20100323DeFelice Di.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P . O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
)
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 AND )
NATURAL GAS SERVICE TO ELECTRIC )
AND NATURAL GAS CUSTOMERS IN THE )STATE OF IDAHO )
)
CASE NO. AVU-E-10-01
CASE NO. AVU-G-10-01
DIRECT TESTIMONY
OF
DAVE B. DEFELICE
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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I. INTODUCTION
Q.Please state your nam, emloyer and business
3 address.
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A.My name is Dave B. DeFelice.I am employed by
Avista Corporation as a Senior Business Analyst.My
6 business address is 1411 East Mission, Spokane, Washington.
7 Q.Please briefly describe your education background
8 and professional exprience.
9 A.I graduated from Eastern Washington University in
10 June of 1983 with a Bachelor of Arts Degree in Business
11 Administration, maj oring in Accounting.I have served in
12 various positions wi thin the Company, including Analyst
13 positions in the Finance Department (Rates Section and
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Plant Accounting)and in the Marketing /Operations
Departments, as well.In 1999, I accepted the Senior
16 Business Analyst position that focuses on economic analysis
17 of various project proposals as well as evaluations and
18 recommendations pertaining to business policies and
19 practices.
20 Q.As a Senior Business Analyst, what are your
21 responsibilities?
22 A.As a Senior Business Analyst, I am involved in
23 financial analysis of numerous projects within various
24 depart~ents such as Engineering,Operations,
25 Marketing/Sales and Finance.
DeFelice, Di 1
Avista Corporation
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Q.What is the scope of your testimny?
My testimony and exhibits in this proceeding willA.
3 cover the Company's proposed pro forma adjustments for
4 capital investments in utility plant for the 2009 test
5 period.
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Q.Are you sponsoring any exhibits?
A.Yes. I am sponsoring Exhibit No.9, Schedules 1
8 through Schedule 3, which were prepared under my direction.
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II. CAPITAL INVSTM RECOVEY
Q.What does the Comany's request for rate relief
12 include regarding new invesbnent in utility plant to serve
13 customers?
14 A.As in prior rate cases, Avista started with rate
15 base for the historical test year, which for this case is
16 the average of monthly averages for 2009. Adjustments were
17 made to reflect new additions and accumulated depreciation
18 through December 2010, such that the proposed rate base
19 reflects the net plant in service that will be used to
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serve customers during the pro forma rate year.These
adjustments included associated expenses (depreciation
22 expense and property taxes) and offsets to expenses for the
23 pro forma additions.
DeFelice, Di 2
Avista Corporation
1 Adjustments were also made to include the 2010 Noxon
2 Unit #3 generation plant upgrade and the 2011 Noxon Unit #2
3 generation plant upgrade.
4 The utility plant investment that we have included in
5 this filing represents utility plant that will be "used and
6 useful" in providing service to customers during the
7 approximate period that new retail rates from this filing
8 will be in effect.The costs associated with the
9 investment will be "known and measurable," and finally,
10 including the costs associated with this investment in
1 1 retail rates provides a proper "matching" of revenues from
12 customers with the costs associated with providing service
13 to customers (including the cost of utility plant to serve
14 customers) .
15 In the IPUC's Order No. 29602, for Case Nos. AVU-E-04-
16 land AVU-G-04-l, dated October 8, 2004, the Commission
17 stated, at page 10, that:
18 Once a test year is selected, adjustments are19 made to test year accounts and rate base to
20 reflect known and measurable changes so that test21 year totals accurately reflect anticipated22 amounts for the future period when rates will be
23 in effect. The Idaho Supreme Court has described24 "rate base" as "the utility's capital investment25 amount." Industrial Customers of Idaho Power v.
26 Idaho PUC 134 Idaho 285, 291, 1 P. 3d 786, 79227 (2000) . Adjustments to test year accounts28 generally fall into three categories: 1)
29 normalizing adjustments made for unusual30 occurrences, like one-time events or extreme31 weather conditions, so they do not unduly affect
32 the test year; 2) annualizing adjustments made33 for events that occurred at some point in the
DeFelice, Di 3
Avista Corporation
1 test year to average their effect as if they had
2 been in existence during the entire year; and 3)
3 known and measurable adjustments made to include
4 events that occur outside the test year but will
5 continue in the future to affect Company income6 and expenses.
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8 If utility plant investment that is being used to
9 serve customers is not reflected in retail rates then the
10 retail rates will not be "just,reasonable,and
11 sufficient," i. e., it would not be just or reasonable for
12 customers to receive the benefit provided by the utility
13 investment without paying for it, and the retail rates
14 would not provide revenues "sufficient" to provide recovery
15 of the costs associated with providing service to
16 customers.
17 Q.Is the Company's application of these ratemking
18 principles in this filing consistent with prior general
19 rate cases?
