Avista Corp. said last week that it has reached a settlement agreement with the staff of the Washington Utilities and Transportation Commission (WUTC), the Public Counsel Section of the Washington attorney general’s Office and the Industrial Customers of Northwest Utilities on payment of excess power costs stemming from the western power crisis and covering a period from mid-2000 until the end of 2001.

The agreement, which still must be approved by the full commission, includes Avista’s interim and prudence electric rate filings currently pending before the WUTC. All parties represented have requested that the commission approve the settlement to become effective on or before March 15. If the commission approves the deal, Avista would be able to begin recovering excess power costs, which have put a heavy financial burden on the company, driving its stock from $40 during late March 2000 to just over $10 in November 2001. Upon news of the settlement, Avista’s stock price climbed from Wednesday’s open of $14.10 to close at $14.66.

Under the agreement, the parties have asked the WUTC to order that 90%, or approximately $196 million, of power costs Avista had deferred as of Dec. 31, 2001 to serve customers in Washington, be deemed “prudently incurred” and “recoverable” in rates. Avista received approval from the WUTC for a temporary accounting mechanism that will allow the company to continue to defer certain power supply costs in late December. In addition, the collection of these deferred power costs will no longer be subject to refund, Avista said. One-fifth of Avista’s previously approved 25% electric surcharge will be available to offset general operating costs. According to the company, an electric surcharge will remain in effect until the allowable deferred costs are recovered.

If the commission approves recovery of 90% of Avista’s deferred power costs through year-end 2001, the company said it will revise previously reported 2001 earnings and will write off $21.8 million of deferred power costs. This will result in a charge of $0.30 per diluted share, reducing Avista’s previously reported 2001 consolidated corporate earnings to $0.20 per diluted share.

In July, Avista requested an emergency electric surcharge of 36.9% for 27 months, but in September, the commission granted a 25% surcharge for 15 months. The surcharge request was a direct result of record-low hydroelectric conditions and unprecedented high electric prices during the past year. During most of that period, Avista purchased electricity for its customers at extremely high prices, resulting in over $200 million of unrecovered, deferred power costs.

The agreement also requests that the WUTC approve a permanent 6.2% increase in base electric rates for Avista’s Washington customers, which is also expected to become effective on or before March 15. The four-party settlement compromised on the 6.2% figure as opposed to Avista’s 12.4% interim rate increase request, which the company filed for in December. If approved, the new monthly bill for a residential customer using 1,000 kWh of electricity would increase by $2.92 per month to $55.81. The 6.2% increase will be applied as a uniform percentage for all customer classes. If approved, Avista’s new electric rates would remain among the lowest in the region and significantly below the national average of 6.8 cents per kWh.

“In reaching this agreement, we struck an extremely difficult balance between providing for the long-term financial needs of our company and further raising electric rates to our customers,” said Avista Corp. CEO Gary G. Ely. “However, this agreement, if approved by the WUTC, does remove the uncertainty around the recoverability of the power costs that we have incurred to meet customer needs and have deferred from July 2000 through Dec. 31, 2001.”

Avista said it will implement certain measures that would help mitigate the impact of increased rates on customers. These measures include extending the winter low-income payment program, increasing the promotion of Avista’s Comfort Level Billing plan and building additional customer awareness of Project Share and the company’s CARES program. In addition, parties to the settlement have agreed to negotiate in good faith to resolve the remaining issues in Avista’s general rate case filed in December. The commission has until November of this year to complete its review of the filing.

Avista said that 67% of its annual electric revenues are derived from eastern Washington where it serves 210,000 electric customers.

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