20180511Comments - Avista.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BARNO.5156
FlEC T IVE D
1il,',i',i) rii[1LlCilii-i i,:ii ilCF{Ml$Sl0N
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702.5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
INTO THE IMPACT OF FEDERAL TAX CODE
REVISIONS ON UTILITY COSTS AND
RATEMAKING
CASE NO. GNR.U.18.O1
COMMENTS OF THE
COMMISSION STAFF
RE: AVISTA CORPORATION
The Staff of the Idaho Public Utilities Commission comments as follows on the
Stipulation and Settlement and Motion for Approval of Stipulation and Use of Modified
Procedure relating to Avista Corporation dba Avista Utilities ("Avista" or the "Company").
BACKGROUND
On May 1,2018, Avista filed a Stipulation and Settlement (the "Settlement Stipulation"
or "Stipulation") and a Motion for Approval of Stipulation and Modified Procedure. The
Settlement Stipulation and Motion are signed by the Company, Commission Staff, and
intervenors Clearwater Paper Corporation, Idaho Forest Group, LLC, and Idaho Conservation
League. If approved, the Settlement Stipulation would return to customers 100% of tax benefits
the Company has realized under a new tax law that decreased the Company's corporate tax rate
and expenses.
The federal Tax Cuts and Jobs Act of 2017 ("TCJA") decreased the federal corporate tax
rate from 35Yo to 2lo/o, effective January 1,2018. In response, the Commission opened this
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STAFF COMMENTS MAY I l, 201 8I
multi-utility case to investigate whether to adjust the rates of certain utilities that benefit from the
reduced tax rate and pass that benefit through to customers. See Order No. 33965. The
Commission directed all affected utilities-including Avista-to immediately account for the tax
benefits as a regulatory liability, and to report on how the tax changes affected them, and how
resulting benefits could be passed on to customers. See id. at l-2. Avista filed its report on
March 29,2018.
A settlement conference occurred at the Commission offices on April 16, 2018.
Representatives of Avista, Clearwater Paper Corporation, Idaho Forest Group, LLC, Idaho
Conservation League, and Commission Staff (collectively, the "Parties") attended the meeting.
Through discussions and compromise, the Parties agreed to the proposed Settlement Stipulation.
STAFF R-EVIEW
Staff has reviewed the Settlement Stipulation and believes it fairly compromises the Parties'
positions and is reasonable and in the public interest. Staff thus recommends that the Commission
approve it as written. The Stipulation, if approved, would return to customers 100% of tax
benefits the Company has realized under the new federal tax law.
Summary of Tax Benefits
As further described below and illustrated in Table 1, the Stipulation provides for:
(1) An overall reduction (rate credit) of $13.7 million (or 5.3Yo overall rate reduction) for
electric, and $2.6 million (or 6.lo/o overall rate reduction) for natural gas associated with
permanent or long-term tax benefits. These rate credits will take effect on June 1,2018 through
new "Permanent Federal Income Tax Rate Credit" Tariff Schedules 72 (electric) and 172
(natural gas) and be passed back to customers until they are incorporated into base rates in a
future general rate case proceeding;
(2) An Electric Temporary Tax Benefit of $l 1.980 million, which will be used to offset
costs associated with accelerated depreciation of Colstrip Units 3 and 4, or other purposes as the
Commission may approve in the depreciation case (Case No. AVU-E-18-03); and
(3) A Natural Gas Temporary Tax Benefit Reduction of $544,000 as an adjustment in the
Purchased Gas Adjustment effective November 1, 2018.
2STAFF COMMENTS MAY 11, 2018
Table 1: Summary of Tax Benefits from TCJA
Permanent (or Long-Term) Tax Benefits
The Parties agree that Avista will reduce its Idaho base rates by $ 13.74 million (5 3%) for
electric service, and $2.556 million (61%) for natural gas service. The Company will return
these amounts to customers through Tariff Schedules 72 (electric) and 172 (natural gas) until the
next general rate case when the tax benefits will be incorporated into base rates. The Parties
agree to spread these permanent tax benefits (rate credits) on a uniform percent of base revenue
basis for both electric and natural gas. The rate credit within each service schedule will be a
uniform cents per kWh (electric) and therm (natural gas) to the volumetric block rates by
schedule. The monthly service charge for each schedule will remain unchanged. Staff supports
this method of rate spread and rate design because it generally matches how costs are being
recovered from customers.