20 A.Yes. In prior cases, the objective has been the
21 same to include in retail rates the investment, or rate
22 base, that is providing service to customers, and ensure
23 that there is a proper matching of revenues and expenses
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during the period that rates are in effect.In Case Nos.
AVU-E-09-01 and AVU-G-09-0l,the Commission approved
26 including capital investment through December 31, 2009. In
27 this filing, we are requesting recovery of capital
28 investment through December 31, 20l0.
DeFelice, Di 4
Avista Corporation
1 Q.How does new invesbnnt in utility plant change
2 rate base over t~e for ratemking purposes?
3 A.Historically, the annual dollars spent by the
4 Company on new utility plant were generally relatively
5 close to the level of depreciation expense, with the
6 exception of years where the Company invested in major new
7 utility projects. i In those years, net rate base stayed at
8 a relatively constant level and the use of the rate base
9 amount from a prior year, i. e., a historical test year,
10 would be adequate for setting rates for the upcoming year
11 (pro forma rate year), because there was little change in
12 the net plant investment used to serve customers.
13 In more recent years, Avista's investment in utility
14 plant has significantly exceeded depreciation expense.
15 Because of this,rate base in the rate year is
16 significantly greater than the historical test period AM
17 rate base.The only way to ensure that retail rates are
18 fair, just, reasonable, and sufficient is for the utility
19 plant investment that is being used to serve customers be
20 properly reflected in retail rates.This makes it
21 necessary for the Company to pro form plant investment that
22 is in service after the historical test year and will be in
23 service during the rate year so that rate base for the pro
24 forma rate year is representative of the level of
i Recognizing that a portion of the costs associate with cerin capital additions ar offet by additional revenues.
DeFelice, Di 5
Avista Corporation
1 investment used to serve customers.The Company's pro
2 forma adjustments in this case properly reflect any
3 offsets, and include adjustments to ensure a proper
4 matching with test period loads.
5 Q.How was rate base for the pro form rate year
6 developed for this filing?
7 A.As in prior rate cases, Avista started with rate
8 base for the historical test year, which for this case is
9 the average of monthly averages for 2009. Adjustments were
10 made to reflect new additions and accumulated depreciation
11 through December 2010.Adj ustments were also made to
12 include the 2010 Noxon Unit #3 generation plant upgrade and
13 the 20ll Noxon Unit #2 generation plant upgrade. Later in
14 my testimony, I will provide the details of the adjustments
15 to rate base.
16 The recent rate case (Case Nos. AVU-E-09-0l and AVU-G-
17 09-01) concluded with new retail rates effective August 1,
18 2009.Recovery of costs associated with new capital
19 additions through December 3l, 2009 was included in retail
20 rates. With regard to the proper matching of revenues and
21 expenses, it can be said that some of the new capital
22 through December 31, 2009 was not in place at the time new
23 retail rates went into effect on August 1, 2009. However,
24 it is also true that the costs of new capital already
25 added, and to be added, in 2010 is currently not recovered
DeFelice, Di 6
Avista Corporation
1 in retail rates. Although we know that a perfect matching
2 of revenues and expenses would be difficult to achieve, it
3 is very important that, during this period of high capital
4 investment,retail rates reflect the true costs of
5 providing service to customers, in order to afford the
6 Company the opportunity to recover its costs and continue
7 to attract capital under reasonable terms.
8 Wi th regard to the current filing, Avista is hopeful
9 that new retail rates from this case will be effective in
10 the third quarter of 20l0. Furthermore, new rates from the
11 next general rate case will likely not be effective until
12 sometime well into 20ll.December 31, 2010 represents an
13 approximate mid-point of the period in which retail rates
14 would be in place from this case and the next case.
15 Including new capital investment through the mid-point of
16 the "rate year" will allow the Company the opportunity to
17 recover the costs associated with capital investment that
18 will serve customers over the course of the rate year.
19 Q.What is driving the significant invesbnnt in new
20 utili ty plant?
21 A.As Company witnesses Mr. Kinney and Mr. Storro
22 explain in their testimony, the Company is being required
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to add significant new generation,transmission and
distribution facili ties,including strengthening the
25 backbone of our system, due in part to customer growth in
DeFelice, Di 7
Avista Corporation
lour service area, reliability requirements, and needed
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capacity upgrades.Other issues driving the need for
capital investment include an aging infrastructure,
4 physical degradation, and municipal compliance issues
5 (e. g., street/highway relocations), etc.
6 While the rate of increases experienced in recent
7 years for the cost of materials (concrete, copper, steel,
8 etc.) has diminished, they are still orders of magnitude
9 higher than what they were even a few years ago, causing
10 the cost of these new facilities to be significantly higher
11 than in the past.Because the cost of adding new
12 facilities is significantly higher than the original cost
13 of our older, existing facilities, the investment in new
14 facilities will be significantly higher than the annual
15 depreciation expense on the Company's older, existing
16 facilities.
