Idaho Public Utilities Commission

Case Nos. IPC-E-10-06,-07 and -08 and -12.

May 28, 2010

Contact: Gene Fadness (208) 334-0339, 890-2712

Rates decline slightly with four adjustments

Rates for Idaho Power Company customers will decrease an average 5.2 percent as the result of four rate adjustments approved today by state regulators.

The Idaho Public Utilities Commission approved the annual Power Cost Adjustment, an average 6.5 percent decrease, and three smaller increases. The percentage of decrease will vary because the adjustments don’t apply to all customer classes and vary in size according to customer class. For residential customers, the PCA decrease is 3.2 percent and the overall rate decrease, after the increases in the three other cases, is 1.4 percent. The adjustments are effective June 1.

Below is a summary of the four rate adjustments.

Power Cost Adjustment (6.5 percent decrease) – Every year on June 1, customers receive either a one-year surcharge or credit, depending on streamflows and market conditions from the previous year, a forecast of the next year’s conditions and a true-up of the previous year’s forecast.

This year’s power supply costs not included in base rates are anticipated to be $42.2 million, far less than 2009’s $188.9 million, resulting in a PCA reduction of $146.7 million. As the result of a stipulated agreement reached with Idaho Power in January, $88.7 million of that PCA reduction will be included in permanent base rates, thus avoiding an Idaho Power rate case this year. The January agreement stipulates that Idaho Power base rates will not increase again until January 2012 at the earliest. The remaining $58 million of the PCA reduction goes directly to customers. The impact on the PCA surcharge is a reduction from 1.4 cents per kWh to 0.31 cents per kWh.

The power cost surcharge covers expenses, not already included in base rates, which Idaho Power incurs to provide energy to its customers. During low water years, Idaho Power must rely on more expensive sources of power than that generated from its 17 hydroelectric plants. Power supply expenses vary due to the always fluctuating prices for natural gas or changing market prices for wholesale power, thus the need for a yearly adjustment to rates. None of the money collected from the PCA surcharge can go to increase company earnings, but can be used only to pay off power supply and related expenses.

(The percentages of increases for the three adjustments below are based on base rates in place before June 1.)

Automated meter installation (0.41 percent increase) – Idaho Power may include $2.36 million in base rates for the second year of a three-year installation of automated meters throughout its territory. The company is replacing its existing meters with advanced metering infrastructure (AMI) that will eventually allow customers to monitor electric prices and adjust their use to take advantage of lower price-periods. Idaho Power submitted a cost estimate of $71 million for the project and will absorb any costs above that. At the end of the second year, expenditures are at $47.3 million.

In early 2009, the commission directed Idaho Power to "move forward with all deliberate speed" with installation. The meters were installed last year in the Boise area and are being installed this year in Canyon and Payette counties and surrounding regions. During 2011, meters will be installed in the Magic Valley, Pocatello and Salmon areas.

The advanced meters can be read from a remote location, negating the need for an Idaho Power representative to access customer properties. They can provide the company and individual customers with hourly meter readings and inform customers of current electric prices, allowing them to manage their use and reduce their bills.

“As we did in 2009 … we continue to find that both present and future public convenience will be served through the enhanced outage management and billing accuracy, as well as reduced operating and maintenance expenses,” the commission said. Implementation of AMI “will inevitably benefit customers and lower the pressure for increased rates,” the commission said.

Fixed Cost Adjustment (1.85 percent increase) – The commission is allowing the company to recover about $6.3 million in under collected fixed costs from residential and commercial customers.

The FCA was implemented in 2007 as a pilot program. The FCA allows Idaho Power to recover the fixed costs (but not to exceed 3 percent) it loses when conservation programs result in lower power sales. Without a mechanism like the FCA, there is a financial disincentive for utilities to promote energy efficiency and conservation programs because they lose money when those programs are successful. The FCA allows Idaho Power to recover its fixed costs as established in the most recent rate case. If the company under collects its fixed costs, customers get a surcharge. Conversely, if the company over collects fixed costs, customers receive a credit, as they did in the first year of the program.

This year, Idaho Power reports it under collected $5.17 million in fixed costs from the residential class and $1.16 million from the small-business class. This was due largely to a 7.6 percent increase in energy savings during 2009 and a 28 percent reduction on the company’s energy demand during peak-use periods.

The Idaho Conservation League submitted comments supporting the FCA, but said the commission should require Idaho Power to “better articulate the benefits customers receive from the FCA mechanism.”

The expansion of conservation programs since implementation of the FCA help keep rates lower than they would otherwise be. Reducing demand on a utility’s generating system, particularly during times of peak-use, is less expensive per kilowatt-hour than building new power plants to meet demand. By enrolling in conservation programs, customers can benefit by using electricity more efficiently, reducing consumption and bills. Even customers who don’t directly participate benefit because the cost of the electricity saved system-wide through these programs is about half the cost of electricity generated by a new power plant.

The FCA will continue as a pilot program for two more years to allow for more data to accumulate and to correct problems.

Pension Funding (0.77 percent increase) – The commission is allowing Idaho Power to increase rates by 0.77 percent to allow it to collect $5.4 million over 12 months to replenish its pension plan. The company’s contributions to its pension plan have always been included in base rates. However, since 2003, Idaho Power was not required to contribute to the pension plan because the market value of the plan’s assets was more than enough to cover future obligations. Recent market conditions and increasing pension obligations require Idaho Power to begin funding the plan again. The commission said this year’s amount due may be recovered over 12 months, but cautioned Idaho Power that recovery of this year’s expense does not ensure the same level of benefit in future years.

The commission suggested Idaho Power consider alternative pension plans. “It is unreasonable for Idaho Power’s customers to be solely responsible for large contributions to the company’s defined pension plan. Many employers in recent years have replaced their defined benefit plans with pension programs that place greater responsibility and investment risks on employees. Idaho Power must similarly consider changes to its retirement plan and address shareholder and employee liabilities in the assignment of pension plan investment risk. The commission will not approve additional pension plan contributions from customers without evidence that Idaho Power has carefully reviewed alternatives to reduce the burden placed on customers.”

The commission’s orders in all four cases are final. Interested parties may petition the commission for reconsideration by no later than June 18. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.

A full text of the commission’s orders, along with other documents related to these cases is available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to these case numbers:

IPC-E-10-06 for Advanced Metering Infrastructure; IPC-E-10-07 for Fixed Cost Adjustment; IPC-E-10-08 for pension expense recovery; and IPC-E-10-12 for the Power Cost Adjustment.