20040526Press Release.pdf

IDAHO PUBLIC UTILITIES COMMISSION
For Immediate Release
Case No. IPC-03-13, Order No. 29505
Case No. IPC-04-9, Order No. 29506
May 25, 2004
Contact: Gene Fadness [phone]
Commission approves average 5.2 percent increase in Idaho Power rates
Boise - Idaho Power customers will be paying an average 5.2 percent more in electric rates
effective June 1. However, the yearly power cost adjustment order, also released today, means
that some customer classes, including irrigators, will get decreases to their overall bills when
compared to last year or much smaller increases.
A two-year surcharge imposed on irrigation and small-commercial customers resulting from the
2000-2001 energy crisis expired earlier this month. That means that while irrigation customers
received a 13.95 percent increase to base rates, their overall rate declines by 5.8 percent.
Last October, Idaho Power asked the Idaho Public Utilities Commission to approve an average
17.7 percent rate increase and later revised that request down to about 14.5 percent. The
company initially sought to increase its annual revenues by $85.6 million. The commission
order today authorizes the company to collect $25.3 million in new revenue, 5.2 percent more
than current revenues. The commission approved a return on equity of 10.25 percent and an
overall rate of return of 7.85 percent. The company requested a minimum 11.2 percent return on
equity and an 8.334 percent overall rate of return.
Part of the increase is a $3.30 monthly service charge for residential and small-commercial
customers, up from $2.51. The company requested $10.
To send a stronger conservation signal, the commission accepted Idaho Power s proposal to
assess a higher rate for residential and small-commercial customers during June, July and August
when power is most expensive. However, the commission implemented the higher rate only for
electrical use of more than 300 kWh. The rate, which is 12.5 percent higher in the summer
should not apply to use under 300 kWh, the commission said, to allow for basic use such as for
lighting and home appliances.
The annual power cost adjustment (PCA), also released today, is a yearly mechanism that
increases or decreases customer rates to account for above-normal or below-normal costs of
supplying power. Idaho Power s costs of supplying power depend on water levels (in a normal
water year, Idaho Power generates 60 percent of its power from hydroelectric dams) and the cost
of buying replacement power on the wholesale market or from other sources when hydro
generation is short. Although another year of low water could have resulted in a slight increase in
the PCA, the company proposed leaving the rate the same to avoid customers getting an increase
in both the PCA and in the base rate during the same year.
The PCA was approved at the same time as the rate case to avoid confusion associated with rate
changes. The base rate increases and the PCA adjustment for each of the major customer classes
are as follows:
The base rate increase for residential customers is 5.98 percent. Including the PCA, the
increase is 5.4 percent. The company requested 19.9 percent. The current average rate
with PCA for residential customers is 5.78 cents per kWh. The new average rate is
09 cents.
For irrigation customers, the base rate increase is 13.95 percent. The company requested
25 percent. When the PCA is included, irrigators get an overall reduction of 5.8 percent.
Current average rate with PCA, 5.04 cents per kWh. New average rate, 4.75 cents.
Small-commercial customers, while getting an increase of 5.97 percent to base rates, end
up with an overall increase of 1.5 percent due to the expiration of their two-year PCA
surcharge. The company requested 21 percent. Current average rate with PCA, 7.
cents per kWh. New average rate, 7.285 cents.
Large-commercial customers (schools, larger retail stores) receive a base rate increase
of 2 percent, but that is reduced to 1.7 percent with the PCA. The company requested
percent. Current average rate with PCA, 4.25 cents per kWh. New average rate,
325 cents.
The base rate for industrial customers increases by 2.4 percent, but after the power cost
adjustment the overall rate is a decrease of 5 percent. The company requested 13.
percent. Current average rate with PCA, 3.6 cents per kWh. New average rate, 3.42
cents.
The rates apportioned each customer class are based primarily on the costs to serve that class.
The commission took a number of steps to encourage reductions in electrical demand. In
addition to higher summer rates for residential and small-commercial customers, today s order
mandates a phase-in of time- of-use rates for industrial customers. Time-of-use rates give
industries financial incentive to shift electrical use to off-peak hours. The commission ordered
Idaho Power to submit a proposal for a conservation program with industrial customers. The
commission also ordered a $1 million increase to a low-income weatherization fund, increasing
current funding from about $225 000 to about $1 225 000. It also opened a new case to
determine how to avoid financial disincentives to Idaho Power for participating in conservation
programs.
Among the largest reductions the commission made to the company s request was an
approximate $25.5 million reduction in rate base* and an $18.8 million reduction in test year
expenses for a number of items relating to salaries, pensions and incentive pay for Idaho Power
executives and employees.
Commissioners expressed concern about the public perception surrounding benefits and
employee bonuses paid by IDACORP, Idaho Power s parent company, at the same time
customers were paying unprecedented electric rates. "It is difficult to explain why Idaho Power
expected its ratepayers to pay extraordinary power supply costs while it simultaneously rewarded
employees with bonuses " the commission said.
