20190610Thies Exhibit 2 Schedule 3.pdf

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INFRASTRUcTURE TNvESTMENT
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Ma.nca2OI9
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 of 36
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INTRODUCTION
Avista Utilities serves approximately 388,000 electric and 355,000 naturalgas customers
in a 30,000 square mile service territory covering portions of Washington, ldaho and
Oregon. ln order to provide safe and reliable electric and natural gas service to our
customers, the Company designs, builds, operates and maintains infrastructure systems
that include our thermal and hydroelectric generating resources, electric and natural gas
energy delivery systems, information and customer service systems, and general plant
including fleet and operations and office facilities. This report, Avista's lnfrastructure
lnvestment Plan (Plan), summarizes the capital investmentsl required for maintaining,
improving and expanding this infrastructure2 to continue providing our customers with
safe and reliable electric and natural gas service, at a reasonable cost, and with service
levels that meet their expectations for quality and satisfaction. Though we frequently
report out on many of the individual projects and programs that comprise our overall
infrastructure plan, the purpose of this Plan is
to summarize this information at an
enterprise level and to achieve the following
objectives:
lmprove transparency and visibility
into Avista's capital planning and
budgeting processes;
Provide a comprehensive yet
simplified summary of the drivers of
capital investment and the plan for
implementation, and
Explain the need and timing of
investments, viewed at the individual
project level as well as the way in
which these projects are integrated
into enterprise-wide planning.
Additionally, the investments described in the plan are based on what we know about our
business today, including the range of precision of future cost estimates, applicable laws,
regulatory requirements, and the capabilities of current technologies.
t The capital or infrastructure investment values in this report are based on dollars lpen!, or planned to be
spent, during the specific year, and are not the same as the dollars transferred to plant in service upon
completion of a project or specific unit of investment. The planned level of spending in this report is as of
a point in time. Plans can and will change through the course of the year and five-year planning cycle.2 In this report "Infrastructure" is defined as the physical, technological, and other systems and resources
that enable the Company to provide safe, reliable and cost-effective service to our customers.
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Exhibit No. 2
Case No. AVU-E-'|9-04
M. Thies, Avista
Schedule 3, Page 2 of 36
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o Responsibility to our Customers
When Avista makes any capital
investment, w€ have the
obligation to demonstrate that
the overall need, evaluation of
alternatives, and the planned
timing of implementation is
prudent and in our customer's
best interest. Whether the
investment touches the
customer directly, such as our
customer service or metering
systems, or indirectly, such as
improving the capability and
efficiency of our employees and internal work processes, each dollar we invest ultimately
supports one purpose: to provide our customers with safe, reliable, and cost-effective
energy services that meet their expectations for quality of service and value. We believe
the investments summarized in this report satisfy this obligation, both when viewed at
the levelof the individual project, and as aggregated into an overall plan of investment.
o Avista Capital lnvestment Drivers
The infrastructure investments described in this report are organized by the classification
of need for investment or "lnvestment Driver." The purpose is to create more clarity
around the particular needs being addressed as well as to simplify the organization and
understanding of our overall capital program. The Company's infrastructure planning
processes are logically organized by departmental lines of business, such as natural gas,
electric transmission, generation, and enterprise technology. This approach aligns specific
projects and program initiatives with the planning, design, construction, and back-office
resources required for their implementation and operation. But this can make it more
difficult to understand the individual needs for each project without reading every project
and program business case. Additionally, the use of investment driver categories helps
the Company be more definitive and consistent in the way we characterize the needs
being addressed by every investment. While we continue to manage our infrastructure
investments by business lines, we believe the presentation by investment driver
promotes greater transparency and visibility around why these investments are necessary
and immediate in the timeframe planned. Collectively, the investments described in this
report allow Avista to:
1. Respond to customer requests for new service or service enhoncements;
2. Meet our customers' expectations for quolity ond reliobility of service;
3. Meet regulatory and other mondatory obligotions;
4. Address system performance and copacity issues;
5. Replace infrostructure at the end of its useful life based on asset condition; ond
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 3 of 36
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6. Replace equipment thot is damaged or fails, and support field operations.
Later sections of this report provides an explanation of each of these drivers, as well as a
summary list of specific capital projects and programs included under each driver.
Avista's Key Planning Principles
Avista's lnfrastructure lnvestment Plan is comprised of a portfolio of projects and
schedules that optimizes the overall demand for investment, the specifics of the projects
and programs proposed for funding by each business unit, as well as a range of key
planning principles that are listed below and which will be discussed in further detail
throughout this report:
t. Customer Service - set investment priorities to ensure we continue to deliver
safe, reliable, cost effective, and satisfactory service to our customers.
2. Compliance - achieve compliance with regulatory and legal requirements.
3. Anticipate lnvestment Demands - anticipate the need for increased investment
and use flexibility in projects and programs
to manage this upward pressure.
4. Provide Consistent Fundinq Levels - as
much as possible, smooth our planned
investment trajectory in order to avoid
lumpiness in spending year to year.
5. Monooe Cost of Debt and Equitv - take
advantage of opportunities to secure debt
and issue equity on reasonable terms to
moderate the rate impact associated with
borrowing funds.
6. Achieve Asset Obiectives - tailor our annual investments to move assets toward
an optimum age or condition as identified in Company asset management
plans, systematic programs or industry best practices.
7. Optimize Resources - optimize the use of Company labor, equipment and
contract resources.
8. Flexibilitv - Maintain reasonable flexibility in the plan to accommodate
variation in actual conditions that are unknown when the plan is developed.
9. Constroin Spendinq - deliberately constrain capital spending to an amount that
is lower than the total capital requested by the Company's lines of business,
without incurring imprudent risk, in an effort to foster creativity and
innovation, keep prices lower for consumers, and to most efficiently allocate
capital.
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Exhibit No. 2
Case No. AVU-E-19-04
IVI. Thies, Avista
Schedule 3, Page 4 of 36
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Balancing these planning principles represents a rationalization of the prudence of
individual projects with that of our enterprise-wide plan of investment. Prudence at the
project level is based on how the Company exercises good judgment in managing any
degree of latitude it might have with in the decision-making process. Key decisions can be
segmented into general categories of project need, the alternative selected, and the
timing of implementation, as depicted in the diagram, below.
Key Elements of Decision Making for lnfrastructure lnvestments
(Green Arrows Suggest Relative Degrees of Latitude in Decisions)
Need Alternatives
@uulmw@ @ruolrm@ @
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Timing
/\rrlrrI
lndividual Overall
lnfrastructure
PlanProject
While a careful review of the decisions surrounding each project is fundamental, it has
been more of a challenge to articulate how balancing these planning principles also drives
our overall plan of investment, and in particular, the importance of making individual
investments for eligible projects in the timeframe proposed. ln this context, our objective
is to better illustrate how individual projects, each with different combinations of
flexibility related to need, alternatives, and timing, are "layered" into our five-year plan
in a way that best balances our overall infrastructure planning principles. Said differently,
although the Company may technically have the latitude to defer a particular project in a
given year, the decision to do so, viewed in the context of the overall investment plan,
may not be the prudent course of action in the management of our overall business.
The relationships between
the individual infrastructure
projects and programs, the
overall infrastructure plan,
and these planning principles
is depicted in the adjacent
diagram. ln developing the
plan, considerations at each
level of the effort inform and
influence one another as the
-.?-.,.---Principles
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I Optimire Resources
I Meet ComCliance Requlrements
{ Constrain Funding
lndividual Project and
Program lnvestments
Allocate Limited Capital
Organize by Ovenll Priority
Ealance Flexibility Unique to Each Project
I Project Need l
I ProjeaPriority I
I t.ple.entationnming l
II
Overall
lnfrastructure PlanL
plan is finalized. The result of the optimization of projects, plan, and principles, including
the necessity to make these priority investments in the timeframe needed, demonstrates
a reasonable balance of competing requirements to maintain the performance of our
systems, and our prudent management of the overall enterprise in the interest of our
customers.
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 5 of 36
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Avista's Capital Planning Process
The Company's processes for determining the need for capital investment, establishing
the annualfunding limits, and the allocation of capital among the highest priority projects
is mapped in the diagram below. A narrative explaining generally how the identification
and prioritization process works follows the diagram.
1. ldentifying, Vetting and Prioritizint Bus!ne!! t nt t{eeC!
