20060120Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:CECELIA A. GASSNER
DATE:JANUARY 19, 2006
SUBJECT:CASE NOS. A VU-05-3 AND A VU-05-9; A VISTA CORPORATION'
APPLICATION FOR AN ACCOUNTING ORDER REGARDING
TREATMENT OF CERTAIN ASSET REQUIREMENT OBLIGATIONS
RESULTING FROM IMPLEMENTATION OF SF AS 143
On November 30, 2005 , A vista Corporation ("A vista" or "Company ) filed an
Application with the Idaho Public Utilities Commission ("Commission ) seeking an accounting
order authorizing the Company to treat certain asset retirement obligations ("AROs ) for the
current and future fiscal years in accordance with Statement of Financial Accounting Standards
(SFAS) 143. Avista is required to implement SF AS 143 as clarified by Financial Accounting
Standards Board Interpretation (FIN) 47 in order to comply with Generally Accepted Accounting
Principles. Under SF AS 143 , entities are required to recognize and account for certain asset
retirement obligations in a manner different from the way that A vista and other public utilities
have traditionally recognized and accounted for such costs. Specifically, if a legally enforceable
ARO, as defined by SF AS 143, is deemed to exist, an entity must measure and record the
liability for the ARO on its books.
The Application states that the Company has determined that it will be required to
record AROs under SF AS 143 for certain assets. The Company states that the proposed
accounting treatment will have no impact for ratemaking purposes. The Company further states
that nothing in the Application is intended to request any approval regarding future ratemaking
treatment.
DECISION MEMORANDUM
STAFF RECOMMENDATION
On December 20 2005 , the Commission issued a Notice of Application and a Notice
of Modified Procedure with regards to this matter. During the written comment period allowed
by the Commission, only Staff filed written comments.
While Staffs review has identified immaterial inconsistencies in Avista
Application, Staff recommends approval for A vista to record, as a regulatory asset or regulatory
liability, the cumulative financial statement impact resulting from the implementation of SF
143 , and to record the ongoing annual differences between the SFAS 143 depreciation and
accretion expenses and the annual depreciation expenses that are currently authorized by the
Commission in depreciation rates.
Staff recommends that the Company record in separate sub-accounts the depreciation
expense for asset retirement costs and the accretion of the liability for the asset retirement
obligations. Staff believes this will aid tracking these items in subsequent cases.
Staff also recommends that the Commission require in its accounting order that
A vista file annually and as part of its rate case filings, all journal entries made under the
requirements of SFAS 143 , including documents supporting the determination of regulatory
assets and liabilities and related dollar amounts. Due to the nature of these entries, Staff will be
reviewing the underlying support for them during analyses of assets and depreciation. As a
result, Staff recommends that the Company maintain financial records associated with these
entries similar to the long-lived assets to which they relate.
Staff acknowledges that A vista has a reasonable opportunity to recover prudently
incurred removal costs. Staff recommends that the reasonableness of differences between actual
and estimated costs should be addressed when those events occur. Staff recommends that no
further confirmation be included in the Commission s accounting order.
Because these new accounting entries will not change the level of the costs included
in rates, Staff is making no recommendation regarding the treatment of SF AS 143 regulatory
assets and regulatory liabilities in future rate cases. If the assets and liabilities have an affect on
rates, then the ratemaking treatment should be determined at the time of a rate case.
Staff has been advised by the Company that the Company consents to and does not
oppose Staff s recommendations.
DECISION MEMORANDUM
COMMISSION DECISION
Does the Commission authorize A vista to record as a regulatory asset or regulatory
liability the cumulative and ongoing financial statement impact resulting from the
implementation of SF AS 143 as discussed above?
Does the Commission accept Staff s recommendation that the Company record in
separate sub-accounts the depreciation expense for asset retirement costs and the accretion of the
liability for the asset retirement obligations?
Does the Commission accept Staffs recommendation that Avista be required to file
annually and as part of its rate case filings, all journal entries made under the requirements of
SF AS 143 , including documents supporting the determination of regulatory assets and liabilities
and related dollar amounts?
cec
M:A VU-O5-A VU-O5-09 _cg2
DECISION MEMORANDUM