20230131Comments.pdf

CLAIRE SHARP ED
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074 SiCN(208)334-0357
IDAHO BAR NO.8026
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA'S APPLICATION)
FOR AN ORDER AUTHORIZING DEFERRAL )CASE NO.AVU-E-22-16/
ACCOUNTING AND ACCOUNTING ORDER )AVU-G-22-08
RELATED TO NON-CONTRIBUTORY )DEFINED BENEFIT PENSIONS PLANS )COMMENTS OF THE
)COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission ("Staff"),by and through its Attorney
of record,Claire Sharp,Deputy Attorney General,submits the followingcomments.
BACKGROUND
On December 6,2022,Avista Corporation dba Avista Utilities ("Company")applied
requesting an accounting order allowing it to defer impacts related to certain pension events and
to immediately amortize the expense over the same period used to amortize the underlying
regulatory assets or liabilities ("Application").I The Company stated this proposed accounting
treatment would not impact customers,but "continue to allow recovery of these costs consistent
with recovery in rates today"by amortizing the gains and losses over the expected life of plan
i The Company's filing referred to both a petition and an application.Commission Rule of Procedure 52 states"[a]ll pleadings requesting a right,certificate,permit,or authority from the Commission are called 'applications'"
IDAPA 31.01.01.052.We believe this filing is best characterized as an application and will refer to the filing only
as an application to avoid confusion.
STAFF COMMENTS 1 JANUARY 31,2023
participants.Application at 1,9.The Company requested that the Application be processed by
Modified Procedure.
The Company has a defined benefit pension plan ("Pension Plan")for regular,full-time
employees who were hired prior to January 1,2014.Case No.AVU-E-22-16;Application at 3.
Qualifying employees can opt for early retirement under the Pension Plan.Benefits are paid in
the form of life annuities,social security level income,ten-year certain benefits,and lump sum
cash payments.Id.
Pension Plan costs are affected by many factors,including the "employee demographics
(includingage,and length of service by employees);the amount of cash contributions made by
the Company;the actual return on Pension Plan assets;the expected return on Pension Plan
assets;the discount rate used in determining the projected benefit obligation and Pension Plan
costs;the assumed rate of increase in employee compensation;the life expectancy of participants
and other beneficiaries;and the expected method of payment (lump sum or annuity)or pension
benefits."Id.at 4.
Under Accounting Standards Codification ("ASC")715-30,pension settlement events
require immediate recognition rather than recognition over time.Id.at 6."A settlement is a
transaction that (a)is an irrevocable action,(b)relieves the 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."Id.An entitythat adopts an accounting policy to apply settlement
accounting to one or more settlements must apply the policy to all settlements.Id."ASC 715
requires immediate recognition of a pro rata portion of the unrecognized actuarial gains or losses
recorded in Accumulated Other Comprehensive Income ("AOCI")or as a regulatory asset"
(settlement accounting).Id.If settlement accounting is triggered prior to the last month of the
fiscal year,every lump sum distribution after the initial triggering event will result in additional
settlement losses to be recorded by the year-endmeasurement date.Id.at 6-7.
The Company represented through November 2022,lump sum distributions in the
Pension Plan totaled $60.4 million,which surpassed the $48.8 million threshold that would
trigger settlement accounting for a loss of approximately $11 million.Id.at 7.Absent the
requested accounting order,the Company would be required to immediately recognize this loss
on its income statement.Id.
STAFF COMMENTS 2 JANUARY 31,2023
The Company proposed to record deferred amounts in Federal Energy Regulatory
Commission ("FERC")Account 182.3 (Other Regulatory Assets),and credit FERC Account
407.4 (Regulatory Credit).Id.at 8.The Company would thereafteramortize the FERC Account
182 (Other Regulatory Assets)monthlyover the actuarial assumption of the remaining life
expectancy of the plan participants,which is approximately 12 years.Id.
STAFF ANALYSIS
Staff reviewed the Application and recommends the Commission approve the Company's
request to defer pension settlement events and amortize the amount over the remaining lives of
plan participants.Under the Company's proposed accounting treatment,customers'rates will
remain unchanged and the Company's recovery of net periodic benefit costs would remain
consistent as if the settlement event never happened.
The Company's 2022 pension settlement loss resulted because the Pension Plan
experienced lump sum distributions greater than its Service Cost plus the Interest Cost.The
Service Cost is the present value of benefits owed to plan participants for incurring an extra year
of service and the Interest Cost represents the increase in the overall pension obligation due to
the passage of time.Through November 2022,lump sum distributions totaled $60.4 million,
surpassing the $48.8 million Service Cost plus Interest Cost threshold and triggering settlement
accounting2.Under ASC 715,when settlement accounting is triggered the Pension Plan must be
remeasured to compute the settlement loss,and a portion of the previously unrecognized losses is
accelerated.Absent an Accounting Order by the Commission,the Company would be required
to recognize the loss on its Income Statement.
Unrecognized pension gains and losses occur when changes in the value of plan assets
differ from the expected return or actual experience differs from the other actuarial assumptions.
ASC 715 does not make a distinction between gains and losses arising from investment activities
related to plan assets and those arising from changes in actuarial assumptions and experience
different from what was assumed.The Pension Plan gains and losses are charged or credited
2 The Company's actuaries will perform the remeasurement and compute the actual 2022 settlement loss.The 2022
settlement loss was estimated to be approximately $11 million through November,but the actual settlement loss will
differ from the estimate after final actuarial calculations for 2022 are performed.
STAFF COMMENTS 3 JANUARY 31,2023
directly to AOCI and amortized over the remaining life expectancy of the plan participants,
which is approximately 12 years.
Because settlement accounting was triggered,the Company would be required to
accelerate a portion of the unrecognizedloss from AOCI and recognize the loss immediately.
However,ASC 980 allows regulatedentities to defer gains and losses into a regulatory asset or
liabilitythe amounts otherwise charged to AOCI if it is probablethat the amounts will be
recovered in future rates.If the Application is approved,the Company would be able to record
the settlement loss as a regulatory asset and amortize the loss over the estimated remaining life of
the plan participants,essentially treating the AOCI as if the settlement event did not occur and
thus customer rates would not change.
STAFF RECOMMENDATION
Staff recommends the Commission approve the Company's Application allowing it to
record pension settlement losses as a regulatory asset and begin immediately amortizing the
losses over the estimated remaining life of the Pension Plan participants.
Respectfullysubmitted this day of January 2023.
Claire Sharp
Deputy AttorneyGeneral
Technical Staff:Donn English
Ty Johnson
i:umisc/comments/avug22.16_avug22.8cstjdecomments
STAFF COMMENTS 4 JANUARY 31,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 316'DAY OF JANUARY 2023,SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF,INCASENO.AVU-E-22-16/AVU-G-22-08,BY E-MAILING A COPY THEREOF,TOTHEFOLLOWING:
DAVID J MEYER PATRICK EHRBAR
VP &CHIEF COUNSEL DIR.OF REGULATORY AFFAIRSAVISTACORPORATIONAVISTACORPORATION
PO BOX 3727 P.O.BOX 3727
SPOKANE WA 99220-3727 1411 E.MISSION AVENUE,MSC 27E-mail:[e-mail] SPOKANE,WA 99220
[e-mail] E-mail:[e-mail]
SECRET RY
CERTIFICATE OF SERVICE