20190301Comments.pdf

SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83]20-0074
[phone]
IDAHO BAR NO. 8743
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION DBA AVISTA
UTILITIES FOR AUTHORITY TO REVISE
ITS ELECTRIC AND NATURAL GAS
DEPRE,CIATION RATES COMMENTS OF THE
COMMISSION STAFF IN
SUPPORT OF STIPULATION
AND SETTLEMENT
The Staff of the Idaho Public Utilities Commission submits the following comments in
the above captioned matter.
BACKGROUND
On February 23,2018, Avista Corporation dba Avista Utilities ("Avista" or the
"Company") filed an Application requesting that the Commission approve changes to the
Company's depreciation rates for electric and natural gas property. Avista included a request for
an effective date of January 1,2019. The Company last changed its Idaho book depreciation
rates in January and April 2013. Order No. 32769.
The Commission subsequently issued a Notice of Application and set an intervention
deadline of April 23,2018. Order No. 34014. Clearwater Paper, Idaho Conservation League
("ICL"), Idaho Forest Group, and the Sierra Club intervened as parties. Order Nos. 34016,
34049. The parties also agreed on, and the Commission approved, a procedural schedule. Order
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CASE NO. AVU-E.18.03
AVU-G-I8-02
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ii,li:Ctil\,/iD
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STAFF COMMENTS MARCH I,2OI9
Nos. 34 1 16, 34133 . In addition, the Commission approved the Company's request to change its
proposed effective date for new depreciation rates from January 1,2019, to April 1,2019. Id.
On February 15,2019, Avista filed a Stipulation and Settlement (the "Stipulation")
signed by the Company, the Staff of the Idaho Public Utilities Commission, and intervenors
Clearwater Paper Corporation, Idaho Forest Group, LLC, Sierra Club, and the Idaho
Conservation League.
If approved, the Stipulation would increase the annual system depreciation expense by
about $191,000. The Company will absorb the increased depreciation expense until customer
base rates change, provided the Company has filed its next general rate case before the effective
date of its 2019 Purchased Gas Adjustment. Specific electric and gas depreciation expense
changes include: (1) a proposed electric depreciation expense reduction of $ 101,656 annually,
before reflecting depreciation rates for the Colstrip generating plant; (2) proposed revisions to
Colstrip Units 3 and 4 to reflect an earlier 2027 depreciable date, which would increase the
annual overall electric depreciation and amortization expense to $661,434; and (3) proposed
depreciation rates for natural gas operations resulting in an annual overall decrease in
depreciation expense of approximately $487,780.
STAFF COMMENTS
Staff reviewed the Company's Application and the accompanying Depreciation Study
prepared by Gannett Fleming Valuation and Rate Consultants, LLC. During the review, Staff
analyzed the depreciation rates, service lives, remaining lives, and net salvage values for all plant
asset accounts. Based on Staff s review and negotiations with the signing parties, Staff believes
that the Stipulation represents a fair, just, reasonable compromise of all issues raised by the
Parties in the case, and in the public interest.
The Stipulation allows: (1) the Company to change its book depreciation rates effective
April 1,2019,(2) anend-of-life for Colstrip Units 3 and 4 of December 31, 2027,for
depreciation purposes; (3) the return of approximately $12 million of temporary tax benefits
established in Case No. GNR-U-18-01 to customers; and (4) the Company to use vintage year
accounting for Federal Energy Regulatory Commission (FERC) Account No. 397 -
Communications Equipment. Each of these components of the Stipulation are discussed in
greater detail below.
2STAFF COMMENTS MARCH I,2OI9
The table below summarizes the impact of the Stipulation on the Company's depreciation
expense before and after reflecting the stipulated depreciation expense and recovery of Colstrip.
Table L: Summary of Impact on Depreciation Expense with and without Colstrip
Line Electric Gas
1 Depreciation Study Net lmpact Per Filings
2 lnadvertant Reduction lncluded in Petition in Error
3 Revised Depreciation Study Net lmpact
Remove Colstrip
Net lmpact Excluding Colstrip
Agreed Upon Changes
Common-Transpo rtatio n
Common-Tra nsmission
I D Electric Distribution
10 Total lda ho Adjustments (641,809) (148)
978,934 5 $42,802)
296,390 55,L70
L,275,324
(735,1-71)4
5
6
7
8
9
540,153 1487,632l.
