20200529Final_Order_No_34682.pdf

ORDER NO. 34682 1

Office of the Secretary
Service Date
May 29, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

On April 15, 2020, Idaho Power Company filed its annual power cost adjustment
(PCA) Application. The Company seeks an order approving an update to Schedule 55 reflecting
a $58.7 million increase in the PCA rates now in effect (or an average increase of approximately
5.21% of current billed revenue), effective June 1, 2020 through May 31, 2021. If approved, a
typical residential customer’s bill would increase by about $4.01 per month.
On April 30, 2020, the Commission issued a Notice of Application and Notice of
Modified Procedure, setting a May 14, 2020 comment deadline and a May 21, 2020 reply comment
deadline. Order No. 34656. Commission Staff filed comments, and Idaho Power filed reply
comments. No additional comments were received.
Having reviewed the record, the Commission approves the Company’s Application as
discussed below.
OVERVIEW OF THE PCA
The PCA mechanism permits Idaho Power to adjust its PCA rates upward or downward
to reflect the Company’s annual “power supply costs.” Due to its diverse generation portfolio,
Idaho Power’s actual cost of providing electricity (its power supply cost) varies from year to year
depending on changes in river streamflow, the amount of purchased power, fuel costs, the market
price of power, and other factors. The annual PCA surcharge or credit is combined with the
Company’s “base rates” to produce a customer’s overall energy rate.
The annual PCA mechanism consists of three major components.
First, projected power costs for the coming PCA year (June 1, 2020 to May 31, 2021)
are calculated using the Company’s most recent “Operating Plan.” The projected power costs
include fuel costs, transmission costs for purchased power, Public Utility Regulatory Policies Act
of 1978 (PURPA) contract expenses, surplus sales revenues, and revenues from the sale of
renewable energy credits and sulfur dioxide allowances. The Company may recover 95% of the
IN THE MATTER OF IDAHO POWER
COMPANY’S APPLICATION FOR
AUTHORITY TO IMPLEMENT POWER
COST ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1, 2020
THROUGH MAY 31, 2021
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CASE NO. IPC-E-20-21

ORDER NO. 34682
ORDER NO. 34682 2

difference between the non PURPA projected power costs and the approved base power cost,
100% of the costs of its PURPA contracts, and 100% of its demand-side management incentive
and conservation costs. See Order Nos. 30715 and 32426 at 3.
Second, because the PCA includes forecasted costs, the preceding year’s forecasted
costs are “trued-up” based upon the actual costs incurred during the prior year. The Company
includes its actual costs of Western Energy Imbalance Market participation from April 2019
through March 2020 in the true-up. See Order No. 34100.
Finally, the Company reconciles the previous year’s true-up by crediting to or
collecting from customers through the PCA rate any surplus or deficit from the prior year’s true-
up. This third “reconciliation” component (the “true-up of the true-up”) ensures the Company
recovers its actual approved costs while ratepayers pay only for the actual amount of power that
the Company sold to meet native load requirements. In other words, ratepayers receive a rate credit
when power costs are low and are assessed a rate surcharge when power costs are high.
THE APPLICATION
The Company stated that if the Application is approved, its Idaho customers
collectively would pay about $58.7 million (5.21%) more for electricity in the upcoming year than
they do now. The Company’s Application would impact major customer classes as follows:
Proposed 2020 Revenue Impact by Class:
Percentage Increase from Current Billed Rates

Residential
Small
General
Service
Large
General
Service

Large Power

Irrigation
4.20% 3.47% 5.76% 7.50% 5.32%

Besides this case, the Company filed its annual fixed cost adjustment (FCA) on March 13, 2020
in Case No. IPC-E-20-14. That filing proposes a $710,580 increase in current billed revenue
(approximately 0.02%) for Idaho Residential and Small General Service customers. If the PCA
and the FCA are approved as filed, the combined impact is an overall increase in current billed
revenue of $58.8 million, or 5.22%.
The Company attributed this year’s PCA increase to several factors. Surplus power
sales revenue is expected to decrease due to an expected reduction in hydro generation and lower
market energy prices. Also, the Company will likely decrease coal-fired generation because it is
less economic for load service and off-system sales. Another factor contributing to the PCA
ORDER NO. 34682 3

