20160526Andrews Direct.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
[e-mail]

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-16-03
OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE ) DIRECT TESTIMONY
TO ELECTRIC CUSTOMERS IN THE ) OF
STATE OF IDAHO ) ELIZABETH M. ANDREWS
)

FOR AVISTA CORPORATION

(ELECTRIC)

Andrews, Di 1
Avista Corporation
I. INTRODUCTION 1
Q. Please state your name, business address, and 2
present position with Avista Corporation. 3
A. My name is Elizabeth M. Andrews. I am employed by
Avista Corporation as Senior Manager of Revenue Requirements
in the State and Federal Regulation Department. My business
address is 1411 East Mission, Spokane, Washington.
Q. Would you please describe your education and 8
business experience? 9
A. I am a 1990 graduate of Eastern Washington
University with a Bachelor of Arts Degree in Business
Administration, majoring in Accounting. That same year, I
passed the November Certified Public Accountant exam,
earning my CPA License in August 19911. I worked for
Lemaster & Daniels, CPAs from 1990 to 1993, before joining
the Company in August 1993. I served in various positions
within the sections of the Finance Department, including
General Ledger Accountant and Systems Support Analyst until
2000. In 2000, I was hired into the State and Federal
Regulation Department as a Regulatory Analyst until my
promotion to Manager of Revenue Requirements in early 2007
and Senior Manager in early 2016. I have also attended
several utility accounting, ratemaking and leadership
courses.

1 Currently I keep a CPA-Inactive status with regards to my CPA license.

Andrews, Di 2
Avista Corporation
Q. Would you briefly describe your responsibilities? 1
A. Yes. As Senior Manager of Revenue Requirements, I
am responsible for the preparation of normalized revenue
requirement and pro forma studies for the various
jurisdictions in which the Company provides utility
services. During the last fifteen years, I have led or
assisted in the Company’s electric and/or natural gas 7
general rate filings in Idaho, Washington and Oregon.
Q. What is the scope of your testimony in this 9
proceeding? 10
A. My testimony and exhibits in this proceeding will
cover accounting and financial data in support of the
Company's electric rate request and the need for the
proposed increase in rates for 2017. I will explain pro
formed operating results, including expense and rate base
adjustments made to actual operating results and rate base.
In addition, I incorporate the Idaho share of the proposed
adjustments of other witnesses in this case.
A table of contents for my testimony is as follows:
Description Page 20
I. Introduction 1 21
II. Revenue Requirement Summary – 2017 Rate Year 3 22
III. Derivation of 2017 Revenue Requirement 7 23
IV. Standard Commission Basis and Restating Adjustments 10 24
V. 2017 Pro Forma Adjustments 30 25
VI. Allocation Procedures 37 26
27

Andrews, Di 3
Avista Corporation
Q. Are you sponsoring any exhibits to be introduced 1
in this proceeding? 2
A. Yes. I am sponsoring Exhibit No. 11, Schedule 1,
which was prepared by me. This exhibit consists of
worksheets, which show actual twelve months ended December
31, 2015 operating results, and pro forma and proposed
electric operating results and rate base for the State of
Idaho for the 2017 rate year. The exhibits also show the
calculation of the general revenue requirement, the
derivation of the Company’s overall proposed rate of return,
the derivation of the net-operating-income-to-gross-revenue-
conversion factor, and the specific pro forma adjustments
proposed in this filing for 2017.
14
II. REVENUE REQUIREMENT SUMMARY – 2017 Rate Year 15
Q. Please summarize the results of the Company’s 16
Idaho electric pro forma study. 17
A. After taking into account all standard Commission
Basis adjustments2, as well as additional pro forma and
normalizing adjustments, the pro forma electric rate of
return (“ROR”) for the Company’s Idaho jurisdictional
operations is 6.53% for rate year 2017. This return level

2 “Commission Basis” adjustments are defined as individual normalizing
and restating adjustments that are standard components of general rate
case filings previously approved by the Idaho Public Utility Commission
(IPUC).

Andrews, Di 4
Avista Corporation
is well below the Company’s requested rate of return of
7.78% for the 2017 rate year.
The incremental revenue requirement necessary to
provide the Company an opportunity to earn its requested ROR
in rate year 2017 is $15,433,000 for its electric
operations. The overall 2017 base electric increase
associated with this request is 6.34%.
Q. What is the Company’s rate of return that was last 8
authorized by this Commission for its electric operations in 9
Idaho? 10
A. The Company’s last authorized rate of return for
its Idaho electric operations was 7.42%, effective January
1, 2016 for our electric system.
Q. What are the primary factors driving the Company’s 14
need for an electric increase? 15
A. The primary factor (approximately 77%) driving the
Company’s electric revenue requirement in 2017 is an
increase in net plant investment (including return on
investment, depreciation and taxes, and offset by the tax
benefit of interest) from that currently authorized. As
discussed further below, in 2017 net power supply expenses
also contribute to the incremental revenue requirement
(approximately 12%).
The remaining increase impacting the Company’s revenue
requirement request (approximately 11%) relates to net

Andrews, Di 5
Avista Corporation
increases in operation and maintenance (O&M) and
administrative and general (A&G) expenses for Avista’s 2
electric operations compared to current authorized levels,
mainly due to increased labor and benefits.
To recognize these cost changes, the Company has
included a number of 2017 pro forma adjustments to capture
the net increases the Company will experience from the 2015
test year.
Q. What are the major components of the increased net 9
plant investment included in the Company’s 2017 electric 10
results? 11
A. Looking at the changes to “gross” plant in service
for 2017, Idaho electric “gross” plant increases by
approximately $96.0 million, as compared to what was
approved in the last general rate case for new retail rates
effective January 1, 2016.
In order to meet the energy and reliability needs of
our customers, $52.0 million of the electric “gross” plant 18
increase is due to the Company’s investment in thermal and 19
hydro generating facilities, as well as additional
transmission investment. Electric distribution “gross” 21
plant increases $25.9 million above that approved in the
last general rate case. The electric portion of general and
intangible “gross” plant increases $18.1 million.

