20050527Press Release.pdf

IDAHO PUBLIC UTILITIES COMMISSION
Case No. IPC-05-10, Order No. 29790
Case No. IPC-05-, Order No. 29789
Case No. IPC-05-15, Order No. 29793
May 26, 2005
Contact: Gene Fadness [phone]
Website: www.puc.idaho.20v
Idaho Power base rates to increase 6.3 percent; no change to PCA
Boise -The Idaho Public Utilities Commission has approved three orders that will result in an
average base rate increase of 6.3 percent to Idaho Power customers effective June
Most of the increase, about 4.5 percent, is the result of a negotiated settlement between the
company and the commission over a disputed tax expense issue from the Idaho Power rate case
that concluded last year. Half of that 4.5 percent increase, 2.2 percent, is for one year only and
will expire June 1. 2006. The other half is added to permanent base rates.
The remaining 1.8 percent of the overall 6.3 percent increase allows the company to include $58
million in base rates to cover the costs of the Bennett Mountain natural gas power plant in
Mountain Home along with the necessary transmission and interconnection facilities.
Because of the base rate increases, the company did not seek an increase in its power cost
adjustment (PCA) surcharge this year, even though its power supply costs were $28.6 million
above normal due to drought conditions. Had the PCA been included, overall customer rates
including the tax expense and Bennett Mountain adjustments, would have jumped 11.7 percent.
Idaho Power will place the $28.6 million in a deferred account to be included in next year
PCA. Given the base rate increases, the commission ruled that deferring the PCA was
reasonable. Some charges, including the 2.2 base rate decrease, expire next year and that may
soften the impact of the 2006 PCA, the commission noted.
Tax settlement
IPC-05-, Order No. 29789
During the course of last year s Idaho Power rate case, the commission and Idaho Power
disagreed over the method used to calculate Idaho Power s income tax expense.
Because of an unusually large refund the company received in 2002, commission staff advocated
using a five-year average to compute the company s tax expense rather than the company
proposal to use existing statutory tax rates. The result was an $11.5 million reduction in Idaho
Power s annual revenue requirement.
Idaho Power petitioned for reconsideration, seeking to present new evidence to support its claim
that use of an average tax year could violate normalization requirements of the Internal Revenue
Code. Settlement discussions ensued between commission staff and the company.
The commission accepted the settlement, largely due to concern about the uncertainty created by
a resulting IRS challenge and the risks litigation could pose to ratepayers. The settlement ensures
that ratepayers will not be liable for any tax deficiency payments that may be assessed Idaho
Power by the IRS for any of the company s tax method changes for the years 1987 through 2000.
The commission also noted that avoiding a lengthy lawsuit would lower the cost ratepayers
ultimately pay for Idaho Power to borrow money to finance ongoing operations.
There was no dispute that Idaho Power s income tax expense is a usual business expense to be
included in the company s revenue requirement. The company would not have an opportunity to
earn its authorized return if its unavoidable tax obligations were excluded from rates. The
commission s objective, when evaluating a tax expense, is to ensure that tax expense in not
larger than necessary to pay actual tax amounts.
Bennett Mountain
IPC- E-05-1 0, Order No. 29790
The Bennett Mountain plant is a 162-megawatt natural gas-fired plant near Mountain Home. It is
designed to help the company meet peak electrical demand, particularly during the summer
months. The plant required an investment of$50.3 million to build, which is under the
commitment estimate of $54 million made to the commission before the plant was built. In
addition, the company invested $7.7 million for transmission upgrades and to interconnect the
plant with the transmission grid.
In a previous order, the commission agreed with Idaho Power s assertion that it would not be
able to meet customer demand during peak conditions by summer 2005 without the addition of
new generation. The Bennett Mountain plant is to meet Idaho Power customer needs. It was not
constructed for out-of-state sales.
Some customers commenting in the case suggested the rate increase be restricted to Idaho
Power s new customers. "Although this may appear to be a reasonable alternative " the
commission said
, "
the Idaho Supreme Court has ruled that such a rate design would unlawfully
discriminate between old customers and new customers." In a previous Supreme Court case, the
court noted that each customer that has come into the Idaho Power system at any time has
contributed to the demand for new facilities.
Others commenting said they wanted the company to generate from sources other than a natural
gas plant, such as renewable sources or nuclear power. The commission noted that Idaho Power
does plan on acquiring 400 MW from wind and geothermal generation in the next 10 years.
Neither renewable nor nuclear sources could be ready in time to meet the anticipated shortfall
this summer.
The commission did remove about $75 000 in costs related to a late fee Idaho Power agreed to
pay the builder of the natural gas pipeline leading from the power plant to the main gas pipeline.
The commission said ratepayers should not have to pay for the delay penalty.
Power cost adjustment
IPC-05-, Order No. 29793
The power cost adjustment (PCA) is an annual adjustment to customer bills to reflect the varying
costs of power supply. The power cost surcharge does not increase company earnings. The
company uses the money collected in the surcharge to pay its power suppliers.
Customer rates are divided into two components. The first is the base rate, which covers
typically fixed costs such as power plants, labor and equipment and infrastructure to deliver
power and an average amount of power supply costs. The other rate component is the PCA, a
surcharge that is added to the base rate or, in good water years, a credit that is subtracted from
base rates.
Ratepayers receive a credit when power supply costs are below the amount already allocated in
base rates to pay for power supply. Customers are assessed a surcharge when power supply costs
exceed amounts included in base rates. Power supply costs fluctuate from year to year depending
on changes in Snake River streamflow and market prices for power. Since its inception in 1993
the PCA has resulted in a credit for three years and a surcharge in 10 years. Six of those 10 years
have been the last six years of drought conditions. The surcharges or credits expire at the end of
each PCA year and a new surcharge or credit is established based on a true-up of the past year
water and market conditions and projections of future water and market conditions.
This year, a sixth consecutive year of drought resulted in the company spending $28.6 million
for additional power supply costs not already included in base rates. However, the commission
approved the company s recommendation to defer any increase in the surcharge another 12
months so that customers would not experience a base rate increase and a PCA increase during
the same year.
The power cost surcharge approved to be effective for June 1 is .6039 cents per kWh for most
customer classes. The surcharge is slightly higher for residential (.6045 cents per kWh) and
irrigation (.6052 cents per kWh) customers.
A full text of the commission s orders, along with other documents related to each case, are
available on the commission s Web site at www.puc.idaho.gov. Click on "File Room" and then
on "Electric Cases" and scroll down to the appropriate case numbers.
Interested parties may petition the commission for reconsideration by no later than June 16 on
the tax settlement and Bennett Mountain orders and no later than June 17 on the power cost
adjustment order. Petitions for reconsideration must set forth specifically why the petitioner
contends that the order is unreasonable, unlawful or erroneous. Petitions should include a
statement of the nature and quantity of evidence the petitioner will offer if reconsideration is
granted.
Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.
Box 83720, Boise, ill, 83720-0074, or faxed to 208-334-3762.