20140703press release.pdf

Idaho Public Utilities Commission
Case No. IPC-E-14-16, Order No. 33067 and Case No. IPC-E-14-07, Order No. 33068
Contact: Gene Fadness [phone], 890-2712

Commission opens cases to re-examine PCA, FCA

BOISE (July 3, 2014) – The Idaho Public Utilities Commission is opening two cases that may
result in changes to the way the variable portion of rates are calculated for Idaho Power
Company ratepayers.

Rates are adjusted every year on June 1 as part of the utility’s Annual Adjustment Mechanism.
The fixed-cost portion of rates, called base rates, is adjusted only when there is a rate case. But
two smaller components of rates, the Power Cost Adjustment (PCA) and the Fixed Cost
Adjustment (FCA), are changed every year due to changing conditions. The adjustments can be
either an increase or a decrease to overall rates.

Since 1993, the PCA allows Idaho Power to adjust rates to reflect that portion of costs that
change every year due to factors largely beyond the company’s control. Because about half of
Idaho Power’s generation is from hydropower facilities, Idaho Power’s actual cost of providing
electricity, called its power supply cost, varies depending on changes in Snake River
streamflows. Other costs that change power supply cost each year are the market price of
power, fuel costs, transmission costs for purchased power and the revenue the company earns
from selling surplus power.

This year’s PCA was an average increase of 1.04%.

In the most recent PCA case, commission staff claimed that the current PCA mechanism may
have allowed Idaho Power to collect $14.2 million more than necessary in line loss expense.
Line loss is power lost in the course of transmitting and distributing energy. Conditions such as
distance, size of the transmission or distribution line and severe weather result in line loss that
can be as much as 10 percent. Without being allowed rate recovery for line loss, the utility
would bear the cost of generating power that is consequently not paid by the customer due to
line loss.

In a separate case, the commission will also be looking at how the FCA is calculated. This year’s
FCA was an increase of 1.2% for residential and small-business customers.

The FCA is designed to ensure Idaho Power recovers its fixed costs of delivering energy even
when energy sales and revenue decline due to reduced consumption. Before the FCA, Idaho
Power did not have financial incentive to invest in energy efficiency because it lost revenue as
consumption declined. Even though consumption may decline, fixed costs to serve customers
do not. To remove that disincentive, the Fixed Cost Adjustment was created to allow the utility
to recoup its fixed costs.

The FCA has helped make it possible for Idaho Power to create about 30 programs that increase
efficiency and reduce demand on its system, especially during peak periods when demand is
highest and most expensive to both the company and its customers.

If the actual fixed costs recovered from customers by Idaho Power are less than the fixed costs
authorized in the most recent rate case, residential and small-commercial customers get a
surcharge. If the company collects more in fixed costs than authorized by the commission,
customers get a credit.

As in the PCA case, commission staff and other parties found what they perceive to be flaws in
the FCA mechanism. Among those are 1) the way the FCA mechanism is calculated using
averaged instead of actual weather conditions, 2) using an average rather than a median when
calculating customer counts and 3) possibly exceeding the 3% cap on FCA increases by using
forecasted sales and revenues. Commission staff is also concerned that residential and
businesses classes who pay the FCA may be subsidizing other customer classes.

Commission staff said the FCA may no longer be serving its intended purpose. Staff noted the
company’s annual energy savings did grow rapidly during a three-year pilot phase for the FCA,
peaking in 2010 before dramatically dropping off in 2013. Idaho Power said it continues to
aggressively pursue savings programs and that customer participation was up in 2013. The
decline in actual energy savings, the company claims, is due to a change in the way savings are
measured.

Both the PCA and FCA are relatively a small component of overall rates. For example, a
residential customer who uses Idaho Power’s average of 1,050 kilowatt-hours per month pays
an energy rate of about 9 cents per kWh during the non-summer months and 10 cents per kWh
during the summer months. The PCA is slightly less than a half-cent addition (0.4852 cents per
kWh) to base rates. The FCA is 0.2913 cents per kWh.

Parties who wish to intervene in the cases for the purpose of presenting evidence and cross-
examining witnesses must do so by no later than July 15. Later, dates for a pre-hearing
conference and customer comment deadlines will be established.

A full text of the commission’s orders and other documents related to these cases is on the
commission’s Website at www.puc.idaho.gov. Click on “Open Cases” under the “Electric”
heading and scroll down to Case No. IPC-E-14-16 for the PCA and IPC-E-14-17 for the FCA.

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