20190226Comments Support of Stipulation.pdf

Avista Corp.
1411 East Mission P.O.Box3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
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February 25,2019
Diane Hanian, Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise,ID 83702
Enclosed for filing with the Commission are an original and seven copies of Avista's Comments
in support of the Stipulation and Settlement by Avista Corporation, dba Avista Utilities (Avista),
dated February 14,2019.
If you have any questions regarding the proposed filing, please contact Karen Schuh at (509)
495-2293.
Sincerely,
//-
David J. Meyer
Vice President and Chief Counsel for Regulatory & Governmental Affairs
Enclosures
RE: Avista Comments in support of the Settlement & Stipulation in AVU-E-18-03 and
AVU-G-18-02
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 25th day of February,2019, served the foregoing
Comments in Support of Stipulation and Settlement in Docket No. AVU-E-18-03 and
AVU-G-18-02, upon the following parties, by mailing a copy thereof, properly
addressed with postage prepaid to:
Diane Hanian, Secretary
ldaho Public Utilities Commission
Statehouse
Boise, lD 83720-5983
diane. hanian@puc. idaho.qov
Brandon Karpen
Deputy Attorneys General
ldaho Public Utilities Commission
472W. Washington
Boise, lD 83702-0659
brandon. karpen@puc. idaho.qov
SIERRA CLUB:
Matt Gerhart
Sierra Club
2101 Webster Street, Suite 1300
Oakland, CA94612
415-977-5727
Matt. Gerhart@sie rraclu b. o rq
Ana. bovd@sierraclub. oro
o via Overnightr via E-Mail
IDAHO CONSERVATION LEAGUE:
Benjamin J. Otto
ldaho Conservation League
710 N. 6th St.
Boise, lD 83702
208-345-9633 x 12
botto@idahoconservation. orq
r via Overnightr via E-Mail
CLEARWATER PAPER CORP.:
Peter Richardson
Richardson Adams, PLLC
515 N. 27th St
Boise, 1D 83702
208-938-7901
peter@richardsonadams. com
! via Overnight! via E-Mail
CLEARWATER PAPER CORP.:
Dr. Don Reading
6070 Hill Road
Boise, lD 83703
208-342-1700
dreadin-q@m indsprinq.com
r via Overnightr via E-Mail
CLEARWATER PAPER CORP.:
marv. lewallen@clearwaterpaper, com
carol. haugen@clearwaterpaper. com
tr via Overnightr via E-Mail
IDAHO FOREST GROUP:
687 Canfield Ave. Suite 100
Coeur D'Alene, lD 83815
tr via Overnightn via E-Mail
IDAHO FOREST GROUP:
Ronald Williams
Williams Bradbury, P.C.
PO Box 388
Boise, lD 83701
208-344-6633
ron@wi I I ia m s brad buqLcom
! via Overnightr via E-Mail
IDAHO FOREST GROUP:
Dean Miller
3620 E Warm Springs Ave
Boise, lD 83716
deanmiller@cableone. net
r via Overnightr via E-Mail
IDAHO FOREST GROUP:
Larry Crowley, Director
The Energy Strategies lnstitute, lnc.
5549 S. Cliffsedge Ave.
Boise, lD 83716
[e-mail]
tr via Overnightr via E-Mail
Itr
Paul Kimball
Manager of Compliance & Discovery
David J. Meyer, Esq.
Vice President and Chief Counsel of
Regulatory and Govemmental Affairs
Avista Corporation
l4l1 E. Mission Avenue
P.O.Box3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
IN THE MATTER OF THE APPLICATION )
oF AVTSTA CORPORATTON DBA )
AVISTA UTILITIES REQUESTING )
AUTHORITY TO REVISE ITS ELECTRIC )
ANDNATURAL GAS BOOK )
DEPRECIATION RATES )
6 f,ll 9: lL
il C lr/.li.lLl\-li\J,i
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO.
CASE NO.
AVU-E-18-03
AVU-G-18-02
COMMENTS OF AVISTA IN
SUPPORT OF STIPULATION
COMES NOW Avista Corporation, doing business as Avista Utilities ("Avista" or
"Company"), by and through its attorney of record, David J. Meyer, and responsive to the Motion
for Approval of Stipulation and Settlement filed on February 14,2019 with the Idaho Public
Utilities Commission ("IPUC" or the "Commission") in the above referenced cases, submits the
following comments.
