15 sold in December 1986 and leased back by the Company.
16 Although the Company repurchased the building in November
17 2005, the Company opted to continue to amortize the
18 deferred gain over the remaining amortization period
19 scheduled to end in 2011. The effect on Idaho rate base is
20 a reduction of $53,000.
21 The adjustment in colum (e), Gas inventory, reflects
22 the adjustment to rate base for the average of monthly
23 average value of gas stored at the Company i s Jackson
24 Prairie underground storage facility through the test
Andrews, Di 53
Avista Corporation
1 period.The effect on Idaho rate base is an increase of
2 $4,535,000.
3 The adjustment in column (f), Weatherization and DSM
4 Investment, includes in rate base the balance (net of
5 amortization) of company investments in natural gas demand
6
7
side management (DSM) program costs.These amounts are a
component of actual results of operations.The effect of
8 this adjustment is to increase Idaho rate base by $279,000.
9 The adjustment in column (g) , entitled Customer
10 Advances, decreases rate base for funds advanced by
11 customers for line extensions, as they are generally
12 recorded as contributions in aid of construction at some
13 future time.The effect of this adjustment on Idaho rate
14 base is a decrease of $73,000.
15 The colum labeled Subtotal Actual, is a subtotal of
16 columns (b) through (g) and reflects the standard rate base
17 adjustments.
18 Q.Please turn to page 5 and explain the adjustments
19 shown there.
20 A.The first adjustment on page 5 in colum (h),
21 entitled Depreciation True-up, reflects a decrease in
22 depreciation expense due to the utilization of new
23 depreciation rates effective January 1, 2008 as approved in
24 Order No. 30498 in Case No. AVU-G-07-03.These rates
25 became effective after the three months October through
Andrews, Di 54
Avista Corporation
1 December 2007 included in the test period. This adjustment
2 annualizes the current effective rates for the test period.
3 This adjustment increases Idaho net operating income by
4 $25,000.
5 The adjustment in column (i) ,enti tled Weather
6 Normlization &: Gas Cost Adjustment, is a 3-fold adjustment
7 taking into account known and measurable changes that
8 include revenue normalization (including the current
9 authorized rates approved in Case No. AVU-G-08-01), which
10 reprices customer usage under presently effective rates, as
11 well as weather normalization and an unbilled revenue
12 calculation.Associated gas costs are replaced with gas
13 costs computed using normalized volumes at the currently
14 effective "weighted average cost of gas," or WACOG rates.
15 Revenues associated with the temporary Gas Rate Adjustment
16 Schedule 155 and Schedule 191 Tariff Rider are excluded
17 from pro forma revenues, and the related amortization
18 expenses are eliminated as well.The January 6, 2009 gas
19 cost reduction to customer charges was accomplished through
20
21
Schedule 155, which is excluded from base revenues.Ms.
Knox is sponsoring this adjustment.The effect of this
22 particular adjustment is to increase Idaho net operating
23 income by $2,359,000.
24 The adjustment in colum (j), Eliminate B &: 0 Taxes,
25 eliminates the revenues and expenses associated with local
Andrews, Di 55
Avista Corporation
1 business and occupation taxes, which the Company passes
2 through to customers. The adjustment eliminates any timing
3 mismatch that exists between the revenues and expenses by
4 eliminating the revenues and expenses in their entirety.
5 B & 0 Taxes are passed through on a separate schedule,
6 which is not part of this proceeding.The effect of this
7 adjustment is zero to Idaho net operating income.
8 The adjustment in colum (k), Property Tax, restates
9 the test period accrued levels of property taxes to the
10 most current information available and eliminates any
11 adjustments related to the prior year. The effect of this
12 particular adjustment is to decrease Idaho net operating
13 income by $104,000.
14 The adjustment in column (1), Uncollectible Expense,
15 restates the accrued expense to the actual level of net
16 write-offs for the test period.The effect of this
17 adjustment is to increase Idaho net operating income by
18 $81,000.
19
20
The adjustment in colum (m), entitled Regulatory
Expense Adjustment,restates recorded 2008 regulatory
21 expense to reflect the IPUC assessment rates applied to
22 revenues for the test period.The effect of this
23 adjustment is to decrease Idaho net operating income by
24 $8,000.
Andrews, Di 56
Avista Corporation
1 Q.Please turn to page 6 and explain the adjustments
2 shown there.
3 A.The first adjustment on page 6 in column (n),
4 entitled injuries and Damges, is a restating adjustment
5 that replaces the accrual with the six-year rolling average
6 of actual injuries and damages payments not covered by
7 . 4insurance .This methodology was accepted by the Idaho
8 Commission in Case No. WWP-E-98-11.The effect of this
9 adjustment is to increase Idaho net operating income by
10 $1,000.
11 The adjustment in column (0), entitled FIT, adjusts
12 the FIT calculated at 35% within Results of Operations by
13 removing the effect of certain Schedule M items and matches
14 the jurisdictional allocation of other Schedule M items to
15 related Results of Operations allocations. This adjustment
16 also reflects the proper level of deferred tax expense for
17 the test period.The effect of this adjustment, all based
18 upon a Federal tax rate of 35%, is to increase Idaho net
19 operating income by $10,000.
20 The adjustment in column (p), Eliminate A/R Expenses,
21 A/R representing Accounts Receivable, removes expenses
22 associated with the sale of customer accounts receivable.
4 Due to the twelve months ending September 30, 2008 test period
utilized in this case, the Company computed the six-year average using
twelve-months ended actuals through Novemer 2008 (most current data
available at time of adjustment) for its 2008 balance.
Andrews, Di 57
Avista Corporation
1 The effect of this adjustment is to increase Idaho net
2 operating income by $27,000.
3 The adjustment in colum (q), Miscellaneous Restating
4 Adjustment, removes a number of non-operating or non-
5 utili ty expenses associated with advertising, sponsorships
6 and dues and donations included in error in the test period
7 actual results.The effect of this adjustment is to
8 increase Idaho net operating income by $31,000.
9 The adjustment in column (r), Restate Debt interest,
10 restates debt interest using the Company's pro forma
11 weighted average cost of debt, as outlined in the testimony
12 and exhibits of Mr. Thies, and applied to Idaho's pro forma
13 level of rate base, produces a pro forma level of tax
14 deductible interest expense. The federal income tax effect
15 of the restated level of interest for the test period
16 decreases Idaho net operating income by $292,000.
17 The next column on page 6, entitled Restated Total,
18 subtotals all the preceding colums (b) through column (r),
19 exclusive of the previously discussed subtotal column.
20 These totals represent actual operating results and rate
21 base plus the standard normalizing adjustments.
Andrews, Di 58
Avista Corporation
1 Pro Forma Adjustments
2 Q.Please explain the significance of the 10 colums
3 subsequent to the Restated Total colum on pages 6 through
4 8 of your Exhibit No. 10, Schedule 2.
5 A.The adjustments starting on page 6 are pro forma
6 adjustments to reflect known and measurable changes between
7 the test period and the pro forma period. In this case,
8 they encompass revenue and expense items, and natural gas
9 capi tal proj ects .These adjustments bring the operating
10 results and rate base to the final pro forma level for the
11 test year.
12 Q.Please continue with your explanation of the
13 adjustments on page 6.