The foundation of the Company's infrastructure planning and capital budgeting process
is the development of specific projects and programs by our employee subject matter
experts based on identified needs required to meet our key business objectives. Projects
proposed for funding are evaluated within each Business Unit3 and a determination is
made whether or not to recommend a project for funding and implementation in the five-
year planning horizon. As described above, the need and timing of the project and the
risk associated with not
doing the project in the
near-term is balanced
against the constraint on
the overall capital
spending level imposed by
senior management. This
evaluation requires
subject matter expertise,
analyses, studies, policy
and legal interpretations,
and other materials that
help document the
necessity of the project,
and factors influencing
the immediacy of the
timing for implementation. Projects sponsored by each Business Unit are prioritized by
that group and a capital project Business Case summary is completed for each project
that is recommended for funding. The Business Cases for each of the individual capital
projects and programs within the six Capital lnvestment Drivers address what the project
is designed to accomplish, why it needs to be done in the time frame proposed, as well as
what the risks and consequences are of not timely completing the project.
2. Communicatin the Overall Need for lnvestment
The demand for new investment determined in each Business Unit is shared in various
forums with the Company's senior management to ensure that they understand factors
3 Business unit examples include the transmission engineering group, electric operations, and the information
technology group.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 6 of 36
Board Finance Committee
II
Senior Management
Prioritization
Capital Planning Group
Overall lnfrastructure Priority and Capital
Allocation
Business Unit
Needs Not Funded
(Deferred)Funded
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and risks and consequences of not completing the projects.
3. Establishi Leve! of Annual lnvestments
Avista's senior management assesses the overall demand for capital investment each
year, and considering and balancing the key planning principles discussed above,
determine the level of capital spending to be presented to the Finance Committee of the
Board of Directors.4 The Company's practice has been to constrain the capital made
available for investment each year, such that not all of the prioritized projects and
programs are funded as requested. Avista believes that holding capital spending below
the level requested accomplishes several important objectives, including:
Promotes lnnovation - Encourages ways to satisfy the identified investment needs
in a manner that may identify potential cost savings, defer implementation, or
other creative options or solutions.
Balances Cost and Risk - Captures customer benefits of deferring needed
investments by prudently managing the cost consequences and risks associated
with such deferrals.
Efficiently Allocotes Copital - Ensures that the highest-priority needs are
adequately funded in the most efficient and effective way.
ReducesVariability- Moderatesthe magnitude of year-to-yearvariabilityto avoid
rate impacts, and more efficiently optimizes the number and cost of personnel
necessary to carry out the capital projects.
Avista currently has chosen to stabilize the level of annual capital spending at 5405 million
in an effort to accomplish the objectives described above.
4. Narrowing the Capital Requests
ln identifying and prioritizing the projects and programs to be recommended for funding
(as described above) the directors or managers of each Business Unit pare down the
number of projects or the funding level for programs based on the awareness that there
is a constraint on the overall capital spending level. ln this process they decide what
specific investments can be deferred until a later point in time, with the intent to ensure
this decision does not create excessive additional risk. While this practice promotes an
efficient and orderly allocation of capital, it does result in an underrepresentation of the
actual demand for capital facing the Company. This is because recommendations that
make it to the final list of projects considered appear to represent the total demand for
new investmentwhen it is, in actuality, the constrained portion of the overall need. This
relationship is depicted in the diagram below.
a The Finance Committee is presented with a five-year plan, but specifically approves only the first year of
the plan.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 7 of 36
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Proiects
Funded
lnvestments considered for Funding
by the Capital Planning Group
Represented by Completed Gpital
Busin€ss Cese Summary Documents
lnvestment Requests
Considered but
Deferred
(Not Funded!
Deferred lnvestments lnvestment Needs
Generally Not Visible
Outside AvistaValidated and Prioaitized lNstment Neds
lindividual proi(ts or incremental prcgram funding) but
Not Represetrted in the Capital Eudtet Prioritiation and
Allocation Prccss
ln other instances, the current requests for funding also underrepresent the actual
demand due to internal limitations such as the capability of employee or contract
resources to accomplish more capital work than has been recommended to the Capital
Planning Group.
5. Prioritization and CapitalA!!ocation Across Business Units
Avista has a standing committee, referred to as the Capital Planning Groups, which has
the responsibility for determining what capital investments proposed for funding in the
current period will be deferred in order to reduce the planned capital spending to the
constrained level established by Senior Management. Each director member of the group
is intimately familiar with the infrastructure projects vetted, prioritized and approved in
their Business Unit, and is generally familiar with projects and programs sponsored by
their fellow directors.
ln the process of deciding which investments will be deferred, the Capital Planning Group
convenes to discuss and agree on how to prioritize projects in the manner that most
effectively allocates limited investment capital among identified Company-wide needs. ln
the conceptual diagram below, the pyramid shapes represent the prioritized projects
sponsored for funding by each Business Unit in the Company. The numbered layers in
each pyramid represent individual projects and programs organized from the highest (1)
to the lowest (10) priority. ln this depiction, the pyramids represent the aggregate capital
funding level requested bythe Business Units, and the dashed line represents the capital
constraint that requires a portion of the prioritized projects to be "unfunded" and
deferred.
5 The Capital Planning Group (CPG) is a group of Avista employee directors that represent all capital
intensive areas of the Company. The CPG meets to review the submitted Business Cases and prioritize
funding to limit the capital spend to the level set by senior management. After approval from senior
management, the annual capital budget is sent to the Finance Committee of the Board of Directors to approve
the capital budget amount. The CPG meets monthly to review the status of the capital projects and programs,
and approves or declines new business cases as well as monitors the overall capital budget.
lnvestments
approved for
funding
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 8 of 36
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The Capital Planning Group evaluates and discusses the consequences of not funding the
projects above and below the dashed line. Among a range of factors, the group considers
the immediacy of the need for investment, the financial and other impacts of deferring
projects, the efficient utilization of crews, safety, reliability, and partial funding versus an
"all or nothing" approach. Based on this iterative and comparative assessment of the
benefits and avoided consequences associated with funding or deferring projects or
programs, the team adjusts the list of projects to be funded, as well as the amounts to be
funded, to arrive at the best-balanced allocation of capital among priority needs across
the business, as depicted in the diagram below.
Final Allocotion of CopitalAcross Priority Projects by Business Units
Capital
Funding
Limit
7
Generation Transmission Distribution General Plant Natural Gas Enterprlse Technology
ln this "final" allocation, the projects with the highest Company-wide priority are
recommended for funding. Some program requests are scaled back, and some programs
and projects are deferred for later implementation. ln the above example, the final
allocation deferred two projects each in generation and distribution, while the number
deferred in the other areas was substantially higher. This final allocation recommended
by the Capital Planning Group reflects the need to fund the highest priority investments
first, on a Company-wide basis, while taking care to ensure that the investments deferred
will not result in excessive cost or risk.
5. Approval by Senior Management
Once funding is allocated to priority projects for the coming five-year period, the Capital
Planning Group presents the plan to Avista's senior management who provide feedback
and ultimately approve the infrastructure plan.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 9 of36
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Business Units
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7. Approvalof the Capital lnvestment Plan o
Avista's senior management presents the proposed infrastructure investment plan and
budget to the Finance Committee of the Board of Directors, which after discussion and
the opportunity for amendment, establishes the funding level available for final allocation
by the Company's Capital Planning Group. The status of the planned versus actual
investment spending is reviewed with the Finance Committee at least twice each year.
SUMMARY OF FIVE-YEAR CAPITAL PLAN
The Company has employed the process described above to develop its currently-
authorized capital plan for years 2019-2023. Figure 1, below, shows planned annual
investments for each year organized by investment driver category. As in prior planning
cycles, the need for investments to replace end of life assets based on condition is the
single largest driver.
Figure 7 - Customer Service Quality and Reliobility lnvestments Summary
Five Year lnfrastructure Plan by lnvestment Summary
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Mandatory & Performance & Asset Condition Failed Plant &
Compliance Capacity Operations
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 0 of 36
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o CUSTOMER REQUESTED INVESTMENTS
This classification of infrastructure investments is defined as; "cttstomer requests for new
seruice connections, line extensions, tronsmission interconnections, or system
reinforcements to serve a customer." fhe related capital construction activities
historically have been limited to the electric and natural gas distribution systems but
recently has significantly impacted Avista's substations and dedicated high voltage
transmission lines. The annual level of these investments is driven almost exclusively by
the level of customer demand we experience each year. Variation in the number of new
connects is largely dependent on local economic conditions in both the housing and
business sectors. Population growth rates in Avista's service territory range between one
and three percent, with exceptions such as Coeur d'Alene and Post Falls, ldaho, and
Liberty Lake and Pullman, Washington, where commercial business development is
driving somewhat greater local population growth. Avista uses multiple factors including
population growth, overall economic activity and building permit applications as the basis
to forecast the number of customer connections expected in each year of the program.
