20150601Schuh Direct.pdf

DAVID J. MEYER VICE PRESIDENT AND CHIEF COUNSEL FOR REGULATORY & GOVERNMENTAL AFFAIRS AVISTA CORPORATION P.O. BOX 3727 1411 EAST MISSION AVENUE SPOKANE, WASHINGTON 99220-3727 TELEPHONE: [phone] FACSIMILE: [phone] [e-mail]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-15-05 OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-15-01 AUTHORITY TO INCREASE ITS RATES ) AND CHARGES FOR ELECTRIC AND ) NATURAL GAS SERVICE TO ELECTRIC ) DIRECT TESTIMONY AND NATURAL GAS CUSTOMERS IN THE ) OF STATE OF IDAHO ) KAREN K. SCHUH ) FOR AVISTA CORPORATION (ELECTRIC AND NATURAL GAS)
I. INTRODUCTION 1
Q. Please state your name, employer and business 2
address. 3
A. My name is Karen K. Schuh. I am employed by 4
Avista Corporation as a Senior Regulatory Analyst in the 5
State and Federal Regulation Department. My business 6
address is 1411 East Mission, Spokane, Washington. 7
Q. Please briefly describe your educational 8
background and professional experience. 9
A. I graduated from Eastern Washington University in 10
1999 with a Bachelor of Arts Degree in Business 11
Administration, majoring in Accounting. After spending six 12
years in the public accounting sector, I joined Avista in 13
January of 2006. Since 2006, I have worked in various 14
positions within the Company in the Finance Department 15
(Plant Accounting and Resource Accounting) and joined the 16
State and Federal Regulation Department as a Regulatory 17
Analyst in 2008. Currently, as a Senior Regulatory 18
Analyst, I am responsible for, among other things, 19
preparing the capital pro forma adjustments in 20
determination of revenue requirements for all 21
jurisdictions. 22
Q. What is the scope of your testimony? 23
A. My testimony and exhibit schedules in this 24
proceeding will cover the Company’s planned capital 25
02-20-2015 9:15 AM Schuh, Di Page 1 Avista Corporation
investments in utility plant through December 31, 2017. 1
Company witness Ms. Andrews, has included adjustments to 2
reflect these investments in her electric and natural gas 3
revenue requirements for the 2016 and 2017 two-year rate 4
plan. 5
A table of contents for my testimony is as follows: 6
Description Page 7
I. Introduction 1 8
II. Capital from December 2014 through 9 December 2017 3 10 11 III. Capital Investment Planning and Review 6 12
13
Q. Are you sponsoring any Exhibits? 14
A. Yes. I am sponsoring Exhibit No. 11, Schedules 1 15
through 3, which were prepared by me or under my direction, 16
and have been included to provide supporting information 17
for the capital investment as described in this testimony. 18
Exhibit No. 11, Schedule 1 shows a summary of capital 19
expenditures from 2005 through 2019. Exhibit No. 11, 20
Schedule 2 depicts the increases in costs of transmission 21
substations, transmission equipment, distribution 22
substations, and distribution equipment that the utility 23
industry has experienced over the past fifty years. 24
Schedule 3 lists and describes the capital projects 25
included in this case. 26
27
Schuh, Di Page 2 Avista Corporation
II. CAPITAL INVESTMENT FROM DECEMBER 31, 2014 1 THROUGH DECEMBER 2017 2
3 Q. Why has the company included three years (2015 -4
2017) of capital additions in this case? 5
A. As discussed further by Company witness Ms. 6
Andrews, the Company is proposing a two-year rate plan for 7
calendar years 2016 and 2017. This rate plan is proposed in 8
order to avoid annual rate cases in its Idaho jurisdiction. 9
Q. How were the capital additions through the 2017 10
rate year developed in this case? 11
A. As in prior rate cases, Avista started with rate 12
base for the historical test year, which, for this case, is 13
the average-of-monthly-averages (“AMA”) for the twelve 14
months ended December 31, 2014, and made the following 15
adjustments as shown in Illustration 1 and described below: 16
Illustration 1: 17
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Timeline of Capital Adjustment
2017 Rate Year2016 Rate Year
2014 2015 2016 2017
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2016 Rate Year: 1
(1) 2014 Plant In Service – The 2014 AMA plant in 2
service balance is adjusted to a 2016 AMA 3
balance. This is done by first walking forward 4
the accumulated depreciation (“AD”) and 5
accumulated deferred federal income 6
taxes(“ADFIT”) to a 2014 EOP balance, then to a 7
2015 EOP balance, and finally, to a 2016 AMA 8
balance, as shown in the illustration above. 9
(2) 2015 Capital Additions – This adjustment adds 10
capital additions to plant in service during 11
20151, including the AD, depreciation expense and 12
ADFIT associated with these additions, on a 2015 13
EOP basis. This also includes an adjustment for 14
the impact of asset retirements in 20152. Next, 15
these additions are carried forward to a 2016 AMA 16
basis by extending AD, and ADFIT balances. 17
(3) 2016 Capital Additions – This adjustment adds the 18
capital additions to plant in service during 2016 19
on an AMA basis. This adjustment includes the 20
1 For each of the periods 2015, 2016 and 2017, distribution-related capital expenditures associated with connecting new customers to the Company’s system were excluded. The Pro Forma adjustments do not include the increase in revenues from growth in the number of customers from the historical test year to the 2016 and 2017 rate years, and therefore, the growth in plant investment associated with customer growth should also be excluded. 2 The 2014 test year and the adjustment from AMA 2014 to EOP 2014 capture the impacts of retirements for 2014. The adjustment to capital rate base for 2015 - 2017 includes reducing rate base and depreciation expense for the impact of retirements.
