20231101Comments of the Commission Staff.pdf

ADAM TRIPLETT
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BAR NO.10221
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA'S )APPLICATION FOR AN ACCOUNTING )CASE NO.AVU-E-23-07
ORDER AUTHORIZING ACCOUNTING AND )AVU-G-23-04
RATEMAKING TREATEMENT OF COSTS )ASSOCIATED WITH THE COMPANY'S )COMMENTS OF THE
INVESTMENT IN AMI (ADVANCED )COMMISSION STAFF
METERING INFASTRUCTURE))
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
through its Attorneyof record,Adam Triplett,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On July 10,2023,Avista Corporation,doing business as Avista Utilities ("Company"),
filed an application ("Application")with the Idaho Public Utilities Commission ("Commission"),
requesting an order approving the following:(1)"[d]eferral of the undepreciated net book value
of existing electric meters,natural gas communicating modules ...and Automated Meter
Reading ("AMR")communication equipment[;]"(2)adoption of the depreciable lives proposed
for electric Automatic Metering Infrastructure ("AMI")electric meters and gas digital monitors;
STAFF COMMENTS 1 NOVEMBER 1,2023
and (3)deferral of AMI-related depreciation expenses until their inclusion in rates through a
future rate case.Application at 1-2.
The Company represents that its existing AMR infrastructure has exceeded its 15-year
expected service life and components of the system are out of production or no longer supported.
Accordingly,the system must be updated to avoid excessive replacement costs and to continue
providing reliable service for the Company's electric and natural gas operations in Idaho.
The Company represents that,after conducting a cost-benefit analysis,it determined replacing its
existing AMR system with a new AMI system would be prudent to meet the Company's long-
term customer service objectives.
The Company represents that implementing an AMI system requires,among other things,
replacement of existing electric meters,natural gas communicating modules,and AMR
communication equipment.
The Company represents that,upon entering into an agreement with a vendor to replace
existing AMR equipment,the old equipment will be removed and recycled as there is no market
for the volume of old equipment the switch to an AMI system will generate.Accordingly,the
Company requests authorityto defer the undepreciated net book value of the AMR equipment as
a regulatory asset to avoid writingoff its investment in that equipment.The Company proposes
recording the deferred amounts as a regulatory asset in FERC Account 182.3 -Other Regulatory
Assets.
The Company also proposes that,because the AMR equipment is currentlyincluded in
rate base earning the authorized rate of return,the AMR equipment regulatory asset will be
included in the base rates until fully amortized.
The Company further proposes the Commission adopt the 7.03%depreciation rate for
electric and natural gas AMI metering equipmentcontained in the Company's recent
depreciation study filed in Case Nos.AVU-E-23-02 and AVU-G-23-02.
The Company represents that the transition to an AMI system will occur over multiple
years,but certain components of the system will be put in service prior to completion of the
entire AMI system.Because depreciation and other costs related to the AMI system cannot be
included in a general rates case until 2025,the Company request deferral of the depreciation
expense on AMI investment from the beginning of the month in which the first transfer to plant
STAFF COMMENTS 2 NOVEMBER 1,2023
of the AMI investment occurs until such plant is included in the Company's next general rates
case.
STAFF ANALYSIS
Staff reviewed the Company's Application and accompanying exhibits (Idaho Advanced
Metering Refresh Project-Status Report,Accounting Standards Codification ("ASC")980-360-
35),along with the Company's responses to Production Requests.Staff believes the Company's
accounting and some of the rate making proposals are reasonable and recommends that the
Commission approve deferral and amortization of the existing AMR equipment and establish a
deprecation rate for the new AMI meters and digital monitors.However,Staff recommends the
Commission deny the Company's request to defer depreciation expense and earn a return on the
installation of the AMI system until it can be reviewed by Staff in the Company's next general
rate case.Staff also recommends the AMR deferral account not earn a return effective with the
next general rate case.
Demonstration of Need
Staff reviewed the Company's justification for the need to replace the AMR system with
an AMI that was provided in its Application and Exhibit A -"Idaho Advanced Metering Refresh
Project -Status Report."Because the age of the current AMR infrastructure is approachingthe
end of its useful life and because of a future need for more advanced AMI technology that will
enable better and more reliable service to customers at reduced cost,Staff believes that the
Company has sufficientlyjustified the need for the proposed AMI project in Idaho.
Installation of the Company's AMR system in Idaho started in 2005 with an expected life
of fifteen years.Because of the age of the current AMR technology in Idaho,many of the
components in the current AMR system are no longer manufactured or supported.Application at
3.Althoughthe Company investigated refreshing the current AMR system and replacing several
of the different components that make up the system,the Company expressed a need to move to
a higher level of technology that can only be obtained through AMI.
