20000908sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
DAVE SCHUNKE
RANDY LOBB
RICK STERLING
KATHY STOCKTON
WORKING FILE
FROM:
DATE:
SEPTEMBER 8, 2000 RE: CASE NO. AVU-G-00-1 (Avista)
HAMILTON STREET BRIDGE SITE
HAZARDOUS WASTE CLEAN UP

On May 23, 2000, Avista Corporation dba Avista Utilities—Washington Water Power Division (Idaho) filed an Application with the Idaho Public Utilities Commission (Commission) requesting authority to defer clean-up costs associated with gas manufacturing activities conducted at its previously owned Hamilton Street Bridge site, including an allocation to Idaho of 31.574% and the accrual and deferral of related carrying charges.
The Hamilton Street Bridge Site is located in Spokane, Washington and contains properties upon which a manufactured gas plant and a coal-tar processing plant (collectively the Spokane Gas Plant) once operated. The Company reports that the Washington State Department of Transportation directed an environmental investigation of the site and documented the presence of hydrocarbon contaminated soils.
As reflected in the Company’s Application, on January 15, 1999, Avista received notice from the State of Washington Department of Ecology (WDOE) that it had been designated as a potentially liable party with respect to any hazardous substances located at the property upon which the former Spokane Gas Plant once operated. The Spokane Gas Plant operated as a coal gasification plant in the early 1900s until 1948. The Hamilton Street Bridge property was acquired by the Company through a merger in 1958, together with gas distribution facilities in Washington and Idaho. The Company no longer owns the property.
Avista reports that it submitted a draft remedial investigation study to the WDOE and is reviewing its comments. The Company has also submitted a draft feasibility study to the WDOE. The feasibility study sets forth four preliminary cleanup alternatives priced from $304,000—total capital and monitoring cost (the Company’s preference) to $33,910,670. The final cleanup action plan is to be determined by the WDOE. Through May 11, 2000, Avista reports that it has incurred approximately $889,000 in incremental costs associated with the Company’s remedial investigation and feasibility study. Avista is requesting Commission authorization to defer incremental costs associated with the remedial investigation, feasibility study, remedial measures and monitoring of the Hamilton Street Bridge Site.
Avista is proposing that incremental costs associated with the Hamilton Street Bridge Site be deferred in Account 186.2, Miscellaneous Deferred Debits. Avista is proposing that the recovery of the deferred costs, including carrying charges, be addressed in a future rate proceeding. Avista is proposing to accrue carrying charges using the interest rate authorized for customer deposits, which is currently 5.00% for the year 2000. Carrying charges would continue to accrue until the balance of the deferred costs and accrued carrying charges are determined and included in rate base and an amortization is recovered through customer rates.
The allocation to the Washington and Idaho jurisdictions proposed by the Company is the gas jurisdiction four-factor allocation percentage in the Company’s current gas general rate case, i.e., 68.426% for Washington and 31.574% for Idaho.
On June 21, 2000, the Commission issued Notices of Application and Modified Procedure in Case No. AVU-G-00-1. The deadline for filing written comments was July 21, 2000. The Commission Staff was the only party to file comments (attached). A Reply to Staff’s comments was filed by the Company on August 8, 2000, (attached).
Staff in its comments provides background information on the coal gasification process, the underlying 1958 merger between Water Power and Spokane Natural Gas Company, and the 1978 sale of the Hamilton Street Bridge facilities and site. The original cost in 1958 was $5,912. The 1978 sale price was $100,000. The gain on the sale was $94,088.
Potentially liable parties for the hazardous waste clean-up at the Hamilton Street Bridge site in addition to Avista are Burlington Northern Santa Fe Railroad and Spokane River Properties (the current owners of the property).
Based on its analysis and investigation Staff makes the following recommendations:
Staff recommends that the expenses be booked to Account 186.2, Miscellaneous Deferred Debits as proposed by the Company using the current allocation method.

Staff recommends that the reasonableness of the expenses be determined at a future date when the Company requests recovery in rates.

Staff recommends that no interest accrue on the deferred account balance.

Staff recommends that the amount in the deferred account be amortized. The current expenditures should be amortized over a five-year period beginning in January 2001. Amounts incurred after December 31, 2000 should be amortized over a five-year period beginning the January following the date it is booked.

Staff recommends that there be a review of all environmental expenses booked to the deferred account prior to any recovery in current rates.

Staff recommends that the environmental expenses be shared between the ratepayers and the shareholders. The sharing should be determined at the time the costs are included in rates. The items listed in the discussion above should be examined to determine the sharing, and litigated if necessary at that time.

The Company in its Reply Comments provides additional information regarding historical accounting for the property. The Company notes that the properties acquired through the merger included franchises and contracts which were used to provide gas service in Idaho. Avista contends that it is not necessary to demonstrate that the Hamilton Street Bridge site (simply a portion of the property acquired through the merger) was included in Idaho rate base to seek recovery of clean-up costs from Idaho ratepayers. It was system property, the Company states, allocated to Washington and Idaho. Further, the rate base amount in question on a system basis, the Company notes, is only $5,912. Avista notes that the gain on sale was recorded in Account 421.1—Gain on Disposition of Property in conformance with the accounting instructions of the FERC Uniform System of Accounts. Avista proposes that the gain on the sale of the Hamilton Street Bridge site be used as a credit against incremental costs associated with remedial investigation, feasibility study and remedial measures and monitoring of the site. The Company, by way of attachment, provides its responses to Staff production requests.
Commission Decision
In Case No. AVU-G-00-01, Avista requests authorization to defer costs associated with the Hamilton Street Bridge site hazardous waste clean-up. Staff’s recommendations are set out above. Does the Commission wish to authorize deferral accounting in this matter? If so, does the Commission wish to adopt Staff’s proposed recommendations?

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DECISION MEMORANDUM 4