20221206Application.pdf

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Avista Corp.
1411 East Mission P.O.Box3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
Dece,nrber 6,2022
Commission Secretary
State of Idaho
Idaho Public Utilities Commission
11331 W. Chinden Blvd. Building 8, Suite 201-A
Boise,Idaho 83714
Case No. AYU-E-Z2-16| G-22- 9.8
RE: Petition of Avista Corporation for an Accounting Order
Dear Ms. Noriyuki,
Attached for filing with the Commission is Avista's Petition for an Order to: (l) defer the
expected impacts associated with the occrurence ofpension events; and (2) immediately amortize
the impact of pension events (i.e., the increase or reduction in regulatory assets or liabilities) to
expense over the same period used to amortize the underlying regulatory assets or liabilities, such
that there is no impact to customer rates.
Please direct any questions on this matter toLizAndrews at [phone]
Sincerely,
/s/ Paul Kimball
Paul Kimball
Manager of Compliance & Discovery
Enclosures
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DAVID J. MEYER
VICE PRESIDENT ANID CHIEF COIJNSEL FOR
REGULATORY AND GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O.BOX3727
141I EAST MISSION AVENUE
SPOKAI.IE, WASHINGTON 99220 -3 7 27
TELEPHONE: [phone]
david.meyer@ avistacom.com
lil?i DEC -6 PH 2: 56
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BEFORE TIIE IDAIIO PT'BLIC UTILITIES COMMISSION
IN TTIE MATTER OF TIIE APPLICATION OF
AVISTA COPJORATION, D/B/A AVISTA
UTILITIES, FOR AN ORDER AUTHORIZING
DEFERRAL ACCOUNTING AND ACCOUNTING
ORDER RELATED TO NON.CONTRIBUTORY
DEFINED BENEFIT PENSION PLANS
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cAsENO. AW-E-ZZ-!y
CASENO. AW-G-zz-!A
APPLICATION OF AVISTA CORPORATION
I. INTRODUCTION
Avista Corporation, doing business as Avista Utilities (hereinafter "Avista" or
"Company''), at l4ll East Mission Avenue, Spokane, Washington, pursuant to Section 6l-524
Idaho Code and Rule 52 of the Idaho Public Utilities Commission ("Commission Rules of
Procedure"), hereby applies to the Commission for an order to: (1) defer the expected impacts
associated with the occurrence ofpension events as discussed below; and (2) immediately amortize
the impact of pension events (i.e., the increase or reduction in regulatory assets or liabilities) to
expense over the same period used to arnortize the underlying regulatory assets or liabilities, such
that there is no impact to customer rates. Together, these requests allow the company to account
for the impact of pension events, such as settlements and curtailments, in a manner that closely
approximates the amortization that would have continued but for the accelerated recognition
required by standard accounting principles as a result of a pe,nsion event.
For financial reporting on its employer-sponsored retirement plans, referred to as non-
contributory defined benefit pension plans, Avista typically records certain pension-related costs
and credits as a regulatory asset or liability and amortizes the balance over the actuarial remaining
life expectancy of pension plan participants. ffis allows for smooth recognition of the
unrecognized costs each year through consistent amortization expense.
If certain pension events occur, however, Accounting Standards Codification (ASC) 715-
30, which is the Financial Accounting Standards Board (FASB) accounting standard goveming
defined benefit pension plans, requires Avista to recognize portions of these otherwise amortizable
costs in earnings immediately rather than continuing to record such costs as a regulatory asset or
liability for amortization over a period of years. Absant an order from the Commission, this will
necessitate recording certain pension-related gains or losses in annual eamings in each such year,
rather than amortizing these gains and losses over the expected life of plan participants.
Application of Avista Corporation
Case No. AYU-E-zz- & AVU-G-zz-Page I of9
One of these pension events will occur in 2022, triggering a requirement for Avista to
recognize approximately $l I million (system) in pension-related losses for the year. Avista
requests deferral of the 2022pension settlement losses that, absent the ability to defer and amortize
over the average remaining lives of plan participants, would be immediately recognized in the
Company's financial statements. Approval by this Commission of the proposed deferral treatnent
of the settlement losses as described in this petitior/application, as well as approval to amortize
the deferred settlement loss balance over approximately L2 years (the actuarial assumption of the
remaining life expectancy of plan participants) would result in no impact to customers and
continue to allow recovery of these costs consistent with recovery in rates today.