Further, the Company's experience with the average cost of installing new services is used
to develop the annual budget based on the expected number of requests for new service.
Because the Company must respond to requests for new services, it is ultimately the
number of new connects we receive that drives the final investment made each year. ln
some cases, other capital projects and programs can be reprioritized in order make room
for the additional investment without exceeding the overall capital budget limit for the
year (e.g. 5405 M), while in others, the spending authorization is increased to
accommodate allthe investments that need to be made in that year.
Avista is experiencing a significant increase in interest for interconnection agreements for
renewable generation resources planned for our service area. The current budget will not
reflect these potential costs until the project owners commit funding to build the required
infrastructure, which usually occurs two years prior to the expected completion date.
Once, and if, a project owner commits to moving forward, Avista will include the project
cost in the budget, which, as noted above, may force a reprioritization of work already
scheduled in the plan.
Customer Requests for Electric Service Connections
Avista operates over 19,000 miles of distribution lines, including both overhead wire and
underground cable systems. Though the bulk of electric loads are concentrated in urban
areas, Avista's service territory includes many rural communities as well as agricultural,
mining and forest product areas. Avista tracks the costs of customer requested electric
service in the following six categories.
1) Electric Service Extension - the cost of installation labor, material, procurement,
design and associated costs to extend electric primary and secondary wires and
cables from Avista's distribution grid to the customer's point of service.
2) Meters-the cost to purchase and install electric meters including commercial and
industrial class equipment.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 1 of 36
3) Distribution Transformers - the cost to purchase and
install overhead and pad mount transformer
equipment.
4) Street Lights - the costs to purchase and install
roadway street I ighting.
5l Area Llghts-the costs to purchase and install customer
premise area lights.
6) Transmission & Suhstation -the costs to construct high
voltage transmission lines and associated substation
equipment.
The majority of these costs support the installation of new
electric services, however, the forecast also includes one
significant transmission line project investment (Rattlesnake
Flat Wind Farm lntegration) and a remaining minor investment in a customer-requested
increase in substation capacity (Hallett & White Substation). Forecasted costs are
summarized in the Table 1.
Toble 1. - Summory of Customer-Requested Electric Service lnvestments6
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$57,664 $50,703 $48,938 $48,284 $46,098
$725 $684 $697 $687 $676
$5,300 $4,s61 $4,949 $5,285 $3,821
$1,200 $1,132 $1,153 $1,137 $1,119
$17,354 $16,207 $16,154 $15,736 $15,450
$3oo $o $o $o $o
$700 $660 $673 $663 $653
$1,400 $1,321 $1,346 $1,326 $1,306
$11,694 $2,225 $O $O $O
$5,150 $O $O $0 $O
$6,544 $2,22s $O $O $O
$69,359 $52,928 $48,938 $48,284 $46,098
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*All dollars are shown in S thousands
Customer Reouests for Natural Gas Se re Connections
Requests for natural gas service connections include a mixture of new construction
residential & commercial applications in addition to customers converting from other
space heat sources including electric, oil, propane, and wood. Connection rate forecasts
are based on the factors described above, in addition to forecasts of natural gas
conversions from other fuel sources. Notably, the Company has experienced a significant
6 The total investment cost of $69,359,000 for this investment driver represents the total investment cost for
New Revenue Growth ($57,664,000) and the Rattlesnake Flat Wind Farm ($11,694,000). Individual budget
line items under each of these two major projects roll up to the aforementioned totals.o
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 12 of 36
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increase in new natural gas connects
resulting from a change in its line
extension policy and combined
marketing program that recently
helped stimulate significant fuel
conversion. That program has now
terminated and Avista expects new
service connections for natural gas to
return to normative levels going
forward.
Avista tracks the direct costs to provide natural gas service, which includes labor
resources, materials, design, permitting, and associated construction and administrative
expenses. These costs are tracked in the four categories listed below.
1) Service Extension - cost of labor, material, equipment, including design and
administrative costs to extend service from the gas network to the
customer's point of service.
2) Meters - cost for service work to install and commission gas meter sets.
3) Encoder Receiver Transmitter (ERT) - costs to install these devices on existing
natural gas meters to enable field data collection.
4) Regulators - cost associated with purchasing and installing meter-based
pressure regulators.
Forecast costs for customer-requested natural gas service connections in the current
five-year planning cycle, based on the expected number of requests and recent cost of
service experience, are summarized in the Table 2.
Toble 2 - Summory of Customer-Requested Natural Gos Service lnvestments
737
$1,976
$1,875
$801
$26,034
$1,684
$1,784
$751
$21 ,s18
$1,099
$1,321
$559
$20,987
$1,121
$1,333
$564
$20,433
$1,143
$1,346
$569
$20,013
*All dollars are shown in S thousands
TNVESTMENTS tN CUSTOMER SERVTCE QUALTTY & RELtABtLtW
Customer Service Quality and Reliability programs and projects are those "investments
required to maintoin or improve the quality of seruices we currently provide our
customers, to introduce new Upes of services ond options based on on onalysis of
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 3 of 36
Gas Revenue Blanket
Gas Regulators Minor Blanket
Gas Meters Minor Blanket
Gas ERT Minor Blanket
New Revenue - Growth
Business Case / Expenditure Request*2019 2020 2021 2022 2023
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customer needs ond expectotions, ond to ensure we achieve our customer seruice
quolity requirements, and our electric system reliobility objectives."
New technology systems are driving constant change in our customers' service
expectations and our ability to meet them. The quality and nature of our services must
evolve quickly to keep pace with this change. Customers expect to interact and conduct
an increasing variety of business transactions through their channel of preference,
particularly online.T ln this Country, smartphone use is nearly ubiquitous and advances in
technology have created an expectation that information is easy to find, payments are
easy to make, and communications are proactive, timely, and personalized. ln an effort
to keep pace with customer demands and quickly-evolving technologies, Avista will
continue to provide customers with tools and resources to effectively manage their
energy use, quickly access and understand their billing information, request needed
services, and access real-time updates and details about service outages in their
neighborhood, accessed from a computer or a smart phone application. We are also
focused on meeting our customers' expectations and maintaining high satisfaction by
providing them access to new products and services such as online requests for service
and tracking, appointment scheduling, and mobile energy management for their home or
business.
Avista Service Measures m
ln 2015, Avista implemented a Service Quality Measures program for tracking and
reporting our performance in meeting a range of customer service benchmarks and
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oservice guarantees, as well as reporting
on the annual reliability of our electric
system.s Avista, like all utilities, has a
constant focus on maintaining a high
degree of reliability in the continuity of
our service. Dependability is becoming
an increasingly important aspect of
service quality as our society becomes
more electrically connected and reliant upon electronic technologies. For many years
Avista has measured, tracked and reported on the reliability of our electric system,
focusing on the number of outages and the duration of outages our customers experience
on average each year.e
Reliability in Asset Management
While the Company makes very few investments focused solely on service reliability, it is
considered as a factor in nearly every investment we make in our electric assets. When
7 "Channels" include person-to-person through our customer service contact center, our automated telephone
system, e-mail, text, chat, postal service, and our customer website.
8 The results for 2018 are attached in Appendix I in Avista's 2018 Service Quality Report Card.
e The average number ofoutages, known as System Average Interruption Frequency Index (or SAIFI), and
the average outage duration time in minutes, knorvn as System Average Interruption Duration Index (or
SAIDI), are two industry-wide reported statistics of reliability performance.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 14 of36
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we evaluate replacement strategies for varied types of assets
based on age, condition or performance, the importance or value
associated with its service reliability is considered in the analysis.
Since the failure of some assets does not immediately impact our
security, safety or reliability, they may be managed under the
strategy known as "run to failure."10In other instances, the failure
of an asset may result in an immediate and potentially severe
impact to customer service reliability, or a prohibitive cost to
replace it after it has failed in service. ln these instances, Avista
evaluates the customer benefit of replacing the asset at the end
of its useful life, but prior to its likely failure, in determining the
overall strategy for managing this asset. ln most such cases, an
increment of reliability value is included in the determination of the appropriate
replacement strategy. The increment of reliability value considered is generally aimed at
upholding our current level of service reliability, and the incremental cost component is
embedded in individual projects. Though there is a direct reliability benefit from the
timely replacement of an asset that has reached the end of its useful life, service reliability
is not the primary driver. Accordingly, these types of asset replacements are included
under the Asset Condition investment driver.
