20060630final_order_no_30091.pdf

Office of the Secretary
Service Date
June 30, 2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF A VISTA CORPORATION DBA A VISTA
UTILITIES FOR AN ORDER APPROVING A
CORPORATE REORGANIZATION TO
CREATE A HOLDINGCOMP ANY, AVA
FORMATION CORP.
CASE NOS. A VU-06-
A VU 06-
ORDER NO. 30091
On February 16, 2006, Avista Corporation dba Avista Utilities ("Avista" or
Company ) filed an Application with the Idaho Public Utilities Commission seeking an order
for authority to conduct a corporate reorganization and form a holding company to be known as
A V A Formation Corp. This Commission has the jurisdiction over such request pursuant to
Idaho Code g 61-328.
On April 28, 2006, the Commission issued a Notice of Application, Notice of
Workshop and Notice of Modified Procedure, seeking comments from any interested persons.
See Order No. 30026. The Order specifically set forth that a public workshop would be held on
May 16, 2006 to discuss issues arising from the Application. No person or entity petitioned to
intervene in the matter.
A vista requested an order granting the Company authority to modify its current
corporate structure through the establishment of a holding company. The holding company,
A V A Formation Corp. (the "Parent Corporation ), would be formed as the parent company of
the existing regulated company, Avista Corporation. The Parent Corporation would also be the
parent company of Avista Capital, Inc., which would continue to hold non-regulated subsidiaries.
A vista Corporation, doing business as A vista Utilities, is currently the corporate
parent. The proposed structure would make A vista Utilities a separate company under the Parent
Corporation and Avista Corporation would no longer exist as an operating entity.
A vista states that due to the recent repeal of the Public Utilities Holding Company
Act of 1935 (PUHCA), the Company considers it to be in the best interest of customers and
shareholders to change the corporate structure of A vista by forming a holding company structure.
The Company believes that this reorganization would provide additional protection for
ratepayers by "ring-fencing" or further separating utility operations from the Company s other
non-regulated businesses.
ORDER NO. 30091
THE STIPULATION
Pursuant to Order No. 30026, representatives of the parties conducted a public
workshop on May 16, 2006, and engaged in discussions focusing on key protections for
ratepayers with a view toward resolving issues arising from the Application. No other persons
attended the meeting. Based upon the discussions between the parties as a compromise of the
positions in this case, and for other consideration as set forth below, the parties agreed to various
commitments that the Company will undertake as part of the reorganization.
The settlement Stipulation contains 33 "commitments" or conditions that the
Company commits to perform in support of the Application. The commitments address the need
for ring-fencing, allow the Commission and Staff substantial access to the books and records of
the utility and Parent Corporation, set forth cost allocation methodologies, and address equity
building mechanisms and dividend payments. The Stipulation parties assert that the
commitments satisfy the statutory standards for the Company s reorganization as set out in Idaho
Code g 61-328. Stipulation at g 9. In the Motion that accompanied the Stipulation, the parties
urged the Commission to adopt the Stipulation, its commitments, and issue an Order approving
the reorganization.
The Company will need to approach other states to seek their approval of the
reorganization. The settlement Stipulation also contains a "most favored nations" provision.
Stipulation at g 7. This provision allows the Commission to review and adopt any commitment
or condition ordered by the other states, even after an Order in this matter is issued. Thus, any
assurances, conditions or benefits adopted in the other states that would create a benefit to Idaho
customers could subsequently be adopted in Idaho under the terms of the Stipulation.
The parties to the Stipulation recommended that the Commission approve and adopt
the commitments in their entirety. They further agree not to appeal any portion ofthe Stipulation
or any Order approving the same. The Stipulation parties also recognize that approval of the
Stipulation and commitments shall not bind the Commission "in other proceedings with respect
to the determination of prudence, just and reasonable character, rate or ratemaking treatment, or
public interest of services, accounts, costs, investments, in any particular construction project
expenditures or actions referred to in (the) Commitments.
ORDER NO. 30091
COMMENTS
Comments to the Application were received from a member of the public and from
the Commission Staff. The member of the public is a customer and shareholder of the Company.