Four public workshops and five hearings, attended by about 350 citizens, were held throughout
Idaho Power s service territory. The commission also received more than 500 written comments.
There were several groups represented by attorneys in the case including the Industrial
Customers of Idaho Power, the Idaho Irrigation Pumpers Association, the Northwest Energy
Coalition, Community Action Partnership of Idaho, AARP and others.
The commission heard from many low-income and irrigation customers. Low-income customers
and senior citizens asked the commission to consider current economic conditions before
granting any increase. Irrigation customers said the company s proposed 25 percent increase to
irrigation rates would have a severe impact of farms and agricultural communities. A number of
customers expressed concern about letting a decade lapse since the last Idaho Power rate case
resulting in a proposed large rate increase and possible rate shock.
Many customers believed that areas of high growth should bear the brunt of the increased costs
to serve Idaho Power s 100 000 customers added since the last rate case. Past commission efforts
to attach higher rates or fees on new customers were overturned by the state Supreme Court in
Idaho State Homebuilders v. Washington Water Power and Idaho Public Utilities Commission
1984 and in Building Contractors Association of Southwestern Idaho v. Idaho Public Utilities
Commission and Coalition of Boise Water Customers in 1996. In both cases, the court said
higher fees or rates targeted to growth discriminated against new customers.
Irrigators argued that new customer growth, particularly in urban areas, caused increased costs to
the company while the irrigation load did not change. Other parties to the case argued that
irrigation rates should be even higher, noting that irrigators should pay anywhere from 29
percent to 47 percent more than current rates to fully meet the cost to serve irrigators. Some
intervenors in the case complained that other rate classes subsidize irrigation customers.
The commission maintains that the major reason for the increased cost of service to irrigators is
the rapidly rising cost of power during peak summer use, which is when irrigators use their
power. However, the commission acknowledged that irrigators and other parties to the case
raised serious questions" regarding the accuracy of the cost of service studies and ordered the
opening of a separate docket to evaluate cost of service issues.
The commission said the 13.95 percent increase for irrigators, while fair, is significant but
unavoidable. "Even if the precise results of the of the cost of service methodology are
discounted, the large disparity between those results and existing irrigation base rates shows that
in a relative sense, the irrigation class does not pay its own way and other customer classes make
up the difference " the commission said.
Many customers opposed increasing the residential service charge from $2.51 to $10 per month.
Idaho Power maintained that costs other than billing and meter reading should be included in
service charges, including a portion of the investment associated with distribution facilities. The
commission said the charge should cover only metering reading and customer billing. The
commission, approving an increase to $3., said the company s proposal would "dampen the
incentive for customers to conserve energy," because all customers pay the charge regardless of
the amount of energy used. Commission staff noted that residential customers with the lowest
usage would see a 298 percent increase in bills with the company s proposal while the largest
users would see an 8 percent increase.
The commission adopted a recommendation of the Community Action Partnership of Idaho to
increase Idaho Power s funding level of Low-Income Weatherization Assistance from about
$225 000 to about $1 225 000. In past years, the fund is depleted by mid-year. The commission
said weatherization funds lower the amount of uncollectible bills and create permanent electric
load reduction, benefiting not only those whose bills are lowered, but all Idaho Power customers.
A full text of the commission s 71-page order is available on the commission s Web site at
www.puc.state.id.. Click on "Idaho Power rate case " under Hot Items in the upper right-hand
corner of the page. Copes are also available for public inspection at the commission s offices at
472 W. Washington St. in Boise. The new PCA and base rates for all customers are containted
the PCA order, Order No. 29506, which is also on the commission Web site. Interested parties
may petition for reconsideration by no later than June 15.
END
*Rate base - The utility s capital investment from which rates are calculated. In this case, Idaho
Power claimed a $1.55 billion rate base for its Idaho jurisdiction. The commission approved a
$1.52 billion rate base, disallowing about $27.5 million.
*Test year - A 12-month period approved by the commission that is intended to accurately
reflect expenses and revenue for future years during which new rates are effective. Ideally,
abnormal and non-repeated expenses and revenues should not be included in a test year. 2003 is
the test year for this case.
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Below is a summary of some of the major adjustments the commission made to Idaho Power
rate base and revenue/expense submissions:
Update to actuals. By using actual test year expenses instead ofprojected expenses for
the last half of2003 , the commission was able to remove $7.6 million from test year
expenses.
Prepaid pension expenses. The company sought to include in rate base $17.8 million for
prepaid expenses relating to a pension fund. The commission denied the entire amount
because assets resulted from accounting procedures, not company contributions to the
plan. The company has not contributed to the plan since 1995.
Incentive pay adjustment. The company sought to include in rate base and expenses its
incentive pay plan that gives employees an additional percentage beyond base pay when
IDACORP's earning per share reaches certain levels. The commission said the incentive
pay should not be included and removed $7.8 million from rate base and $230 500 from
test-year expense.