Andrews, Di 6
Avista Corporation
The specific 2016 through 2017 pro forma capital
expenditures undertaken by the Company to expand and replace
its generation, transmission and distribution facilities are
discussed further by Company witnesses Mr. Kinney regarding
production assets, Mr. Cox regarding transmission assets,
Ms. Rosentrater regarding electric distribution assets, and
Mr. Kensok regarding the costs associated with Avista’s 7
Information Service/Information Technology (IS/IT) projects.
Company witness Ms. Schuh describes the Company’s general 9
plant additions for 2016 and 2017.
The Company is making substantial new investment in its
electric system infrastructure to address the replacement
and maintenance of Avista’s aging system, and to sustain 13
reliability and safety. As soon as this new plant is placed
in service, the Company must start depreciating the new
plant investment. Unless this new investment is reflected
in retail rates in a timely manner, it has a negative impact
on Avista’s earnings, particularly because the new plant is 18
typically far more costly to install than the cost of the
plant that was embedded in rates decades earlier. As plant
is completed and is providing service to customers, it is
appropriate for the Company to receive timely recovery of
the costs associated with that plant.
Q. Please provide an overview of the changes in net 24
power supply expenses. 25

Andrews, Di 7
Avista Corporation
A. As discussed in Company witness Mr. Johnson’s 1
testimony, the level of Idaho’s share of power supply 2
expense for 2017 has increased by approximately $5.3 million
($15.6 million on a system basis) from the level currently
included in base rates. The increase in 2017 net power
supply expense is mainly related to the inclusion of the
Palouse Wind power purchase agreement3 and the expiration of
a capacity sales agreement with Portland General Electric on
December 31, 2016, partially offset by reduced natural gas
prices.

III. DERIVATION OF 2017 REVENUE REQUIREMENT 12
Q. On what test period is the Company basing its need 13
for additional electric revenue? 14
A. The test period being used by the Company is the
twelve-month period ending December 31, 2015, presented on a
2017 pro forma average-of-monthly-averages (AMA) basis.
Currently authorized rates, effective January 1, 2016, were
based upon the twelve-months ending December 31, 2014 test
year utilized in case AVU-E-15-05, adjusted on a pro forma
basis.

3 Currently, the Palouse Wind purchase is recovered through the Power
Cost Adjustment (PCA), as discussed by Mr. Johnson.

Andrews, Di 8
Avista Corporation
Revenue Requirement – 2017 1
Q. Would you please explain what is shown in Exhibit 2
No. 11, Schedule 1? 3
A. Yes. Exhibit No. 11, Schedule 1, shows actual and
pro forma 2017 electric operating results and rate base for
the State of Idaho.
Column (b) of page 1 of Exhibit No. 11, Schedule 1,
shows December 31, 2015 actual operating results and
components of the AMA rate base as recorded; column (c) is
the total of all adjustments to net operating income and
rate base to reflect 2017 results; and column (d) is the
2017 pro forma results of operations, all under existing
rates. Column (e) shows the revenue increase required which
would allow the Company to earn a 7.78% rate of return for
2017. Column (f) reflects 2017 pro forma operating results
with the requested increase of $15,433,000 for electric
operations.
Q. Would you please explain page 2 of Exhibit No. 11, 18
Schedule 1? 19
A. Yes. Page 2 of Exhibit No. 11, Schedule 1, shows
the 2017 revenue requirement calculations for electric
operations of $15,433,000 at the requested 7.78% rate of
return.
Q. What does page 3 of Exhibit No. 11, Schedule 1 24
show? 25

Andrews, Di 9
Avista Corporation
A. Page 3 shows the proposed Cost of Capital and
Capital Structure utilized by the Company in this case, and
the weighted average cost of capital of 7.78%. Company
witness Mr. Thies discusses the Company’s proposed rate of 4
return and the pro forma capital structure utilized in this
case, while Company witness Mr. McKenzie provides additional
testimony related to the appropriate return on equity for
Avista. 8
Q. Would you now please explain page 4 of Exhibit No. 9
11, Schedule 1? 10
A. Yes. Page 4 shows the derivation of the net-
operating-income-to-gross-revenue-conversion factor. The
conversion factor takes into account uncollectible accounts
receivable, Commission fees and Idaho State income taxes.
Federal income taxes are reflected at 35%.
Q. Now turning to pages 5 through 9 of Exhibit No. 16
11, Schedule 1, please explain what those pages show? 17
A. Page 5 begins with actual operating results and
rate base for the test period in column (1.00). Individual
Commission Basis normalizing and restating adjustments that
are standard components of general rate case filings begin
on page 5, in column (1.01) and continue through column
(2.13) on page 7.
Individual pro forma adjustments for 2017 begin in
column (3.01) on page 8 and go through column (3.07) on page

Andrews, Di 10
Avista Corporation
9, with the “2017 FINAL TOTAL” column on page 9 representing
the total pro forma operating results and net rate base for
the 2017 pro forma period.

IV. STANDARD COMMISSION BASIS AND RESTATING ADJUSTMENTS 5
Q. Please explain each of the standard Commission 6
basis and restating adjustments? 7
A. Yes, but before I begin, I will note that the
following electric adjustments are consistent with current
regulatory principles and the manner in which they have been
addressed in recent cases (i.e., AVU-E-15-05), unless
otherwise noted. Columns following the Results of
Operations column (1.00) reflect restating adjustments
necessary to: restate the actual results based on prior
Commission orders; reflect appropriate annualized expenses
and rate base; correct for errors; or remove prior period
amounts reflected in the actual results of operations.
In addition to the explanation of adjustments provided
herein, the Company has also provided workpapers, both in
hard copy and electronic formats, outlining additional
details related to each of the adjustments.
A summary of each adjustment follows:
Adjustment (1.01) - Deferred FIT Rate Base, adjusts the
accumulated deferred federal income tax (ADFIT) rate base
balance included in the Results of Operations column (1.00)