17 .Q.What is causing the substantial increase in raw
18 materials for Avista, and the utility industry in general?
19 A.The Edison Foundation commissioned a study from
20 The Brattle Group, dated September 2007, titled, "Rising
21 Utility Construction Costs: Sources and Impacts," which
22 identified cost trends specifically related to the utility
23 industry pertaining to critical materials and equipment, as
24 well as labor support services used for building capital
25 infrastructure (a copy is included in my workpapers.)
DeFelice, Di 8
Avista Corporation
1 Although the study is over two years old, we believe the
2 changes in costs described in the study are still
3 indicati ve of the increase in costs the utility industry
4 has experienced in recent years,and continues to
5 experience. The study identifies the reasons for dramatic
6 cost increases in critical raw materials, including global
7 competition for materials and an aging domestic utility
8 infrastructure, as well as the need for additional
9 infrastructure to accommodate growth in the near future.
10 Q.What are some of the key cost drivers that are
11 ci ted in the study?
12 A.The study, at page 16, cites four major cost
13 drivers: "(l) material input costs, including the cost of
14 raw physical inputs, such as steel and cement as well as
15 increased costs of components manufactured from these
16 inputs (e.g., transformers, turbines, pumps); (2) shop and
17 fabrication capacity for manufactured components (relative
18 to current demand); (3) the cost of construction field
19 labor, both unskilled and craft labor; and (4) the market
20 for large construction project management, i.e., the
21 queuing and bidding for projects."The study goes on to
22 compare cost trends for various raw materials, critical
23 equipment and labor services relative to the general
24 inflation rate (GDP deflator).In addition, a cost trend
25 is summarized by three key utility functional plant
DeFelice, Di 9
Avista Corporation
1 including generation,transmission,andcategories,
The study concludes that these
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2 distribution plant.
3 inflation impacts have been outside the utility industry's
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4 control and there are no immediate indications of cost
5 relief in the near future.
6 Illustration 1 below, excerpted from the Brattle Group
7 study, depicts what has occurred to infrastructure costs
From the chart, it is apparent that startingnationally.
9 in 2003, costs of distribution, transmission and generation
10 infrastructure increased at a far more significant rate
than the overall economy, as measured by the GDP deflator.
Illustration 1
National Average Utilit Infrastructure Cost Indices
-Tota Plai.Al Ste Geneson
160
Ô'= iso
.!0101 140e~
.; 130
.a
120
-Gas TheniolS -GDPDeftator -Di:ibuon
11
12
13
14
15 -Tiammon
190
180
170
lIO
100
90
191 19 193 19 1995 .196 197 199 .1 2000 201 2002 20 20 2005 200 2007
Year
Sources: Th HandyaWbtmanCi Bulleti. No. 165 and the U.S. Bureau of Economic Any£ii:.SimpJe average of all regir.-nal COl~trCtir.lld
equpmem C(lst indexes rorthe spfifd compcnenti. "Ri:ing Utility O:stiCtl(i Coi:t:: Sl)rtei. and Imp:it:" Prared by The Brate Grou f,"-Th. li.on i:undalion. Seber 200
DeFelice, Di 10
Avista Corporation
1 Q.Is there specific evidence that Avista is
2 experiencing cost escalations similar to that indicated in
3 the study?
4 A.Yes.As we explained in the past general rate
5 cases, Avista tracks the cost of materials and equipment
6 that Avista routinely uses in order to support various
7 infrastructure construction efforts that are part of the
8 Company's annual capital requirements.
9 In the recent analysis performed by the Company of all
10 cost of materials that are accounted for through the
11 Company's inventory system that pertain to the electric
12 transmission,electric distribution and natural gas
13 distribution functions, there continues to be an increase
14 in the average cost per unit of all materials, as shown in
15 Illustration 2 below.
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DeFelice, Di LL
Avista Corporation
1 Illustration 2
Avlst
Electric & Gas Materials Inventory
$ Vilue Change in Averae Unit Pr
5160 . -- ..._........-..'-_. ._......- ......_....." ...._-_.. -,.._,.. -_....__. -._'-"-' - . ._.. --_..._...'..__..-._. ..._._--, _.._-_.__.-..... ---,....._.._-'.'.- ..,....
5140 _,_ _' .,._,_ '...__..___..,"'. ..._.....__........_... ..' __ "'__._...._..."~___.. "_____._..._...,._..____.._.._.___....._._¥___.. _.,,0."
$6
5120
l~
580 .
$4
2 .f ./¡'I "J'
3 In 2005, the average cost per unit was $82.95, in 2006
4 it was $94.ll, 2007 was $l18.l6, 2008 was $l20.l0 and for
5 2009 the cost was $137.5l per unit.The average annual
6 increase over this four-year period is over l3%, which is
7 well above the general inflation that our overall economy
8 has experienced during the same timeframe.This
9 illustrates that costs continue a significant trend upward
10 as it relates to capital expenditures incurred that are
11 necessary to operate the system.
