20180223Application.pdf

Avista Corp.
141 1 East Mission ?.O.9ox3727
Spokane. Washirigton 99220-0500
Telephone [phone]
Toll Free 800-- 27-9170
February 22,2018
Diane Hanian, Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise,ID 83702
RECEIVED
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RE: ADnlicatign of Avista Cornoration Requestins Authoritv to Revise lts Book
Denreciaflpn llates
Enclosed for filing with the Commission are an original and seven copies of an Application by
Avista Corporation, dba Avista Utilities (Avista), dated February 22,2018 for authority to revise
its book depreciation rates, along with a request for Modified Procedure, Also enclosed are three
electronic copies of the Company's workpapers.
If you have any questions regarding the proposed filing, please contact Dave Machado at (509)
495-4554.
Sincerely,?r
David J. Meyer
Vice President and Chief Counsel for Regulatory & Governmental Affairs
Enclosures
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RECEIVED
:ill8 FEB 23 EH 9: lr9David J. Meyer
Vice President and Chief Counsel of
Regulatory and Govemmental Affairs
Avista Corporation
141i E. Mission Avenue
P. O.Box3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
IN TFIE MATTER OF THE APPLICATION OF
AVISTA CORPORATION, dba AVISTA
U'TILITIES, REQUESTING AUTHORITY
TO REVISE ITS ELECTRIC AND NATURAL
GAS BOOK DEPRECIATION RATES
It{ts$l0N
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-E-18- r)J
CASE NO. AVU-G-I8-,)L
APPLICATION OF AVISTA
CORPORATION
I. INTRODUCTION
Avista Corporation, doing business as Avista Utilities (hereinafter Avista or Company),
at l4l I East Mission Avenue, Spokane, Washington, pursuant to Section 61-525Idaho Code and
Rule 52 of the Idaho Public Utilities Commission ("Commission Rules of Procedure") hereby
applies to the Commission for approval of a proposed change to electric and natural gas book
depreciation rates, The Company requests that this filing be processed under the Commission's
Modified Procedure rules through the use of written comments.
Avista is a utility that provides service to approximately 378,000 electric customers and
241,000 natural gas customers in a26,000 square-mile area in eastern Washington and northern
Idaho. Avistaalso serves approximately 101,000 natural gas customers in Oregon. The largest
community served in the area is Spokane, Washington, which is the location of the corporate
headquarters.
Communications in reference to this Application should be addressed to:
AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE I
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Patrick D. Ehrbar
Director of Regulatory Affairs
Avista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Facsimile: [phone]
E-mail : patrick. ehrbar@avistacorp. com
Avi staDockets@avi stacorp. com
David J. Meyer
Vice President and Chief Counsel of
Regulatory and Govemment Affairs
Avista Corporation
l41l E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Facsimile: [phone]
E-mail: [e-mail]
A table of contents for this application follows
I. Introduction
IL Background
UI. Objective of the Depreciation StudyIV. Study Results and DetailsV. Asset Retirement Obligations for Colstrip Generating Units 3 and 4VL Proposal and Implementation
VII. Request for Relief
II. BACKGROUND
The Commission is empowered to ascertain and determine the proper and adequate rates
of depreciation of the Company's property used in the rendering of retail electric and natural gas
service under the provisions of Idaho Code Section6l-525. Each utility under the Commission's
jurisdiction is required to conform its depreciation accounts to the rates so ascertained and
determined by the Commission. The Commission may make changes in such rates of
depreciation from time to time as the Commission may find necessary.
The Company periodically completes a depreciation study and requests modifications to
its depreciation rates. The Company last changed its electric and natural gas depreciation rates in
Idaho effective in two parts; depreciation rates for common/allocated plant were effective
January 1,2013, with the remaining direct Idaho plant depreciation rates changed effective April
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AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE 2
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7,2013, in accordance with Order No. 32769 dated March27,2013, issued in Case Nos. AVU-
E- I 2-08 and AVU-G -12-07 (consolidated).
III. OBJECTIVE OF THE DEPRECIATION STUDY
Avista hired Gannett Fleming, Inc. to underlake a depreciation study of its depreciable
electric, gas, and common plant in service as of Dcccmber 31 , 2016.1 'l'he Company typically
conducts such depreciation studies at approximately five-year intervals. Summaries of the study
are included in Attachment A for all studied plant. The detailed Depreciation Study prepared by
Gannett Flerning, Inc. is included with the Company's filing as Attachment C.