Andrews, Di 11
Avista Corporation
to the adjusted ADFIT balance reflected on an AMA basis, as
shown within my workpapers provided with the Company’s 2
filing.
ADFIT reflects the deferred tax balances arising from
accelerated tax depreciation (Accelerated Cost Recovery
System, or ACRS, and Modified Accelerated Cost Recovery, or
MACRS, repairs deduction and bonus depreciation), bond
refinancing premiums, and contributions in aid of
construction.
The increase in ADFIT (which is a reduction of rate
base) included in this adjustment is primarily due to the
annualizing of tax depreciation adjustments for the repairs
deduction and bonus depreciation related to the 2015 federal
tax return. This adjustment restates ADFIT to reflect the
impact of both tax deductions as if they had been recorded
beginning in January 2015.
The effect of these adjustments on Idaho rate base is a
reduction of $6,802,000. The effect on Idaho net operating
income (NOI) due to the Federal Income Tax (FIT) expense on
the restated level of interest on the change in rate base4 20
is a reduction of $67,000.
Adjustment (1.02) - Deferred Debits, Credits and 22
Regulatory Amortizations, is a consolidation of previous

4 The net effect of FIT expense on the restated level of interest
expense due to a change in rate base is shown within each individual
adjustment.

Andrews, Di 12
Avista Corporation
Commission Basis or other restating rate base adjustments
and their NOI impact. The net impact on a consolidated
basis of this adjustment decreases Idaho electric rate base
by $581,000 and decreases NOI by $1,901,000.
Adjustments included in the Deferred Debits and Credits
consolidated adjustment are those necessary to reflect
restatements from 2015 actual results (included in column
1.00 “Per Results of Operations”), based on prior Commission
orders as explained below.
 Colstrip 3 AFUDC 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 Transportation Commission
(WUTC) allowed the Company a return on a portion of
Colstrip Unit 3 construction work in progress (CWIP).
A much smaller amount of Colstrip Unit 3 CWIP was
allowed in rate base in Case No. U-1008-144 by the
Idaho Public Utility Commission (IPUC). The Company
eliminated the AFUDC associated with the portion of
CWIP allowed in rate base in each jurisdiction. Since
production facilities are allocated on the
Production/Transmission formula, the allocation of
AFUDC is reversed and a direct assignment is made. The
effect on rate base is a decrease of $206,000 to
reflect the correct level of rate base at December 31,
2015 (AMA). 26
27
 Colstrip Common AFUDC is also associated with the
Colstrip plants in Montana, and increases rate base.
Differing amounts of Colstrip common facilities were
excluded from rate base by this Commission and the WUTC
until Colstrip Unit 4 was placed in service. The
Company was allowed to accrue AFUDC on the Colstrip
common facilities during the time that they were
excluded from rate base. It is necessary to directly
assign the AFUDC because of the differing amounts of
common facilities excluded from rate base by this
Commission and the WUTC. In September 1988, an entry
was made to comply with a Federal Energy Regulatory
Commission (FERC) Audit Exception, which transferred
Colstrip common AFUDC from the plant accounts to

Andrews, Di 13
Avista Corporation
Account 186. These amounts reflect a direct assignment
of rate base for the appropriate average-of-monthly-
averages amounts of Colstrip common AFUDC to the
Washington and Idaho jurisdictions. Amortization
expense associated with the Colstrip common AFUDC is
charged directly to the Washington and Idaho
jurisdictions through Account 406 and is a component of
the actual results of operations.

 Kettle Falls & Boulder Park Disallowances reflect
the Kettle Falls generating plant disallowance ordered
by this Commission in Case No. U-1008-185 and the
Boulder Park plant disallowance ordered by the IPUC in
Case No. AVU-E-04-1. The IPUC disallowed a rate of
return on $3,009,445 of investment in Kettle Falls, and
$2,600,000 million of investment in Boulder Park. The
disallowed investment, and related accumulated
depreciation and accumulated deferred taxes are
removed. These amounts are a component of actual
results of operations.

 Restating CDA Settlement Deferral adjusts the net
assets and DFIT balances associated with the 2008/2009
past storage and §10(e) charges deferred for future
recovery as recorded to a 2017 AMA basis, and records
the annual amortization expense based on a ten-year
amortization, as approved in Case No. AVU-E-10-01. The
effect on rate base is a decrease of $40,000 to reflect
the correct level of rate base at December 31, 2017
(AMA).

 Restating Spokane River Deferral adjusts the net
asset and DFIT balances related to the Spokane River
deferred relicensing costs as recorded to a 2017 AMA
basis, and records the annual amortization expense
based on a ten-year amortization as approved in Case
No. AVU-E-10-01. The effect on rate base is a decrease
of $8,000 to reflect the correct level of rate base at
December 31, 2017 (AMA).

 Restating Spokane River PM&E Deferral adjusts the
net asset and DFIT balances related to the Spokane
River deferred PM&E costs as recorded to a 2017 AMA
basis, and records the annual amortization expense
based on a ten-year amortization as approved in Case
No. AVU-E-10-01. The effect on rate base is a decrease
of $35,000 to reflect the correct level of rate base at
December 31, 2017 (AMA).

Andrews, Di 14
Avista Corporation
 Restating Montana Riverbed Lease adjusts the net
asset and DFIT balances reflected in results of
operations related to the costs associated with the
Montana Riverbed lease settlement deferred for recovery
to a 2017 AMA basis. In the Montana Riverbed lease
settlement, the Company agreed to pay the State of
Montana $4.0 million annually beginning in 2007, with
annual inflation adjustments, for a 10-year period for
leasing the riverbed under the Noxon Rapids Project and
the Montana portion of the Cabinet Gorge Project. The
first two annual payments were deferred by Avista as
approved in Case No. AVU-E-07-10. In Case No. AVU-E-
08-01 (see Order No. 30647), the Commission approved
the Company’s accounting treatment of the deferred
payments, including accrued interest, to be amortized
over the remaining eight years of the agreement
starting October 1, 2008. The 10-year amortization of
the first two annual payment deferral expires on
September 31, 2016. Therefore, the adjusted rate base
balance during 2017 is $0. This restating adjustment
removes the rate base amount included in the test
period, reducing rate base by $293,000. The Company has
included lease expense, increased for annual inflation,
as previously required. The net effect of the
expiration of the deferral amortization, offset in
part, by the increase in inflation on the lease
expense, decreases Idaho expense by $234,000.