Schuh, Di Page 4 Avista Corporation

depreciation expense, accumulated depreciation 1
and ADFIT associated with these additions. This 2
also includes an adjustment for the impact of 3
asset retirements in 20163. 4
2017 Rate Year: 5
(1) 2014 Plant In Service - The 2014 plant in service 6
balance is adjusted from a 2016 AMA basis to a 7
2017 AMA basis by carrying forward the plant 8
balances. This is done by first extending AD and 9
ADFIT balances on utility plant in service from 10
the 2016 AMA basis to a 2016 EOP basis, and then 11
from 2016 EOP to a 2017 AMA basis. 12
(2) 2015 Capital Additions – This adjustment takes 13
the capital additions to plant in service during 14
2015, to a 2017 AMA basis. This is done by first 15
extending AD and ADFIT balances on utility plant 16
in service from the 2016 AMA basis to a 2016 EOP 17
basis, and then from 2016 EOP to a 2017 AMA 18
basis. 19
(4) 2016 Capital Additions – This adjustment takes 20
the capital additions to plant in service during 21
2016 to an EOP basis. This adjustment includes 22
the depreciation expense, accumulated 23
depreciation and ADFIT associated with these 24
3 Id.
Schuh, Di Page 5 Avista Corporation

additions. This also includes carrying the 2016 1
EOP balance forward by extending AD and ADFIT to 2
a 2017 AMA balance. Finally, this includes an 3
adjustment for the impact of asset retirements in 4
20164. 5
(5) 2017 Capital Additions – This adjustment adds the 6
capital additions to plant in service during 2017 7
on an AMA basis. This adjustment includes the 8
depreciation expense, accumulated depreciation 9
and ADFIT associated with these additions. This 10
also includes an adjustment for the impact of 11
asset retirements in 20175. 12
The specific capital additions are identified later in my 13
testimony. In addition, the plant tables depicting the 14
electric and natural gas Pro Forma adjustments for December 15
2014 through 2017 are shown later in my testimony at tables 16
9 through 14. 17
18
III. CAPITAL INVESTMENT PLANNING AND REVIEW 19
Q. Please describe Avista’s capital investment 20
planning, or capital budgeting process. 21
A. Avista’s capital budgeting process provides for a 22
detailed review of capital projects and the progress on 23
those projects, by using “Business Cases.” A Business Case 24
4 Id.
Schuh, Di Page 6 Avista Corporation