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13
Another analysis that was performed on specific
materials is provided in Exhibit No.9, Schedule 1.On
14 page l, it can be seen that distribution transformers have
15 experienced price increases from 2005 to 2009 anywhere from
DeFelice, Di l2
Avista Corporation
1 49% to 74%. While the study. also showed that there was a
2 decrease in costs between 2008 and 2009, the one-year
3 decline in costs did not offset the large increases
4 experienced over the past five years.On page 2 of
5 Schedule 1 of the Exhibit, it can be seen that poles and
6 crossarms have also experienced substantial price increases
7 from 2005 to 2009 in the range of 50% to l23%, depending on
8 size.As noted in the Exhibit, some of the increase in
9 costs is due to changes in specifications from wood to
10 steel for certain poles and changes from wooded crossarms
lIto fiberglass crossarms, that Avista is now installing. On
12 page 3 of Schedule 1 of the Exhibit, a sampling of other
13 distribution materials shows that prices have steadily
14 risen from 2005 to 2009 for all but one category, conductor
15 600V 2/0 triplex; however the 2009 price of that conductor
16 is still 24% higher than the 2005 price.
17 Q.What is the historical and projected level of
18 annual capital spending for Avista?
19 A.Avista's annual capital requi rement s have
20 steadily increased from approximately $130 million in 2005
21 to approximately $210 million in 2010.Exhibit No.9,
22 Schedule 2 reflects the trend that Avista has experienced
23 and what is planned for in the near future.
24 This chart not only shows the total magnitude of
25 capital expenditures, but also clearly shows that the
DeFelice, Di 13
Avista Corporation
1 amount of capital projects is well in excess of revenue-
2 supported capital expenditures to connect new customers,
3 and beyond the level of revenues that is being collected
4 from customers related to existing plant. The difference
5 between the total capital requirements, less the new
6 revenue related capital, and allowed revenues represent a
7 significant discrepancy that is negatively impacting the
8 Company.
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III. DESCRIPTION OF CAITAL PROJECTS
Q.For the 2010 capital projects pro formd in this
12 filing, please provide a description of the projects.
13 A.Exhibi t No.9, Schedule 3 details the capital
14 proj ects that will be transferred to plant in service in
15 2010 and included in this filing. A description of these
16 projects with system costs follows:
17 Generation ($33.4 million):
1819 The electric generation projects that will transfer to20 plant in service are described in detail in Mr.21 Storro's direct testimony. A listing of these22 projects follows:
2324 Thermal - Kettle Falls Capital Projects - $1,817,00025 Thermal - Colstrip Capital Additions- $2,275,00026 Thermal - Other Small Projects - $78,000
27 Hydro - Nine Mile Upgrade - $3,954,00028 Hydro - Noxon Capital Project - $7,551,000
29 Hydro - 2010 Noxon Unit #3 Upgrade - $9,265,371
30 Hydro - Clark Fork/Spokane Implement PME Agreements -31 $4,053,00032 Hydro - Other Small Projects - $2,296,00033 Other - Coyote Springs 2 (CS2) Capital Projects -34 $l, 197,000
DeFelice, Di 14
Avista Corporation
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Other - Boulder Park - $4l0,000
Other Small Projects - $493,000
Electric Transmission ($18.9 million) :
The electric transmission projects that will transfer
to plant in service are described in detail in Mr.
Kinney's direct testimony. A listing of theseprojects follows:
Lolo 230 kV Substation - $1,450,000
Spokane-CDA 115 kV Line Relay Upgrades - $1,250,000
Nez Perce 115 kV Substation Rebuild and Capacitor Bank
- $3,575,000
SCADA Replacement - $800,000
System-Replace/Install Capacitor Banks - $750,000
Airway Heights-Silver Lake 115 kV Transmission Line -
$975,000Moscow 230-Pullman 115 Reconductor - $l, 300, 000
Beacon Storage Yard Oil Containment - $750,000
Colstrip Transmission Minor Rebuild - $503,000
Tribal Permits - $5l 9,000
Reliability Improvements Boulder-Rathdrum ll5 kVTransmission Line - $l, 500,000Transmission Minor Rebuild - $l, 250, 000
Power Circuit Breakers - $485,000
Pine Creek-Replace 115 kV Circuit Switcher - $570,000
Otis Orchards-ll5 kV Breaker and Line Relay
Replacements - $650,000
Replacement Programs - $2,044,000
Other small transmission projects - $5l7, 000
Electric Distribution ($40.3 million) :
The electric distribution projects that will transfer
to plant in service are described in detail in Mr.