The requested order to defer this expense and to amortize these and similar costs going
forward as a regulatory asset or liability, notwithstanding the occurrence of certain pension events,
will reduce interannual variability in pension costs for the remaining life of Avista's non-
contributory defined benefit pension plans.
Avista is a utility that provides service to approximately 405,000 electric customers and
370,000 natural gas customers in a 26,000 square-mile area in northern Idaho, eastern Washington,
and Oregon. The largest community served by Avista is Spokane, Washington, which is the
location of its corporate headquarters. Communications in reference to this Application should
be addressed to:
David J. Meyer, Esq.
Vice President and Chief Counsel for
Regulatory & Governmental Affairs
Avista Corporation
141I E. Mission Avenue, MSC l3
Spokane, Washington 99220 -37 27
Telephone: [phone]
E-mail : david.meyer(d) avistacorp. com
Patrick Ehrbar
Director of Regulatory Affairs
Avista Corporation
1411 E. Mission Avenue, MSC 27
Spokane, Washington 99220 -37 27
Telephone: [phone]
E-mail : patrick. ehrbar(Eavistacorp.com
E-mail: [e-mail]
Application of Avista Corporation
Case No. AVU-E-zz- & AW-G-22-Page2 of 9
Pursuant to Commission Rule of Procedure 201, the Company requests that this filing be processed
under the Commission's rules for Modified Procedure.
[. BACKGROUI\D
A. Avista Defined Benefit Pension Plan
Avista has a defined benefit pension plan (Pension Plan) covering substantially all regular
full-time employees at Avista Utilities that were hired prior to January l,2}l4.t As a part of the
plan, qualiffing employees may consider early retirement options, subject to Pension Plan
provisions, beginning as early as age 55. Benefits are paid under several options specified in the
Pension Plan. Such payments include life annuity benefits, social security level income, ten-year
certain benefits, and lump sum cash payments. It is the last option, lump sum cash payments (or
distributions), that is the driver behind this filing. As will be discussed in more detail below, lump
sum distributions can lead to settlement accounting being triggered, which has occurredn2022.
B. Funded Status on the Balance Sheet
Accounting Standards Codification (ASC) 715-30 requires recognition of the funded status
of the Pension Plan on the balance sheet, measured annually at the measurement date (typically
December 3l).2 The funded status is the difference between the fair value of the Pension Plan
assets and the projected benefit obligation. As of December 31, 2021 (the last Pension Plan
measurement date), the Pension Plan had a funded status of ($9. 1 ) million-meaning the fair value
of the Pension Plans' assets were less than the Pension Plan's projected benefit obligations.
I For substantially all regular non-union fulltime employees who were hired on or after January l,2}l4 and all Local
659 union employees hired after April l, 2014, an enhanced defined contribution a0lft) plan replaced the Pension
Plan.
2 https:l I asc.fasb.orsl 194327 4l2l 47 480243
Application of Avista Corporation
Case No. AVU-E-zz- & AVU-G-zz-Page 3 of9
C. Na Periodic Benefit Cos*
Pension Plan costs are affected by, among other things:
. employee demographics (including age, compensation, and length of service by
ernployees),o the amount of cash contributions we make to the Pension Plan,. the acfual return on Pension Plan assets,. expected return on Pension Plan assets,o discount rate used in determining the projected benefit obligation and Pension Plan
costs,o assumed rate of increase in employee compensatiorq. life expectancy of participants and other beneficiaries, and. expected method of payment 0ump sum or annulty) of pension benefits.
Avista makes estimates and assumptions as to many of these factors. In accordance with
ASC 715-30, changes in Pension Plan obligations associated with these factors may not be
immediately recognized as pension costs, but are generally recognized in future years over the
remaining average senrice period of Pension Plan participants. As such, costs recorded in any
period may not reflect the actual level of cash benefits provided to Pension Plan participants. The
amount to be recognizd,by Avista as the cost of a Pension Plan is comprised of the following
components:
Service cost - represents the cost of benefits attributable to service performed by
employees during the period. Service cost is the actuarial present value of projected
benefits attibuted to the current period based on the pension benefit formula, including
the effect of a substantive commitment to amend the plan.
Interest cost - represents the portion of net benefit cost attributable to the cost of
"carrying" the pension obligation from one period to the next. The projected benefit
obligation is measured at present value, using a discount rate re,presenting the time
value of money. Thus, the interest cost component of pension cost is the increase in the
projected benefit obligation due to the passage of time.