The permanent reduction consists to two components, the tax rate change and the excess
accumulated deferred federal income tax (ADFIT) amortization.
Current/Deferued Tax Rate Change
The TCJA's primary provision reduced the federal corporate tax rate from 35Yo to 2l%o,
thus reducing the amount of Avista's current and deferred tax expense included in customers'
rates. The tax rate change also affects the revenue conversion factor (or gross up factor).
Avista's existing base rates were approved in Order No. 33953 in Case Nos. AVU-E-17-01 and
1J
Revenue Requirement (000s)
Permanent or tong-Term Tax Benefits
ldaho
Electric
ldaho
NaturalGas
Current/Deferred Tax Expense (Cash)
Plant Excess ADFIT (Non-Cash)
Total Permanent or Long-Term Tax Benefits
s (11,080) ss (2,660) s
(2,O82)
(474].
s (13,?40) s (2,556)
Temporary Tax Benefits
Non-Plant Excess ADFIT (Non-Cash)
Deferral of Jan - May 2018 balances
State lncome Tax lmpact
Total Temporary Tax Benefits
S
s
s
(6,302) s
(5,7261 s48s
525
(1,064)
(s)
s (11,e80) s (s44)
STAFF COMMENTS MAY 1 1, 2018
AVU-G-17-01 and went into effect on January 1,2018, coincident with the TCJA effective date.
Given Avista's existing base rates reflect new rates in effect as of January 1,2018, to determine
the benefits of the TCJA, the Parties used the recently approved general rate case data and
information reviewed by all parties in that proceeding. The resulting reduction, on an Idaho
revenue requirement basis, is approximately $ I 1.1 million for electric and $2.1 million for
natural gas. Staff has verified the calculation of income tax expense and the accuracy of the
stipulated amounts.
Excess ADFIT
As of December 2017, deferred tax amounts had to be revalued at the lower corporate tax
rate (2lYo), resulting in excess deferred federal income tax reserve balances. Balances associated
with regulated utility operations resulted in a balance sheet reclassification from deferred tax to
deferred regulatory asset or liability. This revaluation effected both plant (permanent tax benefit)
and non-plant (temporary tax benefit) balances.
For plant-related excess ADFIT, the Parties agree that the Company will amortize the
plant ADFIT balances (Idaho Regulatory Liability of $ 106.4 million electric and $20.5 million
natural gas) under the Internal Revenue Service Average Rate Assumption Method ("ARAM").
In order to comply with Internal Revenue Service ("IRS") normalization rules, Avista must
return plant-related excess ADFIT to customers over the remaining life of the associated plant
assets. The Company estimates the ARAM for Avista results in about a36-year amortization
period. The excess ADFIT amortization permanently reduces Idaho rates by about $2.7 million
for electric service, and $474,000 for natural gas service, per year. Staff verified the
amortization of the excess ADFIT and believes the stipulated annual amounts fairly represent the
benefit customers should receive. Because these amounts are not amortized on a straight-line
basis, the amortization will vary each year. But the stipulated amounts will remain in Tariff
Schedules 72 and 172 until the Company's next general rate case.
Temporarv Tax Benefits
The Settlement Stipulation provides for temporary (one-time) tax benefits to Idaho
customers in the amount of $1 1.98 million for electric service and $544,000 for natural gas
service. In the Stipulation and Settlement filed on April 13,2018 in Case Nos. AVU-E-|7-09
and AVU-G-17-05 (In the Matter of the Joint Application of Hydro One Limited and Avista
4STAFF COMMENTS MAY 1 1, 2018
Corporation for Approval of Merger Agreement), the parties agreed that the $12.0 million
electric temporary tax benefit would offset costs associated with the accelerated depreciation of
Colstrip Units 3 and 4 or other use as determined by the Commission at the conclusion of the
Company's pending depreciation case (Case Nos. AVU-E-I8-03 and AVU-G-I8-02). The
temporary tax benefit associated with Idaho's natural gasjurisdiction will be refunded to
customers over one year when the Company files its annual Purchase Gas Adjustment, to be
effective November l, 2018. Using the temporary tax benefits to offset increased depreciation or
other near-term increases provides rate stability for customers without harming the Company's
cash flow. In this case, Staff supports using temporary tax benefits to offset these increased
costs.
The temporary tax benefits consist of the non-plant-related excess ADFIT, the defenal of
the January - May 2018 tax benefits, and the impact of the change in State income taxes.