Kinney's direct testimony. A listing of theseproj ects follows:
Appleway Substation - $1,980,000
Deary Substation - $1,405,000
Power Transformer Distribution - $4,740,000
System-Dist Reliability-Improve Feeders - $700,000
Distribution-CdA East & North - $905,000Rathdrum Transformer and 233 Feeder Addition
$900,000
Pine Creek-Replace iis kV Circuit Switcher & Cap Bank
- $300,000
DeFelice, Di 15
Avista Corporation
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Potlatch Transformer Replacement - $250,000
Electric Distribution Minor Blanket - $7,000,000
Wood Pole Replacement Program & Capital Distribution
Feeder Repair - $6,884,000
Electric Underground Replacement - $4,000,000
T&D Line Relocation - $2,348,000
Failed Electric Plant - $2,000,000
Other small distribution projects - $640,000
The following electric distribution projects includedon Exhibit No.9, Schedule 3, are specific to the
Washington jurisdiction and are not included in the
Idaho electric revenue requirement in this case.
Othello & Chewelah Transformer Replacements - $950,000
Northeast Substation - $900,000
Distribution - Spokane North and West - $1,890,000
System-Dist Reliability-Improve Feeders - $1,150,000
Spokane Electric Network Capacity - $1,356,000
General ($11.4 million) :
Security Initiative - $435,000
Various security measures including cameras and access
controls for the office and branch facilities.
Structures and Improvements - $4, l5l, 000
This is a group of capital maintenance projects that
Facilities Management coordinates at the Spokane
Central Operating Facili ties and Avista branch
facili ties - offices and service centers. For 2010,
planned projects include: roof replacements, land
acquisi tion for facili ty expansion, HVAC system
replacement at some branch offices, energy efficiency
projects, security projects, asphalt overlays and
replacement, several' new vehicle building additions,
as well as some capital repair projects in existingbuildings.
Stores Equipment - $600,000
Equipment utilized in warehouses and/orrecovery operations throughout the service
This includes equipment such as forklifts,
shelving, cutting/binding machines, etc.
investmentterritory.
man lifts,
Tools, Lab & Shop Equipment - $1,700,000
Expenditures in this category include all large tools
and instruments used throughout the company for gas
and/ or electric construction and maintenance work,
DeFelice, Di 16
Avista Corporation
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distribution, transmission, or generation operations,
telecommunications, and some fleet equipment (hoists,
winch, etc) not permanently attached to the vehicle.
HVAC Renovation Project - $3,499,000
The heating, ventilating, and air conditioning systemsthroughout the Spokane Central Operating Facilities
are approximately fifty years old and are in need of
replacement. In 2007, the Company initiated a mul ti-
year HVAC renovation project that involves replacing
central air handling units and distribution systems in
three buildings the Spokane Service Center, the
general office building, and the cafeteria auditorium
building. The building envelope of the general office
building was also renovated with high efficiency glass
and insulation. The project will also achieve
asbestos abatement and life safety (fire sprinkler)
addi tions. New controls will also be installed which
will enable energy conservation. Present estimates
indicate cost savings of approximately $430,000 per
year in energy use, a 36% reduction in energy costs
once all phases have been completed, currently planned
to be completed in 20l3. The 2010 project pro formed
into this case will produce approximately $31,000 per
year (system) in reduced energy costs, which have been
pro formed as a reduction to O&M costs. The Company
has included an additional $3l, 000 in O&M savings
related to the 2009 portion of this capital project
that was completed in late-2009.
WSDOT Highway Preservation/Maintenance
Ways - $500,000
In order to operate our electric
highway rights of way, the
preserve/maintain right of ways.
ways have expired and Avista must
wi th the State or risk penal ties
the State.
of Right of
system within State
Company needs to
Existing right of
seek new agreements
or non-approval by
Other Small Projects - $525,000
These projects include the completion of the Central
Office Facility North Crescent Realignment project,
office furniture additions and replacements,
communication and security initiatives, radio
equipment, telephone systems, office and other general
facili ty upgrades.
DeFelice, Di l7
Avista Corporation
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Transportation ($10.0 million) :
Transportation Equipment - $9, 97l, 000
Expendi tures are for the scheduled replacement of
trucks, off-road construction equipment and trailers
that meet the company's guidelines for replacementincluding age, mileage, hours of use and overall
condi tion. This also includes additions to the fleet
for new positions or crews working to support the
maintenance and construction of our electric and gas
operations. Some of the vehicles being purchased in
2010 will be equipped with diesel engines rather thangasoline engines. This is intended to increase life
expectancy and generate fuel savings. The Company has
pro formed annual fuel cost offsets of approximately
$129,000 (system) in reduced O&M costs.
Technology ($11.5 million) :
Information Technology Refresh Blanket - $5,000,000
A program to replace obsolete technology according to
Avista's refresh cycles that are generally driven by
hardware/ software manufacturer and industry trends tomaintain business operations.