1--*"1-*'** "*
(s7s)
(L26,3O4)
(5L4,526)
(L48)
7t
12
13
Agreed Upon Depreciation lmpact Excludine Colstrip
Proposed Colstrip Amortization
Agreed Upon lmpact lncludins Colstrip
(101,656) (487,7801
780,090
5 678,434 5 @87,7801
Excluding Colstrip, the stipulated change in depreciation rates results in a reduction to the
annual Idaho Electric depreciation expense of $101,656 and a reduction to annual Idaho Natural
Gas depreciation expense of $487,780 as reflected on line I I in the table above. These amounts
include adjustments to the Company's original proposal that reduce Idaho Electric depreciation
expense by $641,809 and Idaho Natural Gas depreciation expense by $148.
Common - Transportation
The signing parties agreed to accept the changes included in the Company's depreciation
settlement agreement in Oregon. This change reflects an increase in the net salvage value of the
Company's transportation assets, including trucks and fleet vehicles. Because transportation
assets are common assets to all jurisdictions due to the Company's pooling of depreciation
expense, these changes were also proposed in Washington and Idaho. The impact to Idaho
Electric and Natural Gas depreciation expense is a decrease of $979 and $148, respectively.
JSTAFF COMMENTS MARCH I,2OI9
(487,6321
Common - Transmission
The signing parties agreed to accept Staff s proposed change to the survivor curve for
FERC Account No. 356 - Overhead Conductors and Devices. The Company's depreciation
study recommended a survivor curve of 65-R3 which results in a depreciation rate of 2.14%o.
The agreed-upon survivor curve of 70-R3 extends the remaining depreciable life of the assets in
this account by 5 years and results in a depreciation rate of 7.9yo, reducing Idaho Electric
depreciation expense by $126,304 from the Company's original filing.
Idaho Electric Distribution
The signing parties agreed to two adjustments to Idaho Electric Distribution depreciation
rates which, in total, reduce depreciation expense by $514,526. The first adjustment changes the
survivor curve on FERC Account No. 365 - Overhead Conductors and Devices from 60-R3 to
65-R3.5, which changes the depreciation rate from2.82Yo to 2.45Yo. The overall impact of
extending the depreciable life of these assets by five years is a reduction to Idaho Electric
depreciation expense of $223,358.
The second adjustment changes the net salvage value of FERC Account No. 367 -
Underground Conductors and Devices from a negative 30oh to a negative 20Yo. Staff believes
that a negative 20Yo net salvage value more closely aligns with historical trends the Company has
experienced with the assets booked in this account. The effect of this change is a reduction in
the depreciation rate from 3 .44o/o to 2.99Yo which reduces Idaho Electric depreciation expense by
$29 1,1 68.
Vintage Year Accounting
FERC Accounting Release 15 (AR-15) allows utilities to use vintage year accounting for
general plant assets, including FERC Account Nos. 391 through 399, with conditions. Vintage
year accounting eliminates the unitization and record keeping requirements associated with
individual items of property and allows companies to record only the total cost of plant additions
for the year as a vintage group for each asset. The Company has been using vintage year
accounting for all general plant accounts except FERC Account No. 397 - Communication
Equipment. The signing parties agree that vintage year accounting is appropriate for FERC
Account No. 397, and that the Company will retire fully depreciated vintages of communications
4STAFF COMMENTS MARCH T,2OI9
equipment with the implementation of new depreciation rates, and will use vintage year
accounting going forward for all of its general plant accounts.
Colstrip Generation Facilities Units 3 and 4
Avista owns a 15oZ interest in two coal-fired generation facilities located in Colstrip,
Montana, known as Colstrip Units 3 and 4, which have a combined capacity of approximately
1,480 MW. These two facilities were placed in service in 1984 and 1986, respectively. The
depreciation study includes depreciation rates for Colstrip Units 3 and 4 assuming remaining
useful lives through December 31, 2034, and December 31, 2036, respectively, with annual
depreciation expense of approximately $735,000. The signing parties agree to establish a
depreciable end-of-life of December 31, 2027, for Colstrip Units 3 and4.