The objective of this study was to recommend depreciation rates to be utilized by Avista
for accounting and ratemaking purposes. Further, sound accounting practice dictates periodic
updates to depreciation rates in order to recognize additions to investment in plant assets and to
reflect changes in asset characteristics, technology, salvage, removal costs, life span estimates
and other factors that impact depreciation rate calculations. The depreciation rates approved by
the Commission in 2013 were developed from a study based on depreciable plant balances at
December 31,2010 (for all plant other than transportation plant) and depreciable plant balances
at December 31, 201 I (for all transportation plant). Similar to these preceding studies, the annual
accrual rates proposed in this filing were primarily calculated in accordance with the straight-line
method of depreciation, using the average service life procedures and the remaining life basis,
based on estimates which reflect considerations of historical evidence and expected future
conditions.
I Gannett Fleming, Inc. is an independent subject matter expert in utility depreciation. Additionally, Gannett
Fleming, Inc. is an expert in this geographical region, doing work for regional utilities (e.g., Puget Sound Energy,
Idaho Power, and Nofthwest Natural Gas) and Avista for a number of years.
AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRI]CIATION RATES PACE 3
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IV. STUDY RESULTS AND DETAILS
The table below outlines the existing and proposed weighted depreciation rates, by
functional group, for Idaho electric plant.
Functional Group
Weighted Group Depreciation Rates
Existing Proposed
Steam Production Plant
Hydraulic Production Plant
Other Production Plant
Transmission Plant
Distribution Plant
General Plant
1.94%
t.9r%
3.2s%
1.80%
3.06%
6.17%
2.72vo
2.20%
3.56%
2.lyo
2.83%
6.25%
The table below outlines the existing and proposed weighted depreciation rates, by
functional group, for Idaho natural gas plant.
Functional Group
Weighted Group Depreciation Rates
Existing Proposed
Underground Storage 1.96% l.46Yo
Distribution Plant 2.46% 2.34Y.
General Plant 6.83% 6.34%
The depreciation study consisted of the following phases and methods:
Phase One estimates the service life and net salvage characteristics for each depreciable
group. This was done by compiling historical plant data and analyzing it to determine historical
trends of survivor and net salvage characteristics, This phase also involves obtaining additional
information from the Company's personnel relating to operations of the plant and making
judgments of average service life and net salvage characteristics.
Phase Two calculates the composite remaining lives and annual depreciation accrual
rates. This phase was done by using the straight line remaining life method, using remaining
lives weighted consistently with the average service life procedure.
AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE 4
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The Company applied the Study depreciation rates to plant in service balances as of
December 31, 2016. The results of the Study, as illustrated in Attachment A, show that the
Company's current annual depreciation expense for its Idaho electric service would be increased
by approximately $1.0 million and the Company's current annual depreciation expense for its
Idaho natural gas service would be decreased by approximately $0.5 million as a result of setting
the depreciation accrual rates at the recommendcd level.2 This recommended change is necessary
to update asset lives and existing depreciation accrual rates, which are currently based upon a
depreciation study completed in 2072 (approved in 2013).
The following tables shows a summary of the change in expense between existing rates
and the recommended rates, at an aggregate level by functional group. Attachment A shows an
expanded view of this table; Attachment B-l shows the underlying detail, by FERC account, for
assets excluding transportation assets; Attachment B-2 includes the underlying detail for
transportation assets;3 and Attachment B-3 includes the supporting information for the general
plant reserve adjustment.a
The following table shows a summary of the change in depreciation expense for Idaho
electric service:
2 As a two year "stay-out" was stipulated in the Multi-Party Settlement agreement in Avista's most recent general
rate case (Case Nos. AVA-E-17-01 and AVA-G-I7-01), the Company is not seeking a rate adjustrnent associated
with the expected changes in depreciation expense that will result from changes in depreciation rates to the proposed
rates. Avista's next general rate case filing will include depreciation expense based upon the depreciation rates
ultimately approved through this application.
3 The Company accounts for transpoftation depreciation expense by allocating the overall costs to capital and to
expense through a pooling process based on the actual usage of vehicles on specific projects. This attachment
illustrates the allocation ofthe incremental reduction in depreciation expense.
4 This adjustment is proposed to align the actual accumulated depreciation with the theoretical reserve associated
with cemain of the Company's general plant FERC accounts.