is a summary document that provides support and analysis 1
for a capital project or program. Components of a Business 2
Case include: the project description, project 3
alternatives, cost summary, business risk, financial 4
assessment, strategic assessment, justification for the 5
project (e.g., mandatory, resource requirements, etc), 6
milestones, and key performance indicators. Business Cases, 7
along with a cover sheet for the projects included in this 8
Case, have been provided as additional support in Exhibit 9
No. 11, Schedule 3. 10
The budget process starts with project sponsors 11
submitting new and updated Business Cases to the Financial 12
Planning and Analysis (“FP&A”) group for the upcoming five 13
year period. The Business Cases are reviewed by FP&A and 14
then included in the list of projects and programs to be 15
considered for funding by the Capital Planning Group 16
(“CPG”). The CPG is a group of Directors that represent all 17
capital-intensive areas of the Company. The CPG meets to 18
review the submitted Business Cases and prioritize funding 19
to meet the capital budget targets set by senior 20
management. After approval from senior management, the 21
five-year capital spending plan is sent to the Company’s 22
Board of Directors for approval. The CPG meets monthly to 23
review the status of the capital projects and programs, and 24
5 Id.
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approve or decline new Business Cases as well as monitor 1
the overall capital budget. 2
Q. Is the Company confident that the capital 3
additions that are presented in this case will actually 4
occur for the period January 2015 through December 31, 5
2017? 6
A. Yes. The January through May 2015 projects are 7
completed and many of the projects for the balance of 2015 8
are already underway, either through actual construction, 9
signed contracts, and/or ordered materials. 10
Q. What is the historical and projected level of 11
annual capital spending for Avista? 12
A. Avista’s annual capital requirements have 13
steadily increased from approximately $158 million in 2006 14
to approximately $352 million in 2014. Capital spending of 15
approximately $1.08 billion is planned for 2015-2017 for 16
customer growth, investment in generation upgrades and 17
transmission and distribution facilities, as well as 18
necessary maintenance and replacements of our natural gas 19
utility systems. Capital expenditures of approximately 20
$1.77 billion are planned for the five-year period ending 21
December 31, 2019, as shown in Exhibit No. 11, Schedule 1. 22
The actual and planned capital spending for the 23
utility for the years 2006 through 2014 are shown in Table 24
No. 1 below. The table shows that actual capital spending 25
Schuh, Di Page 8 Avista Corporation
has been very close to the planned spending on a consistent 1
basis. The nine-year average of actual additions is 102% of 2
the planned spending. This table also shows that while 3
Avista has been increasing its capital spending, it is 4
generally remaining on budget. 5
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10
11
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15
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Q. Please discuss how the increase in capital 17
spending impacts transfers-to-plant included in this case. 18
A. The increase in spending will increase the level 19
of Construction Work in Progress (“CWIP”) and eventually 20
the levels of transfers-to-plant. Illustration No. 2 below, 21
shows capital spending, CWIP, and transfers-to-plant for 22
historical and planned levels. The level of CWIP will 23
increase during the years of construction of larger multi-24
year projects such as Project Compass, and the Nine Mile 25
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Generation Project. This is shown below where the trend in 1
CWIP increases starting in 2012, and ramps up until these 2
projects go into service in 2015. In 2015, the amount in 3
CWIP will return to more normal levels after these large 4
projects have transferred to service. However, the spending 5
and transfer-to-plant amounts shown below will be at a 6
higher level for the next couple of years. 7
Illustration 2: 8
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11
12
13
14
15
16
17
Q. How does new investment in utility plant change 18
rate base over time? 19
A. Avista’s investment in utility plant continues to 20
significantly exceed depreciation expense. Because of this, 21
rate base in the rate years will be significantly greater 22
than the historical test period rate base. 23
Q. What is driving the significant investment in new 24
utility plant? 25
-
$ 100,000,000
$ 200,000,000
$ 300,000,000
$ 400,000,000
$ 500,000,000
$ 600,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Spend Transfers to Plant Ending Balance -CWIP
Historical and Planned CWIP, Transfers to Plant and Spend
Schuh, Di Page 10 Avista Corporation
A. Company witness Mr. Kensok discusses the 1
Company’s replacement of its Customer Information System 2
(Project Compass) that went into service in February of 3
2015, as well as other investments in technology. As 4
Company witnesses Mr. Kinney and Mr. Cox, in particular, 5
explain in their testimony, it is necessary to add or 6
upgrade generation facilities and expand transmission and 7
distribution facilities, due in part to customer growth and 8
reliability requirements. Other issues driving the need for 9
capital investment include aging infrastructure and 10
municipal compliance issues (e.g., street/highway 11
relocations). 12
A significant factor in the growth in net plant 13
investment or rate base is the cost of new utility 14
equipment and facilities today, as compared to the cost of 15
the older facilities that are now being replaced. Some of 16
the facilities we are replacing or upgrading were installed 17
40-60 years ago, or even before that time. The cost to 18
replace this equipment and facilities today is many times 19
more expensive than when they were installed decades ago. 20
Q. What data is available that depicts the increase 21
in the cost of utility plant assets that have been added in 22
recent years, as compared to the original cost of the 23
facilities being replaced? 24
Schuh, Di Page 11 Avista Corporation
A. Using the Handy-Whitman Index Manual6, the 1
Company analyzed several major categories of plant. Exhibit 2