Expected refurn on plan assets - represents the portion of net benefit cost attributable
to the expected increase in the value of plan assets over the course of the period. The
expected return on plan assets is the product of the expected long-term rate of return
on plan assets and the market-related value of plan assets.
Amortization of prior service cosUcredit - represents the amortization of any
balances previously recorded in accumulated other comprehensive income (AOCI) or
regulatory asset/liability as a result of plan amendments.
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Application of Avista Corporation
Case No. AVU-E-zz- & AW-G-22-Page 4 of9
Amortization of gains and losses - represents the amortization of past actuarial gains
and losses recorded in AOCI or regulatory asset/liability as a result of changes in
actuarial assumptions such as the discount rate and the difference between actual and
expected experience, such as the return on plan assets.
D. Unrecosnized Na Periodic Benefit Costs (Past Actuartal Gains and Losses)
An unrecognized garn or loss can result from a change in either the value of plan assets
different from that assumed (i.e., the expected return on plan assets) or the projected benefit
obligation resulting from actuarial experience different from that assumed, as well as changes in
discount rates or and differences related to deurographic experience. ASC 715 does not make a
distinction between gains and losses arising from investnent activities related to plan assets and
those arising from changes in actuarial assumptions and experience different from what was
assumed. Gains and losses arise at the time a remeasurement of the plan occurs. Unless a reporting
entity has chosen to immediately recognize those gains and losses, they are charged or credited
directly to Accumulated Other Comprehensive Income (AOCI). The amount of AOCI on Avista's
December 3l ,202I balance sheet would have been a loss of $ I 09.2 million prior to the application
of regulatory accounting as described below.
Avista, as a regulated entity, applies the provisions of ASC 98O-Regulated Operations and
therefore records as a regulatory asset or liability amounts othenvise charged/credited to AOCI if
it is probable that the amounts will be recovered in future rates. As of December 3l,202l,Avista's
pension plan had an unrecognized net periodic benefit costs of $107 million, which was reflected
as a regulatory asset. In addition, Avista had unrecognized prior service costs of $2.2 million as
of Decemb er 31, 2021 . Under ASC 71 5-30, Avista amortizes the unrecoguized net losses over
approximately 12 years, which represents the actuarial assumption of the remaining life
expectancy of plan participants (remeasured annually by the Avista's actuaries). This allows for
Application of Avista Corporation
Case No. AVU-E-2}- & AVU-G-zz-Page 5 of9
smooth recogxition of the unrecognized costs rather than immediately recognizing the actuarial
gains or losses as they arise.
E. Pension Pbn Events that Imoact Amortization of Unrecoenized Cosb
Under ASC 715, pension settlement and curtailment events change the timing for
recognizing previously unrecognized net periodic benefit costs in earnings, requiring immediate
recognition rather than recognition over time. This Application before the Commission pertains
only to a pension settlement event. A settlement is a transaction that (a) is an irrevocable action,
(b) relieves the employer (or plan) of primary responsibility for a pension obligation, and (c)
eliminates significant risk related to the obligation and the assets used to affect the settlement. For
example, a pension benefit obligation may be settled by making lump-sum cash payments to
participants, or by purchasing nonparticipating (and certain participating) annuity contacts for
vested benefits. Under ASC 715-30-35-82, any gain or loss from a settlement must be recognized
in earnings 'if the cost of all settlements during a year is greater than the sum of the service cost
and interest cost components of net periodic pension cost for the pension plan for the year."
An entity that adopts an accounting policy to apply settlement accounting to one or more
settlements that are below the service-and-interest-cost threshold must apply this policy to all
settlements. ASC 715 requires immediate recognition in eamings of a pro rata portion of the
unrecognized actuarial gains or losses recorded in AOCI or as a regulatory asset. The amount that
is reclassified from AOCI or the rezulatorv asset when this occurs is not a new cost it is merelv
an acceleration of the recoenition of the cost in earnings. In other words, a portion of the net
regulatory asset (or AOCD is triegered for immediate recogxdtion rather than continuine to be
amortized to expense over time (the actuarial life expectancy of plan participants). If settlement
accounting is triggered prior to the last month of the fiscal year, every lump sum distribution after
Application of Avista Corporation
Case No. AYU-E-Z2- & AVU-G-zz-Page 6 of9
the initial triggering event will result in additional settlement loss accounting and need to be
recorded no later than at the time of the annual year end remeasurement (i.e., all lump sum
distributions above $48.8 million as described in Section D is subject to settlement accounting).
