Agenda Date:     March  24, 1999    DRAFT of  3/18/99

Docket:   UE-990251
Company Name:  Avista Corporation

Staff:    Hank McIntosh, Regulatory consultant
    Roland Martin, Regulatory Consultant
    Doug Kilpatrick, Electric Industry Coordinator


Recommendation:

Issue an Order approving the rates filed under the Special Contract with 
Mirabeau Point Inc.,  to become effective on its own terms, effective February 
12, 1999.

Discussion:
The special contract is between the YMCA and a Senior Center who have been 
represented by Mirabeau Development Associates in discussions and negotiations 
with Avista.  These specific loads are new to Avista.  Under the Service 
Territory Agreement Between Washington Water Power(Avista) and Inland Power and 
Light Company and Settlement (UE-981149),  these customers do not fall into 
exclusive service rights areas, but are included in a list of “carved out” 
competitive customers.  The Agreement describes two geographical areas for 
exclusive distribution service rights and for other areas allows specific rules 
for deciding which supplier will serve. The list contains 17 such carved out 
customers.  Avista has informed Staff that of these, about half of the  loads 
have been definitely lost to Inland Power Coop or clearly conceded to Avista.  

Discrimination:
Similarly situated customers are allowed to negotiate similar contract 
arrangements under WAC 480-80-335.  It is a peculiar fact of the agreement 
between Avista and Inland Power Cooperative that when the YMCA and senior 
center and one other customer are connected to the Avista system, the rest of 
the Mirabeau Point customers will be in the Avista service territory by virtue 
of the rules for deciding undetermined service area in the territorial 
agreement.   Thus, it is true that if any customer has the same choice as YMCA 
et al., they would have a right to a contract price the same as this.  But no 
other customer is going to have a choice under the terms of the territory 
agreement.  This does not change the fact that the customers under discussion 
do have choice and so are in a different situation than Avista customers served 
under Schedule 21.   The role of an option for alternative service has been 
used in the order for another special contract proceeding, in Docket UE961184.

Cost Recovery:
The special contract rate is great enough to cover the incremental cost of 
serving the customer. Staff analysis shows that the revenues collected under 
the special contract will be greater than the long run incremental costs of 
providing service.   

Docket UE-990251
March 24, 1999
Page 1
Prejudiced Competition:
The special contract will not give the designated customers at Mirabeau Point a 
special advantage over their competitors in their own markets.  This is clear 
because this  advantage exists whether or not the Commission approves or denies 
the request: the competing electric provider has not withdrawn its offer of 
tariff service at the same price.

Lower Rates:
The status quo tariff (Schedule 21) is the optimal price from the Avista 
ratepayer’s point of view. However, Mirabeau Point can select the Inland 
tariff.  The proposal with Mirabeau is to serve future loads which have no 
alternatives at the tariff rate and to offer service to a particular and small 
set (3) of customers at a discount.  Over the life of the incremental 
investment, there is no doubt that costs are covered with a surplus to cover 
fixed costs of the system.   The IRR is about 30% with a break even time of 
under 5 years.

Effective Bargaining:
It is clear that the customer faces an alternative cheaper than Avista’s tariff 
and Avista has not offered a price below this level.  This is intuitively the 
customer’s maximum willingness to pay.

Conclusion:
Staff believes that the proposed special contract is preferable to bypass 
option for the utility and its core customers; therefore, the staff recommends 
that the Commission issue an Order permitting rates filed under the Special 
Contract between Avista Corp., and Mirabeau Properties, Inc.   Staff reminds 
all parties that under WAC 480-80-335, approval of special contracts is not 
determinative with respect to expenses and revenues of the utility from 
subsequent rate making considerations.