No. 11, Schedule 2 depicts the increases in costs of 3
transmission substations, transmission equipment, 4
distribution substations, and distribution equipment that 5
the utility industry has experienced over the past fifty 6
years. These charts show what these categories of plant 7
have cost historically on a relative scale. For example, on 8
Page 4 of Exhibit No. 11, Schedule 2, and also shown in 9
Illustration No. 3 below, distribution poles fifty years 10
ago would have a cost of approximately 9% of the current 11
replacement cost. 12
13
6 “The Handy-Whitman Index of Public Utility Construction Costs,” is published by Whitman, Requardt and Associates, Baltimore, Maryland, published in May 2013. The Handy-Whitman Indices of Public Utility Construction Costs show the level of costs for different types of utility construction. Separate indices are maintained for general items of construction, such as reinforced concrete, and specific items of material or equipment, such as pipe or turbo-generators. Handy-Whitman Index numbers are used to trend earlier valuations and original cost at prices prevailing at a certain date.
Schuh, Di Page 12 Avista Corporation

Illustration No. 3: 1
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Illustration No. 3 above and Exhibit No. 11, Schedule 14
2, show that the cost of the equipment and facilities that 15
are being added today are many times more expensive than 16
those same facilities installed in the past. Our retail 17
rates are "cost-based" and reflect the low cost of the old 18
equipment serving customers. When the equipment is 19
replaced, it requires an increase in rates to reflect the 20
much higher cost of the new equipment. 21
Q. With respect to Avista’s capital additions 22
through 2017, would there be operation and maintenance 23
(O&M) savings associated with the replacement of some of 24
the aging equipment? 25
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
Handy Whitman Cost Index
Distribution Equipment - Accts 364, 365 & 368
Schuh, Di Page 13 Avista Corporation
A. In some instances there will be a reduction to 1
O&M associated with the investment, and O&M cost savings 2
have been identified and reflected in this filing. However, 3
on a net basis, we will continue to experience increased 4
O&M costs to maintain a system that continues to age. Our 5
general practice is to attempt to replace our aging 6
equipment before it fails, because it is not only less 7
costly to replace this equipment on a systematic, planned 8
basis, but it also results in more reliable service to 9
customers, which is expected by all utility stakeholders. 10
If our practice were to avoid replacing utility equipment 11
until it failed, the reliability of our system would 12
suffer. 13
Therefore, it is imperative that we continue every 14
year to reinvest and upgrade a portion of our utility 15
system, in addition to the investments needed to meet 16
mandatory reliability requirements. The reinvestment and 17
upgrades actually serve, to a large extent, to slow the 18
growth of annual O&M costs, but does not necessarily result 19
in a year-over-year reduction to overall O&M costs. 20
Q. Please provide a summary of the January 2015 21
through December 2017 capital projects. 22
A. Exhibit No. 11, Schedule 3, details the system-23
level capital projects that were, or will be, transferred 24
to plant from January 2015 through December 2017. A listing 25
Schuh, Di Page 14 Avista Corporation
and/or description of the capital projects and their system 1
costs are provided below: 2
Generation: 3
The electric generation projects that will transfer to 4 plant-in-service are described in detail in Mr. 5 Kinney’s direct testimony. A listing of these projects 6 on a system basis are included in Table No. 2 below. 7 8 9 10 11 12
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23
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Business Case Name
2015
$ (000's)
2016
$ (000's)
2017
$ (000's)
122,939$ 45,509$ 83,716$
TABLE NO. 2Generation / Production Capital Projects (System)
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Electric Transmission: 1
The electric transmission projects that will transfer 2 to plant-in-service are described in detail in Mr. 3 Cox’s direct testimony. A listing of these projects 4 and system costs are included in Table No. 3 below. 5
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9
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11
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13
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15
16
17
18
19
20
Business Case Name
2015
$ (000's)
2016
$ (000's)
2017
$ (000's)
42,746$ 57,139$ 41,262$
TABLE NO. 3
Transmission Capital Projects (System)
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Electric Distribution: 1 2 The electric distribution projects that will transfer 3 to plant-in-service are described in detail in Mr. 4 Cox’s direct testimony. A listing of these projects 5 and system costs are included in Table No. 4 below. 6 7 8 9
10
11
12
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14
15
16
17
18
19
20
21
22
23
Business Case Name
2015
$ (000's)
2016
$ (000's)
2017
$ (000's)
68,457$ 60,368$ 62,266$
TABLE NO. 4
Distribution Capital Projects (System)
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General Plant: 1 2 The detailed listing of the general plant projects and 3 system costs that will transfer to plant-in-service 4 are included in Table No. 5 below, with narrative 5 summaries following the table. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Capital Tools & Stores Equipment – 2015: $2,348,000; 24 2016: $2,400,000; 2017: $2,400,000 25 This category includes equipment utilized in 26 warehouses throughout the service territory, such as 27 forklifts, manlifts, shelving, cutting/binding 28 machines, etc. Expenditures in this category also 29 include large tools and instruments used throughout 30 the Company for gas and/or electric construction and 31 maintenance work, distribution, transmission, or 32 generation operations, telecommunications, and some 33 fleet equipment (hoists, winch, etc.) not permanently 34 attached to the vehicle. 35 36 Central Office Facility (COF) Long Term Campus 37 Restructuring Plan – 2015: $7,500,000; 2016: 38 $4,000,000 39 The central operating facility (COF) campus 40 restructuring plan, phase one, is a two-year, multiple 41 project plan to address material storage, field 42 recovery operations, and office space needs. Over the 43 past few years, our warehouse material inventory has 44 increased and presently the materials are scattered in 45 multiple locations on the COF, due to them outgrowing 46 their allocated space. The campus restructuring will 47 increase and consolidate their storage area, resulting 48 in greater efficiencies for the warehouse and field 49