 Weatherization and DSM Investment includes in rate
base the Sandpoint weatherization grant balance (FERC
account 124.350). Beginning in July 1994 accumulation
of AFUCE5 ceased on Electric DSM and full amortization
began on the balance based on the measure lives of the
investment. Beginning in 1995 the amortization rates
were accelerated to achieve a 14 year weighted average
amortization period, which was completed in 2010.
Remaining as an Idaho rate base item is the
weatherization loan balance of approximately $60,200. 38
39
 Customer Advances decreases rate base for moneys
advanced by customers for line extensions, as they will
be recorded as contributions in aid of construction at
some future time.

 Amortization of Reardan removes the amortization
expense included in the 2015 test period. In May 2008,
Avista purchased the Reardan Wind Project Site from

5 Allowance for funds used to conserve energy.

Andrews, Di 15
Avista Corporation
Energy Northwest, the then-current developer, after it
was demonstrated as the Company’s least-cost option for
securing a renewable resource for its customers,
consistent with its 2007 Integrated Resource Plan.
Avista later chose to delay the construction of the
Reardan project and take advantage of much-lower costs
for wind projects that emerged in 2011 (Palouse Wind).
Avista recorded approximately $4.0 million of site
acquisition and preparation costs, of which $1.747
million was Idaho’s share. In Case No. AVU-E-12-08, the
Commission approved a two-year amortization of the
deferral balance beginning April 1, 2013 through March
31 2015. This portion of the adjustment decreases Idaho
expense by $217,000.
15
 Amortization of Lake Spokane Deferral includes the
amortization expense in 2017 to reflect the three-year
amortization of the deferred costs related to improving
dissolved oxygen levels in Lake Spokane. In Case No.
AVU-E-13-05 (see Order No. 32917), the Company received
approval of an Accounting Order to defer the costs
related to the improvement of dissolved oxygen levels
in Lake Spokane. Order No. 32917 authorized the
Company to defer and transfer Idaho’s share of these 24
costs (approximately $473,000) to FERC account 182.3
(Other Regulatory Assets) for later recovery, with no
carrying charge. A three-year amortization of the
deferral balance beginning January 1, 2016 through
December 31, 2018 was approved in Case No. AVU-E-15-05.
The net effect of this adjustment increases expense by
$154,000.
32
 Amortization of Colstrip Deferral reflects the
two-year amortization of the deferred revenues received
from insurance proceeds related to the Colstrip lawsuit
settlement funds received in 2014. The two-year
amortization schedule is consistent with expenses
associated with the Colstrip lawsuit settlement
payments made in 2008 previously deferred and amortized
over two-years in Idaho’s jurisdiction. The two-year
amortization of the deferral balance beginning January
1, 2016 through December 31, 2017 was approved in Case
No. AVU-E-15-05. The net effect of this adjustment
decreases amortization expense by $200,000.

 Amortization of Project Compass Deferral includes
the 2017 amortization expense associated with the
three-year amortization of 80% of the deferred electric
revenue requirement amounts associated with the
Company’s Project Compass Customer Information System 50

Andrews, Di 16
Avista Corporation
(Project Compass) for calendar year 2015. In Case No.
AVU-E-14-05, the Commission approved an all-party
settlement, in which the Parties agreed that eighty-
percent (80%) of the revenue requirement associated
with Project Compass during 2015, beginning the month
the Project goes into service, would be deferred,
without a carrying charge, for recovery in a future
proceeding. This project was moved into service on
February 2, 2015. A Three-year amortization of the
deferral balance beginning January 1, 2016 through
December 31, 2018 was approved in Case No. AVU-E-15-05.
The net effect of this adjustment increases
amortization expense by $891,000. This adjustment also
removes the deferral of the O&M expense recorded during
the 2015 test period, increasing O&M expense by
$2,674,000.

The net effect of each of these adjustments increased
Idaho electric expenses by $2.9 million, decreasing NOI by
$1,901,000 and decreasing total rate base by $581,000.
Adjustment (1.03) - Restate Capital 2015 EOP, restates
the capital investment and expenses associated with
adjusting the 2015 average-of-monthly-average (AMA) plant
related balances to December 31, 2015 end-of-period (EOP)
balances. The effect on Idaho results increases rate base
by $18,731,000, and increases NOI by $186,000 related to the
federal income tax effect of debt interest.
Adjustment (1.04) - Working Capital, adjusts the
working capital rate base amount from the amount included in
the Results of Operations column (1.00) to the 2015 AMA test
period amount calculated using the Investor Supplied Working
Capital (ISWC) method.

Andrews, Di 17
Avista Corporation
Working capital represents the funds necessary to cover
the lag in time between the collection of revenues for
services rendered, and the necessary outlay of cash by the
Company to pay the expenses of providing those services.
The working capital included in the Results of Operations at
December 31, 2015, however, was only Idaho’s portion of the 6
2015 average-monthly-average balances of FERC accounts 151
(Fuel Stock Inventory) and 154 (Plant Materials & Supplies).
The Company, therefore, updated working capital using the
ISWC method. This approach is consistent with that included
and reviewed by the parties in Case No. UE-15-056.
In addition to updating working capital using the ISWC
methodology, it was also revised to reflect the tax
depreciation impact (related to repairs and bonus
depreciation) on ADFIT, impacting current taxes payable
through December 31, 2015. The net effect of adjustments to
Working Capital from that recorded per results of operations
at December 31, 2015, increases net rate base by
$15,563,0007 and increases NOI by $154,000 due to the FIT
expense of the restated level of interest on the change in
rate base.

6 The ISWC calculation is also consistent with that approved in Avista’s
Washington jurisdiction.
7 An increase of $2.9 million above that currently authorized for the
2016 rate year using the ISWC method in Case No. AVU-E-15-05.

