PCAhistory.doc

What is the Power Cost Adjustment (PCA)?

Every year on June 1, the bills of Idaho Power customers are adjusted either up or down to account for abnormal “variable” power supply costs. This is called the Power Cost Adjustment or PCA. Power supply expenses are those variable costs the utility incurs to provide the power needed to serve customers including generator fuel costs like coal and natural gas and power purchases and the cost of transmission to deliver the purchased power to Idaho Power’s system. Idaho Power’s earnings are not increased or decreased with the PCA. Money collected from the surcharge can go only toward Idaho Power paying those parties who provided power supply or power supply-related expense.

This year, Idaho Power’s PCA is the highest it has been in many years. The company has $140.4 million in power supply expense not already included in rates. The Commission is required by state statute to allow Idaho Power to recover prudently incurred power supply expense that is necessary to serve customers. Over the next few weeks, the Commission will review those expenses to ensure that Idaho Power found the least cost power supply available to it. If the entire $140.4 million is found to be prudently incurred, customer rates would increase an average 15.34 percent. However, Idaho Power seeks to mitigate the increase by spreading it over two years, which would mean a 9.6 percent increase this year. Next year’s adjustment would be dependent on next year’s PCA combined with the remainder of this year’s adjustment.

The largest component of a customer bill is the base rate. This rate covers the utility’s fixed costs of providing service to customers and variable power supply costs at normal levels. These costs include investment in the company’s generation, distribution and transmission plant and some operation and maintenance costs. For an average residential customer, that base rate charge is between 7 and 8 cents per kilowatt-hour depending on the time of year and on how much energy a customer uses.

Idaho Power also incurs expense that is not fixed and cannot be precisely predicted. In Idaho Power's territory, where about half its energy comes from hydroelectricity, streamflow levels play a large role in determining annual power supply expense. In good water and snow years, Idaho Power can rely more heavily on its less costly hydro generation for power supply. During drier years, the utility must go to other more expensive generation resources such as natural gas, coal, wind and energy purchases from the wholesale electric market. The price of coal, natural gas, market power and transportation all impact the utility’s cost of power supply that varies from year to year.

Normal power supply expense is included in base rates. The PCA includes only those power supply expenses not included in base rates. Idaho Power is directed by the Commission to track its abnormal variable power supply expenses in a “deferral” account. On or about April 15 each year, Idaho Power submits its deferred power supply expenses as well as a forecast of the next year’s expenses. The Commission reviews those expenses to ensure the company secured the least costly power supply it could to serve customers. In addition to reviewing the previous year’s expenses, the commission also completes a “true-up” calculation of the preceding year’s forecasted expenses with actual expenses to ensure that customers aren’t paying more or less than the company’s actual expense. This review is completed in time for the PCA rates to be effective June 1. The process is completed each year and forecast amounts are trued up to actual amounts.

When streamflows are above normal and wholesale electric and natural gas prices are normal, customers typically receive a PCA credit. When streamflows are below normal and Idaho Power must generate power from more expensive thermal sources or buy more power on the wholesale market, customers typically pay a surcharge. Currently, the PCA is about eight-hundredths of 1 cent per kWh, added to the approximate 7- to 8-cent per kWh base rate charge.

When water conditions are well above average and market prices and fuel costs low, the power supply expense may be less than the amount already included in base rates and customers get a credit. That has happened only five times in the 20-year history of the PCA: 1996, 1997, 1999, 2006 and 2011. There are other years when the surcharge is less than the previous year, so customers get a reduction, but are still paying a surcharge. A look at the past 10 years of the PCA is below.

It’s important to note that, unlike a base rate change which can increase company earnings, an increase in the PCA surcharge does not increase Idaho Power’s earnings. Money collected from the surcharge can be used only to pay power supply expenses. The PCA deferral account is audited by the Commission to ensure the revenue collected is only enough to offset abnormal power supply expense.

Idaho Power PCA Over the Last Decade

This year’s PCA recovers $140 million. The two years that were higher followed the Westwide energy crisis. The 2001 PCA was $220.2 million and in 2002 it was $240.2 million. Here’s a look at the PCA over the last 10 years.

2013 – 15.3 percent increase. $140 million. (IPC-E-13-10)
2012 – 5.1 percent increase, ($43 million) but that is offset from a revenue sharing agreement for a net increase to customers of 1.7 percent. (IPC-E-12-17)
2011 – 4.8 percent decrease. $50.4 million. (IPC-E-11-06)
2010 – 6.5 percent decrease. $41.9 million. (IPC-E-10-12)
2009 – 10.2 percent increase. $194 million. (IPC-E-09-11)
2008 – 10.7 percent increase. $106 million. (IPC-E-08-07)
2007 – 14.5 percent increase. $30.7 million. (IPC-E-07-10)
2006 – 19.4 percent decrease. $-46.8 million credit. (IPC-E-06-07)
2005 – No change. (IPC-E-05-15) $73.1 million.
2004 – No change. (IPC-E-04-09) $70.8 million.
2003 – 18.9 percent decrease. (IPC-E-03-05) $81.3 million.