20090529final_order_no_30828.pdf

Office of the Secretary
Service Date
May 29, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT POWER
COST ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1, 2009
THROUGH MAY 31, 2010
ORDER NO. 30828
CASE NO. IPC-09-
On April 15, 2009, Idaho Power Company filed its annual Power Cost Adjustment
(PCA) Application. Since 1993 , the PCA mechanism has annually adjusted Idaho Power s rates
upward or downward to reflect the difference between the Company s annual power supply costs
and those costs embedded in base rates. Because of its predominant reliance on hydroelectric
generation, Idaho Power s actual cost of providing electricity (its power supply cost) varies from
year to year depending on changes in Snake River streamflows and the market price of power.
The annual PCA surcharge or credit is combined with the Company s base rates to produce a
customer s overall energy rate. The approved PCA rate is in effect for one year, usually from
June 1 to May 31 of the next calendar year.
In general, in years of abundant snowpack and streamflow, the Company s power
supply costs are lower because hydropower generation is the Company s lowest cost major
resource. Conversely, when snowpack and resulting streamflows are low, Idaho Power must rely
increasingly upon its thermal generating resources and purchased power from the regional
market. The Company s thermal generating resources (coal and gas plants) and purchased power
are typically much more costly than the Company s hydro-generation. Under the PCA
mechanism, the Company may recover 95% of the difference between projected power costs and
normal power costs included in base rates. See Order No. 30715. In a poor water, high cost
year, Idaho ratepayers pay 95% of Idaho Power Company s abnormal power supply costs. In a
good water, low cost year, Idaho ratepayers are credited with 95% of the below normal cost
savIngs.
In this year s PCA Application, Idaho Power requests a PCA rate that would increase
existing rates to recover approximately $93.8 million or 11.4% on average. However, an update
to the Company s system power supply forecast after the Application was filed reduces the PCA
rate request by $9.5 million. The Company s request includes the 2009-2010 forecast of power
ORDER NO. 30828
supply costs, a true-up of last year s forecasted costs to reflect actual costs and revenues, and
reconciliation of the 2008-2009 PCA true-up component. Both the forecasted power supply
costs and the true-up of last year s costs are very large. The large true-up amount is due to a
poor forecast of power supply costs in the PCA last year.
On April 23 , 2009, the Commission issued a Notice of Modified Procedure soliciting
public comment regarding the PCA Application. The Commission received written comments
from nearly 40 residential customers, the Industrial Customers of Idaho Power (ICIP); Idaho
Irrigation Pumpers Association, Inc.; the Snake River Alliance and the Idaho Conservation
League; and the Commission Staff. After reviewing the Application and the comments, we
approve an increase of existing rates by $84.3 million which produces an average increase to
Idaho Power s customers of 10.2%. We authorize the new rates to be effective on June 1 , 2009.
THE PCA MECHANISM AND IDAHO POWER'S APPLICATION
The annual PCA mechanism is comprised of three major components. The first
component, projected or forecasted power cost, is computed using the results of the Company
most recent Operating Plan (OP Plan). This forecast method replaces the previous method that
was based on a projection of water flow into the Brownlee Reservoir and a regression formula
derived from historical rate case power supply cost data. The former method often created
forecasts that differed substantially from actual results, and so the Commission directed use of
the improved method to project power costs. See Order No. 30715. Projected streamflows
remain a major factor in the new method to project power costs and, in addition, the new method
includes updated projections for load, market price, resource availability and many other
variables. It also includes the costs of power supply transactions already made for the PCA year.
The new method for projecting power supply costs is expected to be significantly more accurate.
The Company calculates that the net forecasted power supply cost for the 2009-2010
PCA year is $260.1 million. This is $106.0 million more than the $154.1 million included in
Base Rates. After adjustments and PCA sharing, the Company determined the projected power
cost results in an energy rate of 0.5662~/kWh.
The second PCA component consists of a true-up from the preceding year
forecasted costs to the actual costs incurred in the prior year. In recent years, the Commission
has directed that the true-up balance be reduced with revenue from the sale of sulfur dioxide
(SO2) allowances. Idaho Power reports that the difference between last year s normal and
ORDER NO. 30828
actual power supply costs adjusted by revenue generated from the forecast rate, the true-up
component, is $107.9 million. The true-up amount becomes $103.3 million after it is reduced by
approximately $4.6 million to reflect SO2 sales revenues. Application, p. 4. The Company
calculates the true-up portion ofthe PCA rate to be 0.7465~/kWh.
The third component is the "true-up of the true-up," or reconciliation of the previous
year s true-up. This component is designed to ensure the Company recovers the actual approved
costs. Idaho Power uses "normalized" power sales (measured in kilowatt-hours (kWh)) from the
ensuing PCA year as the denominator to compute the adjusted true-up rate. Over- or under-
recovery is balanced with the following year s true-up. Last year the Company under-collected
the PCA deferral balance by $22.0 million. Application, p. 4. Dividing this amount by the
projected 2009 Idaho jurisdictional sales of 13 838 689 MWh results in a PCA surcharge rate of
1590~/kWh for this component of the PCA. Id.
Combining the three components - the projected power costs rate of 0.5662~/kWh
the true-up rate of 0.7465~/kWh and the reconciliation of the true-up rate of 0.1590~/kWh -
Idaho Power proposed a PCA surcharge rate for the 2009-2010 PCA year of 1.4717~/kWh. This
represents an increase ofO.6853~/kWh above the existing PCA rate ofO.7864~/kWh.
As initially proposed by Idaho Power, the PCA rate represents an overall average
percentage increase of 11.4% in Company revenue. Although the PCA rate is an equal cents-
per-kWh adjustment for all customers, each customer class receives a different percentage
increase due to the different energy rates in effect for the different customer classes. The table
below shows the proposed increases in the PCA rates for the major customer classes:
Customer Group Percentage
(Schedule)Increase
Residential (1)30%
Small Commercial (7)56%
Large Commercial (9)12.58%
Industrial (19)15.64%
Irrigation (24)11.08%
The PCA rates for Idaho Power s three special-contract customers (Micron, Simplot, and the
Department of Energy (INL)) would also increase. Under the Company s proposal the PCA rate
increase for the three special-contract customers would be 17.68% for Micron, 18.71% for
ORDER NO. 30828
this case. Within seven (7) days after any person has petitioned for reconsideration, any other
person may cross-petition for reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this tJ.fi-+i--'
day of May 2009.
~I ~-L~
. KEMPT , P SIDENT
L1~
MARSHA H. SMITH, COMMISSIONER
Mv.44-
MACK A. REDFORD, COMMISSIO
ATTEST:
!httLhfl~ ~ 4Ju0Li
fr)ara Barrows
Assistant Commission Secretary
O:IPC-O9-11 ws2 PCA
ORDER NO. 30828
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