Andrews, Di 18
Avista Corporation
Q. Please continue with your discussion of the 1
restating adjustments included in Exhibit No. 11, Schedule 2
1. 3
A. Adjustment (1.05) – Plant Held for Future Use 4
(PHFFU), adds certain property to rate base that the Company
owned at the time of this filing that has been recorded as
held for future use. Prior to 2015, the Company’s 7
investment in PHFFU has been relatively small. The Company
is proposing to include in rate base property for which the
Company has specific plans for how the property will be
used. Specifically, the Company has included two parcels of
land; one of the parcels is for a future substation (Idaho’s
share is approximately $150,000) and one of the parcels is
for a future natural gas-fired combustion turbine (Idaho’s
share is approximately $1.23 million).
Q. Why is it appropriate to include this investment 16
in rate base? 17
A. The Company purchases certain property to meet a
specific utility purpose. For the property referenced
above, the location of the property and its proximity to
other Avista assets warranted the purchase early, well
before the actual construction of the substation or
generating plant. Securing the property in advance at a
reasonable cost ensures that this property in the correct
location is available for the planned future facilities. It

Andrews, Di 19
Avista Corporation
is appropriate for Avista to include the property in rate
base and earn a return on the investment.
The net effect of this adjustment increases rate base
by $1,383,000 and increases NOI by $14,000 due to the FIT
expense of the restated level of interest on the change in
rate base.
Q. Please continue with your discussion of the 7
restating adjustments included in Exhibit No. 11, Schedule 8
1.
A. Adjustment (2.01) - Eliminate B & O Taxes,
eliminates the revenues and expenses associated with local
business and occupation (B & O) taxes, which the Company
passes through to its Idaho customers. The effect of this
adjustment decreases electric NOI by $10,000.
Adjustment (2.02), starting on page 6 of Exhibit No.
11, Schedule 1 - Uncollectible Expense, restates the accrued
expense to the actual level of net write-offs for the test
period. The effect of this adjustment decreases electric
NOI by $104,000.
Adjustment (2.03) - Regulatory Expense, restates
recorded test period regulatory expense to reflect the IPUC
assessment rates applied to test period revenues, and the
actual levels of FERC fees paid during the test period. The
effect of this adjustment decreases electric NOI by $9,000.

Andrews, Di 20
Avista Corporation
Adjustment (2.04) - Injuries and Damages, is a
restating adjustment that replaces the accrual with the six-
year rolling average of actual injuries and damages payments
not covered by insurance. This methodology was accepted by
the Idaho Commission in Case No. WWP-E-98-11, and has been
used since that time. The effect of this adjustment
increases electric NOI by $7,000.
Adjustment (2.05) FIT/DFIT/ITC/PTC Expense, adjusts the
FIT and DFIT expenses calculated at 35% within Results of
Operations, as needed, by reflecting the appropriate
Schedule M items and jurisdictional allocation of these
Schedule M items as compared to Results of Operations. In
addition, this adjustment records the appropriate level of
production tax credits and income tax credits on qualified
electric generation.
The net tax effect of this adjustment decreases Idaho
electric NOI by $413,000.
Adjustment (2.06) - SIT/SITC Expense, adjusts Idaho
State Income Tax (SIT) expense and Idaho State Investment
Tax Credits (SITC) applicable to Idaho electric operations
as recorded. This approach is consistent with that included
and reviewed by the parties in Case No. UE-15-05. The effect
on Idaho electric NOI is an increase of $151,000.
Adjustment (2.07) - Revenue Normalization, is an
adjustment taking into account known and measurable changes

Andrews, Di 21
Avista Corporation
that include 1) revenue normalization which reprices
customer usage using the current authorized base rates
(approved in Case No. AVU-E-15-05 effective January 1,
2016), 2) weather normalization, and 3) an unbilled revenue
calculation. Schedule 91 Tariff Rider, Schedule 97 BPA
Settlement Rebate and Schedule 59 Residential Exchange are
excluded from pro forma revenues, and the related
amortization expense is eliminated as well.
Company witness Ms. Knox sponsors this adjustment. The
effect of this adjustment increases electric NOI $3,635,000.
Adjustment (2.08) - Miscellaneous Restating removes a
number of non-operating or non-utility expenses associated
with advertising, dues and donations, etc., included in
error, and removes or restates other expenses incorrectly
charged between service and or jurisdiction. In addition,
this adjustment reflects 2014 retroactive union salary
increases paid in 2015 above that accrued in September and
December of 20148. The net effect of this adjustment
increases electric NOI by $24,000.
Adjustment (2.09), starting on page 7 of Exhibit No.
11, Schedule 1 - Restate Incentives, restates the actual

Andrews, Di 22
Avista Corporation
employee payroll incentives included in the Company’s test 1
period using a six-year average payout percentage.
For officers, the incentive amount included in the
Company’s filing is based on the 2016 incentives to be
accrued for officers (paid Q-1 of 2017), based on O&M
targets.9 This amount was then multiplied by the six-year
average of actual utility percentage payouts for the years
2010-2015 (reflecting a 90.63% utility average payout).
For non-officer incentives, this is calculated by using
the 2017 level of labor expense (determined in adjustment
(3.03) - Pro Forma Labor Non-Exec) multiplied by the payout
incentive opportunity per the Company’s current incentive 12
plan to determine the incentive payout opportunity,
multiplied by the adjusted six-year average of actual
percentage payouts for the years 2010-2015. The adjustment
reflects a 100% incentive payout for non-officer
employees10. The net effect of this adjustment increases
electric Idaho NOI by $14,000.

8 The Union Contract for IBEW Local 77 expired as of March 31, 2014. No
salary increases were granted effective April 1, 2014 with the
understanding that once the new contract was finalized, increases would
be retro-active to this date. In September and December 2014 estimated
amounts were recorded to the General Ledger for the retro-active payout.
A new contract was signed in January 2015 and actual retro-active pay
was calculated resulting in an additional accrual of approximately
$533,000 (system). In order to reflect the appropriate labor for 2015,
this adjustment removes prior period labor expenses included in the 2015
test period.
9 Officer STIP based on earnings per share targets are excluded from the
proposed revenue requirement. Long-term incentives based on financial
metrics (performance shares) and those short-term incentives based on
earnings per share are currently borne by shareholders.
10 The actual 6-year average payout percentage was 110.64%.