14 A.The adjustment in column (PF1), Pro Form Labor-
15 Non-Exec, reflects known and measurable changes to test
16 period union and non-union wages and salaries, excluding
17 executive salaries, which are handled separately in PF2.
18 Test period wages and salaries are restated as if the wage
19 and salary increase in March 2009 were in place for 8
20 months and the March 2010 increase was in place for 4
21 months of the pro forma period ending June 30, 2010.The
22 methodology behind this adjustment is consistent with that
23 used in Case No. AVU-G-08-1. The effect of this adjustment
24 on Idaho net operating income is a decrease of $179,000.
Andrews, Di 59
Avista Corporation
1 Q.Please turn to page 7 and explain the adjustments
2 shown there.
3 A.The first adjustment on page 7, in column (PF2)
4 is Pro Form Labor-Executive, which reflects known and
5 measurable changes to executive compensation.Test period
6 wages and salaries are restated to the 2010 expected level.
7 This adjustment takes into account changes in executive
8 staffing made during 2008 and includes compensation for the
9 planned executive team in the pro forma period only.
10 Compensation costs for non-utility operations are excluded
11 as executives routinely charge a portion of their time to
12 non-utility operations, commensurate with the amount of
13 time spent on such activities.The current executives'
14 salary allocations are set at their expected pro forma test
15 period utility/non-utility percentage splits.The impact
16 of this adjustment on Idaho net operating income is a
17 decrease of $21,000.
18 The adjustment in colum (PF3), Pro Forma capital
19 Additions 2008, pro forms in the capital cost and expenses
20 associated with adjusting the test period average-monthly-
21 average plant related balances at Septemer 30, 2008, to
22 actual end-of-period balances for plant in service at
23 December 31, 2008.The capital costs have been included
24 for December 31, 2008 pro forma period with the associated
25 depreciation expense and property tax, as well as the
Andrews, Di 60
Avista Corporation
1 appropriate accumulated depreciation and deferred income
2 tax rate base offsets. This adjustment was made under the
3 direction of Mr. DeFelice and is described further in his
4 testimony.This adjustment increases Idaho net operating
5 income by $71,000 and increases rate base by $445,000.
6 The adjustment in column (PF4), Pro Forma Capital
7 Additions 2009, pro forms in the capital cost and expenses
8 associated with pro forming in capital expenditures for
9 2009. This adjustment includes projects completed during
10 2009, and thus were normalized to reflect annual amounts,
11 and projects expected to be completed and transferred to
12 plant-in-service by December 31, 2009.The capital costs
13 have been included for their appropriate pro forma period
14 with the associated depreciation expense and property tax,
15 as well as the appropriate accumulated depreciation and
16 deferred income tax rate base offsets.This adjustment
17 also reduces the 2008 vintage plant net rate base
18 (including accumulated depreciation and deferred FIT) to an
19 end of period December 31, 2009 adjusted balance.This
20 adjustment was also made under the direction of Mr.
21 DeFelice and is described further in his testimony.This
22 adjustment decreases Idaho net operating income by $198,000
23 and decreases rate base by $691,000.
24 The adjustment in column (PF5), entitled Pro Form
25 informtion Services, pro forms in the administrative and
Andrews, Di 61
Avista Corporation
1 general (A&G) expenses associated with incremental known
2 and measureable changes for labor and non-labor
3 informational services costs planned for 2009 above the
4 test period, as further explained in the Electric Section.
5 The impact of this adjustment on Idaho net operating income
6 is a decrease of $101,000.
7 The adjustment in column (PF6), entitled Pro Form
8 Incentives, adjusts the test year incentive expense to the
9 2008 incentive expense expected to be paid in 2009 for the
10 2008 (as further explained in the Electric Section). This
11 adjustment also pro forms in a 6 year average (as further
12 explained in the Electric Section).The impact of this
13 adjustment on Idaho net operating income is a decrease of
14 $47,000.
15 The adjustment in colum (PF7), Pro Form JP Storage,
16
17
pro forms revenues, expenses,capital investment and
inventory for the increased storage capacity and
18 deliverability associated with the Jackson Prairie (JP)
19 Storage facility that was approved by the Commission in
20 Order No. 30647 (Case No. AVU-G-08-01).In 2008, Avista
21 ended its natural gas storage release contract with Terasen
22 Gas.The revenues of $1,060,000 from the release of this
23 contract have been eliminated from the test period.Gas
24 inventory has been increased by $289,000, due to the
25 recouped storage.In addition, a multi-year expansion
Andrews, Di 62
Avista Corporation
1 proj ect at the facility was in service in October 2008,
2 which increased deliverability, increasing depreciation and
3 property taxes expense by approximately $117,000, and
4 increasing net rate base by $3,302,000.The total net
5 impact of these adjustments decreases Idaho net operating
6 income by $752,000 and increases rate base by $3,591,000.
7 Q.Please turn to page 8 and explain the adjustments
8 shown there.
9 A.The first adjustment on page 8, in colum (PF8)
10 is Pro Form Idaho Advanced Meter Reading (AMR), includes
11 the capital costs associated with the Company's Idaho AMR
12 project.These costs include actual life-to-date
13 expenditures from January 2005 through December 31, 2008
14 (as explained further in the Electric Section).This
15 adjustment decreases Idaho net operating income by $229,000
16 and increases rate base by $6,142,000.
17 The adjustment in colum (PF9), Pro Form Employee
18 Benefits, adjusts for changes in both the Company's pension
19 and medical insurance expense planned for 2009 as further
20 explained in the Electric Section above.This adjustment
21 decreases Idaho net operating income by $242,000
22 The adjustment in colum (PF10), Pro Forma Insurance,
23 updates the test period insurance expense for general
24 liability,directors and officer ("D&O" )liability,
25 property and other policies, to the actual cost of
Andrews, Di 63
Avista Corporation
1 insurance policies planned for 2009 as described further in
2 the Electric Section above.This adjustment decreases
3 Idaho net operating income by $25,000
4 The last colum on page 8, Pro Form Total, reflects
5 total pro forma results of operations and rate base
6 consisting of twelve-months ended September 30, 2008 actual
7 results and the total of all normalizing and pro forma
8 adjustments.
9 Q.Referring back to page 1, line 43, of Exibit No.
10 10, Schedule 2, what was the actual and pro form gas rate
11 of return realized by the Company during the test period?
12 A.For the State of Idaho, the actual test period
13 rate of return was 6.41%. The pro forma rate of return is
14 6.87% under present rates. Thus, the Company does not, on
15 a pro forma basis for the test period, realize the 8.80%
16 rate of return requested by the Company in this case.
17 Q.How much additional net operating income would be
18 required for the State of Idaho gas operations to allow the
19 Company an opportunity to earn its proposed 8.80% rate of
20 return on a pro forma basis?
21 A.The net operating income deficiency amounts to
22 $1,750,000, as shown on line 5, page 2 of Exhibit No. 10,
23 Schedule 2. The resulting revenue requirement is shown on
24 line 7 and amounts to $2,740,000, or an increase of 2.99%
Andrews, Di 64
Avista Corporation
1 over pro forma general business and transportation
2 revenues.