AMR is a system that allows meters to be read using hand-held or fixed network radio-
based data collection devices.Because of the disjointed and asynchronous nature of the
technology,it only allows one-way communication of information,delayed data transfers to a
STAFF COMMENTS 3 NOVEMBER 1,2023
centralized database for processing,and data with reduced time resolution.However,AMI is a
completely integrated system that provides detailed data resolution and two-waycommunication
of data and information in real-time that can enable future programs and customer benefits.
Major components of the AMI system include meters,a metering communications network,a
meter data collection system,a meter data management system,and data analytics.
Throughexperience with other utilities that have implemented AMI in Idaho,Staff has
found that AMI can enable:(1)real-time price signals that reflect the time-value of energy
delivered,(2)improved design of retail rates,(3)the ability to net-bill customer exports from
customers who export energy,(4)improved accuracy of avoided cost for Demand-Side
Managementprograms,(5)active management of customer battery storage systems and of the
distribution grid,and (6)better cost of service characterization using finer resolution class-wide
load profiles over all hours of the year.Much of what other utilities are implementing would not
be possible without AMI.
Cost Effectiveness of Alternatives
Because the Company's implementation is a continuation of the Company's rollout of
AMI,first in Washington and now in Idaho,Staff used a path analysis to determine the cost-
effectiveness of the AMI solution the Company began in 2016.Based on this analysis,Staff
believes that the implementation path the Company has taken to implement AMI across its two
service territories has significantlyremoved risk for Idaho ratepayers and is likely to be cost
effective when completed in Idaho.
Since the completion of AMI rollout in Washington,the Company was able to more fully
quantifythe financial net benefits and other non-quantifiable benefits that the technology will
enable,providing Idaho with the benefit of hindsight and determination of costs and benefits,
which are based on actual historical data and Company experience.
To justify the decision to rollout AMI in Idaho,the Company had to determine whether a
decision to refresh the current AMR technology in Idaho is more cost effective than continuing
its implementation of AMI that is currentlyinstalled in its Washington service territory.The
Company estimated that the incremental benefits of AMI over an AMR refresh based solely on
project cost and existing financial benefits is approximately $48 million that includes:
A reduction in mobile meter reading;
STAFF COMMENTS 4 NOVEMBER 1,2023
Remote Service Connectivity;
Better outage management;
Enabling energy efficiencyimprovements;and
Increased billing accuracy.
Company Exhibit A at 26.
This amount combined with a lower $18.8 million project cost difference between the
two options provides an overall projected cost savings of $67.3 million by implementing AMI.
Staff reviewed the cost and benefit analysis and believe it is reasonable.However,a final
determination of prudence on how cost-effectivelythe Company implemented the project will
need to be conducted during the Company's general rate case before includingthe cost in retail
rates.
ExistingEquipment
The Company represents that,upon entering into an agreement with a vendor to replace
existing AMR equipment,the old equipment will be removed and recycled as there is no market
for the volume of old equipment the switch to an AMI system will generate.
In response to Production Request No.1,the Company stated that "none of the
components associated with the existing meter reading solution are forward compatible or
upgradable."I
Additionally,Staff requested salvage values by component for all items that will be taken
out of service and replaced.The Company has not completed a salvage value analysis for the
components that are being taken out of service.The Company plans to bid out the disposal and
salvaging of any equipment that is taken out of service and expects that costs associated with
disposal will exceed any salvage values received.Response to Production Request No.2.
Allocation Method for Salvage Value
The Company's financial assumptions for disposal and salvage are reasonable.Staff
encourages the Company to explore minimizing disposal costs and maximizingsalvage values.
I Staff'sRequest for Production No.1,stated:Are any of the automated meter reading ("AMR")or AMI system
components currently in service forwardcompatible or upgradable for use in the proposed replacement system?If
yes,please providea description of each component to be reused or upgraded and savings achieved by avoidingthe
purchase of new components.
STAFF COMMENTS 5 NOVEMBER 1,2023
The Company should use its Investment Recovery operation for recycling equipment removed
from service if possible.Staff recommends that the Company maintain records of disposal and
salvage costs and revenues.
Additionally,Staff recommends the Company adopt an allocation method for
determining the cost of removing AMR meters,and the cost to install new AMI meters.The cost
to remove the AMR equipment should be included in the net salvage value of the existing AMR
equipment which has been factored into the depreciation rates of the AMR system.Costs
associated with installation of the new AMI system should be capitalized and depreciated at the
rates approved for the AMI investment.When the removal of old equipment occurs
simultaneously with the installation of the new equipment,employeecosts should be allocated to
the appropriate activity.Staff recommends the Company develop a method to allocate the time
and expenses between removal of the existing AMR system and installation of the new AMI
system.
Deferral of Undepreciated Net Book Value on AMR Systems
ASC 980-340-25-1 provides guidance on when Company's may capitalize costs that
would otherwise be expensed.To authorize a regulatory asset there must be a reasonable
expectation that the Company will be able to recover prudentlyincurred cost of the investment,
otherwise the deferral cannot be recorded as a regulatory asset on the Company's balance sheet.