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AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIAI'ION RATES PAGE 5
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Electric - Change in Expense due to Proposed Study Rates
Total
$ l,1l1,689
593,952
3l g,l5l
2,024,692
Transmission Plant 700,017
Distribution Phnt (1,273,916)
General Plant (222,558)
Transportation (249,301)
Total Electric Plant $ 978,934
Idaho electric depreciation expense would increase approximately $l.0 million, primarily
due to increased expense of $0.6 million related to the recovery of asset retirement obligations
associated with the Environmental Protection Agency's Disposal of Coal Combustion Residuals
from Electric Utilities Final Rule, which was published in 2015.s This increase will be further
discussed in Section V below. The overall increase was also driven by changes in net salvage
values and average useful lives of production plant assets and changes in salvage costs for
transmission assets, partially offset by changes in average useful lives for distribution assets.
The following table shows a summary of the change in depreciation expense for Idaho
natural gas service:
5 The final rule can bc found at https://www.federalregister.gov/documents/2015104/17/2015-00257/hazardous-and-
solid-waste-management-system-disposal-of-coal-combustion-residuals-from-elecffic.
Production Plant:
Steam Production Plant
Hydraulic Production Plant
Other Production Plant
Total Production Plant
AVTSTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PACE 6
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Natural Gas - Change in Expense due to Proposed Study Rates
Underground Storage Plant (53,926)
Distribution Plant (247,315)
Transportation (91,025)
TotalGas Plant $ (542,802)
Idaho natural eas depreciation expense would decrease $0.5 million. The overall decrease
was generally driven by changes in net salvage values for distribution plant assets (in particular
gas mains and meters), a decrease in the computer hardware depreciation rate, and increases in
service lives for transportation equipment (partially offset by reductions in estimated salvage).
V. COLSTRIP GENERATING UNITS 3 AND 4 DEPRECIABLE
LIVES AND ASSET RETIREMENT OBLIGATIONS
The following table illustrates the assumed useful lives for depreciation purpose for
Colstrip Units 3 and 4 for both present depreciation rates and proposed depreciation rates. As
illustrated in this table, the proposed depreciation rates rellecl no chans,es in the assumed useful
lives.6
General Plant
Colstrip Unit 3
Colstrip Unit 4
Current Assumed Useful
Life - Terminal Year
2034
2036
Total
$ ( 150,536)
Pnrposed Ass umed Useful
Life - Terminal Year
2034
2036
6 The determination of a gseful life of Colstrip Units 3 and 4 (2034 and 2036, respectively) for depreciation
purposes, says nothing about actual closure dates therefore, no inferences should be drawn.
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AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIA'I'ION RATES PAGE 7
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Consistent with Order No. 29962 in Case Nos. AVU-E-05-09 and AVU-G-05-03
(consolidated), Avista shall recover costs associated with asset retirement obligations ("AROs")
through depreciation expense based on Commission-approved depreciation rates.T On April 17,
2015, the EPA published a final rule regarding coal combustion residuals ("CCR"), also termed
coal combustion byproducts or coal ash, in the Federal Register, and this rule became effective
on October 75,2015. Colstrip, of which Avista is a 15 percent owner of Units 3 & 4, produces
this byproduct. The rule established technical requirements for CCR landfills and surface
impoundments under Subtitle D of the Resource Conservation and Recovery Act, the nation's
primary law for regulating solid waste. The Company, in conjunction with the other Colstrip
owners, developed a multi-year compliance plan to strategically address the CCR requirements
and existing state obligations, while maintaining operational stability. As a result, Avista first
recorded this obligation on its books in 2015. The current totalexpected cost of Avista's share of
the ARO for Colstrip Units 3 & 4 is approximately $37.6 million ($12.9 million Idaho-share), or
approximately $1.9 million ($0.6 million Idaho-share) per year,8 As the Company's existing
depreciation rates are based on the Company's previous depreciation study (based upon balances
as of December 31, 2010) and were approved by this Commission in 2013, the Company's
current depreciation expense does not include a component for the recovery of AROs. Therefore,
an additional depreciation expense component has been included in this application to begin
recovery of this ARO through depreciation expense collected from customers.
7An asset retirement obligation, as used in this application, is defined as "an environmental remcdiation liability that
results from the normal operation of a long-lived asset and that is associated with the retirement of that asset"
(Financial Accounting Standards Board, Accounting Standards Codification 410-20-15-2b).
8 Thcse annual dcpreciation expense balances are based on the 20 years of depreciation from December 31,2016
(the as-ofdate forthe balances evaluated in this depreciation study) through 2036 (the existing probable retirement
year, for depreciation purposes only, for Colstrip Unit 4). However, given that the new rates set through this
application would not go into efflect until January 1, 2019, it may be more appropriate to recover this balance over
the 18 years ofdepreciation fiom 2019 through 2036.\n that case, the annual depreciation expense would be $2.1
rnillion ($0.7 million Idaho-share).
AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE 8
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The actual asset retirement costs related to the CCR rule requirements may vary
substantially from the current estimates of the ARO cost due to uncertainty about the compliance
strategies that will be used and the preliminary nature of available data used to estimate costs,
such as the quantity of coal ash present at certain sites, and the volume of fill that will be needed
to cap and cover certain impoundments. Avista will coordinate with the plant operator and
continue to gather additional data in future periods to make decisions about compliance
strategies. As additional information becomes available, Avista will update the estimated ARO
cost for changes in estimates, and would petition the Commission for updates to the amounts
recovered from customers through depreciation expense, if the changes are material.
VI. PROPOSAL AND IMPLEMENTATION
Under Section 6l-525 Idaho Code, which authorizes the Commission to determine the
proper and adequate rates of depreciation of property used by a public service company, the
Commission may ascertain and by order fix the proper and adequate rates of depreciation of
utility property. The Company requests that the Commission allow the Company to implement
the proposed depreciation rate revisions effective January 1,2019.
Avista has made a similar filing with the Washington Utilities and 'Iransportation
Commission (WUTC) and the Public Utility Commission of Oregon (OPUC). It is critical that
the Company maintain uniform utility accounts and depreciation rates for conrmon plant that are
consistent among the Company's regulatory jurisdictions. In the event different depreciation
rates or methods were to be ordered for common plant, it would result in multiple sets of
depreciation accounts and records that would need to be adjusted annually for changes in
allocation factors, which would impose a costly administrative burden on the Company and
AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE 9
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unnecessary expense for the Company's ratepayers, as well as possible unrecovered or stranded
costs.
Of Idaho's $1.5 billion in electric service plant at December 31,2016, approximately
$0.9 billion is allocated plant (of which $0.7 billion is production/transmission assets) and
approximately $0.6 billion is Idaho direct plant. Therefore, allocated plant represents
approximately 60% of Idaho's total electric plant balance. Of the overall net incremental increase
of $1.0 million for Idaho electric service, Idaho electric direct plant depreciation expense
represents a decrease of $1.2 million, offset by an increase of 52.2 million in depreciation
expense for Idaho-allocated depreciation expense. Attachment A provides supporting detail for
these balances,
Likewise, of Idaho's 5273.8 million in natural gas service plant at December 31,2076,
approximately $45.6 million is allocated plant and approximately $228.2 million is Idaho direct
plant. Therefore, allocated plant represents approximately lTYo of Idaho's total natural gas plant
balance. Of the overall net incremental decrease of $0.5 million for Idaho natural gas service,
Idaho natural gas direct plant depreciation expense represents a decrease of $0.3 million and
Idaho-allocated plant depreciation expense represents a decrease of $0.2 million. Attachment A
provides supporting detail for these balances.
The Company requests that the Commission make its determination on depreciation rates
by December 31,2018, to commence with Idaho direct plant and allocated plant depreciation
effective January 1,2019, coincident with the implementation of depreciation rate updates in the
Company's Washington and Oregon jurisdictions. The Company anticipates the depreciation
rates will be approved in Washington and Oregon during 2018.
AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE IO
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IV. REQUEST FOR RELIEF
WHEREFORE, Avista respectfully requests that the Commission issue a final Order
authorizing the Company to update electric and natural gas book depreciation rates to reflect the
proposed depreciation rates, as described in this application. The Company requests that the
Commission make its determination by December 31, 2018, so depreciation rates can be updated
concurrent with the implementation of revised depreciation rates in the Company's Washington
and Oregon jurisdictions.
The Company requests that the matter be processed under the Commission's Modified
Procedure rules through the use of written comments.
Dated at Spokane, Washington this 22nd day of February 201 8.
AVISTA CORPORATION
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BY r'
David-J.lfreyer'
Vice President and Chief Counsel for
Regulatory & Governmental Affairs
/>
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VERTFICATION
David J. Meyer, being first duly sworn on oath, deposes and says: That he is the
Vice President and Chief Counsel for Regulatory & Governmental Affairs of Avista Utilities and
makes this verification for and on behalf of Avista Corporation, being thereto duly authorized;
That he has read the foregoing filing, knows the contents thereof, and believes the same
to be true.
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L NOT PUBLIC in and for the State of
Washinglon, residing at Spokane.
Commission Expires:Ll
SIGNED AND SWORN to before me this 22nd day of February 2018, by David J. N{eyer
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AVISTA'S APPLICATION TO REVISE ITS BOOK DEPRECIATION RATES PAGE 12
srATE OF WASHINGTON )
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County ofSpokane )