BACKGROUND
On February 23,2018, Avista filed an application requesting authority to revise its book
depreciation rates. The Company requested authorization to revise its book depreciation rates
consistent with the results of the depreciation study undertaken by the Company.r That study
showed that the Idaho share of annual depreciation expense recorded to O&M and A&G expense
on the Company's books should be increased by approximately $1,275,324 for electric plant and
I Avista hired Gannett Fleming, Inc. to undertake a depreciation study of its depreciable electric, gas and common plant in service.
The study was completed in2017. The objective of this assignment was to recommend depreciation rates to be utilized by Avista
for accounting and ratemaking purposes.
COMMENTS OF AVISTA - AVU-E- 18-03 and AVU-G- 1 8-02 Page I
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decreased by approximately $487,632 for natural gas plant, based on the average service life rates
of plant in service as of December 3l ,2016.2
On August 22,2018 the Company, filed an "Agreed-Upon Motion to Revise Schedule,"
which included an extension of the implementation date for new depreciation rates from January
1,2019 to April 1,2019. That request was approved by the Commission in Order No. 34133 on
August 30, 2018. On December ll ,2018 and January 22, 2019 , settlement conferences were held
and attended by the Parties. Those conferences ultimately led to a Settlement and Stipulation filed
on February 14,2019.
The Parties ultimately reached agreement on revisions to the Company's book depreciation
rates. If ultimately approved by the Commission, in accordance with this Stipulation, such rates
would constitute revised depreciation rates, which would become effective for accounting
purposes on April l,2llg,for both Idaho direct and common plant. Customer rates, however, to
reflect the revised depreciation rates would not change until inclusion in the Company's next
general rate case, as discussed below.3 Approval of the Stipulation by April 1,2019 also provides
for the opportunity to simultaneously implement new depreciation rates for accounting purposes
for common plant in all three jurisdictions in which Avista serves: ldaho, Washington, and
Oregon.a Allowing Idaho common depreciation rate changes to be effective for accounting
purposes at the same time as the other two jurisdictions will synchronize the timing of the
Company's common depreciation accounting changes for the three States, simplifying future
2 These balances reflect corrected amounts from that shown in the Company's originally filed application as discussed
further on page 4.
3 The Parties agree, as discussed below, that the remaining deferred tax benefit of $5.766 million not used to accelerate
the depreciation of Colstrip, would be returned to customers in a separate Tariff Schedule 74 over a one year period
beginning April l, 2019.
a In Oregon, the Commission approved a Stipulation that will adjust common plant depreciation items on April l,
201 9. An all-party Settlement Stipulation is pending before the Washington Utilities and Transportation Commission,
with a proposed April l, 2019 effective date.
COMMENTS OF AVISTA - AVU-E-I8-03 and AVU-G-18-02 Page 2
accounting and audits of depreciation expense, if the same rates and methodology are in effect for
all jurisdictions.
SUMMARY TERMS OF SETTLEMENT
Under the terms of the Stipulation, depreciation rates will change effective April l, 2019
within the Company's books of record. Customer rates, however, will not reflect this change until
the Company's next general rate case.5/6 Before reflecting the agreed-upon depreciation rates for
the Colstrip generating plant, the change in all other electric depreciation rate changes (based upon
plant balances at December 31,2016) results in an annual reduction to electric depreciation
expense of $101,656. After reflecting the agreed-upon revisions to Colstrip Units 3 and4 to reflect
an earlier 2027 depreciable date for depreciation purposes results in an annual overall electric
increase in depreciation and amortization expense of $678,434.
For natural gas, reflecting the agreed-upon depreciation rates for natural gas operations,
based upon plant balances at December 31, 2016, results in an annual overall decrease in
depreciation expense of approximately $487,780. Summary Table I below captures the agreed-
upon results:
5 Until that time, the Company will absorb any differences in depreciation/amortization expense. On an annual basis,
the net decrease of $487,780 for natural gas depreciation expense, versus the net increase of $678,434 for electric
depreciation/amortization expense results in an annual increase in expense overall of approximately $191,000, which
will be absorbed by the Company. The Company will only be allowed to absorb the natural gas reduction to
depreciation expense, to offset the electric increase in depreciation/amortization expense, until a change in rates as a
result of the Company's next general rate case, provided that the Company has filed its next general rate case prior to
the effective date of its 2019 Purchased Gas Adjustment (PGA).