Through November 2022,lump sum distributions in the Avista Retirement Plan totaled
$60.4 million. As slch, 2022lump sum distributions surpassed the $48.8 million settlement
accounting service plus interest cost threshold for the plan in 2022. As a result of the distributions
exceeding this threshold, settlement accounting was triggered, consistent with ASC 715, requiring
remeasurement and accelerated recognition of a portion of net unrecognized losses.
Avista's actuaries will perform the remeasurement and compute the settlement loss in
accordance with ASC 715-30 by applying the percentage reduction of pension liabilities settled to
the net unrecognized losses. The2022 settlement loss is estimated to be approximately $l I million,
but the actual settlement loss will differ from this estimate after final actuarial calculations for
2022 arc performed. If approved, Avista will notiff Commission Staffof the final amount of the
settlement losses for 2022 once known.
III. PROPOSEDACCOT]NTINGTREATMENT
Avista is requesting to defer 2022 pension settlement losses that would otherwise trigger
immediate recognition of a pro rata portion of net actuarial losses currently reflected as a net
regulatory asset. Avista proposes to begin to amortize this deferral over the same period that is
used to amortize the underlying net regulatory asset and continue to recover the annual
amortization amount in rates as part of pension cost consistent with current recovery. Avista
proposes to begin amortizing the balance the month subsequent to the remeasurement of the
pension plans' funded status as a result of the settlement. For example, with the threshold expected
to be exceeded in December 2022, Avista's actuaries will remeasure the funded status as of
Application of Avista Corporation
Case No. AYU-E-zz- & AW-G-22-PageT of 9
December 3l,2022,with the results recorded by Avista in December2022.Inthis example, Avista
would begin to amortize the deferral January L,2023, the same month when new pension expense
will be reflected subsequent to the December 3I,2022 remeasurement.
If the Commission approves this petition, Avista proposes to record deferred amounts in
FERC Account 182.3 (Other Regulatory Assets), and credit FERC Account 407.4 (Regulatory
Credit). In addition, the Company would then, following the month of recording the Other
Regulatory Asset, begin amortizing the Other Regulatory Asset balance monthly over
approximately 12 years, crediting FERC Account 182.3 (Other Regulatory Assets) and debiting
FERC Account 407.X (Regulatory Debit). Approval of this accounting freatment as proposed by
the Company would result in no impact to customers. tn the absence of approval of this Petition,
Avista would record the immediate recognition of a pro rata portion of actuarial losses and gains
in Account 926,Employee Pensions and Benefits.3
TV. MODIFIED PROCEDTJRE
Avista believes that a hearing is not necessary to consider the issues presented herein, and
respectfully requests that this Application be processed under Modified Procedure; i.e., by written
submissions rather than by hearing. Rules of Procedure20I, et seq.
3 Beginning with Case Nos AVU-E-15-05 and AVU-G-15-01 the Commission approved the inclusion of FERC
account 228.3 (Pension and other post-retirement liabilities), FERC account 182.3 (associated pension related
regulatory assets), and the associated defened federal income tax balances within Investor Supplied Working
Capital (*ISWC"). If approved, the FERC Account 182.3 (Other Regulatory Assets) associated with the pension
asset/liability would also be included in ISWC consistent with current treatment.
Application of Avista Corporation
Case No. AVU-E-zz- & AYU-G-zz-Page 8 of9
v. REQUEST FOR RELIEF
As discussed above, Avista requests deferral of the 2022 pension settlement losses that,
absent the ability to defer and amortize over the average remaining lives of plan participants,
would be immediately recognized on the Company's income statement. Approval by this
Commission of the proposed deferral treatment of the settlement losses as described in this
petition/application, as well as approval to amortize the defened settlement loss balance over
approximately 12 years (the actuarial assumption of the remaining life expectancy of plan
participants) would result in no impact to customers and continue to allow recovery of these
costs consistent with recovery in rates today.
WHEREFORE, Avista respectfirlly requests that the Commission issue an accounting
order authorizing the Company to (l) defer the expected impacts associated with the occurrence
of pension events; and (2) amortize the impact of pension events (i.e., the increase or reduction in
regulatory assets or liabilities) to expense over the same period used to amortize the underlying
regulatory assets or liabilities, with the opportunity for rate recovery of the net periodic benefit
costs.
DATED at Spokane, Washington, this 6th day of December 2022.
A RA
Patrick Ehrbar
Director of Regulatory Affairs
Application of Avista Corporation
Case No. AVU-E-22- & AVU-G-22-
ISTA
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