Information Technology Expansion Blanket - $1,100,000
A program to deliver technology associated with
expansion of existing solutions.
AFM Product Development Program - $1,000,000
Deliver enhancements to the electric and natural gas
Facili ty Management technology system.
Nucleus Product Development Program - $540,000
Deliver enhancements to the Nucleus energy resource
management technology system.
Web Product Development Program - $890,000
A program to deliver enhancements to the Customer
based Web technology system.
Mobile Dispatch 2 - $l, 000, 000
Implement Mobile Dispatch application for electric
service and meter shop processes.
IFRS Compliance -ImplementationInternationalrequirements.
$l, 000, 000
of softwareFinancialThe project
required to meet
Reporting Standards
will likely include
DeFelice, Di 18
Avista Corporation
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upgrading the Oracle Financial Systems and
implementing a new Fixed Asset system. Schedule for
compliance is not yet finalizèd but the project isexpected to be completed over two years.
AFM.net Upgrade - $l, 993,000
The AFM system has reached a point where continued or
new application development and maintenance work
wi thout refreshing the application language will cause
increased risk in system maintainability, reliability,
and application availability. The business relies on
this software for an increasing number of functions
and integrations that support customer and operating
transactions. Wi th this technology refresh, the
productive life of the AFM system will be extended byfi ve to eight years.
Other Small Technology Projects and Technology Minor
Blankets - $2,910,000
These projects include various small technology
projects including, technology to provide for field
office use of Learning Management System, installing a
fiber network that will replace an obsolete microwave
system, an electronic records management system,
upgrade of Oracle Database software and upgrade of
WorkPlace (CSS, WMS & EGMA) .
Jackson Prairie Storage ($0.4 million) :
Jackson Prairie Storage Project - $429,000
These projects include various capital improvements
that Avista and its partners will complete at Jackson
Prairie facility in 2010.
Natural Gas Distribution ($14.5 million) :
Replace Deteriorated Pipe - $1,050,000
This annual project will replace sections of existing
gas piping that are suspect for failure or havedeteriorated within the gas system. This project will
address the replacement of sections of gas main that
no longer' operate reliably and/or safely. Sections of
the gas system require replacement due to many factors
including material failures, environmental impact,
increase leak frequency, or coating problems. This
project will identify and replace sections of main to
improve public safety and system reliability.
DeFelice, Di 19
Avista Corporation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48 the
Gas Replacement Street and Highways - $1,260,000
This annual project will replace sections of existing
gas piping that require replacement due to relocation
or improvement of streets or highways in areas where
gas piping is installed. Avista installs many of its
facilities in public right-of-way under established
franchise agreements. Avista is required under the
franchise agreements, in most cases, to relocate itsfacili ties when they are in conflict with road or
highway improvements.
Gas Non-Revenue Blanket - $3,360,000
This annual project will replace sections of existing
gas piping that require replacement to improve theoperation of the gas system but are not directly
linked to new revenue. The proj ect includes relocation
of main related to overbuilds, improvement in
equipment and/or technology to improve system
operation and/or maintenance, replacement of obsolete
facilities, replacement of main to improve cathodic
performance, and proj ects to improve public safety
and/ or improve system reliability.
East Medford Reinforcement Project - $597,000
This Oregon gas distribution project is not includedin this filing.
Grants Pass 8-Inch HP Reinforcement Project$l,l96,000
This Oregon gas distribution project is not includedin this filing.
Reinforce Talent OR Gate Station Project - $1,994,000
This Oregon gas distribution project is not includedin this filing.
Rebuild Winston Gate Station Project - $l, 002, 000
This Oregon gas distribution project is not includedin this filing.
Other Small Projects - $4,026,000
Please refer to the workpapers of Mr. DeFelice for
detailed listing of projects.
iV. ADJUSTMNT METHODOLOY
Q. What was the net imact to electric rate base for
capi tal adjusbnnts pro formd in this case?
DeFelice, Di 20
Avista Corporation
1 A.Electric net rate base for capital investment
2 increased $29,075,000, from $573,86l,000 to $602,936,000"
3 Table 1 below summarizes the adjustments included in the
4 case.
5 Table 1
.
($O's)IAdjustment 11 I Adjustment 2 I Adjustment 31
Adjust 12/31/00
Adjust December Vintage to 2010 Noxon 2010
December 31,U/31/ooto 31, 200 December 31,Capital and 2011 Pro Formed
200AMA EOP Basis EOP 2010EOP Additions Upgrades Rate Base
Plant $1,003,872 $35,23 $1,039,106 $ 40,789 $4,744 $1,08,639
AID (336,983)(11,200)(34,183)(28,569)(69)(100)(3n,551)
DFI (93,028)(7,631)(100,659)(2,578)(633)(282)(104,152)
Rate Base $573,861 $16,403 $590,264 $(31,147)$ 39,457 $4,362 $602,936
6
7 Q.What was the net imact to natural gas rate base
8 for the capital adjustmnts pro formd in this case?
