March 2_emergncy-charge.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
TONYA CLARK
LOU ANN WESTERFIELD
BILL EASTLAKE
DON HOWELL
RANDY LOBB
TERRI CARLOCK
ALDEN HOLM
KEITH HESSING
KATHY STOCKTON
BEVERLY BARKER
WORKING FILE

FROM: LISA NORDSTROM

DATE: MARCH 2, 2001

RE: IN THE MATTER OF THE IDAHO POWER COMPANY APPLICATION FOR A REFUNDABLE EMERGENCY ENERGY CHARGE FOR THE RECOVERY OF EXTRAORDINARY POWER SUPPLY EXPENSES. CASE NO. IPC-E-01-7.

On February 23, 2001, Idaho Power Company filed an Application requesting an “emergency energy charge.” In its Application, the Company stated that the purpose of the charge would be to begin “recovery of power supply expenses, resulting in the reduction of the extraordinarily high short-term debt balance of the Company.” Application at 1. The Application asserts that the Company’s short-term debt balance attributable to power supply expenses has now reached the unprecedented level of $160,893,917. Application at 2. The monthly carrying costs on this balance is approximately $750,000. Id. The Company also believes this yearlong charge will convey to retail customers a more accurate cost for energy. Application at 3.
BACKGROUND
This emergency charge would incorporate expenses normally recovered in the Company’s annual Power Cost Adjustment (PCA) review in May. Consequently, this emergency energy charge Application represents the first of two potential rate increases -- the second being the PCA filing for deferral true-up and projection of expenses based on expected Snake River stream flows and storage. The energy charge proposed in this Application would pay for the purchased power expenses accrued through January 31, 2001 that exceed the recoverable rates set in last year’s PCA. Power purchases and fuel costs accrued in February and March 2001 would be included in the Company’s annual PCA filing in April.
For the last two months, the Company states it has purchased energy to meet its retail requirements at an approximate average price of $265/MWh. Application at 2. This price is approximately twelve times the embedded cost of energy that the Company is allowed to charge under its current retail rates. In the February 23, 2001 press release filed with this Application, Idaho Power President and CEO Jan B. Packwood attributed the high cost of purchased power to “a volatile wholesale energy market resulting from chronic supply shortages in California and very poor hydro generating conditions due to low river flows in Idaho and throughout the Pacific Northwest.” Press Release at 1.
The Company proposes that the emergency energy charge would be a flat 1.2737¢ per kWh for all customer classes for one year. Application at 1. This charge was computed by dividing the $160,893,917 of deferred energy costs by the 1999 normalized Idaho jurisdiction firm sales amount of 12,632,017 MWh to arrive at a uniform cents-per-kWh charge. Application at 3. Since not all customers pay the same per-kilowatt-hour charge, the proposed 1.2737¢ per kWh charge represents a different percentage increase for each customer class. The approximate percentage impact of this increase per customer group is set out below:

customer group today’s
average rate proposed average rate percent increase RESIDENTIAL 5.2 cents per kWh 6.5 cents per kWh 24.3% IRRIGATION 3.9 cents per kWh 5.2 cents per kWh 32.8% SMALL COMMERCIAL 6.4 cents per kWh 7.7 cents per kWh 19.9% LARGE COMMERCIAL 3.7 cents per kWh 4.9 cents per kWh 34.7% INDUSTRIAL 2.9 cents per kWh 4.1 cents per kWh 44.5%
The overall proposed rate change reflects an average 32% increase to current Idaho Power rates. Application Attachment 2. More specifically, the Company’s bill stuffer notifies customers that a typical monthly residential bill for 1,200 kWh will increase from $62.72 to $78.01 if the proposed 1.2737¢ rate increase is approved. To provide a national perspective, Idaho Power cites a recent study by the Edison Electric Institute finding that the average U.S. rate for residential customers is 8.3 cents per kWh; commercial, 7.1 cents per kWh; and industrial, 4.4 cents per kWh. Press Release at 2.
The Company also requests that the charge be subject to refund pending a determination of the Company’s power supply costs when the Company’s PCA becomes effective on May 16, 2001. Application at 3. Although the Company indicates that it wants to guard against over-collection, it believes refunds are extremely unlikely. Id.
The Company indicates this charge is necessary to send a correct price signal and correct the erroneous perception that the Company’s current rates are adequate to cover the cost of power supply. Application at 2. Furthermore, it notes that the timing of this increase is important to maintain Idaho Power’s economic strength, encourage conservation, and allow business customers more opportunity to factor the higher energy costs into their planning. Press Release at 3.
The Company asserts that it is not subject to the 60-day notice requirement of the Commission’s Rule 122 because this is a rate change related to known and measurable power supply expenses under the tracker exception. Application at 4. However, this Application has been and will be brought to the attention of affected customers by means of press releases in the Idaho Power service area, by bill stuffers, by mailings of the Application to interested parties, and in some instances by means of personal contact. Id. The Company requests an effective date of March 26, 2001.
STAFF RECOMMENDATION
Staff is currently auditing the Company’s power purchase expenditures and will report its findings in an appropriate manner once case procedure has been set. If the Commission determines that workshops and/or hearings are appropriate, Staff recommends the Commission suspend the Application’s effective date 15 days to April 10, 2001. In the interim, Staff proposes the Commission hold three workshops and public hearings in the Treasure Valley, Twin Falls, and Pocatello from March 13 to March 23. Staff further suggests a March 28 written comment deadline and an April 4 responsive comment deadline so that the case can be fully submitted to the Commission by the April 9 decision meeting.

COMMISSION DECISION
How does the Commission wish to process this matter? As a formal case, a tracker case under Modified Procedure, or some other method?
If the Commission wishes to set workshops and/or hearings, does it want to issue an order suspending the requested effective date? Should discovery be scheduled or expedited?
Should the Commission set dates for comment and intervention deadlines?

Lisa Nordstrom

M: IPCE0107_ln

DECISION MEMORANDUM 3