6 The agreed-upon depreciation rates are shown in Attachments A and C to the Stipulation, Attachment A provides
detail of the affected plant accounts, specified depreciation rates, and the Idaho allocated share of the depreciation
expense impact on December 31,2016 plant balances. Attachment C provides the agreed-upon depreciation rates
specific to the Colstrip Units 3 and 4 assets, as discussed in Paragraph l3 of the Stipulation.
COMMENTS OFAVISTA-AVU-E-I8-03 andAVU-G-I8-02 Page3
Table I - Summary of Impact on Depreciation Expense with and without ColstripT
Line Electric Gas
I Depreciation study net impact per filings
2 Inadvertent reduction included in petition in error
3 Revised depreciation study net impact
4 Remove Colstrfi
5 Net impact excluding Colstrip
6 Agreed upon changes
7 Common-Transportation
8 Common - Transmission
9 ID Electric Distribution
1 0 Total Idaho Adjustments
l1 New impact excludins Colstrip
12 Proposed Colstrip Amortization
13 Net Impact includins Colstrf
1,275,324 (487,632)
(735,171)
540,153 (487,632)
(e7e)
(126,304)
(148)
5
(641,809)(148)
(101,656) (487,780\
780.090
$ 678,434 $(487,780)
$$978,934
296,390
(542,8U2)
55,170
The following describes each of the agreed-upon adjustments:
Line 2 "lnadvertent reduction included in petition in error" reflects a benefit, or
reduction in depreciation expense, inadvertently included in the Company's
original petition balances, which showed a larger reduction in overall depreciation
expense for natural gas and a smaller increase in electric overall depreciation than
will actually occur.8 Line 3 provides the depreciation study net impact balance per
the filed depreciation study.
LineT "Common - Transportation" reflects the Idaho share of the Parties accepting
the change agreed to by the Company in the Company's Oregon depreciation
settlement agreement, that included a change to the salvage percent for certain
common gas transportation assets. Transportation assets are common assets to all
jurisdictions due to the pooling of the Company's depreciation expense. Therefore,
these changes are also being proposed in Washington and Idaho. The impact to
7 Line 4, column Electric of Table I above "Remove Colstrip" of $735,171, reflects the impact of revised Colstrip
depreciation as filed, which reflects a 2034-2036 depreciable life. This line removes the impact of Colstrip
depreciation for informational purposes to show the as filed change in depreciation excluding the impact of Colstrip
(or $540, I 53).
8 This was a calculation prepared by the Company's depreciation consultant for excess theoretical depreciation balance
reserves for informational purposes. The Company determined that the actual reserve (accumulated depreciation) is
properly stated, as it included previously-approved depreciation rates by the Company's State Commissions. The
excess theoretical reserye, however, does not reduce future annual depreciation expense, and will reverse over time.
As such, it should not have been included in the estimated depreciation change in balances as stated in the Company's
original petition. This correction has no impact on depreciation rates proposed in the filed depreciation study.
COMMENTS OF AVISTA - AVU-E- I 8-03 and AVU-G- 18-02 Page 4
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Idaho Electric and Natural Gas is a $979 reduction and a $148 reduction,
respectively, as shown on line 7.
Line 8, o'Common Transmission" reflects the Parties agreement to change Common
Transmission account 356 Overhead Conductor and Devices from a curve life of
65-R3 to a 70-R3, which changes the depreciation rate from2.l4ohto 1.90%. The
overall impact of this agreement reduces Idaho Electric depreciation expense by
approximately $ 1 26,304.
