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HomeMy WebLinkAbout20230630Application_Cover Letter.pdf Avista Corp. 1411 East Mission P.O. Box 3727 Spokane, Washington 99220-0500 Telephone 509-489-0500 Toll Free 800-727-9170 June 30, 2023 Jan Noriyuki, Secretary Idaho Public Utilities Commission 11331 W. Chinden Blvd. Bldg. 8, Suite 201-A Boise, Idaho 83714 Re: Case No. AVU_23- _ - Avista Corporation Application for an Accounting Order Dear Ms. Noriyuki: Avista Corporation, dba Avista Utilities (Avista or the Company) hereby provides the enclosed application for an order authorizing the accounting treatment of certain costs related to Avista’s Montana Riverbed Lease Agreement. Please direct any questions related to this filing to Liz Andrews at 509-495-8601 or Patrick Ehrbar at 509-495-8620. Sincerely, /S/Elizabeth Andrews Elizabeth Andrews Sr. Manager of Revenue Requirements RECEIVED Friday, June 30, 2023 4:19:27 PM IDAHO PUBLIC UTILITIES COMMISSION CASE NO. AVU-U-23-03 Application of Avista Corporation Page 1 Case No. AVU-E-23-___ DAVID J. MEYER 1 VICE PRESIDENT AND CHIEF COUNSEL FOR 2 REGULATORY AND GOVERNMENTAL AFFAIRS 3 AVISTA CORPORATION 4 P.O. BOX 3727 5 1411 EAST MISSION AVENUE 6 SPOKANE, WASHINGTON 99220-3727 7 TELEPHONE: (509) 495-4316 8 EMAIL: DAVID.MEYER@AVISTACORP.COM 9 10 11 12 BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION 13 14 15 16 17 IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-23-__ 18 OF AVISTA CORPORATION FOR ) 19 AN ACCOUNTING ORDER AUTHORIZING ) APPLICATION OF AVISTA 20 DEFERRAL OF CERTAIN COSTS ) CORPORATION FOR 21 ASSOCIATED WITH THE MONTANA ) DEFERRAL OF COSTS 22 RIVERBED LEASE AGREEMENT ) 23 24 I. INTRODUCTION 25 Avista Corporation, doing business as Avista Utilities (hereinafter Avista or Company), 26 at 1411 East Mission Avenue, Spokane, Washington, pursuant to Section 61-524 Idaho Code 27 and Rule 52 of the Idaho Public Utilities Commission (“Commission Rules of Procedure”), 28 respectfully requests that the Commission issue an order authorizing it to utilize deferred 29 accounting for the interest costs (presently estimated at approximately $3.8 million) associated 30 with the Montana Riverbed Lease Agreement (Lease) due to the State of Montana (State) in 31 the third quarter of 2023. 32 As described more fully below, on May 4, 2023, Avista received notice of the release 33 of funds for the Montana Riverbed lease payments for the rent years 2016-2020 from the 34 Application of Avista Corporation Page 2 Case No. AVU-E-23-___ escrow account in which they have been held.1 Additionally, the notice identified the 1 additional amount owed by Avista that represents the interest component, calculated to be 2 $3,766,353 as of February 28, 20232, which is the difference between the calculated ending 3 escrow balance including interest of $28,288,773 and the actual amount held in the escrow 4 account of $24,522,420. This interest component is due to the State within thirty days of 5 disbursement of the escrow funds (the date of which is still to be determined). As described 6 further below, the Company is recovering from customers the ongoing lease expense, but the 7 calculation of the interest component was not known until the receipt of the letter (and is still 8 under discussion). 9 Approval of deferred accounting for these costs is necessary so the Company has the 10 opportunity to recover these costs from customers in the future. Avista is proposing that this 11 regulatory asset would accrue a carrying charge equal to the Company’s authorized cost of 12 debt set in Case No. AVU-E-23-01 (pending Commission approval at 4.97%) and would 13 continue until fully amortized. Avista will seek a prudence determination and recovery method 14 of the deferred costs in future Commission proceedings. 15 Pursuant to Commission Rule of Procedure 201, the Company requests that this filing 16 be processed under the Commission’s Modified Procedure rules through the use of written 17 comments. 