9910_sw.doc

DECISION MEMORANDUM

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

FROM:

DATE: October 14, 1999

RE: CASE NO. PAC-E-99-02 (PacifiCorp)
CENTRALIA SALE

On August 12, 1999, PacifiCorp (Company) filed an Application with the Idaho Public Utilities Commission (Commission) regarding the proposed sale by the Company of its 47.5% ownership interest in the Centralia steam generating plant (and related facilities) and the 47.5% rate based portion of its ownership interest in the Centralia Coal 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 with $5 billion (Canadian) in assets and guarantor of certain obligations and duties undertaken by TECWA Power and TECWA Fuel.
PacifiCorp seeks a Commission Order approving the sale of the Company’s interest in the Centralia steam generating plant and the rate based portion of the Centralia Coal Mine. Citing Idaho Code § 61-523--Valuation. PacifiCorp also seeks a Commission Order adopting the Company’s methodology to calculate the gain associated with the sale and the proposed ratemaking treatment of the gain.
As represented in the Application, the owners of the Centralia facilities decided to sell the assets due principally to the possible need for additional capital expenditures to meet new 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 gross proceeds from the sale of the generating facility and the mine were allocated between the generating plant price of $452,598,000 and coal mine price of $101,400,000. The gross purchase prices are subject to certain adjustments which must be incorporated in any calculation of net gain. PacifiCorp’s share of the gain associated with the sale is estimated to be approximately $83 million on a system wide basis. The actual dollar value of the net gain on the sale will not be finalized until the close of the transaction.
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 copies of the Centralia Power Plant Purchase and Sale Agreement and Centralia Coal Mine Purchase and Sale Agreement, other transactional documents and the prefiled testimonies of Company witnesses C. Alex Miller, Managing Director of Planning; Dr. Roger Weaver, Director, Regulatory and Strategy Support; and Anne E. Eakin, Vice President Regulation.
On September 7, 1999, the Commission in Case No. PAC-E-99-2 issued a Notice of Application and a Deadline for Intervention. The Commission also solicited comment on the Company 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 the Commission Staff. (Comments attached).
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 believes that the issues in the respective cases of Avista and PacifiCorp dealing with the justification for the sale and distribution of the gain resulting from the sale are similar and can be addressed under Modified Procedure. Although Staff’s investigation is still underway, it is Staff’s belief that factual differences can be adequately addressed in written comments. Staff indicates, however, that it is ready to proceed to hearing in one or both of the cases should the Commission, the Company, or other parties believe that a hearing is necessary to more fully evaluate the issues. Staff proposes the following Modified Procedure scheduling:
Staff/Intervenor comment deadline
Utility reply December 3, 1999
December 30, 1999
Commission Decision
The Commission has solicited comments regarding the Company’s proposal to process its Application pursuant to Modified Procedure. There are no intervenors in PacifiCorp’s case. In the Avista case, Potlatch opposes Modified Procedure and recommends that an evidentiary hearing be held. Does the Commission find Modified Procedure to be appropriate in Case No. PAC-E-99-2? If so, does the Commission find Staff’s proposed scheduling to be reasonable? If the Commission finds Modified Procedure to be unacceptable, what is the Commission’s preference?

vld/M:PAC-E-99-2_sw2

DECISION MEMORANDUM 3