3
4
5
v.ALLOCATION PROCEDURES
Q.Have there been any changes to the Company's
6 system and jurisdictional procedures since the Company's
7 last general electric and natural gas cases, Case Nos. AVU-
8 E-08-01 and AVU-G-08-01?
9 A.No.For ratemaking purposes,the Company
10 allocates revenues, expenses and rate base between electric
11 and gas services and between Washington, Idaho, and Oregon
jurisdictions where electric and/or gas service is12
13
14
provided.The current methodology was implemented in 1994
and has not changed.The allocation factors used in this
15 case have been provided with my workpapers.
16
17
18
VI. OTHER
Q.Please address the filing requirements as
19 required in Order No. 29962.
20 A.In Order No. 29962 (Case Nos. AVU-E-05-9 and AVU-
21 G-05-3), the Commission directed the Company to record
22 regulatory assets or liabilities associated with the
23
24
implementation of Statement of Financial Accounting
Standards (SFAS) 143.As a result of the Order, the
25 Company is required to file annually, and as part of any
Andrews, Di 65
Avista Corporation
1 rate case filing, all journal entries made under the
2 requirements of SFAS 143. These ARO transactions have been
3 removed from the test year (twelve months ended September
4 30, 2008) Results of Operations and have no impact on the
5 Company's earnings or rate request in this case.The
6 journal entries for the calendar year 2008 will be filed
7 with the Commission in our upcoming compliance filing.
8 Q.Does that conclude your pre-filed direct
9 testimony?
10 A.Yes, it does.
Andrews, Di 66
Avista Corporation
Ï'
DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REGULATORY & GOVERNENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220 - 3 7 2 7
TELEPHONE: ( 509) 495 - 4 316
FACSIMILE: [phone]
20D9 JMi 23 PH 12: 44
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-09-01
OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-09-01
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) EXHIBIT NO. 10
AND NATURAL GAS CUSTOMERS IN THE )STATE OF IDAHO ) ELIZABETH M. ANDREWS
)
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
AVITA UIS
ELCIC REULTS OF OPERTION
IDAHO PRO FORM REULTS
1W VB MONTS ENED SEPER 30, 2008
(OOO'S OF DOllS)
WI PRESENT RATES WI PROPOSED RATES
Actal Per Proposed ProForm
Line Results Tota ProForm Revenues & Proposed
No.DESCRITION Report Adjustments Tota RelteExn Tota
a b d e f
REVES
1 Total Geerl Business
2 literdeparmenta1 Sales
3 Sales for Resale
4 Total Sales of Electrcity
5 Other Revue
6 Total Electric Reveue
31,233
$251,340
145
27,610
279,095
5,298
284,393
$210,968 $9,139 $220,107
145 145
69,340 (41,730)27,610
280,453 (32,591)247,862
19,754 (14,456)5,298
300,207 (47,047)253,160
$31,233
31,233
EXENSES
Production and Trasmission
7 Operting Expenses
8 Purchased Power
9 Depreciation and Amortization
10 Taxes
11 Total Production & Trasmission
16 Customer Accounting
17 Customer Serce & lifomiation
18 Sales Expenses
80,859 (16,459)64,401 64,401
99,071 (24,407)74,664 74,664
11,374 5,260 16,634 16,634
4,898 1,225 6,123 6,123
196,202 (34,381)161,822 °161,822
8,580 1,047 9,627 9,627
8,351 1,697 10,048 10,048
4,167 (1,181)2,986 381 3,367
21,098 1,563 22,661 381 23,042
3,643 (159)3,484 79 3,563
3,960 (2,414)1,546 1,546
261 13 274 274
19,261 2,296 21,557 78 21,635
3,860 1,007 4,867 4,867
135 135 135
23,121 3,438 26,559 78 26,637
248,285 (31,940)216,345 538 216,883
51,922 (15,107)36,815 30,695 67,510
2,030 (1,451)579 10,743 11,322
7,578 (2,205)5,373 5,373
Distribution
12 Operting Expenses
13 Depreciation
14 Taxes
15 Total Distrbution
Administrative & Geerl
19 Operting Expenses
20 Depreciation
21 Taxes
22 Total Adin, & Geer
23 Total Electric Expenses
24 OPERTIG lNCOME BEFORE FI
FEERlNCOME TAX
25 Current Accral
26 Defered liconie Taxes
27 Amortized livetment Tax Creit
28 SET EXCHGE POWE
29 NE OPERTIG lNCOME $42,314 ($11,451)$30,863 $19,952 $50,815
30
31
32
33
34 Geerl
35 Total Plant in Serce
36 ACCUM1E DEPRECITION
37 ACCUM, PROVISION FOR AMORTITION
38 Total Accum, Depreciation & Amort,
39 GA ON SAL OF BUIlNG
40 DEF TAXS
RAlEBASE
PLAlN SERVICE
litangible
Production
Trasmission
Distribution
$12,083 $28,661 $40,744 $40,744
359,680 11,718 371,398 371,398
156,662 8,995 165,657 165,657
341,133 49,000 390,133 390,133
49,818 11,360 61,178 61,178
919,376 109,734 1,029,110 °1,029,110
310,555 42,120 352,675 352,675
3,664 808 4,472 4,472
314,219 42,928 357,147 °357,147
(252)(252)(252)
(94,277)(94,277)(94,277)
$605,157 ($27,723)$577,434 $0 $577,434
6.99%5.34%8,80%
Exhibit No, 10
Case No, AVU-E-û9-Û1 and AVU-G-û9-û1
E, Andrews, Avista
Schedule 1. p, 1 of 11
41 TOTALRAlEBASE
42 RAlE OF RE
Line
No.
2
3
4
5
6
7
8
9
A VISTA UTILITIS
Calculation of General Revenue Requirement
IDAHO - Electric System
TWELVE MONmS ENDED SEPTEMBER 30,2008
Description
(OOO's of
Dollars)
Pro Forma Rate Base $577,434
Proposed Rate ofRetu 8,80%
Net Operatig Income Requirement $50,814
Pro Forma Net Operating Income $30,863
Net Operatig Income Deficiency $19,951
Conversion Factor 0.63878685
Revenue Requirement $31,233
Total General Business Revenues $220,252
Percentage Revenue Increase 14.18%
Exhibit No. 10
Case No. AVU-E-09-01 and AVU-G-09-01
E. Andrews, Avista
Schedule 1, p. 2 of 11
A VISTA UTILITIES
CALCULATION OF CONVRSION FACTOR: IDAHO ELECTRIC
TWELVE MONTHS ENDED SEPTEMBER 30,2008
Revenue:1,000000
Expense:
Unoollectib1es (1)0.002528
Commission Fees (2)0,002507
Idaho Income Tax (3)0.012216
Total Expense 0.017251
Net Operating Income Before FIT 0.982749
Federal Inoon 0.35 0,343962
REVENU CONVRSION FACTOR 0.638787
Exhibit No. 10
Case No. AVU-E-09-01 and AVU-G-09-01
E. Andrews, Avista
Schedule 1, p. 3 of 11
A VITA UIS
ErCIC REULTS of OPERTION
IDAHO RESTAlE RESULTS
lWELVE MONI ENED SEPER 30,2008
(OOO'S OF DOILS)
Deferred Gai Kette Fal &
on Offce Boulder Park
DESCRITION Buildig Disalow.
