20061013Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:TOM MCKEOWN AND TERRI CARLOCK
DATE:OCTOBER 11, 2006
RE:IN THE MATTER OF AVISTA CORPORATION'S APPLICATION FOR
AUTHORITY TO OFFER UP TO $150 MILLION IN DEBT SECURITIES;
CASE NO. A VU-06-
On September 25 2006, Avista Corporation (Avista) applied for authority to offer, issue
and sell up to and including $150 000 000 in debt securities
, ("
the Securities ). The proceeds will
be used for one or more of the following purposes: (a) the acquisition of property, or the
construction, completion, extension, or improvement of its facilities, (b) the improvement or
maintenance of service, (c) the issuance of stock dividends, (d) discharge or refunding of its
obligations, (e) the reimbursement of moneys actually expended from income or from the treasury
of Avista to the extent permitted, or (f) for other purposes permitted by law. The expected use is
more specifically to refinance $170 million of debt maturities beginning in December 2006 and
$150 million that matures January 2007.
The interest rate, depending on market conditions at the time of issuance, is expected not to
exceed 7.0%. The term of the security(ies) is expected to be 7 to 40 years. Avista also requests
authority to refund, extend renew or replace the proposed security(ies) to allow the greatest
flexibility.
STAFF RECOMMENDATION
The proposed issuance and redemptions provide an opportunity for A vista to reduce
borrowing costs and to increase flexibility with future refinance options. However, Staff believes
the possible purpose for the use of proceeds is too broad. The expected use to refund $170 million
debt starting in December and January 2007 are reasonable. However, debt authority should not
DECISION MEMORANDUM OCTOBER 2006
be granted to fund the issuance of stock dividends. Stock dividends are appropriately paid from
earnings not debt issuances. Staffwill be conducting meetings with Avista to discuss the 10-year
history of stock dividends paid through the issuance of debt and a 5-10 year-financial plan. These
discussions will likely coincide with the filing of A vista s annual report.
Staff recommends approval of the proposed issuance. Staff also recommends that Avista
be required to file term sheets prior to refunding, extending, renewing or replacing the proposed
Securities as a condition of Staff s recommendation and that the authority under this initial
approval be continuing.
A vista will file information pertaining to the types of issuances to be made and the
expected terms as soon as practical prior to issuances with the Commission. A vista acknowledges
that for ratemaking purposes, that the determination of capital costs, capital structure and any
associated ratemaking decision is reserved for the appropriate proceeding.
COMMISSION DECISION
Does the Commission accept Staffs recommendations to:
1. Approve A vista s request for authority to issue and sell up to and including
$150 000 000 debt?
2. Approve Staff s recommended additional filing requirements?
3. Approve Avista s request for the Commission s authority under this Order
continue to be in force to allow refunding, extending, renewing or replacing the
proposed securities?
i:udmemos/dec mem avueO6.doc
DECISION MEMORANDUM OCTOBER 11 , 2006