Non-Plant Excess ADFIT
As discussed, balances associated with regulated utility operations resulted in the
reclassification ofdeferred tax to a deferred regulatory liability or asset on the balance sheet.
Unlike plant-related excess ADFIT, which must be amortized over the remaining life of the plant
assets, non-plant excess ADFIT has no IRS normalization requirements and can be returned to
customers in any manner deemed appropriate by the Commission. The non-plant-related excess
ADFIT results in a $6.3 million tax benefit for Idaho electric customers and a $525,000
surcharge for Idaho natural gas customers.
Deferral of January - May 2018 Balances
In Order No. 33965, the Commission ordered utilities to "immediately account for the
financial benefits from the January 1,2078 tax rate reduction to 21o/o" by deferring these benefits
of the TCJA into a deferred regulatory liability until the benefits are reflected in customers rates.
Because the Parties propose a June 1,2018 effective date for the TCJA-related rate decrease, the
Parties agree that the regulatory liability should equal5l12 (January through May) of the annual
tax benefit of reducing the current and deferred income tax expense to 2lYo, as well as 5/12 of
the annual amortization of the excess plant ADFIT from January 7,2018 - May 31, 2018. This
portion of the temporary benefit to Idaho customers is $5.726 million electric and $1.064 million
natural gas.
5STAFF COMMENTS MAY I l, 2018
State Income Tax Impact
After the TCJA passed, the Idaho Legislature passed House Bill 463 to decrease the
Idaho corporate income tax rate from 7 .4Yo to 6.9250/o, effective January 1 , 20 1 8 . This change in
Idaho State Income Tax reduces the overall benefits owed to Idaho electric customers by
$48,000, and increases the benefits owed to Idaho natural gas customers by $5,000.
FERC Transmission Rates
The reduction in tax rates will affect Avista's Open Access Transmission Tariff (OATT)
approved by the Federal Energy Regulatory Commission (FERC). When FERC resets the
OATT rate accounting for the reduced federal income tax rate, it will reduce Avista's
transmission revenues. The Parties agree that any change to Avista's transmission revenues
andlor refund to transmission customers, because of FERC action in response to the TCJA, will
be tracked at l00oh through the Power Cost Adjustment until reflected in base rates in the next
general rate case. Staff believes this treatment follows the Commission's intent of tracking and
returning (or flowing through) all TCJA tax benefits to customers.
STAFF RECOMMENDATIONS
Staff believes the Settlement Stipulation accurately accounts for all the tax benefits the
Company has or will receive under TCJA, and retums those benefits to customers in a manner
consistent with IRS normalization rules and in the public interest. Staff thus recommends the
Commission approve the Stipulation as filed.
Respectfully submitted this
Technical Staff: Donn English
i:umisc/comments/gnru18. lkkde stip comments Avista
Kl 1/
rt-b day of May 2018.
Karl T. Klein
Deputy Attorney General
6STAFF COMMENTS MAY 11, 2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS llth DAY OF MAY 20T8, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO.
GNR-U-I8-OI, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
PATRICK EHRBAR
AVISTA CORPORATION
PO BOX3727
SPOKANE W A99220-3727
E-mail: [e-mail]
CLEARWATER PAPER CORPORATION
C/O PETER J. RICHARDSON
RICHARDSON ADAMS, PLLC
P.O. BOX 7218
BOISE, IDAHO 83702
E-mail : [e-mail]
RONALD L. WILLIAMS
WILLIAMS BRADBURY, P.C.
PO BOX 388
BOISE, IDAHO 8370I
E-Mail: [e-mail]
Electronic Service Only:
LARRY A. CROWLEY, DIRECTOR
THE ENERGY STRATEGIES INSTITUTE,
INC.
E-Mail: [e-mail]
DAVID J MEYER
SENIOR VICE PRESIDENT
AVISTA UTILITIES
PO BOX 3727
SPOKANE WA9922O
E-mail: [e-mail]
avistadockets@,avi stacorp. com
DR. DON READING
6070 HILL ROAD
BOISE,IDAHO 83703
E-mail : [e-mail]
DEAN J. MILLER
3620 E WARM SPRINGS AVE.
BOISE,IDAHO 83716
E-Mail : deanj [e-mail]
BENJAMIN J. OTTO
IDAHO CONSERVATION LEAGUE
710 N 6TH STREET
BOISE, IDAHO 83702
E-mail : [e-mail]
sECRE-rAn/-
CERTIFICATE OF SERVICE