Washington Advanced Metering lnfrastructure Proiect (AMl)
Avista is in the process of deploying advanced metering infrastructure across its
Washington service territory in an effort to keep pace with the evolving metering
standard of the industry and to deliver a range of cost-effective benefits to our customers.
ln 20L6 and 2017, the Company installed supporting
computer applications and communications systems,
and in 2018, completed an initialdeployment of electric
advanced meters and natural gas advanced ERTs. The
purpose of this initial deployment was to validate and
refine our deployment processes, including our
customer outreach and engagement efforts. Avista is
planning to begin the full-scale deployment of advanced
meters and ERTS in the third quarter of 201-9, and to be
completed with the Washington Project by 202L. Avista is currently planning to begin AMI
deployment in its ldaho service territory near the close of its Washington deployment.
Customer Facing Technology Systems
Companies today are expected to deliver fast, easy, personalized, and intuitive self-
service through a variety of technology and communication channels. As an example,
Forrester Research lnc. shows that the majority of consumers prefer to use a company's
website to get answers to their questions rather than calling or sending an email. They
further report that77 percent of American consumers say "valuing my time" is the most
l0 Run to Failure strategies plan for the responsive replacement of an asset once it has failed in service.
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 5 of 36
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important part of good online customer service.ll
Customers are looking for more than correct
answers or quick response times. They want a
consistent experience from their first interaction
to the resolution of their issue. Gone are the days
where customers would only compare you to [re!Et---rt -.your direct competitors. Today's customer
compares you with all of the brands with whom
they interact. The firm Accenture refers to this
phenomenon as "liquid expectations."12 As an
example, even if Apple's products don't compete
with yours, customers are comparing your
website to Apple.com. Avista must ensure we can continue to meet the
expectations of our customers in this rapidly evolving technology-enabled mar
Enterprise Security and Business Continuitv
Among the activities supporting service quality and reliability for our customers is the
Company's investments business process and data security, physical and cyber security
of our operating facilities and infrastructure, and our ability to continue providing service
in the event of any disruption to our
business operations and processes.
lncluded in business continuity is the
capability to operate our generation
resources in an automated mode to
support customer loads, as well as the
ability to transition mission-critical
business processes to remote back-up
centers in the event of a disruption at our
centra I office faci lity.
A summary of the capital investments included in the Customer Service Quality and
Reliability lnvestments driver are provided in the Table 3, below. The total dollar amounts
in the table below represent the total of the investment associated with the individual
Business Cases within this lnvestment Driver category. The Business Cases explain the
need for the projects, the alternatives assessed, why the projects are necessary in this
time frame, and address the costs, risks and/or consequences if the projects are not
completed.
llLeggett, Kate, "Demands for Effortless Service Must Influence Your Customer Strategy," Forrester
Research, June 10, 2014.r2"How to Meet Liquid Expectations in Digital Government," Accenture Consulting, 2015,
https ://www. accenture.com/_acnmedia./Accenture/Conversion-
Assets/DotCom/Documents/Global/PDF lDualpub]4/Accenture-Meet-Liquid-Expectations-Digital-
Government-Seamless-User.pd#zoom:50
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 6 of 36
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$585
$1 2,1 50
$405
$2,160
$340
$330
$o
$585
$1 13
$4e,350
$66,018
$58s
$10,350
$405
$2,160
$340
$330
$2,500
$s85
$1 13
$37,293
$54,660
$585
$9,250
$405
$2,160
$340
$330
$30,000
$585
$1 13
$2,316
$46,084
$8,850
$405
$2,1 60
$340
$330
$36,000
$o
$1 13
$o
$48,783
$650
$5,350
$450
$2,700
$1,200
$1,400
$o
$o
$250
$o
$12,000
*All dollars are shown in S thousands
Total
Washington Advanced Metering
lnfrastructure
Telecommunication & Network
Distribution location
LED Change-Out Program
ldaho AMI
Generation, Substation & Gas
Location
Facilities / Storage Location Security
Enterprise Security
Enterprise Business Continuity
Customer Facint Technology
Automation Replacement
Business Case*2019 2020 2021 2022 2023
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MANDATORY AND COMPLIANCE INVESTMENTS
Avista's Mandatory and Compliance investment driver is defined as: "investments
required to comply with ldws, rules, dnd controcts that are externol to the Company
(e.9. Stote and Federol laws, Settlement Agreements, FERC, NERC, dnd FCC rules, and
Commission Orders, and etc.)." Avista operates within a framework governed by
national, state and local laws, and a complex array of regulations, rules and ordinances.
At the national level, the Federal Energy Regulatory Commission (FERC) regulates a range
of natural gas and electric utility and energy-related activities. Avista operates its
hydroelectric facilities under licenses granted by the FERC, which also regulates our
activities in natural gas and electricity energy markets and electric transmission services.
Under this federal regulatory umbrella, the North American Electric Reliability
Corporation (NERC) oversees the operation of the country's interconnected electric grid.
Regionally, the Western Electricity
Coordinating Council (WECC) enforces the
electric tra nsm ission relia bility requirements
in the western U.S. of which Avista is a part.
Regulation of natural gas systems and
operations is under the purview of the Federal
Department of Transportation's Pipeline and
Hazardous Materials Safety Administration
(PHMSA), which enforces protocols for the
operation, maintenance, and inspection of
natural gas pipelines. Beyond these
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 17 o136
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regulation-focused drivers, mandatory and compliance investments also reflect the many
legal, contractual and operational agreements that govern nearly every aspect of the
operation of the Company. A high-level description of some of the capital programs within
this "investment drive{' are provided below.
Clark Fork and Spokane River Hyd roelectric Proiect License Compliance
Avista operates the Noxon Rapids and Cabinet Gorge projects under a 45 year license
granted by the Federal Energy Regulatory Commission and the Spokane River projects
under a separate 50 year license. Terms of these licenses were negotiated between
Federal and State agencies, Native American Tribes, and a range of other stakeholders,
and each includes hundreds of individual requirements aimed to protect, mitigate, and
enhance environmental, wildlife, fisheries, recreational and cultural resources associated
with the projects. State and Federal clean water, endangered species and other
mandatory conditions are also part of each license. The expected capital investments
required to comply with these license terms over the next five years are shown in the
Table 4, below.
Hydro Safety & Environmental Compliance
Avista promotes public safety at its hydroelectric facilities, including the installation and
replacement of various warning signs, in-stream barriers, surveillance cameras, and
warning systems designed to protect recreationalists and the general public. ln addition
to public safety, the Company is responsible for compliance with provisions of several
environmental statutesl3 as well as FERC requirements for safety of the hydroelectric
infrastructure itself (e.g. Long Lake Stability Enhancement). lnvestments expected to
meet our hydro safety and other Clean Water Act requirementsla over the next five years
are shown in Table 4.
Toble 4 - Expected Hydro Licensing, Safety & Water Quality lnvestments
m $17,01e g1s,867 $14,667 $E,o7o g4,113
@ sroo $2oo $2oo $2oo g4oo
@ suo $ss $so $ss $so
ffi tuoo gsoo $soo $1o,ooo $11,ooo
ffi *r,r* $1,642 $365 $406 $s12
4 $1e,176 $22,26s 915,782 g1s,731 $16,07s
*All dollars are shown in $ thousands
13 An example is the federal Clean Water Act.
ra These requirements are in addition to our hydroelectric project license requirements
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 8 of 36
o Compliance lnvestments in Electric Transmission
Avista operates 585 miles of electric transmission lines rated at 230 kV and 1,555 miles of
line rated at 115 kV. A majority of these lines are designated as part of the national Bulk
Electric Systems (BES), administered by the North American Electric Reliability
Corporation (NERC). The objective of this oversight is to promote the reliability, resiliency,
and adequacy of the interconnected transmission
system throughout the United States. The
responsibilities of NERC include developing
standards for power system operation as well as
monitoring and enforcing compliance with
Operation and Planning Standards assigned to
each utility, including Avista. In compliance with
these standards, the Company annually completes
planning studies on the long-term capability of its
transmission system and identifies segments that
are forecasted to not meet these mandatory
standards.
Avista is also subject to NERCs Operations Standards, which unlike Planning for the future,
focus on our ability to provide compliant load service today. When the Company identifies
areas of potential non-compliance, we are required to develop responsive remediation
projects, and to move forward with implementation.
The Company is also required by contract to make participating investments in its share
of the Colstrip transmission line that carries energy from the Colstrip plant in eastern
Montana to our customers in Washington and ldaho. A summary of Mandatory &
Compliance investments in electric transmission is provided in Table 5.
