COEUR d'ALENE - Avista Corp. announced Monday it had reached a settlement agreement with multiple parties in a rate case that could result in increases for electric and natural gas customers in Idaho.

Between that settlement agreement, a possible offsetting credit, and a power cost adjustment the utility has just filed, the Spokane-based utility's electric customers could see an overall rate increase of 6.6 percent in October, the company said.

The settlement agreement parties include the staff of the Idaho Public Utilities Commission, Clearwater Paper Corp., Idaho Forest Group, Community Action Partnership Association of Idaho and Idaho Conservation League, said Avista spokeswoman Debbie Simock.

If the settlement agreement is approved by the state utilities commission, overall electric rates would increase 9.3 percent and natural gas rates would increase 2.6 percent on Oct. 1. That rate case was filed in March by Avista.

However, the utility said the rate increases in the settlement agreement would be partially offset by $17.5 million in credits to customers.

"It's kind of helping to phase in and lessen the rate impact on customers," Simock said.

Avista collected the $17.5 million through customer rates as a result of an accounting method change by the utility, where customers paid state income taxes.

Now Avista is returning the balance of the deferred state income taxes to customers in the form of a credit on their bills over two years for electric customers, and over one year for natural gas customers.

Simock said $17 million will go to electric customers and $500,000 will go to natural gas customers.

Under the terms of the settlement agreement, Avista's electric revenues would increase by $21.25 million.

Avista said the credits would shrink the electric rate increase down to 3.6 percent from 9.3 percent on Oct. 1. The offset would diminish over the two years.

The return of deferred state income taxes to Avista's 122,000 electric and 74,000 natural gas customers in Idaho would not have an affect on the company's net income.

Avista's natural gas revenues would increase $1.85 million through the settlement agreement.

The $500,000 would reduce for one year the natural gas rate increase to 1.9 percent from 2.6 percent.

Separately, Avista on Monday filed its annual power cost adjustment, which it files to identify the difference between its actual cost of generating and purchasing power over the previous 12 months and the cost currently included in customer rates.

The filing requests an overall 2.6 percent increase in electric rates.

Like the rate case in the settlement agreement, the effective date for the power cost adjustment would be Oct. 1. The power cost adjustment also must be approved by the Idaho utility commission.

So between the rate case in the settlement agreement, credits, and the power cost adjustment, customers would see a combined electric rate increase of 6.6 percent, if all are approved by the commission.

For the power cost adjustment, Avista said the increased costs are driven primarily by below-normal hydroelectric generation for the first half of 2010, due to snow pack levels that were well below normal. Costs associated with the addition of the Lancaster generating project also drove up costs, the company said.