BOND.pdf

Q: Explain Idaho Power’s proposal to issue bonds to help pay for the company’s power
supply costs.
A: Idaho Power is proposing to sell about $172 million in bonds to offset extraordinary expenses
it incurred last summer buying power on the wholesale market when those market prices were so
high. At that time, the company had to pay high prices to buy power to serve its Idaho customers.
It also entered into load reduction programs with Idaho irrigators and industry. Essentially, Idaho
Power wants to recover those costs from ratepayers, but instead of doing that in one year, finance
it over three years. Normally, Idaho Power’s expenses would be recovered from ratepayers in a
one-year period through the annual Power Cost Adjustment process, during which the
Commission considers a number of factors and determines whether and/or how rates should be
changed. By spreading cost recovery over three years, ratepayers will pay finance and interest
charges of about $7 million per year over the same three-year period. Those costs will be in
addition to the power supply costs of $172 million the company is seeking to recover.

Q: Didn’t the surcharge approved last year that customers are now paying take care of
Idaho Power’s debt to power suppliers?
A: Unfortunately, it covered only extraordinary costs incurred for a portion of the time when
wholesale market prices were so high. The costs requested for recovery in this case (IPC-E-02-2)
include market power purchases from March through June 2001 when market prices were 10
times the normal range. The costs sought for recovery in this case also include the costs of load
reduction programs with Idaho irrigators and industry.

Q: What arguments have Idaho Power made in favor of its proposal?
A: The company claims that without this plan customers would see about an 11 percent increase
of the surcharge they are now paying to recover power supply expenses incurred during the new
PCA year, from about March of 2001 to March of 2002. By not recovering its power supply
costs in full over a one-year period, Idaho Power’s customers will pay less money in the short
run. The company maintains that by spreading the debt over three years through the issuance of
bonds, average bills would decrease by about 10 percent from last year’s rates.

Q: What are the disadvantages to Idaho Power’s proposal?
A: The cost of financing the power supply recovery over three years would have to be paid by
customers. In addition to paying the actual debt, Idaho Power customers would have to pay for
the cost of issuing the bonds, about $7 million plus another $14 million in interest and fee
payments over the three-year bond period. Therefore, customers would have to pay more in the
long run. It is important to note, however, that regardless of the length of the recovery period,
customers would pay interest (but not necessarily bond financing costs) on any amounts
deferred. There is also uncertainty about what might happen in the future. During the three-year
period ratepayers are paying a bond recovery charge on the company’s 2001-2002 power supply
costs, the company could have another bad year due to drought, inflated market prices,
equipment failure or any number of factors. Then ratepayers could find themselves paying off
more than one surcharge at a time.

Q: The company claims that if the commission doesn’t accept Idaho Power’s proposal,
rates could go up 11 percent? Is that true?
A: Not necessarily. One alternative is continuing the surcharge at or near current levels. Then the
excess costs would be gone in a single year and ratepayers would see truly significant reduction
next spring and not be paying $21 million in finance and interest costs. In other words, the
Commission could modify the method and amount of power supply cost recovery that would not
require bonding or further increases to customers.

Q: Will I have any input to this decision?
A: Yes. The Commission will consider all comments submitted by interested parties and will
hold public hearings as well. Check this Web site to get updates on Commission hearings.