18 Avista is a utility that provides service to approximately 406,000 electric customers 19 and 373,000 natural gas customers in a 26,000 square-mile area in northern Idaho, eastern 20 Washington, and Oregon. The largest community served by Avista is Spokane, Washington, 21 which is the location of its corporate headquarters. Communications in reference to this 22 1 This amount is still subject to discussion and may or may not be adjusted to bring it current up to the date of released funds from the escrow. 2 Please see attached correspondence from the State of Montana, dated May 4, 2023 (Attachment A). Application of Avista Corporation Page 3 Case No. AVU-E-23-___ Application should be addressed to: 1 David J. Meyer, Esq. Patrick D. Ehrbar 2 Vice President and Chief Counsel for Director of Regulatory Affairs 3 Regulatory and Governmental Affairs Avista Corporation 4 Avista Corporation P.O. Box 3727 5 P.O. Box 3727 1411 E. Mission Avenue, MSC-27 6 1411 E. Mission Avenue, MSC-7 Spokane, WA 99220-3727 7 Spokane, WA 99220-3727 Phone: (509) 495-8620 8 Phone: (509) 495-4316 patrick.ehrbar@avistacorp.com 9 david.meyer@avistacorp.com 10 11 Avista Dockets (Electronic Only) - AvistaDockets@avistacorp.com 12 13 II. BACKGROUND 14 In 2006, the State of Montana brought an action in Montana District Court against both 15 Avista and PPL Montana (PPL) as owners of hydroelectric dams in the State, contending that 16 these dams encroached on state-owned lands consisting of the beds and banks of what it argued 17 were “navigable waters.” It argues that rent was owing for both prior trespass since the 18 construction of the dams as well as prospectively for the term of the FERC license. 19 Several weeks before trial was to start against Avista and PPL Montana (PPL), District 20 Court Judge Honzel entered an Order in 2007 finding that the Clark Fork River and various 21 other rivers on which PPL had hydro facilities were “navigable” and therefore the bed and 22 banks of those rivers were owned by the State of Montana. As a result, the only issue for trial 23 was the amount of past damages and future rental payments owed by Avista and PPL. 24 Prior to trial, the State, through its expert, claimed that Avista owed $200,374,752 in 25 damages for past rent, and rent of $8,416,510 per year starting in 2006. Faced with the District 26 Court’s ruling on navigability, the significant judgment being sought, and the probability that 27 the Montana Supreme Court would affirm the District Court’s ruling (which it ultimately did), 28 Avista reached a settlement with the State. In exchange for Avista agreeing to pay $4,000,000 29 per year in rent (with an annual CPI adjustment), the State agreed to dismiss all of its other 30 Application of Avista Corporation Page 4 Case No. AVU-E-23-___ claims, including all damages for past rent. In addition, the Settlement Agreement contained 1 a Most Favored Nation provision which provides, among other things, that if PPL achieved a 2 more favorable outcome at trial or through settlement, Avista would receive the benefit of that 3 outcome. 4 Following Avista’s settlement, the case proceeded to trial against PPL. After hearing 5 the evidence, Judge Honzel entered a significant judgment against PPL for past rent of 6 $34,743,261 and for annual payments of $6,207,919 starting in 2007. Based upon Judge 7 Honzel’s ruling, if Avista had remained in the case, it is likely that judgment would have been 8 entered against it for approximately $59 million for past rents and more than $7 million per 9 year in future rents beginning in 2007, which, including post-judgment interest, would have 10 exposed Avista’s ratepayers to an additional $98 million in costs, beyond the agreed-upon level 11 of rent. Since Avista’s settlement was much more favorable than the outcome PPL obtained 12 at trial, the Most Favored Nation provision was not triggered. 13 After the Montana Supreme Court affirmed the District Court’s ruling, PPL sought 14 review in the U.S. Supreme Court. Of the 7,713 cases filed in the U.S. Supreme Court during 15 its 2011 Term, the Court only accepted 79 cases. PPL’s appeal was one of those few cases. 