increase is the removal of the revenue-sharing credit received last year. Under Order No. 33149,
the Commission requires the Company to share revenue with its customers if the Company’s Idaho
jurisdictional year-end return on equity (ROE) is 10.0% or greater. The Company’s Idaho
jurisdictional year-end ROE in 2019 was 9.8% and therefore does not meet the threshold for
revenue sharing.1
Unlike the 2018-2019 and the 2019-2020 PCA tariff schedules, this year’s PCA tariff
schedule does not include a credit to customers reflecting the Company’s savings from federal tax
reform and Idaho state tax rate changes. Under a settlement stipulation approved by the
Commission in Order No. 34071, Case No. GNR-U-18-01, Idaho Power applied a $7,818,624
credit to its 2018-2019 PCA tariff schedule, and a $2,680,957 credit to its 2019-2020 PCA tariff
schedule. Under the settlement stipulation, the credit will be reduced to $0 beginning June 1, 2020.
While acknowledging the proposed PCA increase will impact customers during a
financially challenging time, the Company argued the long-term dangers of deferring the increase
are greater than the short-term benefits. Specifically, the Company noted that deferring the increase
risks “pancaking” the increase onto potential future increases. Tatum Direct at 27-28. The
Company noted deferring a PCA increase would also be inconsistent with past Commission orders.
See Order Nos. 29026, 30563, 30828, and 32821. Additionally, Idaho Power argued deferring the
PCA increase could negatively impact the Company financially.
STAFF COMMENTS
Staff recommended the Commission approve Idaho Power’s proposed update to
Schedule 55 as filed. Staff extensively audited each of the PCA’s components—the projected
power costs for the coming year, the true-up of the preceding year’s forecasted costs, and the
reconciliation of the true-up. Staff audited the Company’s sales and costs for the 2019-2020 PCA
year and Idaho Power’s forecasting methodologies for the upcoming 2020-2021 PCA year. Staff
also verified the Company’s Application and methodologies comply with prior Commission
orders. Staff concluded from the audit that:
a. The Company complied with Commission Order Nos. 24806, 30715,
30978, 32206, 32424, 33149, and 33307 when calculating the incremental
change in the upcoming year's PCA rates;

1 By comparison, the 2019-2020 PCA included a revenue-sharing component of $5,024,562. See Case No. IPC-E-19-
16, Order No. 34351.
ORDER NO. 34682 4

b. The actual loads, fuel consumption, fuel costs, purchased power costs, and
kilowatt-hour sales for the current PCA year (2019 -2020) are accurate;

c. For the upcoming PCA year (2020-2021), the Company conducted a
reasonable forecast of kilowatt-hour sales, loads, fuel consumption, fuel
costs, and purchased power costs;

d. The Company incurred a reasonable and prudent amount of actual [net
power supply expense (NPSE)] to serve its customer load; and

e. The Company's Idaho jurisdictional 2019 year-end Return on Equity (ROE)
was 9.8%. Since this was under the 10.0% ROE threshold for revenue
sharing that was set in Order No. 33149, there isn’t a credit this year.

Staff Comments at 5-6.
PCA methodology in future cases
Staff recommended the Commission order Idaho Power to meet with Staff to discuss
simplifications to the PCA mechanism. “Staff believes the Company’s PCA could be simplified,
while not diminishing its purpose, by removing the forecast component which has contributed to
significant rate fluctuations for customers.” Id. at 13.
Staff noted the Company’s PCA has varied considerably since 2011, from a credit of
0.0629 cents per kWh in 2011 to a surcharge of 1.2306 cents per kWh in 2013. “If applied to
current rates, this difference would represent a 14.6% fluctuation in annual charges for a residential
customer using 800 kWh per month.” Id. Staff did not criticize the Company’s forecasting
methodology, noting the methodology is “more than satisfactory for most business purposes.” Id.
at 14. However, Staff believes eliminating the forecasting component of the PCA would create
more rate stability without impacting the Company’s ability to fully collect its revenue
requirement. Staff noted Avista and Rocky Mountain Power have power cost recovery
mechanisms similar to Idaho Power’s PCA, but do not include forecasts.
Staff plans to study Idaho Power’s PCA mechanism prior to next year’s filing and
believes meeting with the Company during this process would be beneficial.
Customer notice and press release
Idaho Power’s Application included a press release and customer notice, and Staff
believes both meet the requirements of procedural Rule 125, IDAPA 31.01.01.125. Notice was or
ORDER NO. 34682 5

will be mailed with bills. Staff recommended the Commission accept and consider late-filed
customer comments. To date, the Commission has received no customer comments on this case.
THE COMPANY’S REPLY COMMENTS
Idaho Power’s reply comments focused on Staff’s assertion that the PCA could be
simplified by removing the forecast component of the PCA mechanism. The Company argued that
eliminating the forecast component of the PCA would defeat the purpose of the PCA, would
financially harm Idaho Power and its ratepayers, and would probably not improve rate stability.
Idaho Power noted the current PCA mechanism is specifically designed to “address the
variability in NPSE from year to year as stream flows change….” Company Reply at 4. The
Company quoted the Commission order implementing the PCA, in which the Commission noted:
We find that a forecast-based PCA with a true-up is most appropriate for Idaho
Power. A forecast most closely matches costs to the time period in which they
are incurred. This sends the more appropriate price signals to ratepayers…