Line 9, "ldaho Electric Distribution" reflects the Parties agreement to change Idaho
Electric Distribution account 365 Overhead Conductors and Devices, from a curve
life of 60-R3 to a 65-R3.5, which changes the depreciation rate from 2.82o/o to
2.45%. The overall impact of this adjustment reduces Idaho Electric depreciation
expense by approximately $223,358. In addition, the Parties agreed to change
Idaho Electric Distribution account 367 Underground Conductors and Devices,
from a salvage percent of -30 to a salvage percent of -20, which changes the
depreciation rate from 3.44oh to 2.99o/o. The overall impact of this adjustment
further reduces Idaho Electric depreciation expense by approximately $291,168.
The effect of both of these distribution adjustments decreases depreciation expense
by approximately $514,526 as shown on line 9.
In addition, as described on Page VI-17 of the depreciation study, FERC AR-15 allows
utilities to utilize vintage year accounting for general plant assets, including FERC Account Nos.
391 through 399, as long as certain requirements are met.e Avista has utilized vintage year
accounting for all general plant accounts, except FERC Account No. 397 - Communication
Equipment. Avista proposed, and the Parties accepted, vintage year accounting treatment of
Account No. 397 per FERC AR-l5.
COLSTRIP
Avista owns a 15% share of two coal-fired generation facilities located in Colstrip,
Montana, known as Colstrip Units 3 and 4, which have a combined capacity of about 1,480 MW.
e FERC AR-15 Vintage year accounting for general plant accounts, permits public utilities to adopt a vintage year
accounting method for general plant accounts, which would eliminate the unitization and record keeping requirements
associated with individual items of property and allow companies to record only the total cost of plant additions for
the year as a vintage group for each account.
COMMENTS OF AVISTA - AVU-E- l 8-03 and AVU-G- 18-02 Page 5
a
These two facilities were placed in service in 1984 and 1986. No decommissioning date has been
established for these assets. Current rates include depreciation expense on Colstrip Units 3 and 4
with assumed remaining useful lives of these units through December 31,2034 and December 31,
2036, respectively. Contained within the Settlement Stipulation are the following provisions.
First, the Company agrees to adopt a depreciation schedule for Colstrip Units 3 and4 that assumes
a remaining useful life for depreciation purposes of December 31, 2027. The Parties also
acknowledge that there presently is no plan to close Colstrip Units 3 and 4 by a specific date, nor
has Avista agreed to do so.
Second, Colstrip Units 3 and 4 generation and transmission asset balances at December 3 1,
2017, offset by accumulhted depreciation through March 31,2019, as well as estimated asset
retirement obligations (ARO) previously not included in rates, produces an undepreciated balance
for Colstrip Units 3 and 4 as of March 31,2019 of approximately $55.18 million.This
undepreciated balance of $55.18 million will be recovered as follows:
1) Use of $6.41 million (ID share) of "temporary" tax credits will be used as an offset.
These tax credits were described in Avista's "Report on Impact of Federal Tax
Code Revisions on Utility Costs and Ratemaking" (Case No. GNR-U-I8-01);10
2) Annual Colstrip depreciation expense will remain at the current depreciation level
of $2.475 million per yearrr, over the remaining 8.75 years, totaling $21.66 million;
3) The remaining balance of $27.11 million will be recovered through the
amortization of a Regulatory Asset (FERC Account No. 183.3). The amortization
schedule of the Regulatory Asset will be structured to match the amortization
schedule of protected Excess Defened Federal Income Taxes (DFIT) benefit that
began being returned to customers on June 1,2018 (as described in Case No. GNR-
U-18-01). Using a34.75 year amortization, consistent with the remaining protected
Excess DFIT schedule, results in an annual amortization of approximately
$780,000 per year - ID share. The amortization of the Regulatory Asset over time,
r0 Per order No. 34070, in Case No. GNR-U-I8-01 "In the Matter of the Investigation into the Impact of Federal Tax
Code Revisions on Utility costs and Ratemaking," approving the all-parry Stipulation and Settlement proposed in that
proceeding, the Commission approved the set-aside of electric temporary tax benefits of approximately $12.0 million
to offset costs associated with accelerated depreciation ofColstrip Units 3 and 4, or other purposes.
rr Annual depreciation expense is approximately $7.0 million on a system-basis.