16 Had the Court not accepted review, the decision of the Montana Supreme Court against PPL 17 would have stood. 18 The U.S. Supreme Court ultimately ruled that the determination of riverbed title, under 19 the Equal-Footing Doctrine, should be made on a segment-by-segment basis depending on the 20 facts. Consequently, the U.S. Supreme Court reversed the Montana Supreme Court and 21 remanded the case against PPL back to Montana for further proceedings surrounding the 22 navigability of each river segment. 23 Following remand, Northwestern Energy (Northwestern) was substituted as a party as 24 Application of Avista Corporation Page 5 Case No. AVU-E-23-___ the successor-in-interest of the hydropower projects previously owned and operated by PPL. 1 The case was then removed to federal court. On August 1, 2018, the federal court found that 2 the United States Supreme Court decision was a final decision on the merits as to the non-3 navigability of certain reaches. The matter went to trial on January 7, 2022, as to the remaining 4 reaches; however, at this time, no decision has been made in the case. When there is a final 5 decision in the Northwestern case, Avista will again pursue recovery of any overpayments 6 made to the State. As such, Avista has not relinquished any rights to recover any payments 7 made to the State. 8 While the case between PPL and the State proceeded through the courts, Avista began 9 making annual rent payments to the State in accordance with the settlement agreement. 10 However, following the United States Supreme Court decision in 2010, it appeared likely that 11 Avista’s rental obligations would need to be adjusted. Meanwhile, from Avista’s perspective, 12 the size of the potential refund that it believed could be required by a “retroactive” adjustment 13 was becoming significant. Accordingly, in 2017, Avista began making its rent payments into 14 escrow rather than directly to the State. This decision was accompanied by an Escrow 15 Agreement that governed the handling of funds that were paid into escrow, which was signed 16 by Avista, the State and the Escrow Agent. 17 As described above, Avista agreed to pay the State of Montana $4.0 million (electric 18 system) annually beginning in 2007 with annual inflation adjustments. Avista’s obligation to 19 pay the State of Montana rent under the Hydropower Site Lease for the Noxon Rapids Project 20 (effective January 1, 2007) continues for the forty-five (45) year term of the lease ending 21 February 28, 2046, or sooner if the FERC license terminates before its scheduled expiration in 22 2046. Per the initial agreement, after the first ten years of the lease (2007 - 2016) the parties 23 were to meet to attempt to renegotiate the level of payments. These renegotiations for the 24 Application of Avista Corporation Page 6 Case No. AVU-E-23-___ riverbed lease payment levels began in 2016. The obligation to pay the agreed-upon level of 1 rent, however, did not terminate after the initial ten-year period of the Site Lease, and the 2 Company was still required to make the scheduled rent payment in 2017 and beyond to the 3 State of Montana, unless and until the parties both agree to an adjusted amount. Since the 4 parties did not agree to an adjusted amount, Avista agreed to continue making the annual 5 payments at the original amount under protest and the Parties established an escrow account 6 in March 2017.3 7 Per the escrow agreement, Avista would make payments into an escrow account to hold 8 any payments that Avista made under protest. Additionally, the escrow agreement stated that 9 at the end of the escrow period, Avista would owe the lease amounts agreed to by the parties 10 as well as added interest reflecting the rate of return of the unified investment program 11 administered by the Montana Board of Investments pursuant to Montana Code Annotated § 12 17-6-21 on an annualized basis. Should the escrow account contain insufficient funds to fund 13 the applicable lease and interest amounts, Avista would have to pay the State directly the 14 difference within thirty days of the escrow disbursement. 