Andrews, Di 23
Avista Corporation
Q. Please briefly describe the Executive Short Term 1
Incentive Plan. 2
A. The Short Term Incentive Plan (STIP) is designed
to align the interests of executives with both customer and
shareholder interests in order to achieve overall positive
operating and financial performance for the Company. The
STIP is a pay-at-risk plan whereby employees are eligible to
receive cash incentive pay if the stated targets are
achieved. 9
The STIP has four operational components, plus two
earnings per share (EPS) components. The total amount
associated with utility operational components is 40% and is
broken down as follows: 20% O&M Cost-Per-Customer, 8%
Customer Satisfaction, 8% Reliability, and 4% Response Time.
The EPS components account for 60% of the total opportunity
and are broken out into 50% utility EPS and 10% non-utility
EPS. Only the utility operational components (40%) are
proposed to be included in retail rates. Customers benefit
from these metrics that are designed to drive cost-control,
and delivery of safe, reliable service with a high level of
customer satisfaction. The remaining 60% related to EPS
targets are currently borne by shareholders.
Q. Please provide an overview of the Company’s non-23
executive employee incentive plan.

Andrews, Di 24
Avista Corporation
A. Employee compensation is a combination of base pay
and pay-at-risk under the Short Term Incentive Plan (STIP).
The STIP provides for a portion of compensation to be at
risk contingent upon the achievement of specific goals for
performance, which are designed to produce customer
benefits. This tension in plan design helps incent and
focus all employees on the stated customer-focused goals of
cost control, customer satisfaction and reliability within
the system. These metrics are designed to be reasonably
achievable with strong management performance. Maximum
performance levels are designed to be difficult to achieve
given historical performance and forecasted results at the
time the metrics are approved. Pay-at-risk plans are
designed to help focus employees on stated goals that
benefit customers, while at the same time functioning as an
integrated component of total compensation.
In accordance with the Company’s overall compensation 17
design to align elements of incentive plans among all
Company employees and executives, the non-executive employee
incentive plan has essentially the same stated goals as the
STIP discussed above. Both plans provide incentives and
focus employees on stated goals while recognizing and
rewarding employees for their contributions toward achieving
those goals. The components of the non-executive employee
incentive plan are as follows: 60% O & M Cost-Per-Customer,

Andrews, Di 25
Avista Corporation
15% Customer Satisfaction, 15% Reliability Index and 10%
Response Time.
Q. What portion of the Short Term Incentive Plans 3
have been included in this case? 4
A. The Company has included 100% of the non-executive
STIP and 40% of the executive officer STIP (excluding those
metrics related to EPS targets) in this case. Because all
metrics in the non-officer STIP and 40% of the Officer STIP
are customer-focused and benefit customers, and because this
pay-at-risk is one component of total employee compensation,
it is appropriate to include the customer-focused STIP
incentives in general rates. The 2015 base year already
excludes the portion of officer STIP related to EPS targets.
In addition, because incentive loaders follow where base
salary labor dollars are charged, a portion of non-officer
incentives are also already charged to non-utility accounts
for those employees performing work not related to the
utility.
Q. Please describe the Executive Long Term Incentive 19
Plan (LTIP). 20
A. The Executive Officer Long Term Incentive Plan
(LTIP) is comprised of two components, which serve two

Andrews, Di 26
Avista Corporation
different purposes11. Performance Shares account for 75% of
the plan with metrics related to Cumulative Earnings-Per-
Share (CEPS) and Total Shareholder Return (TSR). The
purpose for this portion of the plan is to provide a direct
link to the long-term interests of shareholders by assuring
that performance shares will be paid only if the Company
attains specified financial performance levels. This
portion of the plan was modified in 2014 to include both
Cumulative Earnings-Per-Share and Total Shareholder Return.
In previous years, vesting of performance-based equity
awards were 100% contingent on the Company’s Total
Shareholder Return (TSR) relative to our peer group over a
three-year period. Under the new design, two-thirds of the
awards are contingent on TSR relative to our peers and one-
third is measured by our CEPS over a three-year period. The
Company has excluded the Performance Share portion of the
LTIP from the retail ratemaking because it is tied to
shareholder performance.
Restricted Stock Unit (RSU) awards account for 25% of
the LTIP and vest based on continued service. The purpose
for this portion of the plan is to provide an incentive for
employees to remain employed by the Company. The long-term

11 As with all components of the executive officer compensation, the
Compensation Committee determines all material aspects of the long-term
incentive reward – who receives the award, the amount of the award, the
timing of the award, as well as any other aspects of the award that may
be deemed material.

Andrews, Di 27
Avista Corporation
nature of large-scale utility projects spanning multiple
years are completed more efficiently with experienced,
consistent leadership. In addition, it is the Company’s 3
policy to promote from within when possible, preserving the
values inherent in our culture that drive customer
satisfaction, reliability of service, etc. Employees with a
long tenure of employment with the Company are well versed
in the Company’s culture and will continue to cultivate the 8
values embedded within Avista. The Restricted Stock Unit
portion of the plan is included in retail ratemaking because
customers benefit from long-term leadership with a vested
interest in the efficient operation of the Company and high
customer satisfaction12.
In addition, the Restricted Stock Units are one
component of total compensation and benefits that are
designed to be competitive with that offered by other
similar utilities. It does not represent “extra” 17
compensation over and above a competitive level of pay.
Q. Please continue with explaining the remaining 19
restating adjustments in Exhibit No. 11, Schedule 1. 20
A. The next adjustment, included on page 7 of Exhibit
No. 11, Schedule 1, is Adjustment (2.10) - Idaho PCA, which
removes the effects of the accounting for the Power Cost

12 The total CEO Long Term Incentive Plan expenses have been excluded
because both the restricted stock and performance shares have financial
performance-related triggers.