COMMENTS OF AVISTA - AVU-E-18-03 and AVU-G-18-02 Page 6
therefore, would be recovered from customers over the same time period as the
amortization of protected Excess DFIT is returned to customers, offsetting the
entire remaining Colstrip Regulatory Asset over the 34.75 years. This figure is also
shown at Column Electric, Line 12 of Table I above. The Regulatory Asset, net of
accumulated deferred federal income taxes, will be included in rate base and will
eam Avistaos rate of retum.12
4) Starting April I ,2019, Colstrip capital additions will be depreciated at the revised
depreciation rates reflecting a2027 depreciable life (see Attachment C for specific
revised Colstrip depreciation rates). Prudency of any capital additions not yet in
current rates (beyond December 31, 2017) are subject to review in future rate
proceedings.
5) The Parties agree that the remaining defened tax benefit of $5.766 millionr3, not
used to offset the Colstrip balance of $55.18 million shown in Table I above,
associated with Idaho electric tax benefits deferred January 1,2018 through May
30,2018, will be retumed to customers in a separate Tariff Schedule 74 over aone
year period beginning April 1, 2019. The annual bill impact to customers is an
overall reduction of 2.23 percent. The monthly residential bill impact is a reduction
of 2.38 percent or $2.04 based on an average 910 kWhs.ra These tax credits were
described in Avista's "Report on Impact of Federal Tax Code Revisions on Utility
Costs and Ratemaking" (Case No. GNR-U-I8-01).
Amortizing the Colstrip Regulatory Asset over 34.75 years results in an annual regulatory
amortization expense of approximately $0.8 million. Consistent with the change in depreciation
rates effective April 1, 2019, on the Company's books, the Parties agreed Avista will begin
amortizing the Colstrip Regulatory Asset effective April 1, 2019. However, this increase in
amortization expense will not be adjusted in customer rates until Avista's next general rate case.
In addition, the Colstrip Regulatory Asset balance, net of accumulated deferred federal income
12 The Colstrip related accounts included as rate base inblude the following: FERC Account No. l0l.0 - Plant Cost,
FERC Account No. 108.0 - Accumulated Depreciation, FERC Account No. 182.3 - Regulatory Asset ARO, FERC
Account No. 182.3 - Regulatory Asset Colstrip, FERC Account No. 230.0 - Colstrip ARO, and FERC Account No.
242.0 - Colstrip Accounts Payable.
13 See footnote 10. The set-aside of electric temporary tax benefits totaling $12.175 million in Case No. GNR-U-18-
01, less the $6.409 million used to offset Colstrip accelerated depreciation, results in remaining tax benefit due to
customers of $5.766 million.
14 Included as Attachment D to the Stipulation is a summary of the net amortization and depreciation expense
($645,000) agreed to in this Settlement, including the bill impact to customers of this change, effective with the
Company's next general rate case. Also summarized is the annual tax credit benefit ($5.766 million) returned to
customers, as well as the bill impact (benefit) to customers effective April 1,2019 - March 30,2020.
COMMENTS OF AVISTA - AVU-E-18-03 and AVU-G-18-02 Page 7
taxes and other related accounts, will be included as rate base in the Company's next general rate
case and will earn Avista's authorized rate of return.
The use of 34.75 years to atrortize the Colstrip Regulatory Asset was chosen to coincide
with the remaining amortization period of Tax Cut and Jobs Act ("TCJA") protected Excess DFIT
tax benefits being returned to customers beginning May 1,2018. Avista has an Idaho electric plant
excess ADFIT balance (Regulatory Liability) of approximately $106.4 million. In accordance
with the TCJA's Average Rate Assumption Method ("ARAM"), the Company is required to
reverse (i.e. normalize) these balances over the depreciable lives of its capital assets that created
the Accumulated Deferred Federal Income Tax ("ADF[T"), estimated to be approximately 36
years (or $2.7 million annual benefit) as of January 1,2018. With April 1,2019 being 1.25 years
after January 1,2018 (the effective date of the TCJA), the remaining life of the ARAM is 34.75
years, hence the use of that figure for the Colstrip Regulatory Asset. The concunent timing of
both the return of the TCJA protected excess ADFIT benefit, coinciding with the collection of
amortization expense associated with the acceleration of Colstrip Units 3 and 4 depreciation,
results in a unique opportunity to offset intergeneration inequities that has occurred and will occur
in the future.