Business Case Name
2015
$ (000's)
2016
$ (000's)
2017
$ (000's)
28,742$ 10,060$ 12,560$
TABLE NO. 5General Plant Capital Projects (System)
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crews. In addition, two new structures will be built 1 to consolidate transformer recovery (both PCB and non-2 PCB), hazardous waste & material, and investment 3 recovery (recycling) operations. This will improve the 4 safety and efficiencies for collection of all field 5 recovery materials, as well as provide a one-stop drop 6 location for field crews (instead of the three 7 different locations on the COF right now). Due to 8 employee increases and off-site leased space, Avista 9 is also remodeling two existing areas in our service 10 building that will provide approximately 30 new 11 cubicles, meeting rooms, and offices. This will help 12 accommodate our new growth and may allow leased space 13 employees to return to the COF. In addition, savings 14 are gained due to line trucks and employees not having 15 to travel and off-load waste matter that is recyclable 16 or hazardous. 17 18 Structures and Improvements/Furniture – 2015: 19 $6,030,000; 2016: $3,600,000; 2017: $3,600,000 20 This program is for the Capital Maintenance, 21 Improvements, and Furniture at 50 plus Avista offices 22 and service centers (over 700,000 square feet in 23 total). Many of the included service centers were 24 built in the 1950's and 1960's and are starting to 25 show signs of severe aging. The program includes 26 capital projects in all construction disciplines 27 (roofing, asphalt, electrical, plumbing, HVAC, energy 28 efficiency projects etc.). 29 30 Apprentice Training – 2015: $121,000; 2016: $60,000; 31 2017: $60,000 32 This program is for on-going capital improvements to 33 support the essential skills needed for journeyman 34 workers, apprentices and pre-apprentices now and for 35 the future. It is important to provide the types of 36 training scenarios that employees face in the field. 37 Capital expenditures under this program include items 38 such as building new facilities or expanding existing 39 facilities, purchase of equipment needed, or build out 40 of realistic utility field infrastructure used to 41 train employees. Examples include: new or expanded 42 shops, truck canopies, classrooms, backhoes and other 43 equipment, build out of “Safe City” located at the 44 Company’s Jack Stewart training facility in Spokane, 45 which would include commercial and residential 46 building replicas, and distribution, transmission, 47 smart grid, metering, gas and substation 48 infrastructure. 49 50
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HVAC Renovation Project – 2015: $9,520,000 1 The HVAC Renovation Project began in 2007. The HVAC 2 Project is a systematic replacement of the original 3 1956 Heating, Ventilation and Air Conditioning System 4 for the Service Building, Cafeteria/Auditorium and 5 General Office Building. The original HVAC equipment 6 has been operating 24/7 since original construction in 7 1956. The Project entails a floor by floor evacuation 8 and relocation of employees and a complete demolition 9 of each floor; including a massive Asbestos Abatement 10 component, and removing the original fire proofing on 11 the basic steel structure. The Project requires 12 exhaustive demolition and reconstruction of each 13 floor. Sustainable energy savings and conservation are 14 built into the Project as we apply for LEED 15 certification for each floor. The 5th, 4th, and 3rd 16 floor has obtained LEED-CI Gold status recognizing all 17 of the renewable strategies we employed during the 18 design and construction phases. The goal of this 19 project is to re-purpose and recycle the entire 20 Facility for the next generation of Avista employees 21 to use for 50 more years. Life cycle costs weighed 22 heavily on our Construction Specifications and 23 equipment choices during the design phase. The design 24 team chose energy efficient equipment that was 25 designed for 30 to 50 year life cycles. The O&M offset 26 associated with this project will result in a 27 reduction to energy costs of $66,000 in 2015 and an 28 incremental reduction to energy costs of $10,000 in 29 2016. The allocations to Idaho are $21,190 Electric / 30 $3,830 Gas in 2015 and additional reduced energy costs 31 of $3,210 ID Electric / $580 Gas in 2016. This has 32 been included in the O&M Offsets adjustment as shown 33 in Ms. Andrews’ workpapers. 34 35 36
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Central Office Facility (COF) Long-Term Restructure 1 Phase 2 - 2015: $2,723,000; 2017: $5,000,000 2 Avista’s Central Office Facility (COF) Long Term 3 Restructuring Plan, Phase 2 involves the construction 4 of a new Fleet Vehicle Garage and four story parking 5 structure. By the end of 2015, facilities projects 6 will add approximately 183 new cubicles. Our parking 7 lots will be beyond maximum capacity. The Company 8 currently leases space from Burlington Northern for 9 employee parking. This lease space could be at risk in 10 the future, if Burlington needs the space. The Fleet 11 Garage is over 50 yrs old and is constrained. The new 12 garage will allow for maintenance of Compressed 13 Natural Gas vehicles as the current building does not 14 allow for this. Once Fleet is relocated there will be 15 a distinct separation between operational/service 16 vehicles and employee vehicles. This separation will 17 increase safety by eliminating intermingling of 18 pedestrians in work areas. The office building & 19 parking garage is projected to allow the Call Center 20 and any leased facilities to come back to Mission 21 campus. The Ross Park conversion to office space is 22 designed to cover future employee expansion that will 23 occur. We anticipate increases in O&M costs in both 24 2015 and 2016 related to this project, as a result of 25 the need for additional parking at our Mission Campus. 