Ratepayers in Idaho Power’s service territory are aware of changing stream
flow conditions and understand the impact they have on the cost of generating
electricity. A PCA that adjusts rates to reflect projected stream flows for the
coming year should be understandable to ratepayers and send short-term price
signals to ratepayers more reflective of actual conditions…

Finally, we find that a forecast-based PCA that trues-up to actual, as proposed
by Idaho Power, eliminates the possibility of the Company over-recovering its
power supply costs.

Id.; see Order No. 24806 at 8-9. Idaho Power asserted that limiting the PCA mechanism to a true-
up component would be contrary to the Commission-recognized purposes of the PCA. In
particular, it would “send inaccurate price signals to customers as they would pay for current
energy use at rates that reflect expenses from energy consumed in a prior time.” Company Reply
at 5.
Additionally, Idaho Power argued that removing the forecast component from the PCA
could cause financial harm to the Company and lead to higher costs for its customers. In years
where the actual NPSE is higher than what is being collected through rates, Idaho Power might
have to make up the difference by borrowing money. Also, Idaho Power’s credit rating could be
downgraded. The result could be “higher costs to fund Company operations, which are ultimately
passed on to customers through rates.” Id. at 6.
ORDER NO. 34682 6

Finally, the Company noted that removing the forecast component from the PCA is
unlikely to provide greater rate stability. The Company notes that a “review of the variation in
actual NPSE compared to the PCA forecast of NPSE over the prior 10 years reveals that a deferred
accounting approach would have resulted in similar, if not larger, variations in annual rate
adjustments.” Id. at 8, Attachment 1.
Nevertheless, Idaho Power stated it would be willing to meet with Staff to further
discuss the topic. The Company requested the Commission approve the Application as filed.
FINDINGS AND DISCUSSION
The Commission has jurisdiction over this matter under Idaho Code §§ 61-502 and 61-
503. The Commission is empowered to investigate rates, charges, rules, regulations, practices,
and contracts of public utilities and to determine whether they are just, reasonable, preferential,
discriminatory, or in violation of any provision of law, and to fix the same by order. Idaho Code §§
61-502 and 61-503. After reviewing the record, including the Company’s Application and the
comments, we find it fair, just, and reasonable to grant Idaho Power’s request to increase its PCA
rates as reflected in proposed Schedule 55, effective June 1, 2020.
Regarding Staff’s concern about the forecast component of the PCA methodology, we
find that it is worthwhile to consider whether the PCA methodology that has been in use for the
past 27 years is still the best methodology for Idaho Power and its customers. We appreciate Idaho
Power’s informative reply comments defending the current methodology, and we agree that the
forecast component of the PCA is probably essential for an electric utility that has significant
NPSE variability year to year due to stream flows. As we noted in our order approving the current
PCA methodology, a “forecast most closely matches costs to the time period in which they are
incurred,” which sends the appropriate price signals to customers. See Order No. 24806.
Nevertheless, much has changed since 1993. Idaho Power’s generation portfolio is significantly
different, natural gas prices are currently less volatile, and capital investments and financial
conditions also differ. If the PCA can be modified to improve rate stability while sending
appropriate price signals and making Idaho Power whole, the Commission would consider such a
modification.
We encourage the Company to meet with Staff and other interested parties to determine
whether any improvements to the PCA mechanism can reasonably be made. If, as a result of these
ORDER NO. 34682 7

meetings, Staff or others believe improvements can be made to the mechanism, we encourage them
to bring a proposal before the Commission.
O R D E R
IT IS HEREBY ORDERED that Idaho Power’s Application is approved as discussed
above. The Company shall have a uniform PCA rate of 0.4862 cents per kWh, effective June 1,
2020. The Company’s proposed Schedule 55 is approved as filed.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. 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 29th
day of May 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Diane M. Hanian
Commission Secretary

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