d e g
RES
1 Total Geerl Business $210,968
2 futerdeparmenta1 Sales 145
3 Sales for Resale 69,340
4 Total Sales of Electrcity 280,453 0 0 0 0 0
5 Other Reveue 19,754
6 Total Electric Reveue 300,207 0 0 0 0
EXPENSES
Production and 'fnsmission
7 Operting Expenses 80,859
8 Purchased Power 99,071
9 Depreciation and Amortization 11,374 202
10 Taxes 4,898
11 Total Production & Trasmission 196,202 0 202 0 0
Distribution
12 Operting Expenses 8,580
13 Depreciation 8,351
14 Taxes 4,167
15 Total Distribution 21,098 0 0 0 0 0
16 Customer Accounting 3,643
17 Customer Serce & fuformation 3,960
18 Sales Expenses 261
Administrative & Geerl
19 Operting Expenses 19,261
20 Depreciation 3,860
21 Taxes
22 Total Adin, & Geerl 23,121 0 0 0 0 0 0
23 Total Electric Expenses 248,285 0 202 0 0
24 OPERTIG lNCOME BEFORE FI 51,922 0 (202)0 0
FEER lNCOME TAX
25 Current Accial 2,030
26 Defered fucome Taxes 7,578
27 NE OPERATIG lNCOME $42,314 $0 $0 ($202)$0 $0 $0
RAlEBASE
PLAlN SERVICE
28 futangible $12,083
29 Production 359,680 7,452 925 (5,609)
30 Trasmission 156,662
31 Distribution 341,133 (885)
32 Geer 49,818
33 Total Plait in Serce 919,376 0 7,452 925 (5,609)(885)
34 ACCUlE DEPRECITION 310,555 5,496 (2,693)
35 ACCU, PROVIION FOR AMORTIATION 3,664
36 Total Accum, Depeciation & Amort,314,219 0 0 5,496 0 (2,693)0
37 GA ON SAL OF BUllNG (252)
38 DEFERR TAXS (82,407)88 683
39 TOTALRAlE BASE $605,157 ($82,407)($164)$1,956 $925 ($2,233)($885)
40 RAlE OF RE 6,99%
Exhibit No, 10
Case No, AVU-E-û9-û1 and AVU-G-û9-û1
E, Andrews, Avista
Schedule 1, p, 4 of 11
A VITA UIS
ElCIC RESULTS OF OPERTION
IDAHO RESTAlE RESULTS
lWEL VB MONl ENED SEPER 30, 2008
(OOO'S OF DOllS)
DESCRITION
RE
I Total Geerl Business $210,968 $ (2,515)
2 lnterdepartmental Sales 145
3 Sales for Resale 69,340
4 Total Sales of Electrcity 280,453 0 (2,515)0 0 0
5 Other Reveue 19,754
6 Total Electrc Revue 300,207 0 (2,515)0 0 0
EXENSES
Production and Trasmission
7 Operating Expenses 80,859
8 Purchased Power 99,071
9 Depreciation and Amortization 1l,576 (37)
10 Taxes 4,898 1,143
II Total Production & Trasmission 0 196,404 (377)0 1,143 0 0
Distribution
12 Operting Expenses 8,580
13 Depreciatiun 8,351 317
14 Taxes 4,167 2 (2,510)656
15 Total Distribution 0 21,098 319 (2,510)656 0
16 Customer Accounting 3,643 (58)
17 Customer Serce & lnfunnation 3,960
18 Sales Expenses 261
Adinistrative & Geer
19 Opeting Expenses 19,261 40
20 Depreciation 3,860 (125)
21 Taxes 2
22 Total Adin, & Geerl 0 23,121 (125)0 2 0 40
23 Total Electrc Expenses 0 248,487 (183)(2,510)1,801 (57)40
24 OPERTIG INCOME BEFoRE FIT 51,720 183 (5)(1,801)57 (40)
FEER INCOME TAX
25 Current Accral 2,030 64 (2)(630)20 (14)
26 Defered lncome Taxes 7,578
27 NE OPERTIG INCOME $0 $42,1l2 $1l9 ($3)($1,171)$37 ($26)
RATE BASE
PLA IN SERVICE
28 lntangible $12,083
29 Production 1,669 364,1l7
30 Transmission 156,662
31 Distribution 340,248
32 Geerl 49,818
33 Total Plant in Serce 1,669 922,928 0 0 0 0 0
34 ACCUlE DEPRECITION 313,358
35 ACCU, PROVIION FOR AMORTIATION 3,664
36 Total Accum, Depreciation & Amort,0 317,022 0 0 0 0 0
37 GA ON SAL OF BUIING (252)
38 DEF TAXES (81,636)
39 TOTAL RATE BASE $1,669 $524,018 $0 $0 $0 $0 $0
40 RATE OF RE 8,04%
Exhibit No, 10
Case No, AVU-E-Û9-Û1 and AVU-G-û9-û1
E, Andrews. Avista
Schedule 1, p, 5 of 11
AVITA UIS
ELCTC RESULTS OF OPERTION
IDAHO RESTATI RESULTS
lWELVEMONI ENED SEPER30, 2008
(OOO'S OF DOlLS)
DESCRITION
RES
1 Total Geerl Business $ (9,206)$20,860
2 Interdepartmental Sales
3 Sales for Resale
4 Total Sales of Electrcity 0 0 (9,206)0 0 0 20,860
5 Other Reveue 83
6 Total Electrc Reveue 0 0 (9,206)0 0 0 20,943
EXPENSES
Production and Trasmission
7 Operting Expenses 5,603 (12)(157)
8 Purchased Power
9 Depreciation and Amortization 1,515
10 Taxes
11 Total Production & Trasmission 0 0 5,603 (12)0 0 1,358
Distribution
12 Operting Expenses
13 Depreciation
14 Taxes $4 268
15 Total Distribution 0 0 4 268
16 Customer Accounting (29)$ (296)53
17 Customer Serce & Information (2,427)
18 Sales Expenses
Adistrative & Geerl
19 Operting Expenses 23 (24)(114)53
20 Depreciation
21 Taxes
22 Total Adin, & Geerl 23 0 (24)0 0 (114)53
23 Total Electric Expenses 23 0 5,550 (12)(292)(113)(695)
24 OPERTIG lNCOME BEFORE FI (23)0 (14,756)12 292 113 21,638
FEERlNCOME TAX
25 Current Accral (8)(474)(3,204)4 $102 40 7,573
26 Defered Income Taxes 20 (1,961)
27 NE OPERTIG lNCOME ($15)$454 ($9,591)$8 $190 $73 $14,065
RA1EBASE
PLAlN SERVICE
28 Intangible
29 Production
30 Trasmission
31 Distribution
32 Geerl
33 Total Plant in Serce 0 0 0 0
34 ACCUTI DEPRECIATION
35 ACCU, PROVIION FOR AMORTIATION
36 Total Accum, Depreciation & Amort,0 0 0 0
37 GAI ON SAl OF BUIlNG
38 DEF TAXES
39 TOTALRA1E BASE $0 $0 $0 $0 $0 $0 $0
40 RA1E OF RE
Exhibit No, 10
Case No, AVU-E-09-Q1 and AVU-G-Q9-Q1
E, Andrews. Avista
Schedule 1. p. 6 of 11
A VITA UIS
ELCIC RESULTS OF OPERTION
IDAHO RESTAlE REULTS
lW VB MONn ENED SEPIEER 30, 2008
(OOO'S OF DOILS)
DESCRITION
a v w
RES