26 We have included an increase in O&M costs of $11,000 27 in 2015 and an incremental increase in O&M costs of 28 $11,000 in 2016 (a total of $22,000). The allocation 29 of these costs to Idaho in each year is $3,530 30 Electric and $640 Gas ($7,060 Electric and $1,280 Gas, 31 total). This has been included in the O&M Offsets 32 adjustment as shown in Company witness Ms. Andrews’ 33 workpapers. 34 35 Sandpoint Renovation – 2015: $500,000 36 This project will renovate the Sandpoint service 37 center. The renovation will include the construction 38 of a new line dock facility, covered storage buildings 39 to protect equipment, modernization of office spaces 40 and meeting rooms, and the construction of a small 41 warehouse. This project will address current long-42 standing material and equipment storage issues and 43 will result in increased efficiency of Avista’s 44 operations in the service area. 45 46 New Airport Hangar – 2017: $1,500,000 47 Avista’s existing airport hangar will no longer be 48 available to Avista in 2017, as the owner’s lease will 49 expire and the hangar will be demolished. This project 50
Schuh, Di Page 21 Avista Corporation
will address the need for a hangar to secure the 1 Company airplane. 2 3 Transportation: 4 5 The detailed listing of the transportation projects 6 and the system costs that will transfer to plant-in-7 service are included in Table No. 6 below, with a 8 narrative summary following the table. 9 10 11 12 13 14 15 16 17 18 19 20 Fleet Budget – 2015: $10,184,000; 2016: $7,700,000; 21 2017: $7,700,000 22 Expenditures are for the scheduled replacement of 23 trucks, off-road construction equipment and trailers 24 that meet the Company's guidelines for replacement 25 including age, mileage, hours of use and overall 26 condition. This also includes additions to the fleet 27 for new positions or crews working to support the 28 maintenance and construction of our electric and 29 natural gas operations. 30 31 32
Business Case Name 2015 $ (000's)2016$ (000's)2017$ (000's)
10,184$ 7,700$ 7,700$
TABLE NO. 6
Transportation Capital Projects (System)
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IS/IT: 1 The IS/IT projects that will transfer to plant-in-2 service are described in detail in Mr. Kensok’s direct 3 testimony. A listing of these projects and the system 4 costs are included in Table No. 7 below: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Jackson Prairie Storage – 2015: $1,356,000; 2016: 28 $1,175,000; 2017: $1,356,000 29 These projects include various capital improvements 30 that Avista and its partners will complete at the 31 Jackson Prairie facility. 32 33 34
Business Case Name 2015 $ (000's)2016$ (000's)2017$ (000's)
145,517$ 31,082$ 44,202$
TABLE NO. 7
IS/IT Capital Projects (System)
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Natural Gas Distribution: 1 The detailed listing of the natural gas distribution 2 projects and system costs that will transfer to plant-3 in-service are included in Table 8, with narrative 4 summaries following the table. The amounts listed 5 below are at a system level. Some of these costs are 6 allocated and some are directly assigned, the 7 allocation or direct assignment information is located 8 in my workpapers. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Aldyl A Replacement – 2015: $16,817,000; 2016: 35 $17,385,000; 2017: $18,263,000 36 The Company is continuing with a twenty-year program 37 to systematically remove and replace select portions 38 of the DuPont Aldyl A medium density polyethylene pipe 39 in its natural gas distribution system in the States 40 of Idaho, Oregon and Washington. None of the subject 41 pipe is “high pressure main pipe,” but rather, 42 consists of distribution mains at maximum operating 43 pressures of 60 psi and pipe diameters ranging from 1¼ 44 to 4 inches. This program is described further by Mr. 45 Kopczynski in his direct testimony. 46 47 Cathodic Protection – 2015: $1,292,000; 2016: 48 $1,000,000; 2017: $1,250,000 49
Business Case Name 2015 $ (000's)2016$ (000's)2017$ (000's)
45,741 48,635 49,500
TABLE NO. 8
Natural Gas Distribution Capital Projects (System)
Schuh, Di Page 24 Avista Corporation
This annual project upgrades, replaces, or installs 1 cathodic protection systems required to ensure 2 compliance with Pipeline and Hazardous Material Safety 3 Administration regulations regarding proper cathodic 4 protection of steel mains. 5 6 Gas Non-Revenue Program - 2015: $7,592,000; 2016: 7 $8,595,000; 2017: $8,680,000 8 This annual project will replace sections of existing 9 natural gas piping that require replacement to improve 10 the operation of the natural gas system but are not 11 linked to new revenue. The project includes 12 improvements in equipment and/or technology to improve 13 system operation and/or maintenance, replacement of 14 obsolete facilities, replacement of main to improve 15 cathodic performance, and projects to improve public 16 safety and/or improve system reliability. 17 18 Gas Reinforcement – 2015: $1,000,000; 2016: 19 $1,000,000; 2017: $800,000 20 This annual project will reinforce portions of the 21 existing natural gas system to ensure continued 22 reliable service during a design day for areas that 23 have had low pressure problems due to increased growth 24 and/or system demand. This project will identify and 25 install new sections of gas main to improve the 26 operating reliability and performance of the gas 27 distribution system. Execution of this program on an 28 annual basis will ensure the continuation of reliable 29 gas service that is of adequate pressure and capacity. 30 31 Gas Replacement Street & Highways – 2015: $5,035,000; 32 2016: $4,500,000; 2017: $4,500,000 33 This annual project will replace sections of existing 34 natural gas piping that require replacement due to 35 relocation or improvement of streets or highways in 36 areas where natural gas piping is installed. Avista 37 installs many of its facilities in public right-of-way 38 under established franchise agreements. Avista is 39 required under the franchise agreements, in most 40 cases, to relocate its facilities when they are in 41 conflict with road or highway improvements. 42 43 Gas Telemetry – 2015: $416,000; 2016: $400,000; 2017: 44 $400,000 45 The projects will include the installation of six flow 46 computers to replace existing aging infrastructure. 47 Additionally this project includes all new telemetry 48 installations, to include both wireless and hard-49 wired. 50