9 A.Natural gas net rate base for capital investment
10 decreased $2,5ll,000, from $95,415,000 to $92,904,000.
11 Table 2 below summarizes the adjustments included in the
12 case.
13 Table 2
($oo's)I Adjustment 1 I Adjustment 2
Adjust 12/31/09
Adjust Vintage to 2010
December 31,12/31/09 to December December 31, Capital Pro Formed
2009AMA EOP Basis 31,2009 EOP 2010 EOP Additions Rate Base
Plant $165,824 $2,021 $167,845 $4,259 $172,104
AID (53,435)(1,428)(54,863)(4,547)(115)(59,525)
DFIT (16,974)(1,217)(18,191)(1,371)(113)(19,675)
Rate Base $95,415 $(624) $94,791 $(5,918) $4,031 $92,904
14
DeFelice, Di 21
Avista Corporation
1 Q.What was the approach to computing the pro form
2 adjustments for investmnt in capitai projects?
3 A.The Company used the same general approach that
4 was used in the two previous general rate cases. Company
5 wi tness Ms.Andrews includes the following three
6 adjustments:
7 2009 Capital Adjustment - Adjusts the December 31,
8 2009 test period rate base stated on an AM basis to an end
9 of period (EOP) basis. The revenue-producing distribution
10 plant for the 2009 capital additions was not adjusted to
11 EOP, to maintain the matching of revenues and costs
12 associated with these assets.
13 2010 Capital Adjustment - First, the plant that was in
14 service at December 3l, 2009, was depreciated through 20l0,
15 adjusting accumulated depreciation and DFIT to a 2010 EOP
16 basis.Second, 2010 capital additions, excluding the
17 revenue-producing distribution plant and the 2010 Noxon
18 Unit #3 upgrade, discussed below, was pro formed on a
19 December 3l, 2010 EOP basis.
20 Noxon Upgrades Adjustment - The 2010 Noxon Unit #3
21 generation plant upgrade and the 20ll Noxon Unit #2
22 generation plant upgrade was pro formed on a September 30,
23 201l AM basis.As explained by Mr. Storro, the Company
24 has been upgrading one turbine each year at its Noxon
25 generating facility.The upgrade for Unit #3 will be
DeFelice, Di 22
Avista Corporation
1 completed in April 2010.The upgrade for Unit #2, which
2 will be completed in April 20ll is also pro formed into
3 this case and is the only 201l capital addition that the
4 Company has included in its electric case.Fifty percent
5 of the additional generation and costs have been included
6 in the Aurora power cost model to provide a proper matching
7 of revenues and costs. The Company included fifty percent
8 of the additional generation and costs for the six months
9 that it will be in service during the 2010/2011 pro forma
10 period.
11 Q.What other impact does the 200~ and 2010 capital
12 additions have on this case in addition to the rate base
13 impact?
14 A.Depreciation expense and property taxes have been
15 computed for the 2009 and 2010 plant vintages on an annual
16 basis for the pro forma rate year.
17
18
19
V. OTHER CONSIDERATIONS
Q.What is the rationale behind the removal of
20 capital expenditures for connecting new customrs?
21 A.The pro forma capital expenditures for 20lD that
22 the Company included in this filing excludes distribution
23 related capital expenditures made that are associated with
24 connecting new customers to the Company's system.The
25 Company recognizes the fact that new customers provide
DeFelice, Di 23
Avista Corporation
1 incremental revenue that helps offset the revenue
2 requirements of the distribution related capital additions
3 that the Company incurs to provide service to those
4 customers.The adjustments discussed above completely
5 eliminated the AM 2009 and EOP 2010 capital activity
6 related to new customer connections in order to avoid an
7 unintended mismatch of revenues exceeding the cost to serve
8 customers.
9 Q.In addi tion to excluding capi tal addi tions
10 related to new customrs, does the Comany addess the
11 2011/2009 revenue difference in other ways?
12
13
A.Yes.The production property adjustment
(discussed in Ms. Andrews'testimony)addresses the
14 production and transmission related retail revenue that
15 would be produced by the change in retail load expected in
16 20l0/20ll compared to the 2009 normalized test year.All
17 pro forma production and transmission rate base and related
18 expenses from these capital additions adjustments, are
19 reduced in order to reflect the amount needed to be
20 recovered from 2009 sales volumes.
21
22
23
24
VI. CONCLUSION
Q.What is the imact of the pro form adjustmnt?
A.The proposed adjustment will result in a closer
25 matching of revenues to cost of service to customers during
DeFelice, Di 24
Avista Corporation
1 the period new rates will be in effect from this general
2 rate proceeding.Without the proposed adjustment, the
3 Company would not have the opportunity to earn its allowed
4 rate of return on investment during the rate year.