As it relates to intergenerational inequities, Avista over a period of years has collected
funds from past ratepayers for the purpose of paying taxes at a future date in the form of Deferred
Federal Income Taxes, or DFIT. However, as noted above, with the passing of the TCJA in
December 2017, and the revaluation of its assets from a 35Yo to a 2loh deferred tax rate, these
funds ($106.4 million Idaho electric) are no longer obligated to be paid in the future, and therefore,
it is appropriate to return these funds to customers. However, "ratepayers" are a constantly-
changing group. Therefore, the ratepayers which have paid for the DFIT expense in the past, will
not be the same customers who will receive the return of these funds in the future.
COMMENTS OF AVISTA - AVU-E- 18-03 and AVU-G- I 8-02 Page 8
Similarly, the depreciation study filed by the Company includes an Asset Retirement
Obligation associated with Colstrip Units 3 and 4 that has not previously been collected from
customers, totaling approximately $38 million (system), and the current depreciation schedule for
Colstrip Units 3 and 4 has been at2034 and2036, respectively. Recently, however, with the impact
of coal-fired power plants around the country closing much sooner than anticipated by utilities and
their regulators, it has become a higher risk that ratepayers in the near and medium term could
incur more than their fair share of costs. Although the actual closure date of Colstrip Units 3 and
4 are undetermined, if a shorter life had been anticipated, depreciation rates would have been
higher for previous customers, and future depreciation expenses related to these plants would be
lower.
By matching the amortization schedule of the regulatory asset (which can be thought of as
the portion of Colstrip 3 & 4 costs under-recovered from previous generations of customers) to the
amortization schedule of the regulatory liability (which are excess taxes paid by previous
generations of customers), we will have matched the flow of funds from previous generations of
customers to cover the flow of costs attributable to previous generations of customers. As a result,
we will have mitigated the intergenerational inequities related to Colstrip 3 and 4, partiuiarly in
the event that Colstrip 3 and 4 have a shorter economic life than currently anticipated - all while
maintaining the status quo for ratepayers in terms of recovering depreciation expense.
Finally, the methodology agreed to in Idaho is exactly the same as the methodology that
has been agreed to by all of the parties in our Washinglon depreciation docket (UE-l80167). That
Settlement Stipulation is pending before the Washington Utilities and Transportation Commission
for approval.
COMMENTS OF AVISTA - AVU-E-18-03 and AVU-G-18-02 Page 9
SETTLEMENT STIPULATION IS IN THE PUBLIC INTEREST
Avista believes that the Stipulation is in the public interest for a number of reasons. The
Settlement strikes a reasonable balance between the interests of Avista and its customers on
depreciation rates and depreciation expense. The Settlement Stipulation was a compromise among
differing interests and represents give-and-take. The Settlement Stipulation was entered into
following formal and informal discovery, audit and review of the Company's filing and books and
records.
Under the terms of the Settlement, the Parties agree that Avista will implement new electric
and natural gas depreciation rates beginning April 1,2019. Customers rates, however, will not
reflect this change until the conclusion of the Company's next general rate case. As the Settlement
relates to the treatment of Colstrip Units 3 and 4 assets, this Settlement makes use of temporary
tax credits associated with the TCJA as an offset, and presents a unique opportunity to resolve the
intergenerational inequities of accelerating the depreciation of these units to 2027 from 2034 and
2036, respectively. While the Settlement does not dictate any specific closing date at these units,
it adopts certain measures that will mitigate the risk and increased expenses to Avista's customers,
while providing fair recovery to Avista for past capital expenditures.
Finally, the overall increase to depreciation/amortization expense of approximately
$679,000 for Idaho Electric and reduction to depreciation/amortization expense of approximately
$488,000 for Natural Gas, will be reflected in future rate case proceedings, and is in the public
interest.
COMMENTS OF AVISTA - AVU-E-I8-03 and AVU-G-18-02 Page l0
rt4
DATED this !Laay of February,2}l9.
Avista Corporation
By:C-2 /
6u'r{1. Meyer
Attomey for Avista Corporation
COMMENTS OF AVISTA - AVU-E- I 8-03 and AVU-G- I 8-02 Page I I