Toble 5 - Electric Tronsmission lnvestments in the Mandatory & Complionce investment
driver
o
$750
$1 00
$455
$0
$1,389
$700
$10,800
$500
$1,850
$10,200
$o
$o
$455
$500
$1,325
$o
$15,900
$1,550
$5,200
$o
$o
$o
$495
$2,700
$425
$0
$0
$8,700
$0
$o
$10,800
$o
$o
$o
$o
$1,075
$16,000
$o
$o
$0
$o
$o
$1,200
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 1 9 of 36
$775
$300
$o
$o
$o
$o
$ooTransmission Construction -
Compliance
Spokane Valley Transmission
Reinforcement
Saddle Mountain 230/115 kV
Station Phase 2
Phase 1
kvSaddle Mountain
Station
S Region Voltage Control
Protection System Upgrade for
PRC-002
Colstrip Transmission
CIP v5 Transition - Cyber Asset
Electronic Access
CIP 14 v1 - High lmpact Assets
2019Business Case*2020 2021 2022 2023
Ninth & Central 230 kV Station
& Transmission
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Westside 230i1l5 kV Station
"Brownfield Rebuild"
Transmission NERC tow-Risk
Lines M
Business Case*2019 2020 2021 2022 2023
West Plains New 230 kV
Substation
o
$1,500
$o
$6,500
$34,744
*All dollars are shown in S thousands
$3,500
$o
$6,500
$34,930
$1,s00
$o
$6,500
$20,320
$o
$650
$o
$12,525
$o
$5,500
$o
$23,775
Reouired lnvest nts in Natural Gas lnfrastructure
Avista has several programs responsive
to compliance with rules of the Pipeline
and Hazardous Materials Safety
Administration, including the mandatory
inspection of pipelines, valves, cathodic
protection systems,ls and other above-
ground infrastructure. ln addition to
inspection and maintenance of piping
and operating facilities, the Company is
required to replace a portion of its
natural gas meters each year under its Periodic Meter Change (PMC) program. ln addition
to these regulatory requirements, Avista's natural gas facilities located in public street
rights-of-way must be moved at the Company's cost when required by the reconstruction
or improvement of state, county and municipal roadways. Avista is also engaged in
programs focused on the orderly replacement of natural gas infrastructure that has
reached the end of its useful life, but whose expedited replacement is a matter customer
and public safety and regulatory compliance. These programs include the replacement of
Priority Aldyl A piping and isolated steel pipe, as well as resolution of natural gas pipe
overbuilds and high-pressure pipeline remediation. Expected investments required to
meet these obligations are shown in Table 6.
Table 6 - Natural Gas System lnvestments in the Mandatory & Compliance investment
driver
O
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5z4,oM
Sso
S1,4oo
S400
S6oo
524,o44
s2,000
S1,4oo
S4oo
s600
S24,oM
S2,ooo
S1,4oo
S40o
sToo
526,749
S3,ooo
$1,500
S400
Szoo
527,343
s3,ooo
s1,6oo
so
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 20 of 36
ls Systems that prevent corrosion of steel piping.o
Gas lsolated Steel Replacement
Gas HP Pipeline Remediation
Gas Cathodic Protection
Business Case*2019 2020 2021 2022 2023
Gas Overbuilt Pipe
Replacement Program
Gas Facility Replacement
Program (GFRP) Aldyl A Pipe
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52,7oo
537,944
52,7so
52,7oo
S33,8s4
s1,2oo
s3,000
s32,644
S1,2oo
s3,ooo
S36,649
s1,2oo
s3,ooo
s36,843
*All dollars are shown in S thousands
Other Mandatory lnvestments
Avista operates a portion of its facilities on lands owned by Native American Tribes, and
must comply with specific permit requirements including recurring payments and
easement renewals. The Federal Communications Commission (FCC) has required
companies like Avista to move their private communications networks to a new frequency
band, requiring the replacement of our radio communication system. And, like the natural
gas programs described above, the Company is required to comply with mandatory terms
of franchise and other agreements (e.9. Washington Department of Transportation -
WSDOT Franchises), as well as the ongoing requirement to relocate our electric facilities,
at our cost, when located in dedicated public rights-of-way that are subject to street and
highway construction. Finally, Avista, like other utilities, must invest in mandatory
programs that support the apprentice craft training of our employees, and to meet
external requirements such as Payment Card lndustry rules. The estimated cost of these
other mandatory investments over the next five years is shown in Table 7.
Table 7 - Other Mondotory lnvestmentso
ss4
52,szo
s3oo
S2so
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5z,zzq
ss4
52,s20
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S2so
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52,924
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S2so
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S3,s04
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Exhibit No. 2
Case No. AVU-E-'|9-04
M. Thies, Avista
Schedule 3, Page 21 of 36
*All dollars are shown in S thousands
A summary of the capital investments included under the Mandatory and Compliance
lnvestment driver is provided in Table 8, below. The total dollar amounts represent the
total of the investment associated with the individual Business Cases in this category. The
Business Cases explain the need for the projects, the alternatives assessed, why the
projects are necessary in this time frame, and address the costs, risks and/or
consequences if the projects are not timely completed.
Table 8 - Mondotory dnd Complionce lnvestments Summary
S89,088 S8o,3s3
Total
Gas Replacement Street and
Gas PMC Program
2019Business Case"20212020 2022 2023
Total
WSDOT Franchises
Tribal Permits & Settlements
Payment Card lndustry
Elec Relocation and
Apprentice/craft Training
Business Case*2019 2020 2021 2022 2023
Mandatory & Compliance" 2019
Grand Total
2020 2021 2022 202s
o *All dollars are shown in S thousands
S94,013 572,zsD 5G8,4os
PERFORMANCE & CAPACITY INVESTMENTS
Energy delivery systems are analogous to transportation systems, where the carrying
capacity and classes of roadways are comparable to the transfer capacity of electric
circuits or natural gas pipelines. Unlike transportation systems, however, where too many
vehicles simply results in slower traffic, when the use on energy facilities exceeds the
designed capability it is often manifested as stress and damage to equipment, overall
system instability, and failures that result in customer service interruptions. Avista has
established limits on the performance of its energy facilities as guided by industry
accepted practices, and as prescribed by internal policies, procedures, and standards. The
investment driver that addresses investments required to meet these standards is
defined asi "orangeof investmentsthotaddressthecapobilityof assetstomeetdefined
performance stondards, typicolly developed by the Compony, or to mointain or enhonce
the performance level of ossets bosed on need or financial analysis." Avista has grouped
32 projects and programs under this investment driver, represented in four functional
groups: 1) Electric Energy Delivery; 2) Natural Gas Delivery, and 3) lnformation
Technology Systems, and 4) Office and Operations Facilities.
Electric and natural gas delivery facilities are subject to complex limitations that include
such examples as limits on voltage, temperature, or pipeline pressure. Some
infrastructure such as large generating stations, electric transmission lines, and natural
gas pipelines, must be operated within performance limits established by federal and
state regulatory authorities. The supporting computer hardware, software, networks, and
telecommunication systems have physical limitations generally described in terms of
computer memory, refresh times, or the capacity to transmit voice and data over
computer and telecommunication networks. Other infrastructure affected by
performance or capacity issues are associated with construction tools, fleet, and the
administrative offices and operations facilities used by our employees.
Electric Energy Delivery Systems
lnvestments in Avista's electric energy delivery systems
related to performance and capacity issues share the
common need to remedy circumstances where current
system capacity is insufficient to meet future demand. How
do we determine these acceptable capacity limits? Virtually
all electric energy delivery projects or programs have a direct
or indirect link to the National Electric Safety Code (Code).
The Code represents the collective engineering and
operating knowledge for electric utility systems with special
emphasis on transmission, substation, and distribution
systems. Though Avista develops and maintains multiple
internal standards guiding the design, construction, and
operation of electric distribution facilities, each standard is
linked to the Code, which has a significant bearing on our
practices and decision-making strategies. ln addition to meeting capacity needs and
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 22ot36
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standards, Avista also considers opportunities to improve the performance of our systems
for customers and save them money.
Performance & Capacity investments in energy delivery systems are more focused on
electric distribution and substation infrastructure rather than electric transmission. This
is because the significant investments Avista makes in its electric transmission system
related to Performance & Capacity issues are typically driven by the federal transmission
planning and operations requirements described in the summary of Mandatory &
Compliance investments, above. An exception is the project to add breakers to the
Cabinet Gorge 230 kV bus. The electric energy delivery projects currently represented in
the Performance & Capacity investment driver are included in Table 9.
Table 9 - Electric Energy Delivery System Performance & Copocity lnvestments
so
S2,ooo
ss,ooo
S14,1so
S21,1so
*All dollars are shown in S thousands
Natural Gas Delivery Systems
Like electric upgrades and replacements, Natural Gas Delivery system investments are
also driven by performance and capacity standards. Avista plans for upgrades to its
natural gas distribution system based on continuous system capacity modeling in
conjunction with its lntegrated Resource Plan (Natural Gas IRP). Primary natural gas
planning principles are described below.