15 A summary of the payments that have been made by Avista and Idaho’s allocated share 16 follows: 17 3 Please see Escrow Agreement dated March 29, 2017, between Avista, the State of Montana, and the Escrow holder, U.S. Bank. (Attachment B) Application of Avista Corporation Page 7 Case No. AVU-E-23-___ 1 2 3 4 5 6 7 8 9 10 The payments for rent years 2016 through 2020 were put into the escrow account. In 11 May 2021, the Parties reached a settlement and as part of that settlement Avista would no 12 longer make the annual payments under protest. The payments beginning with rent year 2021 13 was paid directly to the State of Montana. This was the result of secondary litigation in which 14 a Montana trial court issued an Order in 2021 in which it concluded that the Most Favored 15 Nations clause had not yet been triggered and did not, therefore, provide a basis for disputing 16 or reduction Avista’s annual rental rate. In addition, the Court concluded that Avista was not 17 entitled to a credit or refund for rent paid in any previous year, and that it was required to pay 18 the annual full market rental rate going forward. Avista appealed that ruling to the Montana 19 Supreme Court. The Montana Supreme Court concluded that, because the Northwestern 20 litigation was non concluded, the Most Favored Nations clause had not yet been triggered. 21 Accordingly, the Court found that the trial court erred in reaching the merits of the retroactivity 22 issue, and that the Most Favored Nations clause did not provide basis for making payments to 23 the State into escrow. The case was therefore remanded to the trial court, and an Amended 24 Rent Year Payment Date Base Rent CPI Annual Average Index Annual Rent WA Rent ID Rent 2007 February 2008 4,000,000$ 1 4,000,000$ 2,633,200$ 1,366,800$ 2008 February 2009 4,000,000$ 1.0428 4,171,200$ 2,694,178$ 1,477,022$ 2009 February 2010 4,000,000$ 1.0431 4,172,400$ 2,687,860$ 1,484,540$ 2010 February 2011 4,000,000$ 1.0705 4,282,000$ 2,777,733$ 1,504,267$ 2011 February 2012 4,000,000$ 1.0880 4,352,000$ 2,835,763$ 1,516,237$ 2012 February 2013 4,000,000$ 1.1198 4,479,200$ 2,922,230$ 1,556,970$ 2013 February 2014 4,000,000$ 1.1376 4,550,200$ 2,958,085$ 1,592,115$ 2014 February 2015 4,000,000$ 1.1556 4,622,400$ 3,013,343$ 1,609,057$ 2015 February 2016 4,000,000$ 1.1546 4,618,400$ 2,988,567$ 1,629,833$ 2016 February 2017 4,000,000$ 1.1704 4,681,600$ 3,077,216$ 1,604,384$ 2017 February 2018 4,000,000$ 1.1997 4,798,800$ 3,154,189$ 1,644,611$ 2018 February 2019 4,000,000$ 1.2245 4,898,000$ 3,200,843$ 1,697,157$ 2019 February 2020 4,000,000$ 1.2435 4,974,000$ 3,258,748$ 1,724,809$ 2020 February 2021 4,000,000$ 1.2745 5,098,000$ 3,346,327$ 1,751,673$ 2021 February 2022 4,000,000$ 1.2923 5,169,000$ 3,387,763$ 1,781,237$ 2022 February 2023 4,000,000$ 1.3890 5,556,000$ 3,640,847$ 1,915,153$ Montana Riverbed Lease Payments Application of Avista Corporation Page 8 Case No. AVU-E-23-___ Judgement was entered on February 28, 2023. 1 As described above, Avista has been recovering the lease expense from customers and 2 continues to do so today. Initially, the Commission approved deferral of lease payments 3 beginning with 2007 payments (payable February 2008) in Case No. AVU-E-07-10, dated 4 January 24, 2008, Order No. 30492, until payments could be included in next general rate case. 5 The Commission approved recovery of both the 2009 lease payment (paid in February 2010) 6 and the amortization of the deferred 2007 and 2008 lease payments that were to be amortized 7 over eight years in Case No. AVU-E-08-01, Order 30647, dated September 30, 2008. Ongoing 8 lease payments have been included in the approved revenue requirement since then. 9 10 III. PROPOSED ACCOUNTING TREATMENT 11 Avista proposes to defer Idaho’s share ($1,298,000) of the interest component of the 12 payment made to the State of Montana in the third quarter of 2023. Avista proposes to record 13 the deferral as a regulatory asset in FERC Account 182.3 (Other Regulatory Assets). This 14 deferral account will include a carrying cost equal to Avista’s authorized cost of debt set in 15 Case No. AVU-E-23-01 (pending Commission approval at 4.97%). The Company will 16 propose recovery of these costs in its next general rate case. At that time, the Commission will 17 be able to determine the prudency of deferred costs associated with the Lease. 