1 Total Geer Business $220,107
2 Intereparental Sales 145
3 Sales for Resale 69,340 (40,557)(1,173)
4 Total Sales of Electricity °289,592 (40,557)(1,173)°
5 Other Revue 19,837 (14,818)(159)
6 Total Electric Reveue °309,429 (55,375)(1,332)°
EXENSES
Production and Trasmission
7 Operting Expenses $1,010 87,303 (24,350)(2,628)399 5
8 Purchased Power 99,071 (21,235)(3,17)
9 Depreciation and Amortization 12,714 (549)
10 Taxes 6,041 (179)
11 Total Production & Trasmission 1,010 205,129 (45,585)(6,528)399 5
Distribution
12 Operting Expenses 8,580 294
13 Depreciation 8,668
14 Taxes $ (12)2,577 (120)63 (13)(2)
15 Total Distribution (12)19,825 (120)63 281 (2)
16 Customer Accounting 3,313 93
17 Customer Serce & Information 1,533 7
18 Sales Expenses 261 7
Administrtive & Geer
19 Operting Expenses 19,239 280 124
20 Depreciation 3,735
21 Taxes 2
22 Total Adin, & Geer °°22,976 °°280 124
23 Total Electric Expenses 998 °253,037 (45,705)(6,465)1,067 127
24 OPERTIG INCOME BEFORE FI (998)°56,392 (9,670)5,133 (1,067)(12)
FEDER INCOME TAX
25 Current Accral $ (349)1,985 7,137 (3,385)1,797 (373)(44)
26 Defered Income Taxes 5,637
27 NE OPERTIG INCOME ($649)($1,985)$43,618 ($6,285)$3,336 ($694)($83)
RAlEBASE
PLA IN SERVICE
28 Intangible $12,083
29 Production 364,117 (18,691)
30 Trasmssion 156,662
31 Distribution 340,248
32 Geerl 49,818
33 Total Plant in Serce °922,928 (18,691)°°
34 ACCUlE DEPRECITION 313,358 (6,608)
35 ACCU, PROVIIONFORAMOR'IATION 3,664
36 Total Accum, Depeciation & Amort,°°317,022 °(6,608)°°
37 GAI ON SAL OF BUIING (252)
38 DEF TAXES (81,636)1,881
39 IDTALRAlEBASE $0 $0 $524,018 $0 ($10,202)$0 $0
40 RAlE OF RE 8.32%
Exhibit No, 10
Case No, AVU-E-09-o1 and AVU-G-09-o1
E, Andrews, Avista
Schedule 1, p, 7 of 11
A VITA UIS
ElCIC RESULTS OF OPERTION
IDAHO RESTA1ED RESULTS
lWEI VB MONI ENED SEPER 30, 2008
(OOO'S OF DOllS)
ProForma ProForma ProForma
Transousion Information Asset
DESCRITION RevlExp Serices Miagement
a PF5 PF8 PF9
RES
1 Total Geerl Business
2 Interdeparmental Sales
3 Sales for Resale
4 Total Sales of Electricity 0 0 0 0 0 0
5 Other Reveue 13
6 Total Electrc Reveue 13 0 0 0 0
EXENSES
Production and Trasmission
7 Operting Expenses 5 240 1,063
8 Purchased Power
9 Depreciation and Amortization (39)400 1,037
10 Taxes 261
11 Total Production & Transmission (39)661 0 240 2,100
Distribution
12 Operating Expenses 510
13 Depreiation 116 572
14 Taxes (3)277 (9)(9)(26)
15 Total Distribution 113 849 (9)501 (26)
16 Customer Accounting
17 Customer Serce & Information
18 Sales Expenses
Adinistrative & Geer
19 Operting Expenses 698
20 Depreciation 172 960
21 Taxes 133
22 Total Ad, & Geerl °172 1,093 698 0
23 Total Elecric Expenses 5 246 2,603 689 740 2,074
24 OPERTIG INCOME BEFORE FI 8 (246)(2,603)(689)(740)(2,074)
FEDER INCOME TAX
25 Current Accral (86)(911)(241)(259)(726)
26 Defered Income Taxes
27 NE OPERTIG INCOME $5 ($160)($1,692)($448)($481)($1,348)
RA1EBASE
PLA IN SERVICE
28 Intangible $187 $2,948 $13,596
29 Production 9,927 13,610
30 Trasmission 5,023 3,972
31 Distribution 7,078 20,555
32 Geer 4,998 6,362
33 Total Plant in Serce 0 27,213 47,447 0 °13,596
34 ACCU1E DEPRECITION 19,393 26,313
35 ACCU, PROVIION FOR AMORTIATION 145
36 Total Accum, Depreciation & Amort,19,393 26,313 145
37 GA ON SAl OF BUIING
38 DEF TAXES (4,162)(4,238)(1,267)
39 TOTALRA1E BASE $0 $3,658 $16,896 $0 $0 $12,184
40 RA1E OF RE
Exhibit No, 10
Case No, AVU-E-Q9-Q1 and AVU-G-09-Q1
E, Andrews, Avista
Schedule 1, p, 8 of 11
AVITA umS
ELCIC RESULTS OF OPERTION
IDAHO RESTAlE RESULTS
TWELVE MONI ENED SEPER 30, 2008
(OOO'S OF DOLLS)
ProForma ProForma
Colstrp Mercur CS2
DESCRITION Emis.O&M LeveliOO Adj
PF13 PF15
RES
1 Total Geerl Business
2 Interdeparmental Sales
3 Sales for Resale
4 Total Sales of Electrcity 0 0 0 0
5 Other Reveue
6 Total Electric Revue 0 0 0 0 0
EXPENSES
Production and Trasmission
7 Operting Expenses 596
8 Purchased Power
9 Depreciation and Amortization 401 1,917 199
10 Taxes
11 Total Production & Trasmssion 401 1,917 596 0 199
Distribution
12 Operting Expenses
13 Depreciation
14 TaXes (5)(23)(7)(4)
15 Total Distrbution (5)(23)(7)(4)0
16 Customer Accounting
17 Customer Serce & Infonnation
18 Sales Expenses
Administrative & Geerl
19 Operting Expenses 295
20 Depreciation
21 Taxes
22 Total Ad, & Geerl 0 0 0 295
23 Total Electric Expenses 396 1,894 589 291 199
24 OPERTIG INCOME BEFORE FI (396)(1,894)(589)(291)(199)
FEER INCOME TAX
25 Current Accral (139)(663)(206)(102)
26 Defered Income Taxes (70)
27 NE OPERTIG INCOME ($257)($1,231)($383)($189)($129)
RATE BASE
PLA IN SERVICE
28 Intangible $11,930
29 Production 2,435
30 Trasmission
31 Distribution
32 Geeral
33 Total Plant in Serce 11,930 2,435 0 0
34 ACCUlE DEPRECITION 219
35 ACCU, PROVIION FOR AMORTIATION
36 Total Accum, Depiation & Amort,219 0 0 0
37 GA ON SAl OF BUIING
38 DEFERD TAXS (3,850)(852)
39 WTALRATE BASE $7,861 $1,583 $0 $0 $0
40 RATE OF RE
Exhibit No. 10
Case No, AVU-E-u9-u1 and AVU-G-u9-u1
E, Andrews. Avista