Winter Design Degree Day - Avista plans
for prolonged cold temperatures ranging
from minus 10 to minus 25 degrees
Fahrenheit where the combination of
space and water heating, and other end
uses of natural gas are combined to
determine the pipeline capacity required
to adequately serve the load. As demand
increases on a capacity-constrained
system, customers near the edge of the
distribution network can lose their service
as the pressure drops below levels needed to serve the load. These systems require
reinforcement capacity investments in order to meet design day loads.
so
S1,12s
s2,41s
se,ooo
5t2,s4o
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S1,12s
52,4ts
s8,600
iLz,z4o
S1,soo
5r,rzs
52,4L6
S11,1so
s16,191
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S1,12s
$2,47s
S14,1so
S17,690
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 23 of 36
Total
Substation - New Distribution
Station
Downtown Network -
Performance &
Cabinet Gorge 230 kV Add Bus
Breakers
Business Case*20'19 2020 2021 2022 2023
Segment Reconductor and
Feeder Tie
Urban Commercial Zones - Most of our natural gas systems are "radial" in nature,
particularly in rural areas, meaning there is only one pipeline source available to serve a
given distribution area. A service disruption in these radial systems can result in a service
outage for customers "downstream" of the incident. ln urban zones, however, to help
support volume and pressure demands, it may be cost effective to "network" gas
pipelines (i.e. provide more than one pipeline source to serve a given area). ln these
networks, valve isolation systems are designed to allow for planned pipe replacements
and to isolate pipe sections away from the area where the service has been disrupted.
Computer modeling of the system is used to evaluate and identify instances when
pipeline networking and reinforcement are cost effective in meeting the service needs of
customers.
Capacity issues on the natural gas distribution system require a combination of
monitoring current use patterns and also forecasting future demand. This balancing act is
a common theme for nearly all Avista infrastructure planning, determining how to best
serve today's customers while planning to cost-effectively meet future needs in an orderly
manner. Individual Performance & Capacity projects, referred to as "reinforcements" are
listed in Table 10, below.
ln addition to individual capacity projects, the Company is also investing to meet capacity
needs in its gas telemetry systems, mandatory Operator Qualification training program,
and is also making joint investments to improve the capacity of its Jackson Prairie Natural
Gas Storage Facility. Avista owns a one-third share in this facility located in Chehalis,
Washington, which is operated by Puget Sound Energy. Avista is obligated to pay its share
of the infrastructure investments that address repairs, replacements, and capacity and
performance upgrades needed to maintain safe and reliable operations. The five-year
outlook for natural gas reinforcement projects and programs related to Avista's
Performance & Capacity investment driver is shown in Table 10.
Toble 70 - Natural Gas Performance and Capocity lnvestments
S3,ooo
SGo
So
s1,ooo
so
s200
Sloo
52,228
s6,s88
$3,ooo
s2oo
Ss,eoo
S2,160
5L2,420
so
s60
S2,40o
s1,ooo
S100
Szoo
So
52,2zo
ss,s8o
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S3,ooo
s60
so
S1,ooo
so
S2oo
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52,Ls2
56,4L2
*All dollars are shown in $ thousands
s60
sloo
s1,ooo
so
SGo
So
s1,000
s1,soo
S2oo
5o
52,tB7
54,e47
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 24 of 36
So
Total
Jackson Prairie Joint Project
Gas Warden HP Reinforcement
Gas Telemetry Program
Gas Reinforcement Program
Gas Pullman HP Reinforcement
Gas Operator qua[fication
Gas Cheney HP Reinforcement
Business Case*2019 2020 2021 2022 2023
Gas Schweitzer Mtn Rd HP
Reinforcement
Proiect
o Electric Generation lnfrastructure
Like our electric and natural gas energy delivery
i nfrastructu re, the Com pa ny contin uously eva luates
needs for performance and capacity improvements
to its electric generation fleet, and well as
opportunities to add incremental capabilities that
are cost effective for our customers. The
Performance & Capacity investments for the
current five-year planning cycle include our service
agreement for our combined-cycle generating
station at Coyote Springs, upgrade to the 98 year
old hydroelectric unit at Upper Falls, added back-up generation capacity for two of our
hydroelectric stations, and an upgrade to metering, telemetry and controls, as shown in
Table 11.
Table 77 - Electric Generation Resources Performance ond Capacity lnvestments
o
s1,o8o
So
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S2,sos
S1,82s
S1,136
Sloo
S1,078
54,138
s1,82s
so
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s2,s60
Ss,o3s
S1,82s
so
so
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s1,82s
so
so
so
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*All dollars are shown in S thousands
Office and Ooerations Facilities
Support systems including office facilities, warehouses, equipment and material storage
yards, and construction operation centers are vital to our ability to deliver service to our
customers. Avista's facilities group is continuously evaluating the ongoing operations,
maintenance and capital needs of
our facilities and developing
responsive plans that allow us to
effectively serve our customers in a
cost-effective manner. ln recent
years, several of these evaluations
have pointed to the need to replace
aging facilities, based in part on asset
condition,l6 but also to meet
growing performance and capacity
needs brought about by the growing
16 Many of the Company's offices and operations centers are in excess of 50 years old and are in need of
substantial refurbishment or replacement based on end-of-life asset condition.
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 25 of 36
Total
Upper Falls Unit Upgrade
Upper Falls and Monroe Street
Permanent Generator
Resource Metering, Telemetry,
and Controls
Service
Business Case*2019 2020 2021 2022 2023
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Coyote Springs Long Term
numbers of customers we serve and the changing demands of our business. A primary
example of this need is our central office and operations facilities in Spokane. The
Company began locating fleet and storage facilities at this site in the early 1950s and
completed and placed in service our central office building in 1959. Various
improvements and expansions were made to these facilities as needed in the early years
of service, but the Company recognized the need for more substantial redevelopment of
these facilities in the last decade. These have included investments in the HVAC systems
of the main office, energy efficiency investments, addition of office and service center
space, equipment and material covered storage and expansion of the storage yards, and
development of a needed central warehouse and fleet facilities. Avista is currently
developing a centralized parking facility for employees in response to overflow parking
that now extends well beyond designated parking in the adjacent railroad right of way
and into adjoining neighborhoods. Other examples include development of a secure and
centralized 24-Hour Operations Facility, redevelopment of the Ross Park storage building
(built in 1910) and the Company's service Operations Center in Sandpoint. A summary of
these investments is provided in Table L2.
Table 1.2 - Office and Operations Facilities Performance and Copacity lnvestments
s8,7oo
so
s2oo
so
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Ss,8oo SO
s4,soo
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$6,ooo
o
o
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so
so
so
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so
so
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so
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lnformation olosv Svstems
The Company's many information technology systems support the range of primary
business functions such as meter reading, billing and payment processes, financial
reporting, energy trading, our customer service call center and website, as well as wide
ranging critical work processes, both internal and customer facing. lnvestments of this
type in the current planning cycle include Enterprise and Control Network lnfrastructure,
Enterprise Data Science, Enterprise Technology Modernization and Operational
Efficiency, Facility Driven Technology
lmprovements, Financial and
Accounting Technology, Land Mobile
Radio and Real-Time Communications,
Legal and Compliance Technology and
Human Resources Technology.
The Energy lmbalance Market is a multi-
disciplinary effort (though very
enterprise technology dependent) to
enable Avista to participate in the
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 26 of 36
Total
Sandpoint Service Center
Ross Park Building Renovation
Central 24 HR Operations
Campus Repurposing Phase 2
Business Case*2019 2020 2021 2022 2023
III /
It
I
o energy imbalance function of the California lndependent System Operator. Being a part
of this function has become a necessity for cost-effective energy trading, and will allow
the Company to better serve our electric customers, long term.
ln more recent years, centralized computer monitoring and control of our electric grid
and natural gas system, along with necessary communications, remote operations and
security systems, have become integral to their safe and reliable operation. This trend is
accelerating as the industry takes steps to promote and adopt more "non-wires"
distributed energy resources, energy storage, and direct consumer interaction. These
changes are transforming the electric grid from an energy supply conduit to an integrated
energy services system. Current specific investments of this type include the Digital Grid
Network Expansion and the Energy Resources Modernization and Operational Efficiency
projects. Table 13 lists the current five-year investments associated with Avista's
enterprise tech nology i nfrastructu re.
