hrgntc.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF APPLICATION OF AVISTA CORPORATION FOR AUTHORITY TO SELL ITS INTEREST IN THE COAL-FIRED CENTRALIA POWER PLANT. )
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) CASE NO. AVU-E-99-6

NOTICE OF SCHEDULING

NOTICE OF HEARING

On August 10, 1999, Avista Corporation dba Avista Utilities — Washington Water Power Division (Avista) filed an Application with the Idaho Public Utilities Commission regarding the proposed sale by the Company of its 15% ownership interest in the coal-fired Centralia Power Plant.
In the Company’s recently completed general rate case, the Commission made the following findings regarding Centralia:
It is the Commission’s understanding that there have as yet been no regulatory filings regarding the proposed sale. Although raised at hearing, the Commission reserves judgment as to the applicability of Idaho Code § 61-328 — Electric Utilities — Sale of Property to be Approved by Commission. We note that the Company’s ownership interest in Centralia is part of its rate base in Idaho on which it receives a return on investment. We therefore put Avista on notice that prior to any transfer of its ownership interest in Centralia we expect a filing by Avista with this Commission addressing the proposed sale, its ramifications, rate consequences and the Company’s proposed treatment of same.

Order No. 28097, Case No. WWP-E-98-11

Avista proposes to sell its 15% interest in the Centralia Power Plant to TECWA Power, Inc. (TECWA Power), a Washington corporation and a wholly-owned subsidiary of TransAlta Corporation, a Canadian energy corporation. TECWA Power has agreed to buy the 1340 megawatt coal-fired Centralia Power Plant for $452,598,000. The other seven co-owners of the power plant and their ownership shares are: PacifiCorp 47.5%, City of Seattle 8.0%, City of Tacoma 8.0%, Snohomish PUD 8.0%, Puget Sound Energy 7.0%, Grays Harbor County PUD 4.0%, and Portland General Electric (PGE) 2.5%.
As reflected in the Application and by way of background regarding the sale, the Company relates that the Centralia owner’s agreement allows any co-owner of the power plant to veto proposed capital expenditures. Continued operation of the Centralia Power Plant requires the installation of sulfur dioxide scrubbers and low nitrogen burners to meet emission standards. PGE, as well as some other co-owners, vetoed the proposed expenditures. Closure of the plant, the Company contends, would result in mine closure costs, reclamation costs and plant dismantling costs. In October 1998, the co-owners put the Centralia Power Plant up for auction. Trans Alta/TECWA Power was selected as the purchaser.
To facilitate the sale to TECWA Power and to begin the process of unifying ownership of the plant so as to more effectively deal with continued operation of the plant, Avista on May 5, 1999, agreed to purchase PGE’s 2.5% interest in Centralia. The purchase of PGE’s share is anticipated to close on or before November 30, 1999. In addition, Avista notes that it has entered into an agreement with Snohomish PUD to purchase their 8% share of Centralia in the event the sale to TECWA Power does not close. Should the sale to TECWA Power not close Avista will own a 25.5% (15% original, plus 2.5% PGE, plus 8% Snohomish PUD) interest in the power plant.
The Company’s after-tax gain resulting from the sale is expected to be approximately $30 million. The gross purchase price is subject to certain adjustments. The actual dollar value of the net gain on the sale will not be finalized until the close of the transaction. The net depreciated book value of the plant, the Company contends, is approximately $17 million. As reflected in the Application, Avista intends to defer the gain and will propose an allocation of the gain between shareholders and customers and will propose a ratemaking treatment of the customer share of the gain in a future proceeding. Avista has not yet obtained replacement power and is continuing to evaluate replacement power options and costs.
Avista acknowledges the jurisdiction of the Commission with regard to its rates, charges, services and practices. The Company asks that the requested approvals, to the extent required, be made on an expedited basis. The termination date for the agreement with TECWA Power is May 5, 2000. The contract permits termination if regulatory approvals are not received within 180 days of filing. The Company requests that its Application be processed pursuant to Modified Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204.
The Company’s Application includes a copy of the Centralia Power Plant Purchase and Sale Agreement, the Company’s December 31, 1998 Annual Report--Form 10-K Securities and Exchange Commission filing, and the related prefiled testimonies of Gary Ely, Executive Vice President; George Perks, Superintendent of Thermal Operations; William Johnson, Power Contract Analyst; and Ronald McKenzie, Senior Rate Accountant.
On September 7, 1999, the Commission in Case No. AVU-E-99-6 issued a Notice of Application and established a September 17 Deadline for Intervention. The Commission also solicited comment on the Company’s proposal to process its Application pursuant to Modified Procedure. The deadline for filing written comments regarding the Company’s proposed use of Modified Procedure was September 30, 1999. Written comments were filed by Potlatch Corporation (granted intervention by Order No. 28164) and Commission Staff.
Based on its preliminary review, Staff supports the Company’s request to process its Application pursuant to Modified Procedure. Staff identifies the following issues that it intends to address: (a) prudence of sale—reclamation risk, multiple owner risk, economics (cost of replacement power, etc.), (b) gain—dollar calculation and regulatory treatment. Staff proposed the following Modified Procedure scheduling:
Comment deadline
Utility reply December 3, 1999
December 30, 1999
It is Potlatch’s contention that Modified Procedure is not appropriate. By way of reasoning, Potlatch states the following:
The extent to which ratepayers are entitled to participate in the gain on the sale of depreciable utility property is a recurring and often contentious issue before this Commission. A full analysis of the relevant case law on the subject is beyond the scope of these Comments, but it is important to note that the Commission in recent years has uniformly adhered to the view that:

The customers are entitled to share in any gain attributable to the sale of depreciable property. The customers have paid rates based on a revenue requirement that included the assets to be transferred and therefore have an equitable interest. Citing: IPUC Order No. 25753, Case Nos. PPL-E-94-1 & WWP-E-94-1 at p. 6 (October 5, 1994).

