20210114Final_Order_No_34891.pdf

ORDER NO. 34891 1

Office of the Secretary
Service Date
January 14, 2021
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF AVISTA
CORPORATION’S APPLICATION FOR AN
ACCOUNTING ORDER FOR APPROVAL
OF DEPRECIATION AND AMORTIZATION
RATES FOR INVESTMENTS IN SOFTWARE
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CASE NOS. AVU-E-20-09
AVU-G-20-06

ORDER NO. 34891

On October 9, 2020, Avista Corporation dba Avista Utilities (“Company”) applied to
the Commission seeking an accounting order authorizing it to use an amortization period for its
capitalized software license costs and capitalized software implementation costs that aligns with
the life of the underlying contract for Information Technology solutions (“IT solutions”).
Application at 1. The Company requested its Application be processed by Modified Procedure. Id.
at 9.
On November 16, 2020, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing public comment and Company reply deadlines. See Order No.
34835. Staff filed comments supporting the Company’s Application. No public comments were
received. The Company filed reply comments.
Having reviewed the record, the Commission now issues this Order approving the
Company’s Application.
THE APPLICATION
The Company’s intangible assets, including software, are amortized. Id. at 2. Its
tangible assets including plant, property, or equipment, are depreciated. Id. The Company’s
depreciation rates were updated in 2019 (see Order No. 34276) but that case did not address the
amortization period for capitalized software costs. Id.
When cloud computing arrangements include a license to internal-use software, the
software license costs are capitalized over a five-year period under authorized accounting
practices. Id. at 1, 4. The Company requests approval to use an amortization period for the license
to internal-use software and implementation costs of cloud computing arrangements that reflects
the actual useful life of the software arrangement. Id. at 8.
ORDER NO. 34891 2

The Company anticipates the changes it is requesting would cause the lives of its
various software and other cloud computing arrangements and extensions to be amortized over
periods from two to ten years. Id.
The Company is not requesting to impact customers’ rates at this time and will only
being to utilize the new amortization period for projects that become used and useful after
obtaining Commission approval. Id. at 5. The impact on amortization expense would be included
in a future general rate case. Id.
THE COMMENTS
Staff Comments
Staff recommended the Commission approve the Company’s Application and allow
the Company to use an amortization period for its capitalized software license and capitalized
software integration costs aligning with the life of the underlying contract plus expected
extensions. Staff Comments at 2. According to Staff, matching the amortization period for IT
solutions with contract lengths provides the proper matching of revenues with the benefits received
from the services and will not require the Company to maintain separate books for accounting and
regulatory reporting. Id.
Staff’s comments discussed the history of the Company’s software and hardware
procurements and how changes in business models have led to the Company leasing many IT
solutions opposed to purchasing them. With the advent of leasing IT solutions, the license terms
and contract lengths do not always align with the Commission-approved five-year amortization or
depreciable lives. Id. at 2-3.
Staff comments mentioned that the Financial Accounting and Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05 to Accounting Standards
Codification (“ASC”) 350-40 which provided direction and treatment for cloud computing
arrangements (IT solutions)—specifically how to treat software license fees, and under certain
conditions, which fees can be considered intangible assets and therefore be capitalized. Id. at 3.
Staff noted that ASU No. 2018-15 provided additional clarification and provided users an
opportunity to capitalize and amortize the costs over the term of the cloud computing arrangement.
Id.
After ASU No. 2018-15 was issued, Federal Energy Regulatory Commission
(“FERC”) provided additional guidance to utilities regarding cloud computing arrangements
ORDER NO. 34891 3

involving service contracts in Docket No. AI20-1-000. Id. Docket No. AI20-1-000 stated: “ASU
No. 2018-15 clarified that an entity obtaining a service contract in a cloud computing arrangement
should follow the existing guidance of [ASC] 350-40 to determine which implementation costs
can be capitalized…shall be amortized over the term of the associated arrangement.” Additionally,
Staff indicated that ASC 350-40-35-13 states, “a Service Contract … shall be amortized over the
term of the associated hosting arrangement, on a straight-line basis.” Id.
To ensure consistency for recovery of the Company’s capitalized IT solution expenses,
Staff recommended that the amortization period for expenses associated with each IT solution
should be the length of the specific contract for that solution, or its useful life. Id. at 4. However,
if no contract period exists, Staff recommended that the Company continue to use the five-year
amortization life already authorized. Id.
Company Reply
The Company replied, noting its appreciation of Staff’s comments and agreeing with
Staff’s position. The Company agreed with Staff’s position that for contracts of indeterminant
length, the amortization period should be five years. Company Reply Comments at 2-3.
COMMISSION DECISION AND FINDINGS
The Commission has jurisdiction and authority over the Company and the issues raised
in this case pursuant to Title 61 of the Idaho Code and the Commission’s Rules of Procedure,
IDAPA 31.01.01.000, et seq. The Commission has thoroughly reviewed the record, including the
Company’s Application and the comments filed in this case. Based on our review, we find it fair,
just, and reasonable to allow the Company to use an amortization period for its capitalized software
license and capitalized software implementation costs that aligns with the life of the underlying
contract for IT solutions. However, IT solutions with no contract period shall be amortized over
five years, pursuant to the Commission-approved amortization period.
We find this allows the Company to ensure its investments in IT solutions are amortized
according to FASB and FERC authorized accounting standards and practices. This also permits
the Company to properly match its revenues with the benefits received from the IT solutions and
eliminates the need for the Company to maintain separate books for accounting and regulatory
reporting.
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ORDER NO. 34891 4

O R D E R
IT IS HEREBY ORDERED that the Company use amortization periods for its
capitalized software license costs and capitalized software implementation costs that align with
the life of the underlying contract. If no contract period exists, the Company shall use the five-year
Commission-approved amortization period for its IT solutions.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order regarding any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by order of the Idaho Public Utilities Commission at Boise, Idaho this 14th
day of January 2021.

__________________________________________
PAUL KJELLANDER, PRESIDENT

__________________________________________
KRISTINE RAPER, COMMISSIONER

__________________________________________
ERIC ANDERSON, COMMISSIONER

ATTEST:

_________________________________
Jan Noriyuki
Commission Secretary

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