20021003min.doc

MINUTES OF DECISION MEETING
OCTOBER 3, 2002 – 1:30 P.M.

In attendance were Commissioners Paul Kjellander, Dennis Hansen, and Marsha Smith.

Commissioner Kjellander called the meeting to order. The first order of business was APPROVAL OF MINUTES FROM PREVIOUS MEETINGS. There was no discussion and the minutes were approved.

The next order of business was approval of items 2-11 on the CONSENT AGENDA. Commissioner Smith asked for clarification of Staff’s recommendations on items 5 and 9. There were no further comments or questions. Commissioner Kjellander moved for approval of the Consent Agenda. A vote was taken and the motion carried unanimously.

The next order of business was MATTERS IN PROGRESS. Commissioner Kjellander noted that item 12 had been pulled from the agenda at the request of Qwest.

Scott Woodbury’s September 30, 2002 Decision Memorandum re: Case No. AVU-E-02-6 (Avista); Power Cost Adjustment (PCA) Surcharge; Application for Extension.

Mr. Woodbury reviewed his Decision Memo. Commissioner Kjellander asked for clarification regarding Staff’s conclusion reached today about the treatment of small generation options. He questioned if it altered Staff’s recommendation as to what should be reviewed on a going forward basis. Mr. Woodbury replied that Staff’s conclusion reached today was how the capital costs related to Kettle Falls, Devils Gap, and Othello were going to be treated. He said it didn’t change Staff’s recommendation that they not pass through the PCA, so it didn’t change Staff’s recommendation as reflected in Exhibit A.

Commissioner Kjellander stated that in light of the treatment the Commission has given all the other companies and in light of the fact that the Commission anticipated that the company would be back with the recommendation to extend the surcharge for another year, he didn’t see any reason based on what we’ve seen in the record not to move to accept the continuation of the surcharge. He said he also moved to accept Staff’s adjustments that they have identified with regards to the facilities mentioned in the memo and look at a further review of risk management and other issues identified by Mr. Woodbury. He said even though he doesn’t like the idea of having surcharges go on, we know why they are there and understand what went on in the marketplace. He said he recognizes it is a hardship to customers but we also need to recognize that by going the route we have, we have been able to spread it out over a number of years. He said to try to whittle it down just to extend it over several more years doesn’t seem to make a lot of sense. He asked for discussion on the motion.

Commissioner Hansen commented that at the time Avista made its decisions, it was a very difficult time as far as knowing where the price of electricity would wind up in the coming year. He said at the time when Avista locked into the forward prices it looked like a good decision, but the circumstances changed greatly. He said it was probably a twist of fate and not mismanagement, and he could support the motion and approve the extension.

Commissioner Kjellander stated that after the Commission initiated the first surcharge, Avista was looking at possibly being able to reduce the deferral amount through some possible wholesale sales into what was then a very volatile, high market. He said FERC then kicked in its price mitigation, prices dropped, and the possibility of recouping or lowering any of the deferred amounts went away. He said there were so many things that couldn’t be counted on that to look at it now with hindsight genius would be a mistake.

Commissioner Smith asked if the motion included the deferral arrangement proposed by Staff. She said she understands the recommendation is not to include it in the PCA. Commissioner Kjellander said it wasn’t included in the motion because he didn’t know if it had been resolved completely among the parties. Mr. Lobb stated that Staff had not had an opportunity to respond to the Company’s Reply Comments indicating it had requested a deferral of those capital costs. He said what the Company had originally proposed was expensing in a single year and recovery through the PCA, which Staff opposed. He said Staff did not necessarily oppose a deferral and immediate amortization, which would be something Staff has accepted before with a reasonable amortization period of five to ten years. He said it is not something Staff has discussed with the Company, however, so it is not something that is part of the recommendation today.

Mr. Woodbury asked Commissioner Kjellander if his motion also included Staff’s proposal to deny any increase in the carrying charge. Commissioner Kjellander stated that he did not mention that specifically but intended in his blanket motion to include Staff’s recommendations, which would include Staff’s treatment of the carrying charge. Mr. Woodbury replied it is set on an annual basis at the customer rate.

Kelly Norwood of Avista, who was participating by teleconferencing, commented that with regard to Staff’s recommendation on the Othello, Kettle Falls, and Devils Gap proposal to amortize over some period of time, it would in essence accomplish to some degree what the Company had proposed in its Reply Comments, which is to have the opportunity to recover those in some way or have the opportunity to address them. He said by deferring them and beginning to amortize them, it would in essence accomplish what the Company needs at this point in time, with the understanding the Company would have the opportunity to address those in the next case, also. He said the Company would assume there would be some kind of carrying charge consistent with the 4% that is there on the deferral costs. Mr. Norwood said that in terms of their perspective, they would be agreeable to Staff’s recommendation regarding the five-year amortization.

Commissioner Smith noted she was confused regarding the carrying charge and asked if it is on the amortization deferral or if it is the previous issue. Mr. Norwood replied that the carrying charge is currently 4% on the PCA deferral and he was just recommending or assuming there would be a 4% carrying charge on these costs that would be amortized over five years, in order to be consistent.

Mr. Lobb stated that Staff has not historically recommended a carrying charge on deferral of a capital balance amortized subject to consideration in a subsequent rate case. Commissioner Kjellander noted that is not an issue in this specific motion, but it is something we can and should deal with soon. He said it is a separate issue from the motion in front of the Commission today. He said at present, we are dealing with whether it should be included in the PCA, and the motion before the Commission is that it will not be included. He suggested that the Staff and Company should talk further upon completion of the meeting. He thanked Mr. Norwood for his input.

There was no further discussion on the motion. A vote was taken and the motion carried unanimously.

The next order of business was RULEMAKING:

Don Howell’s September 26, 2002 Decision Memorandum re: Updating the Railroad Accident Reporting Rules. Case No. 31-7102-0201.

Mr. Howell reviewed his Decision Memo. There was no discussion. Commissioner Smith made a motion to adopt the rules as pending rules and issue a notice to that effect. A vote was taken on the motion and it carried unanimously.

Commissioner Kjellander then adjourned the meeting.

DATED this _____ day of October, 2002.

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COMMISSION SECRETARY

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