5 Q.Does this conclude your pre-filed direct
6 testimony?
7 A.Yes, it does.
DeFelice, Di 25
Avista Corporation
DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P. O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
DAVID.MEYER~AVISTACORP. COM
BEFORE THE IDAHO PUBLIC UTILITIES COMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-10-01
OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-10-Ol
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) EXHIBIT NO. 9
AND NATURAL GAS CUSTOMERS IN THE )STATE OF IDAHO ) DAVE B. DEFELICE
)
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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1
Avista 2010 Capital Additions Detail (System)
Generation:
Thermal- Kettle Falls Caital Projec
Therml - Colstp Capita Additions
Theral - Other small prjects
Hydr - Nine Mile Caital Projects
Hydr - Noxon Capital Prjec
Hydr - 2010 Noxon Unit #3 Upgrde ·
Hydro - Clark ForkSpokae Implement PME Agrments
Hydr - Other small prjects
Other - CS2 Catita Prjec
Other - Boulder Park Capita Projects
Other - Oter small genertion projects
Electric Transmission:
Lolo 230 - Rebuild 230 kV Yard
Spokane-CDA 115 kV Line Relay Upgres
Nez Perce 115 kV Substion Rebuild an Capacitor Ban
SCADA Replacent
System-Replacelnsll Cacitor Ban
Airway Heights - Silver Lae i 15kV Transmission Line
Mos23-N Moscow 115 Reconductr
Beaco Storage Yard Oil Containment
Colstrp Tramission Minor Rebuild
Tribal Permits
Reliabilty Improvements
Trasmission Minor Rebuilds
Power Circuit Breers
Pine Crek
Ots Orchars 11 5kV Breer and Line Relay Replaceent
Replaceent Progrs
Oter small trnsmission projects
Electnc Distribution:
Appleway Substtion - ID
Dea Subtation - ID
Power Trasformer Distrbution
Sys-Dist Reliabilty-Impve Fdr - ID
Distbution - Cd Eat & Nort - ID
Rathdrm Trasforer and 233 Feeer Addition - ID
Pine Crek - Repla i 15 kV Circuit Switcher & Cap Ban - ID
Potlatc Trasformer Replacent - ID
Electrc Distrbution Minor Blanket
Wood Pole Replacent Progr and Capita Dist Fdr
Electrc Underund Replacment
T &D Line Relocon
Failed Electrc Plant
Othello an Chela Traform Replaceent - W A
Norteat Substaon - W A
Distrbution Fee Ilecductor - W A
Sys-Dist Reliabilty-Imprve Fdr - W A
Spokane Electrc Network Capacity - W A
Other small distrbution projects
ií
1,817
2,275
78
3,954
7,551
9,265
4,053
2,296
1,197
410
493
33,389
1,450
1,250
3,575
800
750
975
1,300
750
503
519
1,500
1,250
485
570
650
2,04
517
18,
1,980
1,405
4,740
700
905
90
300
250
7,00
6,884
4,00
2,348
2,00
95090
1,890
1,150
1,35664
40,298
General:
Secunty Initiatve
Strctus & Improvements
Store Equipment
Tools Lab & Shop Equipment
COF HVAC Improvemet
WSDOT Highway Frachise Consolidation
Other small genra projects
Transporttion:
Traporttion Equipment
Technology:
Informtion Tecology Refrh Blanet
Information Technolog Expasion Blaet
AFM Prouc Developent Pr
Nucleu Pruct Development Progr
Web Prouct Development Progr
Technology Prjec Minor Blanet
Mobile Dispatch 2
IFRS Compliance
AFM.net Upgr
Other small tehnology projec
Gas Storage:
Jackson Prame Storge
Natural Gas Distnbution:
Replac Detorating Gas Syste
Gas Replac-St&Hwy
Ga Distrbution Non-Revenue Blanket
Ea Medford Reinforcement
Grats Pass 8-In HP Reinforc Project
Reinforc Talent OR Gate Staon&iping
Rebuild Winston Gate Station, Roseburg OR
Oter smil distrbution prjec
Total Non-Revenue Capital
Growtevenue - Producing
Total Capital Additions in 2010
· The 20 i 0 Noxon Unit #3 upgde was include with the 20 i i Noxon Unit #2 upgrde in the pro form capita adjustment.
$ (OOO's)
435
4,151
600
1,700
3,499
500
525
11,410
9,971
5,00
1,100
1,00
540
890
700
1,00
1,000
1,993
2,210
15,433
429
1,050
1,260
3,360
597
1,196
1,994
1,002
4,026
14,485
144,303
43,259
187,562
Exhibit No.9
Case Nos. A VU-E-lO-OI and A VU-G-IO-OI
D. DeFelice, Avista
Schedule 3, Page I of I