Schedule 1, p, 9 of 11
A VITA UIS
ELECIC RESULTS OF OPERTION
IDAHO RESTATE RESULTS
lWVE MONI ENED SEP:E 30,2008
(OOO'S OF DOUAS)
ProForma ProForm ProForma ProForma ProForm
IDAM O&MPlant Emplòyee Insurce Chicago
DESCRITION Expense Benefits Clite (CCX)
a PF16 PF17 PF18 PF19 PF20
RES
1 Total Geeral Business
2 Interdeparmental Sales
3 Sales for Resale
4 Total Sales of Elecicity 0 0
5 Other Revue 425
6 Total Electric Reveue 0 0 0 425
EXPENSES
Production and Transmssion
7 Operting Expenses 1,400 368
8 Purchased Power
9 Depeciation and Amortization
10 Taxes
11 Total Production & Trasmission 0 1,400 368 0 0
Distribution
12 Operting Expenses 243
13 Depreciation 692
14 Taxes 322 (17)(18)(2)5
15 Total Distribution 1,014 (17)225 (2)5
16 Customer Accounting 78
17 Customer Serce & Inforiation 6
18 Sales Expenses 6
Administrtive & Geerl
19 Operting Expenses 769 152
20 Depeciation
21 Taxes
22 Total Adin, & Geerl 0 0 769 152 0
23 Total Electric Expenses 1,014 1,383 1,452 150 5
24 OPERTIG INCOME BEFORE FI (1,014)(1,383)(1,452)(150)420
FEDERA INCOME TAX
25 Current Accrual (325)(484)(508)(53)147
26 Defered Income Taxes
27 NE OPERTIG INCOME ($689)($899)($944)($97)$273
RA1EBASE
PLA IN SERVICE
28 Intangible
29 Production
30 Trasmission
31 Distrbution 22,252
32 Geer
33 Total Plant in Serce 22,252 0 0 0
34 ACCUTE DEPRECITION
35 ACCU, PROVIION FOR AMORTIATION 663
36 Total Accum, Depreciation & Amort,663 0 0 0
37 GA ON SAl OF BUIING
38 DEF TAXS (153)
39 1DTALRA1E BASE $21,436 $0 $0 $0 $0
40 RA1E OF RE
Exhibit No, 10
Case No, AVU-E-D9-D1 ahd AVU-G-D9-D1
E. Andrews, Avista
Schedule 1, p, 10 of 11
AVITA UIIlS
EUCIC RESULTS OF OPERATION
IDAHO RESTAlE RESULTS
lW VB MONI ENED SEPER 30, 2008
(OOO'S OF DOlLS)
ProForma ProForma
Wartila Colstrp
DESCRITION Amorttion Lamiuit Stlt
PF21 PF22
RES
1 Total Geer Business $220,107
2 Interdeparmental Sales 145
3 Sales for Resale 27,610
4 Total Sales of Electricity 0 0 247,862
5 Other Reveue 5,298
6 Total Electric Reveue 0 0 253,160
EXPENSES
Production and Trtsmission
7 Operting Expenses 64,401
8 Purchased Power 74,664
9 Depreciation and Amortization 185 369 16,634
10 Taxes 6,123
11 Total Production & Trtsmission 185 369 161,822
Distribution
12 Operting Expenses 9,627
13 Depreciation 10,048
14 Taxes 2,986
15 Total Distribution 0 22,661
16 Customer Accounting 3,484
17 Customer Serce & Information 1,546
18 Sales Expenses 274
Administrtive & Geerl
19 Operting Expenses 21,557
20 Depeciation 4,867
21 Taxes 135
22 Total Ad, & Geerl 0 26,559
23 Total Electrc Expenses 185 369 216,345
24 OPERTIG JNCOME BEFORE FI (185)(369)36,815
FEDERJNCOME TAX
25 Current Accral 579
26 Defered Income Taxes (65)(129)5,373
27 NE OPERTIG JNCOME ($120)($240)$30,863
RA1EBASE
PLAJN SERVICE
28 Intangible $40,744
29 Production 371,398
30 Trasmission 165,657
31 Distribution 390,133
32 Geerl 61,178
33 Total Plant in Serce 0 0 1,029,110
34 ACCUlE DEPRECITION 352,675
35 ACCU, PROVIION FOR AMORTIATION 4,472
36 Total Accum, Depreciation & Amort,0 357,147
37 GA ON SAl OF BUlJNG (252)
38 DEF TAXS (94,277)
0
39 TOTA RA1E BASE $0 $0 $577,434
40 RA1E OF RE 5.34%
Exhibit No. 10
Case No, AVU-E-Q9-Q1 and AVU-G-Q9-Q1
E, Andrews, Avista
Schedule 1, p, 11 of 11
A VISTA UTILITIES
GAS RESULTS OF OPERATION
IDAHO PRO FORM RESULTS
TWELVEMONTHS ENDED SEPTEMBER 30, 2008
(OOO'S OF DOLLAR)
Proposed ProForma
ProForma Revenues &Proposed
DESCRIPTION Totat Related Ex Total
a d f
REVENUS
i Total Geerl Business $88,848 $2,599 $91,447 $2,740 $94,187
2 Total Tråporttion 529 (209)320 320
3 Oter Revenues 59,962 (59,815)147 147
4 Tota Gas Revenues 149,339 (57,425)91,914 2,740 94,654
EXPENSES
Exploration and Development
Production
6 City Gate Purhaes 132,107 (65,859)66,248 66,248
7 Purchased Gas Expense 356 33 389 389
8 Net Nat Gas Storage Tras (8,926)8,926 °
9 Tota Production 123,537 (56,900)66,637 °66,37
Underground Storage
10 Operating Expenses 167 °167 167
11 Depreciation 107 29 136 136
12 Taxes 46 47 93 93
13 Total Undeground Storage 320 76 396 °396
Distrbution
14 Operating Expenses 3,833 254 4,087 4,087
15 Depreciation 2,807 23 2,830 2,830
16 Taxes 2,396 (1,279)1,117 33 1,50
17 Total Distnbution 9,036 (1,002)8,034 33 8,067
18 Customer Accountig 1,937 (68)1,869 7 1,876
19 Customer Serice & Information 1,788 (1,538)250 250
20 Sales Expenses 213 7 220 220
Administrative & General
21 Operting Expenses 4,471 531 5,002 5,009
22 Depreciation 816 359 1,175 1,175
23 Taxes 11 30 41 41
24 Total Admin. & Generl 5,298 920 6,218 7 6,225
25 Total Gas Expense 142,129 (58,505)83,624 47 83,671
26 OPERATING INCOME BEFORE FIT 7,210 1,080 8,290 2,693 10,983
FEDERA INCOME TAX
27 Cut Accrual 1,089 670 1,759 943 2,702
28 Defered FIT 334 3 337 337
29 AmortlTC (19)°(19)(19)
°
30 NET OPERATING INCOME 5,806 $407 6,213 $1,750 $7,963
RATE BASE: PLANT IN SERVICE
31 Underground Storage 5,549 3,540 9,389 9,089
32 Distrbution Plant 120,449 10,109 130,558 130,558
33 General Plat 11,067 3,175 14,242 14,242
34 Total Plant in Serice 137,065 16,824 153,889 °153,889