Table 73 - Enterprise Technology Performance and Copacity lnvestments
o
5z,azz
S2,4so
so
s1,634
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51,s20
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53,793
52,4s0
S1,4oo
s1,634
s6,e33
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527o
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S6oo
S2,soo
S310
523,9t2
s3,2s6
S2,4so
S7,000
S1,634
57,433
S1,820
SL,7s2
527o
S1,4so
S41s
ss,768
s31o
s33,s99
52,772
S2,4so
S1,ooo
s1,634
S6,s33
s1,s2o
57,7s2
5270
s1,3so
ssoo
s10,s0o
s338
S31,019
*All dollars are shown in S thousands
A summary of the planned capital investments for each year in the five-year planning
cycle for the Performance and Capacity investment driver is provided in Table L4, below.
The total dollar amounts represent the total of the investment associated with the
individual Business Cases within this lnvestment Driver category. The Business Cases
explain the need for the projects, the alternatives assessed, why the projects are
necessary in this time frame, and address the costs, risks and/or consequences if the
projects are not completed.
S2,s84
s3,eoo
$o
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s1,820
S2,4oo
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S1o,s20
S31o
S34,959
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 27 ol36
Total
Legal & Compliance Technology
land Mobile Radio & RealTime
Communication
Human Resources Technology
Financial & Accounting
Facilities Driven Technology
ET Modernization &
Operational Efficiency -
Enterprise Data Science
Energy lmbalance Market
Energy Delivery Operational
& Shared Services
Digital Grid Network Expansion
Business Case*2019 2020 2021 2022 2023
Enterprise & Control Network
!nfrastructure
Energy Resources
Modernization & Operational
o
Efficiency
Grand Total
Performance & Capacity.20232019202020212022
Table L4 - Performance and Copacity lnvestments Summary
ss2,878 573,2M
*All dollars are shown in $ thousands
INVESTMENTS BASED ON ASSET CONDITION
Assets of every type degrade with age, usage and other factors, and must be replaced or
substantially rebuilt at some point in order to ensure we continue to deliver reliable and
cost effective service. Projects or programs in this category of need are defined as:
"investments to replace ossets based on estahlished osset manogement principles and
systemotic progroms adopted by the Company, which ore designed to optimize the
overoll lifecycle value of the investment
for our customers." The replacement of
assets based on condition is essentially
the practice of removing them from
service and replacing them at the end of
their useful life. Across the utility
industrylT, and likewise for Avista, the
replacement of assets based on
condition often constitutes the largest
portion of the infrastructure
investments required each year. The
bulk of Avista and the nation's energy
delivery systems were constructed in
the period after World War ll and generally into the 1970s18 when economic growth and
expansion fueled the construction of a vast new energy infrastructure.le The average age
of the nation's major infrastructure, including energy systems, has increased overthe last
17 "In their 2015 "State of the Electric Utility''survey, Utility Dive asked 433 U.S. electric utility executives
about the three most pressing challenges for their utility. Old Infrastructure took the top spot at 47%. (T &D
Investment Considerations Supporting the Future Electric Grid. Osmose. 2016.
http://osmose.corn/nervsletter-20 I 5-q2-td-investnrer.rt-considerations.).
Petition of PECO Energy Company For Approval Of Its Electric Long Term Infrastructure Improvement
Plan And To Establish A Distribution System Improvement Charge For Its Electric Operations. Docket
No. P-2015-2471423.
Case l2-E-0201 , Proceeding on Motion of the Commission as to the Rates. Charges, Rules and Regulations
of Niagara Mohawk Power Corporation dlb/a National Grid for Electric Service; Five Year Transmission
and Distribution Capital Investment Plan, FY17-FY2l.
r8 This cycle of utility investment ended as early as the 1960s for some utilities and through the early 1980s
for others such as Avista.
le Powering a Generation: Power History #3. http://americanhistor)r.si.edu/porveringy'past/h2main.htm.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 28 of 36
5s3,977 S67,o6s
J -1
T
1....a
r
t
T
. --a-J
o 30-40 years.2o Our Company, like the rest of the nation, has stepped up the level of
investments needed to accommodate the orderly replacement of the facilities built
during this period of expansion, and that have already reached or are approaching the
end of their useful life.21 ln a survey of 433 U.S. electric utility executives who listed their
top three most pressing challenges,4T%o listed "old infrastructure," with the next
infrastructure issue reported as "Grid Reliability" (17%l and Smart Grid Deployment
(16%).22 These infrastructure investments are required to uphold the capability of our
generators, operations facilities, overhead wires and poles, and underground pipes and
cables, among other assets.
At Avista, our aim is to optimize the value of each particular asset group over their service
life. When we say "optimize" we aim to achieve the lowest possible lifecycle cost that
allows us to meet a variety of important performance objectives, such as electric system
reliability, and the efficient use of employee crews. Avista's efforts to achieve the
optimized value of its many assets has been aided by the recent application of developing
asset management standards, approaches and analytical tools. To this end, an asset
management system supports decisions on what assets we should build or purchase, the
type of maintenance program needed to support each asset, how factors such as system
reliability are considered in asset life, cost and performance decisions, and when and how
an asset should be rebuilt or replaced.
Systematic lnfrastructure Manageme nt Programs
o When Avista's asset management group has conducted studies of the lifecycle practices
of individual or groups of assets, that analysis is essentially evaluating a systematic and
proven practice already in place that governs the inspection,
repair, and replacement of that infrastructure. "Systematic"
programs are based on the Company's experience, insight,
expertise, manufacturers' recommendations, industry
standards, and best practices. Usually based on regular
inspections and assessment of asset condition and
performance, these are accompanied by a responsive
programmatic plan for maintenance and replacement.
Examples include: inspection and maintenance cycles for
individual turbines and generators, buildings and internal
mechanical systems, such as HVAC and enterprise technology
applications and systems. Avista has a great depth of
experience and insight when it comes to the management of
20 Failure To Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure. American
Society of Civil Engineers. 201l.
This Chart About Power Lines Says a Lot About How the US Electricity System is Changing. Vox Media.
2014.
2r Seattle City Light Strategic Plan 2013-2018.
From Growth to Modemization: The changing capital focus ofthe US utility sector. Deloitte Development,
LLC.20t6.
" Why Utilities are Rushing to Replace and Modemize the Aging Grid: State of the Electric Utility 2015.
utility Dive.
Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 29 of 36
o
its investments, which is embedded in its "systematic" practices for each type of asset.
This experience ranges from literally more than a century of operating history with
individual turbine-generator units, to inspection and condition-based management
programs, familiarity and adoption of industry best practices, implementation of
manufacturers' maintenance and replacement guidelines, the use of conventional
engineering and financial practices and analyses, and the development of new and
innovative ways to extend the service life and lifecycle value of certain assets.23 The
Company continues to rely on a range of these proven systematic programs for managing
key asset groups across our business.
Accordingly, asset management analysis of the Company's infrastructure is the
application of analytical methodologies to existing systematic business processes or
programs with the goal of assessing whether an existing program can be improved in a
way that creates incremental and sustainable financial value for our customers. ln some
instances, the limited potential for incremental gain does not warrant an asset analysis
and the systematic program is maintained. For those programs that do merit further
evaluation, the group identifies asset management plans that will be developed in future
work.
Capital Projects and Programs Based on Asset Condition
The capital projects and programs included under Asset Condition represent the largest
portion of the Company's annual capital spending by investment driver (36%1. Because of
the size of this group, we have summarized the investments by the following types: (1)
Energy lnfrastructure, (21 lnfrastructure Management, (3) Service Operations, and (4)
Enabling lnfrastructure.
1. Energy lnfrastructure - Capital projects and programs in this category represent direct
investments to electric generating stations, transmission facilities, substations, and
distribution system, aswell as naturalgas regulation, distribution and metering, as listed
in Tables 15 - 77, below.
Toble 75 - Generating Resources lnvestments bosed on Asset Condition Replacements
@ sr,oro s1,034 s1,034 s1,034 s1,14s
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23 Innovations to extend life such as our distribution pole stubbing practices.
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3,.Page 30 of 36
o
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s23,1s0
S1,6ss
S7,sso
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s6s,42o
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*All dollars are shown in $ thousands
Table 76 - Electric Transmission, Substation and Distribution lnvestments based on Asset
Conditio n Re pl ace me nts
S22,ooo
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 31 of36
Total
Regulating Hydro
Post
&
Refurbishment
Rapids
Excitation
Long Lake Replace Plant
Generator
Long Lake Plant Upgrade
ls
Flashboard
Liftle Falls Plant Upgrade
HMI Control Software
DC Supplied
4 Capital
Business Case*2019 2020 2021 2022 2023
Outage Management
System & Advanced
Distribution Management
Noxon Rapids Generator
Step-Up Bank C
Total
Wood Pole Management
Rebuild - Asset Condition
nor
Rebuild
- Station
Rebuilds
URD Cable
Condition
Distribution
c Out
Distribution Minor Rebuild
Modernization
Business Case*2019 2020 202'.1 2022 2023
o
*All dollars are shown in S thousands
Table 77 - Naturol Gos System lnvestments based on Asset Condition Replacements
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*All dollars are shown in S thousands
2. lnfrastructure Management - lnvestments in this category of asset-condition based
capital replacements include software and hardware applications, communications
systems, operating devices and equipment, and capital service contracts that support
energy infrastructure operations. These individual programs are listed in Table 18.