Andrews, Di 28
Avista Corporation
Adjustment (PCA). Under the PCA certain differences in
actual power supply costs, compared to those included in
base retail rates are deferred and then surcharged or
rebated to customers in a future period. Revenue
adjustments due to the PCA and the power cost deferrals
affect actual results of operations and need to be
eliminated to produce normalized results. Actual revenues
and power supply costs are normalized in adjustments (2.07)
Revenue Normalization and (3.01) Power Supply, respectively.
The effect of this adjustment increases Idaho NOI by
$1,281,000.
Adjustment (2.11) - Nez Perce Settlement Adjustment,
reflects a decrease in production operating expenses. An
agreement was entered into between the Company and the Nez
Perce Tribe to settle certain issues regarding earlier owned
and operated hydroelectric generating facilities of the
Company. This adjustment directly assigns the Nez Perce
Settlement expenses to the Washington and Idaho
jurisdictions. This is necessary due to differing
regulatory treatment in Idaho Case No. WWP-E-98-11 and
Washington Docket No. UE-991606. The effect of this
adjustment increases Idaho NOI by $19,000.
Adjustment (2.12) – Colstrip/CS2 Maintenance. As
approved in Order 32371 on September 30, 2011, (in Case Nos.
AVU-E-11-01 and AVU-G-11-01), the Company deferred the non-

Andrews, Di 29
Avista Corporation
fuel O&M costs associated with the Company's Colstrip and
CS2 thermal generating plants. The deferral amount is the
difference between actual costs and the authorized “Base 3
O&M” costs for each respective year included in base rates
for the years 2011 – 2015.
For calendar years 2013 through 2015, the authorized
“Base O&M” expense level (established in 2013 in AVU-E-12-
08) was $14.4 million (system). Each year deferred costs are
amortized over a three-year period.
For 2016, in Case No. AVU-E-15-05, the system “Base 10
O&M” cost was adjusted upward from $14.4 million to $20.4 11
million to better reflect O&M expenses in the future based
on a five-year average for the period 2012-2016. The effect
of this adjustment to the “Base O&M” cost increases O&M
expense and reduces the amount of the deferral that will be
required in 2016 and forward. (The O&M expense for 2017-2019
ranges from $18.8 million to $22.0 million.)
One-third of each amount deferred for calendar years
2013 through 2015, plus the additional proposed expense for
the 2017 rate year, increases Idaho electric expense by
approximately $2.4 million, and decreases NOI by $1,498,000.
Electric Adjustment (2.13) - Restate Debt Interest,
restates debt interest using the Company’s pro forma 23
weighted average cost of debt on the Results of Operations
level of rate base shown in column (1.00) only. The weighted

Andrews, Di 30
Avista Corporation
average cost of debt is as provided in the testimony and
exhibits of Mr. Thies. This adjustment results in a revised
level of tax deductible interest expense on actual test
period rate base. The Federal income tax effect of the
restated level of interest for the test period increases
electric NOI by $283,000.
As noted above, the Federal income tax effect of the
restated level of interest on all other rate base
adjustments included in the Company’s filing are included 9
and shown as an income impact of each individual rate base
adjustment described elsewhere in this testimony.
12
V. 2017 PRO FORMA ADJUSTMENTS 13
Q. Please explain the significance of the adjustments 14
beginning at page 8 of Exhibit No. 11, Schedule 1. 15
A. The adjustments on pages 8 and 9 of Exhibit No.
11, Schedule 1, are pro forma adjustments that recognize the
jurisdictional impacts of items that will impact the 2017
pro forma operating period.
These pro forma adjustments in 2017 encompass revenue
and expense items as well as additional capital projects,
bringing the operating results and rate base to the final
pro forma level for the 2017 rate year on an AMA basis. The
methodology behind each of these adjustments are consistent
with that used in Case No. AVU-E-15-05.

Andrews, Di 31
Avista Corporation
In the discussion that follows, an explanation of each
2017 pro forma adjustment is provided. The Company has also
provided workpapers, both in hard copy and electronic
formats, outlining additional details related to each of the
adjustments.
Q. Please explain each of the Pro Forma adjustments 6
shown on pages 8 and 9 of Exhibit No. 11, Schedule 1? 7
A. the first column on page 8 of Exhibit No. 1l,
Schedule 1, is Adjustment (3.01) - Pro Forma Power Supply. 9
This adjustment was made under the direction of Mr. Johnson
and is explained in detail in his testimony. This
adjustment includes pro forma power supply related revenue
and expenses to reflect the twelve-month period January 1,
2017 through December 31, 2017, using weather normalized
historical loads. Mr. Johnson’s testimony outlines the 15
system level of pro forma power supply revenues and expenses
that are included in this adjustment. The adjustment in
column (3.01) calculates the Idaho jurisdictional share of
those figures. The net effect of this adjustment decreases
electric NOI by $1,785,000.
Adjustment (3.02) - Pro Forma Transmission 21
Revenue/Expense, was made under the direction of Mr. Cox and
is explained in detail in his testimony. This adjustment
includes pro forma transmission-related revenues and
expenses to reflect the twelve-month period January 1, 2017

Andrews, Di 32
Avista Corporation
through December 31, 2017. The net effect of this
adjustment decreases electric NOI by $101,000.
Adjustment (3.03) - Pro Forma Labor Non-Exec, reflects
changes to 2015 test period union and non-union wages and
salaries, excluding executive salaries13.
For non-union employees, base year wages and salaries
are restated to annualize the March 2015 overall actual
increase of 3.0%, the March 2016 overall increase of 3.0%,
and 10 months of the planned March 2017 increase of 3.0%14.
For union employees, 2015 wages and salaries are
restated to annualize the March 2015 increase, and increases
of 3% for 2016 and 2017 in accordance with union contract
terms. The net effect of this adjustment on Idaho’s 13
electric NOI is a decrease of $736,000.
Adjustment (3.04) - Pro Forma Employee Benefits,
adjusts for changes in both the Company’s pension and 16
medical insurance expense and increases electric NOI by
$54,000.
Q. Please describe the pension expense portion of the 19
Employee Benefits adjustment and Idaho’s share of this 20
expense. 21

13 No adjustment for executive salaries was included in the Company’s
case beyond that included in the historical test period level expense.
14 A minimum increase of 3.0% for 2017 was approved by the Compensation
Committee of the Board of Directors at the May 2016 Quarterly Board
meeting. The actual increase will be updated at or above this minimum
based on market data provided in November 2016, with an effective date
in March 2017.