ACCUMUATED DEPRECIATION
35 Underground Storage 3,080 92 3,172 3,172
36 Distrbution Plat 39,978 4,802 44,780 44,780
37 Geeral Plat 3,471 1,665 5,136 5,136
38 Total Accui, Depreiation 46,529 6,559 53,088 °53,088
39 DEFERRD FIT °(15,052)(15,052)(15,052)
40 GAS INVENTORY °4,824 4,824 4,824
41 GAIN ON SALE OF BUILDING °(82)(82)(82)
42 TOTAL RATE BASE 90,536 ($45)90,491 $0 $90,491
43 RATE OF RETURN 6.41%6.87%8.80%
Exhibit No, 10
Case No, AVU-E-09-01 and AVU-G-09-01
E. Andrews, Avista
Schedule 2, p, 1 of 8
A VISTA UTILITIES
Calculation of General Revenue Requirement
Idaho- Gas
TWELVE MONTHS ENDED SEPTEMBER 30, 2008
(OOO's OF DOLLARS)
Exhibit No.1 0
Case No. AVU-E-09-01 and AVU-G-09-01
E. Andrews, Avista
Schedule 2, p. 2 of 8
A VISTA UTILITIES
CALCULATION OF CONVERSION FACTOR: IDAHO GAS
TWELVE MONTHS ENDED SEPTEMBER 30, 2008
Revenues
Expense:
Uncollectibles (1)
Commssion Fees (2)
Idaho Income Tax (3)
Total Expense
Net Operating Income Before FIT
Federal 1m 35.00%
REVENU CONVERSION FACTOR
1.000000
0.002528
0.002507
0.012216
0.017251
0.982749
0.343962
0.638787
Exhibit No. 10
Case No. AVU-E-09-01 and AVU-G-09~01
E. Andrews, Avista
Schedule 2, p. 3 of 8
A VISTA UTILITIES
GAS REULTS OF OPERATION
IDAHO RETATED REULTS
TWELVE MONTHS ENED SEPTEMBER 30, 2008
(OOO'S OF DOLlARS)
DESCRIPTION
e
REVENUE
I Total General Business $88,848 $88,848
2 Total Transporttion 529 529
3 Other Revenues 59,962 59,962
4 Total Gas Revenues 149,339 0 0 0 0 0 149,339
EXPENSES
5 Exploration and Development 0 0
Production
6 City Gate Purchases 132,107 132,107
7 Purchased Gas Expense 356 356
8 Net Nat Gas Storage Tras (8,926)(8,926)
9 Total Production 123,537 0 0 0 0 0 123,537
Underground Storage
10 Operating Expenses 167 167
11 Depreciation 107 107
12 Taxes 46 46
13 Total Underground Storage 320 0 0 0 0 0 320
Distrbution
14 Operating Expenses 3,833 3,833
15 Depreiation 2,807 2,807
16 Taxes 2,396 2,396
17 Total Distrbution 9,036 0 0 0 0 0 9,036
18 Customer Accountig 1,937 0 0 1,937
19 Customer Service & Informtion 1,788 1,788
20 Sales Expenses 213 213
Admstrative & General
21 Operating Expenses 4,471 4,471
22 Depreciation 816 816
23 Taxes II 11
24 Total Adm, & General 5,298 0 0 0 0 0 5,298
25 Total Gas Expense 142,129 0 0 0 0 0 142,129
26 OPERATING INCOME BEFORE FIT 7,210 0 0 0 0 0 7,210
FEDERAL INCOME TAX
27 Currnt Accrual 1,089 1,089
28 Deferred FIT 334 334
29 AmortITC (19)(19)
30 NET OPERATING INCOME $5,806 $0 $0 $0 $0 $0 $5,806
RATE BASE: PLAT IN SERVICE
31 Underground Storage 5,549 5,549
32 Distrbution Plant 120,449 279 (73)120,655
33 General Plant 11,067 11,067
34 Total Plant in Service 137,065 0 0 0 279 (73)137,271
ACCUMULTED DEPREIATION
35 Underground Storage 3,080 3,080
36 Distrbution Plant 39,978 39,978
37 General Plant 3,471 3,471
38 Total Accum, Depreiation 46,529 0 0 0 0 0 46,529
39 DEFERRD FIT 0 (14,220)29 (14,191)
40 GAS INVENTORY 0 4,535 4,535
41 GAIN ON SALE OF BUIWING 0 (82)(82)
42 TOTAL RATE BASE $90,536 ($14,220)($53)$4,535 $279 ($73)$81,004
43 RATE OF RETURN 7,17%
Exhibit No, 10
Case No, AVU-E-09-01 and AVU-G-09-01
E, Andrews, Avista
Schedule 2, p, 4 of 8
A VISTA UTILITIES
GAS RESULTS OF OPERTION
IDAHO RESTATED RESULTS
TWELVE MONTHS ENDED SEPTEMBER 30, 2008
(OOO'S OF DOLLAS)
DESCRIPTION
a
REVENUE
I Total General Business $4,171 $ (1,572)
2 Total Transporttion (200)(9)
3 Other Revenues (58,755)
4 Total Gas Revenues 0 (54,784)(1,581)0 0 0
EXPENSES
Exploration and Development
Production
6 City Gate Purchases (65,859)
7 Purchased Gas Expense
8 Net Nat Gas Storage Trans 8,926
9 Total Production 0 (56,933)0 0 0 0
Underground Storage
10 Operatig Expenses
II Depreciation (6)
12 Taxes (7)
13 Total Underground Storage (6)0 0 (7)0 0
Distrbution
14 Operatig Expenses
15 Depreciation (26)
16 Taxes 45 (1,581)168 2
17 Total Distrbution (26)45 (1,581)168 2 0
18 Customer Accountig 10 0 (127)0
19 Customer Service & Infonntion (1,546)
20 Sales Expenses
Adminstrative & General
21 Operatig Expenses II 13
22 Depreciation (6)
23 Taxes (I)
24 Total Admin, & General (6)II 0 (I)0 13
25 Total Gas Expense (38)(58,413)(1,581)160 (125)13
26 OPERATING INCOME BEFORE FIT 38 3,629 0 (160)125 (13)
FEDERAL INCOME TAX
27 Curnt Accrual 13 1,270 (56)44 (5)
28 Deferrd FIT
29 AmortITC
30 NET OPERATING INCOME $25 $2,359 $0 ($104)$81 ($8)
RATE BASE: PlANT IN SERVICE
31 Underground Storage
32 Distrbution Plant
33 General Plant
34 Total Plant in Service 0 0 0 0 0 0
ACCUMUlATED DEPRECIATION
35 Underground Storage
36 Distrbution Plant
37 General Plant
38 Total Accum, Depreciation 0 0 0 0 0 0
39 DEFERRED FIT
40 GAS INVENTORY
41 GAIN ON SALE OF BUIlDING
42 TOTAL RATE BASE $0 $0 $0 $0 $0 $0
43 RATE OF RETU
Exhibit No, 10
Case No, AVU-E-09-01 and AVU-G-09-01
E, Andrews, Avista
Schedule 2, p, 5 of 8
AVISTA UTILITIES
GAS RESULTS OF OPERATION
IDAHO RESTATED RESULTS
TWLVE MONTHS ENDED SEPTEMBER 30,2008
(OOO'S OF DOLIAS)
DESCRIPTION
0 p
REVENUE
I Total General Business $91,447
2 Total Traporttion 320