Operating pension expense. The company sought to include a $9.1 million expense for
employee pension expenses to more accurately reflect future pension costs and to remove
market volatility and interest rate volatility. The commission denied the adjustment but
said it can be re-evaluated in a future rate case.
Payroll adjustments. The company sought to include $2.9 million for anticipated
increases in payroll. Staff determined that actual, not projected, expenses of $860 600 be
used instead. The commission agreed, removing about $2 million in expenses. The
commission also removed $2.24 million in a salary structure adjustment that will not be
paid until 2005, noting the exact amount of the adjustment is not known at this time.
Income tax expense. The commission removed $11.5 million in test year expenses
resulting from a $41 million tax refund the company received in 2002 as the result of a
change in its 2001 tax methodology. The commission said that amount must be repaid in
the form of future higher taxes. The commission said ratepayers did not share in the tax
proceeds the shareholders received in 2002, will have to repay more than $41 million in
higher tax expense and could be subject to a tax deficiency payment if the IRS
determines that Idaho Power did not properly file the 2001 tax return that results from the
tax methodology change.
Additional income tax assessment. Idaho Power sought $2.9 million for additional tax
payments during the 1998-2000 audit cycle. The commission averaged the additional tax
payments over a three-year period rather than allow the company s proposal to recover
the entire amount in each of three years, which could result in ratepayers paying more
than the actual expense. The averaging removed $1.9 million from the company s test-
year expenses.
Annualizing plant adjustment. Idaho Power sought to include plant improvements to a
generator at the company s Bridger coal plant in Wyoming and improvements to the
Brownlee-Oxbow transmission line as expenses, but listed only expenses and not
potential revenues or cost savings. The commission allowed the $19.8 million
investment, but also included a proxy increased revenue and reduced expenses of
$995,497. Any additional revenues or reduced expenses will be reflected in the
company s next rate case, expected in two to three years.
Physical plant improvements. The commission allowed the company to include $18.4
million in rate base for further improvements to the Brownlee-Oxbow transmission line
and to transmission stations at Star, Vallivue, Midrose and Goshen. However, the
company s application did not reflect benefits to customers including additional revenues
from growth in those areas or reduced maintenance expenses. The commission included a
proxy of$1 031 733 for anticipated revenues or reduced expenses.
Depreciation expenses. Due to a change in depreciation rates approved by the
commission in 2003 , the commission removed $2.2 million from rate base in
accumulated depreciation balance and reduced expenses by $4.4 million in annual
depreciation expense.
Biological opinion assessment. The company sought to include $650 000 in its rate base
for legal costs defending a lawsuit brought by the Sierra Club related to a National
Marine Fisheries biological opinion. The commission said the expense should be booked
in one year rather than added to the permanent rate base and removed the $650 000 from
rate base.
Memberships and contributions. The company sought to include $326 014 in expenses
for political and charitable contributions, memberships in service clubs and to the Edison
Electric Institute, which lobbies for power companies and provides education on industry
issues and management training. The company later agreed with staff recommendations
to remove $38 000 for political and charitable contributions. The commission accepted
one-third of the remaining adjustment stating some expenses have a legitimate business
purpose that benefits customers. The commission removed $95 983 from the company
test year expenses.
California legal expenses. The company sought to include $350 000 in expenses relating
to litigation relating to trading practices of some wholesale energy traders. Though the
expense was necessary to ensure ratepayers would receive any potential refunds as a
result of the cases, the commission said the amount is an unusual expense and should not
be included in the test year that is used to determine permanent rates.
Property and liability expenses. The company sought to include $748 600 for
anticipated increases to its property and liability insurance. Because the anticipated
increases are speculative, the commission removed them.
Cloud seeding. The company sought to include about $1.3 million in costs for an
experimental cloud seeding program. Given the experimental nature of the program and
lack of demonstrated effectiveness, the commission removed $214 600 from rate base
and about $900 000 in expenses for the program.
Some intervenors argued that $53.4 million in costs for the Danskin Power Plant in Mountain
Home should not be included in rate base. The Industrial Customers of Idaho Power said the
company did not provide information on alternatives it considered to building Danskin and
noted that the peaking plant is operating even fewer hours than anticipated.
The commission ruled that Idaho Power is entitled to include Danskin plant costs in rate
base. "The extraordinary conditions that existed at the time Danskin was developed
warranted a rapid response by the company and justifies the investment in a peaking facility
that, by design, is more costly to operate than other types of facilities.
However, the commission noted that the company did not provide additional information as
requested. That made it more difficult for the commission to review Danskin s costs for rate
base recovery. "We expect the company will not place the commission in a similar position
when it seeks cost recovery of the Bennett Mountain generating facility," the commission.
The Bennett Mountain plant, also a natural gas facility near Mountain Home, is now being
built.