Andrews, Di 33
Avista Corporation
A. The Company’s pension expense is determined in
accordance with Accounting Standard Codification 715 (ASC-
715), and has decreased on a system basis from approximately
$32.6 million for the actual base year costs for the twelve
months ended December 31, 2015, to $31.6 million for 2016.
The decrease in pension expense included in this case (Idaho
electric share of $136,000) is primarily due to changes in
the discount rate on pension liability and expected return
on assets.
The pension cost included in this case is based on
actual 2015 and estimated benefit costs as of January 31,
2016 as determined in accordance with ASC-715 by an
independent actuarial firm, Towers Watson. These
calculations and assumptions are reviewed by the Company’s 14
outside accounting firm annually for reasonableness and
comparability to other companies.
Q. Please describe the 2014 changes to the Company’s 17
retirement plan. 18
A. In October 2013, the Company revised the defined
benefit pension plan such that, as of January 1, 2014, the
plan is no longer offered to its non-union employees hired
or rehired by Avista on or after January 1, 2014. A defined
contribution 401(k) plan replaced the defined benefit
pension plan for all non-union employees hired or rehired on
or after January 1, 2014. Under the defined contribution

Andrews, Di 34
Avista Corporation
plan the Company provides a non-elective contribution as a
percentage of each employee’s pay based on his or her age.
The defined contribution is in addition to the existing
401(k) contribution in which the Company matches a portion
of the pay deferred by each participant.15
Q. Please describe the medical insurance and post-6
retirement medical expense portion of Adjustment (3.05) and 7
Idaho’s share of this expense. 8
A. The Company’s medical insurance and post-
retirement medical expense portion of these adjustments
adjusts for the expected medical-related costs for 2016
above the 2015 base year. This adjustment includes costs
associated with the employee and retiree medical plans and
the FAS 106 expense, which records the costs associated with
post retirement medical. Net medical insurance and post-
retirement expense has increased on a system basis from
$30.2 million for the 2015 base year to $30.6 million for
2016. The increase in 2016 represents medical trend and
utilization expectations, as well as accounting for Health
Care Reform mandates.
Q. Please describe the 2014 changes to the Company’s 21
medical plans. 22
A. In October 2013 the Company revised its health

15 These changes for the bargaining unit will be subject to future
negotiations.

Andrews, Di 35
Avista Corporation
care benefit plan for non-union employees hired or rehired
on or after January 1, 2014. Upon retirement the Company
will no longer provide a contribution towards his or her
medical premiums. The Company will provide access to the
retiree medical plan, but the non-union employees hired or
rehired on or after January 1, 2014, will pay the full cost
of premiums upon retirement. In addition, beginning January
1, 2020, the method for calculating health insurance
premiums for non-union retirees under age 65 and active
Company employees will be revised. The revision will result
in separate health insurance premiums for each group.16
Q. Please continue with your discussion of the 2017 12
pro forma adjustments.
A. The next adjustment (3.05) – Pro Forma Property 14
Tax, restates the 2015 test period accrued levels of
property taxes to the 2017 rate period level using the most
current information. As can be seen from my workpapers
provided with the Company’s filing, the property on which 18
the tax is calculated is the property value as of December
31, 2016, reflecting the 2017 level of expense the Company
will experience during the 2017 rate period. The net effect
of this adjustment decreases electric NOI by $913,000.
Starting on page 9 of Exhibit No. 11, Schedule 1,
Adjustment (3.06) – Pro Forma Capital Additions 2016 EOP,

16 Id.

Andrews, Di 36
Avista Corporation
reflects additional 2016 capital additions17 together with
the associated AD and ADFIT on a December 31, 2016 EOP
basis. This adjustment also includes associated
depreciation expense for these 2016 additions, as well as,
incremental annualized depreciation expense on plant-in
service at December 31, 2015. In addition, the plant-in-
service at December 31, 2015 end-of-period was adjusted to a
December 31, 2016 EOP basis. Ms. Schuh describes this
adjustment in detail within her testimony. The net effect
of this adjustment increases Idaho electric rate base
$46,343,000 and decreases NOI $2,338,000.
Adjustment (3.07) - Pro Forma Capital Additions 2017 12
AMA, reflects all Idaho 2017 capital additions together with
the associated AD and ADFIT on a 2017 AMA basis. This
adjustment includes associated depreciation expense for the
2017 additions. In addition, the plant-in-service at
December 31, 2016 was adjusted to a 2017 AMA basis. Ms.
Schuh also describes this adjustment in detail within her
testimony. The net effect of this adjustment increases
Idaho electric rate base $656,000 and decreases NOI
$920,000.

17 For each of the periods through December 2016 and 2017, distribution-
related capital expenditures associated with connecting new customers to
the Company’s system was excluded. An increase in revenues from growth
in the number of customers from the historical test year to the 2017
rate year is excluded, therefore, the growth in plant investment
associated with customer growth was also excluded.

Andrews, Di 37
Avista Corporation
Final Summary 1
Q. How much additional net operating income would be 2
required for the State of Idaho electric operations to allow 3
the Company an opportunity to earn its proposed 7.78% rate 4
of return on a pro forma basis? 5
A. The net operating income deficiency amounts to
$9,456,000 for 2017, as shown on line 5, page 2 of Exhibit
No. 11, Schedule 1. The resulting revenue requirement is
shown on line 7 and amounts to $15,433,000 for 2017, or an
increase of 6.34%.
11
VI. ALLOCATION PROCEDURES 12
Q. Have there been any changes to the Company’s 13
system and jurisdictional procedures since the Company’s 14
last electric general rate case, Case No. AVU-E-15-05? 15
A. No. For ratemaking purposes, the Company allocates
revenues, expenses and rate base between electric and
natural gas services and between Idaho, Washington and
Oregon jurisdictions where electric and/or natural gas
service is provided. The updated allocation factors used in
this case have been provided with my workpapers.
Q. Does that conclude your pre-filed direct 22
testimony? 23
A. Yes, it does.