20210201Final_Order_No_34906.pdf

ORDER NO. 34906 1

Office of the Secretary
Service Date
February, 1, 2021
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

AVISTA CORPORATION’S APPLICATION
FOR AN ACCOUNTING ORDER FOR
APPROVAL TO CHANGE ITS
ACCOUNTING FOR FEDERAL INCOME
TAX EXPENSE FOR CERTAIN PLANT
BASIS ADJUSTMENTS AND DEFERRAL OF
ASSOCIATED CHANGE IN TAX EXPENSE
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CASE NOS. AVU-E-20-12
AVU-G-20-07

ORDER NO. 34906

On October 30, 2020, Avista Corporation (“Company”) applied to: (1) change its
accounting for federal income tax expense from a normalization method to a flow-through method
for certain plant basis adjustments, and (2) defer associated change in tax expense. Application at
1.
On December 10, 2020, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing comment deadlines for the Commission Staff (“Staff”) and
interested persons and a Company reply deadline. See Order No. 34868. Staff filed the only
comments and supported the Company’s Application. The Company did not reply.
Having reviewed the record, the Commission issues this Order approving the
Company’s Application.
THE APPLICATION
The Company represents it currently uses the normalization method to calculate federal
income taxes for most plant-related temporary book-to-tax differences. Id. The Company requests
authorization to use the flow-through method to calculate certain plant basis adjustments, including
Industry Director Directive No. 5 (“IDD #5”) mixed service costs and meters. Application at 1.
The Company asserts this proposed change would provide immediate benefit to customers. Id.
The Company proposes to defer those benefits and to start providing them to customers in its next
general rate case. Id.
STAFF COMMENTS
Staff recommended that the Commission approve the Company’s Application,
authorizing the Company to change its accounting method for federal income tax expense to a
flow-through method for certain plant basis adjustments, including IDD #5 mixed service costs
and meters. Staff Comments at 2. For tax purposes, the changes in accounting treatment would
reclassify certain previous capital expenditures as expenses under Internal Revenue Code (“IRC”)
ORDER NO. 34906 2

§ 481(a) adjustments.1 Id. Furthermore, Staff believed that using the flow-through method on
certain plant basis adjustments would immediately benefit customers. Id.
Staff observed that the tax normalization accounting method is used by regulated public
utilities to reconcile the tax treatment of accelerated depreciation of assets with their regulatory
treatment. Id. The different treatment between tax accounting and regulatory accounting creates
deferred income taxes. Id. Staff stated that under normalization, a utility receives the tax benefit
of accelerated depreciation in the early years of an asset’s regulatory useful life, and then passes
that benefit to ratepayers over the asset’s remaining regulatory useful life by using the associated
Accumulated Deferred Federal Income Tax (“ADFIT”) to offset rate base, lowering customer
rates. Id.
The flow-through tax accounting method treats the utility’s actual current federal
income tax liability as the utility’s tax expense when determining the utility’s rates. Id. The
accelerated depreciation is immediately deductible and reduces the utility’s rates by decreasing the
utility’s current income tax expense. Id. Consequently, the ADFIT reserves that flow through are
excluded from the rate base calculation because the tax benefit was already provided to customers.
Id.
The IDD #5 mixed service costs and meters have been capitalized and, under IRC §
263(a), are protected assets and subject to tax normalization accounting requirements. These
requirements rarely allow accelerated depreciation tax benefits to flow through to ratepayers. Id.
But under Treasury Regulation 26 C.F.R. § 1.263A-1(f)(4), a utility may use any reasonable
method to allocate costs among units of property produced or property acquired for resale during
the taxable year. On this basis, the IRS allows the flow-through accounting method, which the
Company proposes to use for IDD #5 mixed service costs and meters. Id. at 3.
Regarding customers comments, the Commission set a December 31, 2020 comment
deadline. Order No. 34868. No customer comments were filed.
COMMISSION FINDINGS AND DECISION
The Company is a gas corporation and electric corporation as defined in Idaho Code
§§ 61-117 and 61-119, and a public utility as defined in Idaho Code § 61-129. The Commission
has jurisdiction over this matter under Idaho Code §§ 61-502, 61- 503 and 61-524. Based upon
our review of the Company’s Application and Staff Comments, we find it is fair, just, and

1 When a taxpayer changes its accounting method, IRC § 481(a) adjustments are required to be made to prevent items
from being duplicated or omitted.
ORDER NO. 34906 3

reasonable to grant the Company’s Application. The Company presently uses the normalization
method to calculate federal income taxes for most of its plant-related temporary book-to-tax
differences. Allowing the Company to use the flow-through method to calculate federal income
tax for certain plant basis adjustments, including IDD #5 mixed service costs and meters, provides
immediate benefits to customers by reducing current tax expense in the Company’s 2021 general
rate case filing. Under the current circumstances, we find that returning the deferred tax balances
associated with IDD #5 mixed service costs and meters to customers sooner, rather than using
those balances to offset plant in service in the future, is fair and in the public interest. The
Commission acknowledges that all of the jurisdictions within which the Company does business
must also approve these tax accounting changes before they can be implemented. Nevertheless,
we look forward to seeing these benefits realized for Idaho customers.
ORDER
IT IS HEREBY ORDERED that the Company’s Application is granted. The Company
may use the flow-through method to calculate federal income tax for IDD #5 mixed service costs
and meters.
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 about 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 § 61-626.
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ORDER NO. 34906 4

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 1st day
of February 2021.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary

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