Although decommissioning dates have not been established for these two facilities, there
was concern among the parties that these facilities would no longer be operational by the time
they were fully depreciated from the Company's books. Colstrip Units I and2 may cease
operations by 2022, and the other owners of Units 3 and 4 have either accelerated their
depreciable lives,l or have open dockets with their respective Commissions seeking approval to
do so.2
In Order No. 34070 approving the Settlement Stipulation in Case No. GNR-U-I8-01, the
Commission's Investigation into the Impact of Federal Tax Code Revisions on Utility Costs and
Ratemaking, the Commission authorized the use of the approximately $12 million in Idaho
electric temporary tax credits to "offset costs associated with accelerated depreciation of Colstrip
Units 3 and 4, or other purposes as the Commission may approve in the Company's pending
depreciation case." 1d. Subsequent to that Order, in a Settlement Stipulation filed in Case Nos.
AVU-E-17-09 and AVU-G-17-05, Avista agreed to support a December 31,2027, end-of-life for
depreciation purposes for Colstrip Units 3 and 4 (Commitment No. 69). Although that
Stipulation was ultimately rejected by the Commission for other reasons, Staff cannot ignore the
I In Puget Sound Energy's most recent general rate case, UE-170033 and UG-170034,the Washington Utilities and
Transportation Commission approved a settlement that established and end-of-life date of December 3 I , 2027 , for
Colstrip Units 3 and 4.
2 On September I l, 2018, Rocky Mountain Power, a division of PacifiCorp, submitted an Application in Idaho,
Case No. PAC-E- l8-08, to change depreciation rates in ldaho. The Company concurrently filed depreciation cases
in all of its jurisdictions. The Application, along with the accompanying depreciation study, propose an end-of-life
of December 31, 2027 , for Colstrip Units 3 and 4.
5STAFF COMMENTS MARCH 1,2019
regulatory pressures indicating that Colstrip Units 3 and 4 are unlikely to be operational through
their originally planned end-of-life in2034 and2036, respectively.
Additionally, on October 9,2018, Westmoreland Coal Company (Westmoreland) filed
for voluntary Chapter 11 protection in U.S. Bankruptcy Court. Westmoreland owns the Rosebud
Coal Mine, which is the exclusive coal provider for the Colstrip generation plant because of its
proximity to generation facility. The uncertainty around the coal supply for Colstrip creates
additional concerns regarding the viability of the plant. If coal costs increase for any reason, it is
unlikely that operation of Colstrip Units 3 and 4 will be economical.
Staff expects that additional economic analysis of the continued operation of Colstrip
Units 3 and 4 will be presented in a future Avista Integrated Resource Plan, and that analysis will
drive the actual decommissioning date of Units 3 and 4. However, Staff believes that for current
depreciation purposes, a December 31, 2027 end-of-life is reasonable.
Recovery o.f Colstrip Units 3 and 4
The signing parties agree that the Idaho share of the depreciable balance of Colstrip Units
3 and 4 is approximately $55.18 million. This amount includes the current unrecovered plant
balance, as well as the estimated asset retirement obligations previously not included in rates.
Recovery of the $55.18 million will be recovered through the current level of depreciation
expense, approximately $2.475 million annually, through December 31,2027. The remaining
undepreciated balance will then be offset by $6.4 million of the temporary tax credits associated
with non-protected, non-plant Excess Accumulated Deferred Federal Income Tax (ADFIT)
credits established in Order No. 34070. Effective April 1, 2019, the Company will create a
regulatory asset of the remaining unrecovered$.27 .L million to be amortized over 34.75 years,
which is consistent with the Average Rate Assumption Method used to return the protected
Excess Deferred Federal Income Taxes associated with the Colstrip generation plant to
customers. The resulting annual amortization expense to recover the regulatory asset is
$780,090, as calculated in Table 2 below.