Schuh, Di Page 25 Avista Corporation
Isolated Steel Replacement – 2015: $3,458,000; 2016: 1 $3,550,000; 2017: $3,320,000 2 The Company is implementing a cathodic protection 3 program for the purpose of finding and addressing 4 isolated steel in its natural gas piping systems. 5 6 Overbuilt Pipe Replacement – 2015: $900,000; 2016: 7 $900,000; 2017: $900,000 8 This annual project will replace sections of existing 9 gas piping that have experienced encroachment or have 10 been “overbuilt”, i.e., where a structure has been 11 built over existing gas piping. It will address the 12 replacement of sections of gas main that no longer can 13 be operated safely and will identify and replace 14 sections of main to improve public safety. All types 15 of overbuilds will be addressed, with the primary 16 focus of the project being overbuilds in manufactured 17 home developments. 18 19 Regulator Station Reliability Replacement - 2015: 20 $812,000; 2016: $800,000; 2017: $800,000 21 This annual project upgrades or replaces various 22 regulator stations within the natural gas distribution 23 system, improving station reliability and reducing 24 operation and maintenance costs. Existing stations 25 require upgrades due to many factors, such as 26 replacement of obsolete equipment and improvement in 27 regulation technology. 28 29 Replace Deteriorating Steel Gas Systems – 2015: 30 $1,000,000; 2016: $1,000,000; 2017: $1,000,000 31 This annual program will replace sections of existing 32 steel gas piping that are suspect for failure or are 33 showing signs of deterioration within the gas system. 34 This program will address the replacement of sections 35 of gas main with corrosion-related issues that no 36 longer operate reliably and/or safely. Sections of the 37 gas system require replacement due to many factors 38 including material failures, environmental impact, 39 increased leak frequency, or coating problems. This 40 program will identify and replace sections of steel 41 pipe to improve public safety and system reliability. 42 43 Gas High Pressure (HP) Pipeline Remediation Program – 44 2016: $3,000,000; 2017: $3,000,000 45 The Gas Supply Main Remediation Program will replace 46 and/or relocate sections of gas pipelines (>100 psig 47 operating pressure as determined and prioritized by 48 Avista’s asset management programs. Reasons for the 49 replacements might include, but are not limited to; 50
Schuh, Di Page 26 Avista Corporation
lack of complete construction documents due to change 1 in ownership, lack of complete test documentation due 2 to more stringent record keeping practices, pipe 3 quality deficiencies from the manufacturing process, 4 and reducing risk in highly populated areas. 5 6 Gas Planned Meter Change-Out (PMC) Program-Capital 7 Replacements – 2015: $1,030,000; 2016: $1,061,000; 8 2017: $1,093,000 9 This annual program will provide for replacement of 10 gas meters and associated measurement equipment that 11 are completed in association with the Gas Planned 12 Meter Change-out (PMC) program. Avista is required by 13 commission rules and an approved Tariff in ID, WA, and 14 OR to test meters for accuracy and ensure proper 15 metering performance. Execution of this program on an 16 annual basis will ensure the continuation of reliable 17 gas measurement. This program will include the labor 18 and minor materials associated with the PMC program. 19 20 Rathdrum Prairie HP Main Reinforcement – 2016: 21 $5,000,000; 2017: $5,000,000 22 Based on recent load studies, load growth on Northwest 23 Pipeline’s Coeur d’Alene lateral will exceed both 24 Avista’s contractual delivery amounts as well as the 25 physical capacity of Northwest Pipeline. This project 26 includes the expansion of a gate station at Chase Road 27 off the GTN pipeline to support a phased-in high-28 pressure pipeline reinforcement to meet projected 29 capacity requirements in Post Falls and Coeur d’Alene, 30 which are currently fed from Northwest Pipeline. 31 32 Chase Road Gate Station – 2015: $5,987,000 33 This project reinforces gas service to the Rathdrum 34 and greater Coeur d’Alene area by installing a new 35 gate station near Chase Road and extending high 36 pressure main to reinforce the existing Rathdrum/Couer 37 d’Alene high pressure distribution system. 38 39 ERTs Replacement Program - 2015: $402,000; 2016: 40 $444,000; 2017: $494,000 41 This program covers labor required for the replacement 42 of 19,500 natural gas Encoder Receiver Transmitters 43 (ERTs) annually for a 12-year cycle, beginning in the 44 year 2015. Analyses has identified that a levelized 45 replacement strategy will minimize the effect of unit 46 failures as well as introduce new, levelized 47 populations of ERTs into the system for future 48 predictive maintenance. 49 50
Schuh, Di Page 27 Avista Corporation
Q. What is the net impact to electric rate base for 1
the twelve months ended December 31, 2014, in order to 2
restate capital from an AMA to an end-of-period basis? 3
A. Electric net rate base for capital investment as 4
of year-end December 31, 2014 increased $226,000 from 5
$650,748,000 on a December 31, 2014 AMA basis to 6
$650,974,000 on an December 31, 2014 EOP basis as shown in 7
Table No. 9 below.7 8
Table 9: Electric Rate Base at December 31, 2014 9
10
11
12
13
14
15
16
17
18
19
7 The relatively small increase in electric and a decrease in natural gas rate base from AMA to EOP at December 31, 2014, is primarily due to an increase in accumulated deferred federal income taxes. That increase is the result of Avista recording in the test period an estimate of the impact of a tax deduction the Company intends to file in its 2014 federal income tax return. Avista plans to make a “Change of Accounting” filing to implement certain IRS Tangible Property Regulations associated with revised rules on property capitalization versus repair requirements. The study to implement this tax accounting change, which is commonly referred to as a “Repairs Study”, will be finalized during the first quarter of 2015. In September 2014, the Company recorded its estimate with the best information available and currently does not expect the overall estimate to change materially.
Plant Additions in 000's
Electric Adjustment
Adjustment Number- Exhibit No_(EMA-4)1.03Workpaper Reference - Exhibit No.__(EMA - 4)E- RCAP
AMA 12.31.14 EOP
2014 Adjustment 12.31.14
Schuh, Di Page 28 Avista Corporation