3 Other Revenues 1,207
4 Total Gas Revenues 0 0 0 0 0 92,974 0
EXENSES
Exploration and Development 0
Production
6 City Gate Purchases 66,248
7 Puhased Gas Expense 356 12
8 Net Nat Gas Storage Trans 0
9 Total Production 0 0 0 0 0 66,604 12
Underground Storage
10 Operating Expenses 167
11 Depreciation 101
12 Taxes 39
13 Total Underground Storage 0 0 0 0 0 307 0
Distribution
14 Operatig Expenses 3,833 139
15 Depreciation 2,781
16 Taxes 1,032 (3)
17 Total Distrbution 0 0 0 7,646 136
18 Customer Accounti (43)1,777 52
19 Customer Seivice & Informtion 242 4
20 Sales Expenses 213 4
Admstrative & General
21 Operatig Expenses (I)(48)4,446 67
22 Depreciation 810
23 Taxes 10
24 Total Adm, & General (I)0 0 (48)0 5,266 67
25 Total Gas Expense (I)0 (42)(47)0 82,055 275
26 OPERATING INCOME BEFORE FIT 0 42 47 0 10,919 (275)
FEDERAL INCOME TAX
27 Currnt Accrual (13)15 16 292 2,665 (96)
28 Deferrd FIT 3 337
29 AmortITC (19)
30 NET OPERATING INCOME $1 $10 $27 $31 ($292)$7,936 ($179)
RATE BASE: PLANT IN SERVICE
31 Underground Storage 5,549
32 Distrbution Plant 120,655
33 General Plant 1l,067
34 Total Plant in Seivice 0 0 0 0 0 137,271 0
ACCUMUlTED DEPRECIATION
35 Underground Storage 3,080
36 Distrbution Plant 39,978
37 General Plant 3,471
38 Total Accum. Depreciation 0 0 0 0 0 46,529 0
39 DEFERRED FIT (14,191)
40 GAS INVENTORY 4,535
41 GAIN ON SALE OF BUIWING (82)
42 TOTAL RATE BASE $0 $0 $0 $0 $0 $81,004 $0
43 RATE OF RETURN 9,80%
Exhibit No, 10
Case No, AVU-E-09-01 and AVU-G-09-01
E, Andrews, Avista
Schedule 2, p, 6 of 8
AVISTA UTILITIES
GAS RESULTS OF OPERATION
IDAHO RESTATED RESULTS
TWELVE MONTHS ENDED SEPTEMBER 30, 2008
(OOO'S OF DOLLRS)
DESCRIPTION
REVENUES
I Total General Business
2 Total Transporttion
3 Other Revenues (1,060)
4 Total Gas Revenues 0 0 0 0 0 (1,060)
EXPENSES
5 Exploration and Development
Production
6 City Gate Purchases
7 Purchased Gas Expense
8 Net Nat Gas Storage Tran
9 Total Production 0 0 0 0 0
Underground Storage
10 Operating Expenses
11 Depreciation (33)4 64
12 Taxes I 53
13 Total Underground Storage 0 (33)5 0 0 117
Distrbution
14 Operating Expenses
15 Depreciation (222)32
16 Taxes I 17 $ (2)(I)(14)
17 Total Distrbution 0 (221)49 (2)(I)(14)
18 Customer Accounting (3)
19 Customer Service & Informtion
20 Sales Expenses
Administrative & General
21 Operating Expenses 31 $157 73 (3)
22 Depreciation 145 220
23 Taxes 31
24 Total Adm, & Generl 31 145 251 157 73 (3)
25 Total Gas Expense 32 (109)305 155 72 97
26 OPERTING INCOME BEFORE FIT (32)109 (305)(155)(72)(1,157)
FEDERL INCOME TAX
27 Currnt Accrual (11)38 (107)$ (54)(25)(405)
28 Deferred FIT
29 AmortlTC
30 NET OPERTING INCOME ($21)$71 ($198)($101)($47)($752)
RATE BASE: PLANT IN SERVICE
31 Undergrund Storage $ (67)$77 $3,530
32 Distrbution Plant 2,068 1,428
33 General Plant 996 2,179
34 Total Plant in Service 0 2,997 3,684 0 0 3,530
ACCUMULATED DEPRECIATION
35 Undergund Storage (55)70 77
36 Distrbution Plant 1,995 2,578
37 General Plant 605 1,060
38 Total Accmn, Depreiation 0 2,545 3,708 0 0 77
39 DEFRRD FIT (7)(667)(151)
40 GAS INVENTORY 289
41 GAIN ON SALE OF BUILDING
42 TOTAL RATE BASE $0 $445 ($691)$0 $0 $3,591
43 RATE OF RETURN
Exhibit No, 10
Case No, AVU-E-09-01 and AVU-G-09-01
E, Andrews, Avista
Schedule 2, p, 7 of 8
AVISTA UTILTIES
GAS RESULTS OF OPERATION
IDAHO RESTATED RESULTS
TWELVE MONTHS ENDED SEPTEMBER 30, 2008
(OOO'S OF DOLLAS)
DESCRIPTION
a
REVENUES
1 Total General Business $91,447
2 Total Transporttion 320
3 Other Revenues 147
4 Total Gas Revenues 0 0 0 91,914
EXPENSES
5 Exploration and Development 0
Production
6 City Gate Puhases 66,248
7 Purchased Gas Expense 20 389
8 Net Nat Gas Storage Trans 0
9 Total Production 0 20 0 66,637
Underground Storage
10 Operating Expenses 167
II Depreciation 136
12 Taxes 93
13 Total Underground Storage 0 0 0 396
Distrbution
14 Operating Expenses 1I5 4,087
15 Depreciation 239 2,830
16 Taxes 92 (5)1,1I7
17 Total Distrbution 331 1I0 0 8,034
18 Customer Accountig 43 1,869
19 Customer Service & Informtion 4 250
20 Sales Expenses 3 220
Admistrative & General
21 Operating Expenses 193 38 5,002
22 Depreciation 1,175
23 Taxes 41
24 Total Admin. & General 0 193 38 6,218
25 Total Gas Expense 331 373 38 83,624
26 OPERATING INCOME BEFORE FIT (331)(373)(38)8,290
FEDERAL INCOME TAX
27 Current Accrul (102)(13)(13)1,759
28 Deferred FIT 337
29 AmortITC (19)
30 NET OPERATING INCOME ($229)($242)($25)$6,213
RATE BASE: PLANT IN SERVICE
31 Underground Storage 9,089
32 Distrbution Plant 6,407 130,558
33 General Plant 14,242
34 Total Plant in Service 6,407 0 0 153,889
ACCUMULTED DEPRECIATION
35 Underground Storage 3,172
36 Distribution Plant 229 44,780
37 General Plant 5,136
38 Total Accum, Depreciation 229 0 0 53,088
39 DEFERRED FIT (36)(15,052)
40 GAS INVENTORY 4,824
41 GAIN ON SALE OF BUIlDING (82)
42 TOTAL RATE BASE $6,142 $0 $0 $90,491
43 RATE OF RETUR 6,87%
Exhibit No, 10
Case No, AVU-E-09-01 and AVU-G-09-01
E, Andrews, Avista
Schedule 2, p, 8 of 8