In its Application and the accompanying prefiled testimony, Avista proposes to defer the question of ratepayer participation in the gain from the Centralia sale to some unspecified “future proceeding.” Application at p. 5. This proposal is unreasonable on its face. Allowing Avista to retain the ratepayers’ share of the sale proceeds would effectively convert its customers into involuntary lenders, at zero percent interest for an undefined period of time. An even more glaring defect in the proposal is that neither Avista’s customers nor the Commission can adequately evaluate the public interest aspects of the sale until its economic ramifications are identified. This, in turn, requires resolution of a number of issues such as the proper method of calculating the gain, the portion attributable to the ratepayers, and the rate making treatment of replacement power costs.

The Commission must also consider the ramifications of the Centralia sale in the light of potential restructuring of the electric utility industry. Utilities should not be allowed to profit from from the piecemeal sale of selected generating assets at prices above book value, and then subsequently insist after restructuring that ratepayers are responsible for the stranded cost of less valuable assets. The Commission can preclude such an inequitable result only by attaching appropriate conditions to any order approving the Centralia sale.

These issues cannot be adequately considered without evidentiary hearings.…

COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case No. AVU-E-99-6 including the comments of Commission Staff and Potlatch Corporation. The Commission has also considered the Centralia related testimony in Case No. WWP-E-98-11 and its direction to the Company regarding Centralia. The Commission notes that the Company in this case has also requested a Commission determination regarding classification of its Centralia generation facility upon sale as an “eligible facility” for purpose of subsequent operation by an exempt wholesale generator (EWG). This matter has been handled by separate notice issued August 31, 1999 and is not the subject of further comment.
YOU ARE HEREBY NOTIFIED that the Commission after reviewing the comments filed in this case regarding the appropriateness of Modified Procedure in processing the Company’s Application regarding issues presented in its filing pertaining to the sale of its Centralia facilities has determined that Modified Procedure is inappropriate and that the matter should be set for hearing. Reference IDAPA 31.01.01.204.
YOU ARE FURTHER NOTIFIED that pursuant to agreement of the parties and the Commission, the following scheduling has been adopted:
December 3, 1999 Prefile deadline - direct testimony, Staff/Intervenors
December 30, 1999 Prefile deadline - rebuttal testimony, Avista
All prefile dates are “in hand” dates. The prepared testimony and exhibits must conform to the requirements of Rules 266 and 267 of the Commission’s Rules of Procedure. Reference IDAPA 31.01.01.266-267.
The parties are apprised that discovery is available pursuant to Commission Rules of Procedure, IDAPA 31.01.01.221-234. The parties should coordinate discovery requests and responses so that they are able to comply with the established prefile deadlines.
YOU ARE FURTHER NOTIFIED that the Commission will conduct a public hearing in Case No. AVU-E-99-6 commencing at 9:30 A.M. WEDNESDAY, JANUARY 19, 2000 AT THE COMMISSION HEARING ROOM, 472 WEST WASHINGTON, BOISE, IDAHO, and continuing if necessary on Thursday, January 20, 2000, at the same location.
YOU ARE FURTHER NOTIFIED that all hearings and prehearing conferences in this matter will be held in facilities meeting the accessibility requirements of the Americans with Disabilities Act. Persons needing the help of a sign language interpreter or other assistance of the kind that the Commission is obligated to provide under the Americans with Disabilities Act in order to participate in or to understand the testimony and argument at a public hearing may ask the Commission to provide a sign language interpreter or other assistance at the hearing. The request for assistance must be received at least five (5) working days before the hearing by contacting the Commission Secretary at:
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone] (TELEPHONE)
[phone] (TEXT TELEPHONE)
[phone] (FAX)

YOU ARE FURTHER NOTIFIED that all proceedings in this case will be held pursuant to the Commission’s jurisdiction under Title 61 of the Idaho Code and that the Commission may enter any final Order consistent with its authority under Title 61.
YOU ARE FURTHER NOTIFIED that all proceedings in this matter will be conducted pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
YOU ARE FURTHER NOTIFIED that the Application in Case No. AVU-E-99-6 can be reviewed at the Commission office and at the Idaho offices of Avista Corporation dba Avista Utilities – Washington Water Power Division during regular business hours.
DATED at Boise, Idaho this day of October 1999.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

blsN:AVU-E-99-6_sw2

NOTICE OF SCHEDULING
NOTICE OF HEARING 1

Office of the Secretary
Service Date
October 25, 1999