To provide the reasonable expectation of recovery,Staff focused on the prudence of the
Company's decision to move forward with the proposed project by determining:(1)whether the
Company sufficientlydemonstrated the need for the investment,and (2)if the alternative
selected for implementation was the most cost effective among potential alternatives.
Based on its analysis,Staff believes that the Company demonstrated the need for the
project based on the age and obsolescence of current AMR infrastructure and the future need for
advanced technology that AMI will provide.However,Staff will examine how cost-effectively
the Company implemented the project when the Company seeks cost recovery through its retail
rates,as proposed by the Company.
Staff recommends the Commission accept the Company's proposal to defer the
undepreciatednet book value of the existing AMR system into FERC Account 182.3 -Other
Regulatory Assets.As of December 31,2022,the Company reported $16.0 million in
STAFF COMMENTS 6 NOVEMBER 1,2023
undepreciated net book value for AMR system.Because the current AMR system is already
embedded in customer rates,the Company's request to amortize the undepreciatedbook value
over the remaining depreciable life of the assets will not change customer rates until the next rate
case.Upon the Company's next general rate case,Staff recommends the AMR deferral account
not earn a return.At the same time,the amortization period of the regulatory asset for the AMR
system can be revisited,if needed.
Depreciable Life of AMI Electric Meters and Natural Gas Digital Monitors
Staff recommends the Commission approve the Company's proposed deprecationrate for
AMI system,which consists of electric meters and natural gas digital monitors and relevant
communication equipment.In its most recent depreciation case,the Company proposed a
composite depreciation rate of 7.03%on AMI system investments.2 Staff reviewed the
Company's proposed deprecationrate and believes the composite deprecationrate of 7.03%is a
reasonable rate of recovery for AMI system investments.
Deferral and Carrying Charge on AMI Systems
In addition to amortizing the undepreciated net book value of AMR system,the Company
also requested approval to defer the depreciation expense on the new AMI system investments
and earn a return equal to the Commission authorized rate of return.Staff does not support the
Company's proposal to defer depreciation expenses on AMI investments or its request to earn a
return on the deferral at this time.Under the normal course of business,the Company will invest
in plant between rate cases and depreciation on the plant begins as it is placed in service.
Additionally,older plant is retired and the Company continues to recover the depreciation
expense associated with retired plant.In a general rate case,the depreciation expense allowed
for recovery is reset to ensure that the Company is recovering the appropriate level of
depreciation expense associated with plant that is providing service to customers.There is no
valid reason that an exception should be made in this case to allow the Company to defer the
depreciation expense associated with the AMI investment without also deferring as a regulatory
liabilityall depreciation expense currentlyembedded in rates associated with plant retirements
prior to the Company's next rate case.Furthermore,Staff contends that depreciation expense
2 See AVU-E-23-02 or AVU-G-23-02,Attachment C,page 69.
STAFF COMMENTS 7 NOVEMBER 1,2023
should not be recovered until Staff can review the prudency of all capital additions in the next
general rate case.Staff recommends the Company continue to follow routine accounting
treatment by beginning to depreciate assets once they are placed in service and become used and
useful.
STAFF RECOMMENDATIONS
Staff recommend the Commission:
1.Approve the Company's request to defer as a regulatory asset the undepreciated
net book value of existing electric meters,natural gas communicating modules
(ERTs),and AMR communication equipment,to be amortized over the remaining
depreciable life of the removed equipment.
2.Deny a return on the AMR deferral account effective with the general rate case.
3.Approve the proposed depreciation rates of the AMI metering equipment of
7.03%based on a 15-year life,S2.5 survivor curve and a negative two percent
salvage value.
4.Deny the Company's proposal to defer depreciation expense and earn a return on
the installation of the AMI system until prudence can be reviewed by Staff in the
Company's next general rate case.
Respectfully submitted this lst day of November 2023.
Adam T lett
Deputy AttorneyGeneral
Technical Staff:Ty Johnson
Kevin Keyt
Shubhra Paul
i:umisc/comments/avue2307_avug2304tjspkk Comments
STAFF COMMENTS 8 NOVEMBER 1,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 16'DAY OF NOVEMBER 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TO
AVISTA CORPORATION,IN CASE NOS.AVU-E-23-07 /AVU-G-23-04,BY E-
MAILING A COPY THEREOF TO THE FOLLOWING:
PATRICK EHRBAR DAVID J MEYER
DIR OF REGULATORY AFFAIRS VP &CHIEF COUNSEL
AVISTA CORPORATION AVISTA CORPORATION
PO BOX 3727 PO BOX 3727
SPOKANE WA 99220-3727 SPOKANE WA 99220-3727
E-mail:[e-mail] E-mail:[e-mail]
[e-mail]
SECRETARY
CERTIFICATE OF SERVICE