Table 18 - lnfrostructure Monogement lnvestments based on Asset Condition
o
*All dollars are shown in 5 thousands
3. Service Operations - The capital investments in this classification include the facilities
required to support company operations and work processes, and are listed below in
Table 19.
S1,8oo
52,286
s901
sr,6s2
54,480
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52,02O
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$r5,267
s1,8oo
so
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52,L92
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5t,z2s
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516,sL7
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sls,Lr7
so
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S1,ooo
S2,soo
5t6,245
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 32 of 36
Total
Fiber Network Lease
Service
Environmental Control &
Monitori
Modernization
Endpoint Compute and
Data Center Compute and
Protection & Control
Atlas
Business Case 2019 2020 2021 2022 2023
Cabinet Gorge Unit 3
Protection & Control
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Table 79 - Service Operotions lnvestments based on Asset Condition Replacements
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 33 of 36
*All dollars are shown in S thousands
4. Enabling lnfrastructure - The capital investments in this classification include
communication systems, transportation and heavy equipment as well as a range of
information technology hardware and software systems relied upon by the Company to
provide service, and to enable wide-ranging business processes. These programs are
listed in Table 20.
Table 20 - Enabling lnfrostructure lnvestments bosed on Asset Condition Replacements
@ sr,*o s1,e8o s1,e8o s1,s8o sg,aoo
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*All dollars are shown in S thousands
Table 21 provides a summary of the capital investments for the Asset Condition
lnvestments driver.
Table 21- Summary of lnvestments based on Asset Condition Replacements2a
@ s7s,4s7 SLa2,Lzs s110,87s g134,2e3 gl43,t7o
@ sr6,2o4 sts,267 Sr6,sL7 srs,tLT sr6,z4s
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@ s13,eos s18,s0s s1s,s1o s8,e1o s11,100
@ -sr,r* -sz,4s7 -sL,7s4 -s3,831 se,33o
45fi|,g62s136,5o5s148,2o8s16o,689s182,846*All dollars are shown in $ thousands
The total dollar amounts in the tables above represents the total of the investments
associated with the individual Business Cases within this category. The Business Cases
explain the need for the projects, the alternatives assessed, why the projects are
24 The line item titled "offset to budget" represents an adjustment that is varied over time to bring the total
expected spend to the authorized level of $405 million.
Total
ng
Center
Business Case*2019 2020 2021 2022 2023
Noxon & Clark Fork
Facilities
New Dollar Road Service
Center
o
necessary in this time frame, and address the costs, risks and/or consequences if the
projects are not completed.
FAILED PLANT & OPERATIONS INVESTMENTS
The Failed Plant and Operations investment driver is defined as: "requirements to reploce
ossets that have failed and which must be replaced in order to provide continuity and
adequocy of seruice to our customers (e,9, capital repair of storm-domaged facilities).
Also includes investments in notural gos and electric inlrostructure that are performed
by Avista's operotions stoff." Avista responds
to various types of equipment failures each
year resulting from a range of factors, some of
which result in service outages for our
customers. These failures are caused by wind
and other storm events, traffic accidents, third
party damage to natural gas and buried
electric cables, and failure due to asset age
and condition. ln addition to replacing assets
that have failed, Avista's operations staff
performs a wide range of limited capital
infrastructure work that does not rise to the level of a project or program. This work
includes the need to reconfigure, replace, repair, and upgrade electric and natural gas
facilities for a variety of reasons. For example, electric distribution systems are protected
by a network of fuses. Changes in customer demand and load additions prompt revisions
to the system of 'coordinated fusing' in order to properly protect equipment from line
faults. Customer requested projects may also provide the opportunity to cost-effectively
repair or replace distribution equipment where the cost is not attributable to the end-use
customer, but which is necessary to maintain service or to meet our design standards.
Avista Failed Plant & Operations programs address operating issues such as equipment
failure, operator safety, facility inspections, and ancillary capital investments.
Natura! Gas lnvestments
On average, Avista responds to over five hundred incidents each year where damage is
done to one of our natural gas lines. These service disruptions are generally the result of
'dig-ins' by a third party. The investment made to repair the immediate damage to lines
often requires follow-up replacements of select segments of line, valves, service lines, or
cathodic protection systems. These costs are accounted for in the 'Gas Non Revenue
Program.'
Electric Transmission and Distribution
lnvestments associated with maintaining primary and secondary powerlines and
underground cable result from repair of facilities damaged during outages, as well as
o
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 34 of 36
\I!tr1"
ffiT
rs.)
o unplanned construction needed to keep the system in safe and proper working order.
Some of these activities include:
1. Repair of broken or damaged equipment discovered in the field (not necessarily
related to a customer outage);
2. Addition of conductor or cable to support three-phase customer loads;
3. Replacing undersized wires or cables causing power quality issues for customers;
4. Reconfiguration of overhead lines to maintain safety zone clearances for joint-use
utilities.2s
5. Modifications of overhead lines to protect large birds from electrocution.
6. Repair or replacement of wire or equipment that has been stolen (e.g. copper wire).
Emersencv Storm Response
Avista responds on average to approximately 8,000 outage
events each year, though not all of these events are related
to major storms. Avista tracks the costs of major events
through the Emergency Storm Response program. Outages
related to major storms can be quite variable from year to
year. For example, on November 17, 2OL5, Avista
experienced the largest single storm event in its history
with nearly 6,000 individual outages on a single day,
impacting over 168,400 Avista electric customers.26 The
majority of the outages was the result of hurricane force
winds that severely impacted the Spokane metropolitan
area. By contrast, the Company experienced no major
storm events in 2016. Capital repairs during major storms
are generally limited to the electric distribution and
transmission grids but can extend to substation and
commu nication facilities.
Generation lnvestments
ln addition to its hydroelectric projects and the Colstrip and Kettle Falls thermal projects,
Avista has several natural gas-fired generating stations. lnvestments in this category are
required to maintain and operate all of these facilities and include work resulting from
equipment breakdown, needs discovered during routine inspections, emergency
replacements, and operator safety.
Spokane Secondary Electric Network
Avista serves the core business district of downtown Spokane via an underground electric
"network" that provides highly-reliable service to this dense urban core. Most mid-size to
25 Joint use utilities are other utility service providers such as telephone or cable that are allowed by law to
use our poles to support their facilities for a fee.
26 "Windstorm Pummels Spokane, Killing Two People and Causing Widespread Blackouts," The
Spokesman Review, November 17 ,2015, hup://www.spokesman.com/stories/201S/nov/17lwindstorm-
pummel s-spokane-killing-two-people-and-c/
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 35 of 36
o
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I ffi
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l
,l ,tIl{
-fr
large cities are served by the same type of electric network, including for example, Seattle,
Portland, and Tacoma. The network is made up of heavy electric cable in concrete-
reinforced pathways and major equipment such as large underground transformers.
Because the network is composed of extensive equipment all placed underground, and in
reinforced concrete built to withstand heavy traffic, the investments needed to maintain,
repair, and replace these systems is significant.
lnvestment needs by program under the Failed Plant & Operations investment driver are
provided in Table 22.
Table 22 - Expected lnvestment Needs by Progrom for Failed Plant & Operations
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Exhibit No. 2
Case No. AVU-E-19-04
M. Thies, Avista
Schedule 3, Page 36 of 36
S14,016 5L6,278 5t6,32L
*All dollars are shown in S thousands
The total dollar amounts in the table above represent the total of the investment
associated with the individual Business Cases within this lnvestment Driver category. The
Business Cases explain the need for the projects, the alternatives assessed, why the
projects are necessary in this time frame, and address the costs, risks and/or
consequences if the projects are not completed.
S16,638Total
Technology Failed Assets
Back-u Center
SCADA - System Operation &
Nine Mile Rehabilitation
Meter Minor Blanket
Gas Non-Revenue Program
Electric Storm
Base Load Thermal Program
Business Case*2019 2020 2021 2022 2023
Peaking Generation Business
Case
o