The customer expressed concern that the Parent Corporation may be unable to resolve bad loans
it may procure without negatively impacting the utility company. The customer urged the
Commission to deny the Company s Application.
Staff contends that the Application along with the commitments in the Stipulation
meet the requirements set forth under Idaho Code g 61-328. Staff points out that Commitment
Nos. 1 , 10, 11 , 15, 17, 18, 19 , and 31 address the need for ring-fencing, with
provisions ranging from separate books and records for each entity to providing a non-
consolidated opinion to the Commission demonstrating that the ring-fencing around Avista
Utilities is sufficient to prevent A vista Utilities from being pulled into a Parent Corporation
bankruptcy proceeding. Additionally, Commitment Nos. 2, 3, 5 , 13 , 23 , and 24 provide Staff
with access to a full range of books, records and other documents which would pertain to A vista
Utilities and its affiliates, including the Parent Corporation. Comprehensive reporting
requirements are also included in the commitments that would require the Parent Corporation
and A vista Utilities to report to Staff and request approval from the Commission when certain
events occur, such as the procurement of loans , the spin-off of any entity, the dissolution of
business activities, dividend payment arrangements, and changes in the credit ratings of each
entity.
In addition Staff supports the commitments that include comprehensive
arrangements for complying with cost allocation methodologies, as well as commitments
involving the payment of dividends. The Company agreed, in Commitment No. 18, that A vista
Utilities will not make any dividends to the Parent Corporation that would reduce A vista
Utilities' common equity capital below 25% of its Total Adjusted Capital without the
Commission s approval.
Staff believes that the reorganization should reduce the utility s risk and improve
credit ratings. Staff does not anticipate rating downgrades based on recent credit rating reviews.
However, in the event of a credit rating downgrade due to the reorganization, Staff will calculate
the impact on customers and propose an adjustment be made to Avista Utilities' revenue
requirement in the appropriate rate proceedings.
ORDER NO. 30091
Staff recommended approval of the proposed reorganization given that the Company
and its affiliates have agreed to implement these specific commitments, conditions and reporting
mechanisms. Staff recommended that the Commission accept and approve the Stipulation and
adopt the Commitments in Appendix A thereto. Staff asserts that these Commitments adequately
protect Idaho ratepayers and serve the public interest.
COMMISSION FINDINGS
Before authorizing such a transaction, the Commission must find that: (1) the
transaction is consistent with the public interest; (2) the cost of and rates for supplying service
will not be increased by reason of such transaction; and (3) A vista has the bona fide intent and
financial ability to operate and maintain Avista s operation in Idaho. Based on its review ofthe
Application, the Stipulation, the comments and other documents related to this matter, the
Commission finds that the above standard has been met.
In reviewing the Company s Application and the agreed-upon commitments , the
Commission finds that the parties took into account customer comments that expressed concerns
regarding loan arrangements and inter-company financing. Commitment No. 29 addresses these
concerns by requiring A vista Utilities to demonstrate that the procurement of any loan from the
Parent Corporation does not interfere with any of the ring-fencing mechanisms that secure the
utility.
The Commission finds that the commitments in the Stipulation assure that the public
interest is protected with ring-fencing provisions and that these barriers are not overcome by any
affiliate where the credit rating of one is used to offset the diminished rating of the other. The
operations and structure of A vista Utilities and the Parent Corporation will continue to meet the
requirement of having the bona fide intent and financial ability to operate and maintain said
property in the public service.
CONCLUSIONS OF LAW
The Commission has jurisdiction over this matter pursuant to Idaho Code g 61-328.
Section 61-328 prohibits Avista from transferring any interest in Avista without the written
authorization of this Commission. The Commission may attach conditions to its authorization
and enter any final Order consistent with its authority under Title 61.
ORDER NO. 30091
ORDER
IT IS HEREBY ORDERED that the Applications of Avista Corporation, Case Nos.
A VU-06-1 and A VU-06-, and the Stipulation and the commitments therein, are approved.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code g 61-
626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
"""
day of June 2006.
PAUL KJ
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSE , COMMISSIONER
ATTEST:
O:A VU-06-A VU-06-cg2
ORDER NO. 30091