20250722Final_Order_No_36677.pdf

Office of the Secretary
Service Date
July 22,2025
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER ) CASE NO. IPC-E-25-02
COMPANY'S APPLICATION TO MODIFY )
ITS ENERGY RISK MANAGEMENT )
STANDARDS ) ORDER NO. 36677
On January 31, 2025, Idaho Power Company ("Company") submitted a request for
approval to revise its Energy Risk Management Standards ("ERMS").
On March 12, 2025, the Commission issued a Notice of Application and Notice of
Intervention Deadline, setting a deadline for interested parties to intervene. Order No. 36499.
On April 23, 2025, the Commission issued a Notice of Modified Procedure, establishing
public comment and Company reply deadlines. Order No. 36570. Staff filed the only comments.
Having reviewed the record, the Commission issues this Order approving the Company's
annual update.
BACKGROUND
The Company uses the ERMS to identify and manage financial risks of potential power
supply deals that customers will pay for through their rates.The ERMS implements the Company's
Energy Risk Management Policy. Together, these systems form the Company's broader Energy
Risk Management Program ("ERMP").
The existing ERMP was previously approved by the Commission in Final Order No.
29102. The ERMP includes rules explaining when and how the Company would use hedging. The
Risk Guidelines are split into three sections, called "Tiers." Tier One deals with financial risks
from low water levels and high prices. Tier Two covers risks from expected power shortages or
surpluses. Tier Three aims to take advantage of low market prices.
THE APPLICATION
The Company proposes updating the ERMS in response to changes in the natural gas
market since the standards were first implemented. The Company claims, since the initial approval
of the ERMS, it has grown more dependent on natural gas over hydro and coal generation. The
Company seeks to revise the ERMS to ensure they do not hinder its ability to carry out hedging
transactions.
ORDER NO. 36677 1

The proposed updates make hedging under Tier One mandatory when the monthly forward
market price goes above a set high-price threshold. Tier Two would be revised to allow more
flexibility in hedging strategies that address either power surpluses or shortages while limiting
exposure to price swings. Finally,Tier Three would be revised to allow a wider variety of low-risk
financial tools. According to the Company, these revisions will aid it in responding to its growing
dependence on natural gas generation, which has increased its exposure to energy market risks.
STAFF COMMENTS
Staff believed that the proposed ERMS updates are reasonable and will likely benefit
customers and, therefore, recommended Commission approval. However, Staff emphasized that
approval and compliance with these standards does not automatically result in prudent power
supply costs. Staff encouraged thoughtful application of these standards that account for current
and future market conditions when decisions are made.
Staff agreed that, historically, coal-fired generation provided a natural hedge against
volatile electricity prices because coal was sourced through stable, long-term contracts or mine-
mouth plants. The combined pressure of the retirement or conversion of coal resources and load
growth have made the Company increasingly dependent on energy market purchases. This
increased the need for hedging transactions to manage price risks effectively.
Staff also supported the proposed extension of the hedging timeframe, believing that the
proposed extension will help reduce exposure to price spikes. Most financial hedging—about
90%—is linked to natural gas trades, where long-term contracts and trades now extend several
years into the future. Because the current ERMS limits the window in which hedging transactions
can occur, the Company risks missing out on more stable pricing options unless the ERMS is
adjusted. Staff believed this limitation disadvantages the Company relative to other utilities that
already engage in longer-term trades.
Accordingly, Staff supported the proposed expansion of the Tier Two volumetric limit by
expanding the time window, using a base-case hydro forecast to define both deficit and surplus
positions, and implementing a stair-step approach to gradually adjust these positions. After
reviewing examples of the application of this proposed method with the Company, Staff agreed
that these changes are reasonable and should reduce risk while improving hedging outcomes. Staff
further noted that other regulated utilities take a similar approach in their risk management
systems.
ORDER NO. 36677 2

Staff also found the proposed changes to the high price limits under Tier One reasonable.
Tier One is designed to protect against extreme price spikes, especially during low water
conditions. Hedges trigger when forward market prices exceed a set limit. Staff believed the
proposed updates will help limit financial risk from high power prices and align with the changes
to Tier Two.
The proposed changes to Tier Three are designed to integrate it with the proposed revisions
to Tier Two. The proposed Tier Three floor price limit manages risk when the chance of rising
energy prices outweighs the chance of prices falling. Hedges would be triggered if forward market
prices fall below set limits, using a longer evaluation window. Staff reviewed the Tier Three
method and found the changes reasonable and result in better risk management.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§ 61-501, -502 and-
503. The Commission is empowered to investigate rates, charges,rules,regulations,practices, and
contracts of public utilities and to determine whether they are just, reasonable, preferential,
discriminatory, or in violation of any provision of the law, and to fix the same by order. Idaho
Code §§ 61-502 and-503. The Commission may enter any final order consistent with its authority
under Title 61, Idaho Code.
The Commission originally approved the ERMS more than two decades ago to ensure that
the Company's hedging practices limit the growth of the Power Cost Adjustment balance,protect
customers from wholesale price changes, and ensure cheaper power during shortages. See Order
No. 29102. Since that time, the composition of the Company's resource stack has changed
substantially—becoming much more reliant on natural gas-fired generation. Energy markets have
also evolved, offering more products and longer-term options. The existing version of the ERMS
is ill-suited to meet the demands of these changed conditions. Accordingly, we find it reasonable
to grant the Company's application to modify the ERMS as discussed more thoroughly below.
Revising Tier Two is the centerpiece of the Company's proposed modifications to the
ERMS. Specifically, the Company proposes (1) expanding the period for evaluating the portfolio;
(2) establishing deficit and surplus positions from a baseline hydro forecast; and (3) instituting a
stepped approach for satisfying or reducing those positions over time. These adjustments are
intended to facilitate systematic hedges,helping to minimize deficit or surplus positions and lessen
exposure to market risks at any one moment.
ORDER NO. 36677 3

The proposed revisions to Tiers One and Three are intended to align their functions with
the changes made to Tier Two. The proposed revisions to Tier One update the high price
calculation, incorporating the changes to Tier Two. These proposed changes aim to reduce the
Company's financial risk. The proposed revisions to Tier Three are intended to open the
Company's access to a wider variety of hedging transactions with more stable prices. Given the
Company's growing dependence on natural gas-fired generation, it often engages in longer-term,
price-volatile natural gas hedging contracts. Accordingly, we find it reasonable to approve the
proposed ERMS revisions to prevent the Company from being disadvantaged in the competitive
hedging market.
Despite approving the proposed revisions to the ERMS, we do not believe that strict,
mechanical adherence to these standards will invariably result in prudent power supply costs. As
the hedging market and the Company's resource stack continue to evolve, some flexibility in the
application of the ERMS may be necessary to manage power costs prudently. Accordingly, we
encourage the Company to follow the ERMS while accounting for the current and future power
purchasing landscape when making decisions going forward.
ORDER
IT IS HEREBY ORDERED that the Company's proposed revisions to its Energy Risk
Management Standards are approved as filed.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
ORDER NO. 36677 4

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 22°d day of
July 2025.
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EDWARD LODGE, PRE, T ENT
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R. HAMMOND JR., COMMISSIONER
DAYN HAFbIE, COMMISSIONER
ATTEST:
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Commission Secretary
I:\Legal\ELECTRIC\IPC-E-25-02_ERMS\orders\IPCE2502_final_at.doex
ORDER NO. 36677 5