18 19 IV. REQUEST FOR RELIEF 20 WHEREFORE, Avista respectfully requests that the Commission issue an Order 21 authorizing the requested deferred accounting and ratemaking treatment, as described above, 22 without which the Company will not fully recover its reasonable costs associated with the 23 Montana Riverbed Lease Agreement. Customer rates would not be presently impacted by this 24 Application of Avista Corporation Page 9 Case No. AVU-E-23-___ approval, and any deferral of costs will be addressed through the Company’s next general rate 1 case, where the prudency of any deferred costs will be considered, with this Application being 2 processed under Modified Procedure, through the use of written comments. 3 DATED at Spokane, Washington, this 30th day of June 2023. 4 AVISTA CORPORATION 5 6 By 7 Patrick Ehrbar 8 Director of Regulatory Affairs 9 Avista Corp10 Sent Via Email Only May 4, 2023 Kathryn S. Mahe Garlington Lohn & Robinson PLLP 350 Ryman St Missoula MT 59807-7909 ksmahe@garlington.com RE: State v. Avista, Cause No. ADV-2004-84 Ms. Mahe: I apologize for my delayed follow-up regarding release of Avista’s 2017 - 2021 rent from escrow. The Department would like to finalize the details for release of those funds now that the 68th legislative session has concluded. Paragraph 7 of the escrow agreement provides: “Avista affirms that at the end of the Escrow period, it owes applicable lease amount as agreed by the parties, as well as added interest reflecting the rate of return of the unified investment program administered by the Montana Board of Investments pursuant to Montana Code Annotated § 17-6-201 on an annualized basis. Should the Escrow account contain insufficient funds to fund applicable lease and interest amounts, Avista will pay the State directly the difference within 30 days of the Escrow disbursement.” As of February 28, 2023, the balance of funds held in the escrow account is $24,522,420.49. The Department calculated the “added interest reflecting the rate of return of the unified investment program administered by the Montana Board of Investments pursuant to Montana Code Annotated § 17-6-201 on an annualized basis” for the rental payments held in escrow for the relevant period. FY Rate of Return Investment Date Investment/Rental Amount Balance plus the unified investment program annualized rate of return 2017 3.58% 3/31/2017 $4,681,600.00 $4,681,600.00 2018 3.42% 2/28/2018 $4,798,800.00 $9,643,319.68 2019 3.58% 2/28/2019 $4,898,000.00 $14,884,621.86 2020 3.35% 2/29/2020 $4,974,000.00 $20,367,675.93 ATTACHMENT A Page 1 of 2 2021 3.20% 2/28/2021 $5,098,000.00 $26,147,993.07 2022 4.65% $27,031,795.241 2023 $28,288,773.722 As of February 28, 2023, the annual rent and added interest is $28,288,773.72. Based on these calculations, in addition to release of the escrow funds, Avista is required to pay the State $3,766,353.23 within thirty days of disbursement of the escrow funds. The Department would like to afford Avista this opportunity to evaluate and confirm the Department’s calculations prior to disbursement of the escrow funds and triggering the timeline for payment of the $3,766,353.23 owed by Avista. Feel free to call with any questions. Best regards, _______________________ Brian C. Bramblett Cc: via email only William Schroeder Shawn Thomas 1 2/28/2022 value. 2 2/28/2023 value using FY22 rate of return. ATTACHMENT A Page 2 of 2 March 29 ATTACHMENT B Page 1 of 16 ATTACHMENT B Page 2 of 16 ATTACHMENT B Page 3 of 16 ATTACHMENT B Page 4 of 16 ATTACHMENT B Page 5 of 16 ATTACHMENT B Page 6 of 16 ATTACHMENT B Page 7 of 16 ATTACHMENT B Page 8 of 16 ATTACHMENT B Page 9 of 16 ATTACHMENT B Page 10 of 16 ATTACHMENT B Page 11 of 16 ATTACHMENT B Page 12 of 16 ATTACHMENT B Page 13 of 16 ATTACHMENT B Page 14 of 16 ATTACHMENT B Page 15 of 16 ATTACHMENT B Page 16 of 16