6STAFF COMMENTS MARCH I,2OI9
Summary of Colstrip Costs (lD Share)
Total Amount
Amortization
Period (Years) Annual Amount
Net Book Value of Colstrip Units 3 & 4, including
transmission assets, at December 31,2077
Esti mated asset reti rement obl i gati ons
Undepreciated Balance
S 34,841,436
20,333,919
55,175,355
Future depreciation expense recovered April 1, 2019 -
December 37,2027
Tempora ry Tax Credits
Net Colstri p Costs Recorded as Regulatory Asset
(21,6s8,238)
(6,409,000)
5 27,108,777 34.75 S 780,090
Effect of agreed upon changes to depreciation expense (excluding Colstrip)
Overall netincreaseto depreciation/amortization expense (Companywill absorb)
s (134,666)
5 64s,424
Table 2: Calculation of Colstrip Regulatory Asset and Amorttzation Expense
*lncludes accumulated depreciation through March 31,2019 on Colstrip plant balances at December3L,2077
By offsetting the Colstrip Regulatory Asset amortization expense with the decrease in
Idaho Electric depreciation expense, the net impact to the Company's combined
depreciation/amortization expense is an increase of $645,424. The Company will absorb this
increase until its next general rate case.
Remaining Tempororv Tax Credits
There is $5.766 million remaining of the approximately $12 million deferral of temporary
tax credits from the decrease in annual revenue requirement associated with the reduction in the
federal income tax rate from35Yoto2lYo for January 1,2018 through May 31,2018. The
signing parties agree that this amount will be returned to customers in a separate Tariff
Schedule 7 4 over a one-year period beginning April 1, 2019. This Tariff Schedule credit, along
with the non-protected ADFIT credits, will return all remaining temporary tax credits due to
customers from the Tax Cuts and Jobs Act (TCJA) of 2017.
STAFF RECOMMENDATION
Staff recommends the Commission approve the Settlement Stipulation as just, fair,
reasonable, and in the public interest. Specifically, Staff recommends the Commission:
7STAFF COMMENTS MARCH T,2OI9
1. Approve the depreciation rates reflected in the Stipulation. The net impact to the annual
Idaho depreciation expense based on2016 plant values, before Colstrip changes, is a
decrease of $101,656 for Electric and a decrease of $487,780 for Natural Gas;
2. For depreciation pu{poses, establish a December 31,2027 remaining life for Colstrip
Units 3 and 4;
3. Allow the Company to create a Colstrip Regulatory Asset amortized over the ARAM
period associated with the plant (34.75 years), resulting in an annual Idaho amortization
expense of$780,090;
4. Return to customers $5.766 million in temporary tax benefits associated with the deferred
benefits of the TCJA for the period of January 1,2018 - May 1,2018 through Tariff
Schedule 74 beginning on April 1,2019; and
5. Authorize the Company to use vintage year accounting for FERC Account No. 397 -
Communication Equipment.
t./
Respectfully submitted this day of March2}I9.
0
Sean Costello
Deputy Attorney General
Technical Staff: Donn English
i:umisc/comments/avue I 8.3_avugl 8.2scde comments2
8STAFF COMMENTS MARCH I,2OI9
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS lST DAY OF MARCH 20T9,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN
SUPPORT OF STIPULATION AND SETTLEMENT, N CASE NOS. AVU-E-I8-
O3/AVU-G-18-02, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
PATRICK EHRBAR
SR MGR RATES & TARIFFS
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-mail: [e-mail]
avi stadockets@ avistacorp. com
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH ST
BOISE ID 8370I
E-mail : [e-mail]
RONALD L WILLIAMS
WILLIAMS BRADBURY PC
PO BOX 388
BOISE ID 83701
E-mail: [e-mail]
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
PO BOX 7218
BOISE ID 83702
E-mail : neter(Erichardsonadams.com
ELECTRONIC SERVICE ONLY
LARRY CROWLEY, DIR
ENERGY STRATEGIES INST.
E-MAIL: [e-mail]
ELECTRONIC SERVICE ONLY
CAROL HAUGEN
E-MAIL:
carol.haugen@clearwaterpaper. com
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail: [e-mail]
MATTHEW GEHART
ENVIRONMENTA LAW PROGRAM
SIERRA CLUB
1536 WYNKOOP ST STE 2OO
DENVER CO 80202
E-mail : matt. gerhart@ sierraclub.org
DEAN J MILLER
3620 E WARM SPRINGS AVE
BOISE ID 83716
E-mail: [e-mail]
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-mail: [e-mail]
ELECTRONIC SERVICE ONLY
MARV LEWALLEN
E-MAIL:
marv. lewal len@ clearwaterpaper. com
CERTIFICATE OF SERVICE
'. l- ,4r2,,-,n
SECRETARY