Q. What is the net impact to natural gas rate base 1
for the twelve months ended December 31, 2014, in order to 2
restate capital from an AMA to a December 31, 2014 end-of-3
period basis? 4
A. Natural gas net rate base for capital investment 5
as of twelve-months-ended December 31, 2014, decreased 6
$2,674,000, from $109,465,000 on an AMA basis to 7
$106,791,000 on a December 31, 2014 EOP basis. Table No. 10 8
below summarizes the adjustment included in the case.8 9
10
Table No. 10: Natural Gas Rate Base at December 31, 2014 11
12
13
14
15
16
17
18
19
Q. What is the net change to electric rate base from 20
December 2014 EOP through 2016 AMA capital investment? 21
A. Electric net rate base increases $75,924,000, 22
from $650,974,000 to $726,898,000 from the December 2014 23
8 Id.
Plant Additions in 000's
Adjustment Number- Exhibit No_(EMA-5)1.03Workpaper Reference - Exhibit No.__(EMA - 5)G- RCAP
AMA 12.31.14 EOP BALANCE
2014 Adjustment 12.31.14
Total Plant Cost 204,167 4,169 208,336
Total Accumulated Depreciation (69,686) (1,825) (71,511)
Total Accumulated DFIT (25,016) (5,018) (30,034)
Net Rate Base 109,465 (2,674) 106,791
Schuh, Di Page 29 Avista Corporation

EOP basis to 2016 on an AMA basis, as shown in Table No. 11 1
below. 2
Table No. 11: Electric Plant Activity EOP 2014 – AMA 2016 3
4
5
6
7
8
9
10
11
Q. What is the net change to natural gas rate base 12
from December 2014 EOP through 2016 AMA for capital 13
investment? 14
A. Natural gas net rate base increases $11,045,000, 15
from $106,791,000 to $117,836,000 from the December 2014 16
EOP basis to 2016 on an AMA basis, as shown in Table No. 12 17
below. 18
19
Plant Additions in 000's
Electric Adjustment
Adjustment Number- Exhibit No_(EMA-4)3.09 3.10
Workpaper Reference - Exhibit No.__(EMA - 4)E-CAP15 E-CAP16
EOP 2015 EOP 2016 AMA BALANCE
12.31.14 Adjustment 12.31.15 Adjustment 2016
Schuh, Di Page 30 Avista Corporation
Table No. 12: Natural Gas Plant Activity EOP 2014 – AMA 1
2016 2
3
4
5
6
7
8
9
Q. What is the net increase in Electric rate base 10
from AMA 2016 to AMA 2017 related to 2017 capital 11
expenditures? 12
A. Electric rate base will increase $17,746,000 from 13
the 2016 AMA balance of $726,898,000 to $744,644,000 at AMA 14
2017, as shown in Table No. 13 below. 15
Table No. 13: Electric Plant Activity 2016 AMA to 2017 AMA 16
17
18
19
20
21
22
23
Plant Additions in 000's
Adjustment Number- Exhibit No_(EMA-5)3.07 3.08
Workpaper Reference - Exhibit No.__(EMA - 5)G-CAP15 G-CAP16
EOP BALANCE 2015 EOP BALANCE 2016 AMA BALANCE
12.31.14 Adjustment 12.31.15 Adjustment 2016
Plant Additions in 000's 17.05E-CAP17AMA BALANCE 2017 AMA BALANCE
2016 Adjustment 2017
Schuh, Di Page 31 Avista Corporation
Q. What is the net increase in natural gas rate base 1
from AMA 2016 to AMA 2017 related to 2017 capital 2
expenditures? 3
A. Natural gas rate base increases $3,339,000 from 4
the 2016 AMA balance of $117,837,000 to $121,177,000 at AMA 5
2017, as shown in Table No. 14 below. 6
Table No. 14: Natural Gas Plant Activity 2016 AMA to 2017 7
AMA 8
9
10
11
12
13
14
15
Q. Did you factor in retirements for the January 16
2015 through December 2017 Electric and Natural Gas pro 17
forma adjustments? 18
A. Yes. The Company used an estimate based on 19
planned transfers-to-plant and historical retirements, and 20
then allocated these by functional group to service and 21
jurisdiction. Further detail is provided in my workpapers. 22
Q. How were the offsets determined for the January 23
2015 through December 2017 plant investment? 24
Plant Additions in 000's 17.03G-CAP17AMA BALANCE 2017 AMA BALANCE
2016 Adjustment 2017
Schuh, Di Page 32 Avista Corporation
A. Each capital addition was analyzed to determine 1
any offsets (e.g., reduced O&M costs, reduced load losses, 2
etc.). Maintenance records were reviewed to determine 3
whether any specific maintenance costs were incurred in the 4
test period that would be reduced or eliminated by the 5
investment at the facility. For transmission projects, 6
analyses were conducted to determine the amount of 7
potential load loss savings that would be achieved. Those 8
costs were quantified and included as a reduction to O&M 9
costs in the O&M Savings pro forma adjustment included by 10
Ms. Andrews in the revenue requirement as a part of her Pro 11
Forma Adjustments. 12
In addition, the output from generation assets is 13
included in the AURORAXMP power cost model. Therefore, to 14
the extent that the additional investments serve to either 15
preserve or increase generation from the generation 16
projects, the benefits are already reflected in the 17
AURORAXMP model. 18
Q. What is the rationale behind the removal of 19
capital expenditures for connecting new customers? 20
A. The capital expenditures for the period January 21
2015 through December 2017 exclude distribution-related 22
capital expenditures that are associated with connecting 23
new customers to the Company’s system. Excluding these 24
capital expenditures from the Pro Forma Adjustments 25
Schuh, Di Page 33 Avista Corporation
recognizes the fact that new customers provide incremental 1
revenue that helps offset costs associated with these 2
distribution-related capital additions. Retail revenues for 3
the Pro Forma Adjustments are based on historical test 4
period loads, and do not include revenues from new 5
customers beyond the test period. 6
Q. Does this conclude your pre-filed direct 7
testimony? 8
A. Yes, it does. 9
Schuh, Di Page 34 Avista Corporation