991007_avue996-pace992_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
TERRI CARLOCK
RANDY LOBB
KATHY STOCKTON
WORKING FILE

FROM:

DATE: October 7, 1999

RE: CASE NOS. AVU-E-99-6 (Avista)/PAC-E-99-2 (PacifiCorp)
CENTRALIA SALE
EWG “ELIGIBLE FACILITY” STATUS

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 Avista of its 15% ownership interest in the coal-fired Centralia Power Plant, a 1340 megawatt generation facility located in the state of Washington. The facility is co-owned by Avista (15%), PacifiCorp (47.5%), City of Seattle (8%), City of Tacoma (8%), Snohomish PUD (8%), Puget Sound Energy (7%), Grays Harbor County PUD (4%) and Portland General Electric (2.5%).
On August 12, 1999, PacifiCorp dba Utah Power & Light Company (PacifiCorp) filed an Application with the Commission regarding the proposed sale by PacifiCorp of its 47.5% ownership interest in the Centralia Power Plant (and related facilities) and the rate based portion of its ownership interest in the adjacent Centralia Coal Mine. PacifiCorp is the sole owner of the Centralia Mine.
The purchaser of the Centralia generating unit is TECWA Power, Inc. (TECWA Power) and the purchaser of the Centralia Coal Mine is TECWA Fuel, Inc. (TECWA Fuel), both Washington corporations and both wholly-owned subsidiaries of TransAlta Corp., a Canadian energy corporation. Upon sale it is represented that the generation facilities will become wholesale generation.
As represented in their respective Applications, the owners of the Centralia facilities decided to sell the assets due principally to the possible need for additional capital expenditures (sulfur dioxide scrubbers and low nitrogen burners) to meet air emission requirements and the potential impact of U.S. electric utility industry deregulation trends on the prospect for recovery of utility plant-in-service investment. The purchase price of the generating facility as reflected in the Centralia Plant Purchase and Sale Agreement is $452,598,000. The purchase price of the coal mine as reflected in the Centralia Coal Mine Purchase and Sale Agreement is $101,400,000. The gross purchase prices are subject to certain adjustments which must be incorporated in any calculation of net gain.
The Commission has jurisdiction over the Idaho rates and charges of Avista and PacifiCorp. A portion of the respective rates and charges for each utility represents recovery of rate based investment in Centralia generation and/or mine facilities.
PacifiCorp and Avista seek a Commission ruling pursuant to Section 32(c) of the Public Utility Holding Company Act of 1935 (PUCHA) (codified at 15 U.S.C. § 79z-5a(c)) classifying the Centralia Power Plant as an “eligible facility,” thus allowing the purchaser to operate the plant as an Exempt Wholesale Generator (EWG) under federal law. Specifically, the utilities seek a Commission determination that operation of Centralia as an “eligible facility” upon sale (1) will benefit consumers, (2) is in the public interest, and (3) does not violate state law. The utilities request expedited processing of the EWG determination. Expedited processing, they state, is important from a timing standpoint. TransAlta, it is explained, cannot commence processing its application with the Federal Energy Regulatory Commission (FERC) in order to obtain FERC’s qualification of these generation assets as “eligible facilities” and TECWA Power as an “Exempt Wholesale Generator” until the Commission has made the three determinations required by federal statute. The utilities ask that their requested determination be made prior to and contingent upon the required regulatory approvals of the sale. As completion of sale cannot take place without the relevant state regulatory approvals, it is represented that this assures making these determinations will not prejudge the merits of the proposed sale under Idaho statutory standards.
The Applications filed by PacifiCorp and Avista include copies of the Centralia Power Plant Purchase and Sale Agreement, Centralia Coal Mine Purchase and Sale Agreement, other transactional documents and prefiled testimonies of company witnesses.
On August 31, 1999, the Commission in Case Nos. AVU-E-99-6 and PAC-E-99-2 issued a consolidated Notice of Request for Determination of EWG “eligible facility” status and Modified Procedure. In its Notice the Commission found that the issue presented regarding the classification of the Centralia generation facility as an “eligible facility” for purpose of subsequent operation by an exempt wholesale generator (EWG) under federal law was an issue that could be addressed by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. The deadline for filing written comments regarding EWG determination and proposed use of Modified Procedure was September 24, 1999. Commission Staff was the only party to file comments (attached).
In its comments Staff states the following:
Commission Staff has reviewed the referenced U.S. Code language regarding Exempt Wholesale Generators (see Attachment A, 15 U.S.C.A § 79z-5a). The ownership interests of Avista and PacifiCorp in the Centralia coal-fired generation facilities are a part of each utility’s rate base in Idaho on which each receives a return on investment and are now and have been included in the rate base of each utility since or prior to October 24, 1992.

…

For Centralia to be considered as an eligible facility by FERC for EWG status, this Commission is required to make a specific determination that allowing such a facility to be an “eligible facility” (1) will benefit consumers, (2) is in the public interest, and (3) does not violate state law. The third requested determination is perhaps the most straight forward. Based on its review of the Idaho Code, Staff represents that it has discovered no Idaho laws that address the issues raised by this request, and none prohibit or limit the authority of TECWA Power as an EWG to operate the plant as a wholesale facility.

The remaining requested determinations (1) and (2) are more problematic. Staff is in the midst of its investigation, has outstanding production requests, has yet to decide whether it supports the proposed sale and has yet to assess the benefits to customers and the public interest inherent in a completed sale. … Staff represents to the Commission, to Avista and to PacifiCorp that should Staff ultimately conclude that the proposed sale should be approved, such recommendation will be supported by a belief that qualifying the presently rate based generation facilities after the sale as “eligible facilities” for EWG status determination will both benefit the consumer and be in the public interest.

Commission Decision
As set forth in the Application, TransAlta intends to seek FERC approval to own and operate the Centralia facilities with Exempt Wholesale Generator status. Because the Centralia facilities are currently in the rate bases of PacifiCorp and Avista for their jurisdictional sales of electricity in this state, 15 U.S.C. § 79z-5a(c) requires that TransAlta include in its EWG application to FERC a statement that this Commission has determined that allowing the plant to be a wholesale facility operated by an EWG “(1) will benefit consumers; (2) is in the public interest; and (3) does not violate state law.” Issuing the requested EWG determination will not preclude any party from raising, addressing or resolving any other issues including, without limitation, the standard to be applied in resolving whether to approve the proposed sale or the appropriate regulatory treatment for any gain realized as a result of the sale. The requested EWG determination can be conditioned upon final approval of the proposed sale. An EWG determination will have no precedential effect with respect to approval of the proposed sale, the standard to be applied in resolving whether to approve the proposed sale, or any issue other than EWG determination. Should the Commission decline to ultimately approve the proposed sale, the EWG determination will become null and void.
Does the Commission continue to find Modified Procedure regarding the issue of EWG “eligible facility” status to be reasonable?
Does the Commission find it reasonable to issue the determination required under 15 U.S.C. § 79z-5a(c) conditioned upon the Commission’s final and/or ultimate approval of the proposed sale?

vld/M:AVU-E-99-6/PAC-E-99-2

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