140423_IPCFCAPCA.pdf

Idaho Public Utilities Commission
Case No. IPC-E-14-03, Order No. 33004 and Case No. IPC-E-14-05, Order No. 33026
Contact: Gene Fadness [phone], 890-2712

Utility seeks increases in annual adjustment mechanisms

BOISE (April 24, 2014) – Idaho Power Company is seeking approval of its two annual
adjustment mechanisms that cause rates to go up or down on June 1 of every year.

On March 14, Idaho Power filed its annual Fixed Cost Adjustment (FCA) mechanism, seeking an
increase of 1.18% in overall rates to residential and small-business customers. On April 15, the
utility filed its annual Power Cost Adjustment, proposing an average 1% increase in overall
rates.

For a residential customer who uses the company’s average of 1,050 kilowatt-hours per month,
the FCA increase, if approved, would be about $1.20 per month and the PCA increase, 57 cents
per month. Neither Idaho Power nor its shareholders receive any financial return on the
revenue collected in the FCA and PCA accounts. If approved, both adjustments would be
effective June 1.

The Idaho Public Utilities Commission is taking written comments on both the FCA and PCA
applications. If customers request to attend a workshop conducted by commission staff, one or
more workshops may be scheduled.

Power Cost Adjustment

Since 1993, the PCA mechanism allows Idaho Power to adjust rates up or down 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 varies depending on changes in Snake River streamflows.
Other costs that change each year are the market price of power, fuel costs, transmission costs
for purchased power and the revenue it earns from selling surplus power.

This year’s proposed increase is $27.1 million above that already collected from customers in
the PCA mechanism, but Idaho Power proposes to mitigate that by transferring $16.1 million of
surplus funds from the energy efficiency rider account toward the PCA. The net $11.1 million
increase would raise average PCA rates about by 1% for one year. The total PCA was also
reduced by a revenue sharing benefit of $7.6 million to customers. The commission has
previously ordered that when the company’s rate of return reaches certain benchmarks, the
utility shares a portion of the excess return with customers.
Idaho Power attributes most the proposed PCA increase to persistent dry conditions in 2013
and January 2014. The company forecast 6.8 million megawatt-hours of hydroelectric
generation in the PCA year, but generated only 5.7 million MWhs. Because there was less
hydro generation, the utility claims it had to use more expensive resources to meet customer
demand. In a normal year, Idaho Power gets 50.7% of its electricity from hydro generation.
During the 2013-14 PCA year, the company claims it generated only 38.1% from hydro sources.
Generation from natural gas increased from 4.6% in a normal year to 10.4% this year and wind
generation increased from 5.9% in a normal year to 10% in 2013-14.

Currently, hydro generation is forecast to be about 86% of normal. Even though snowpack
levels in the basins above Brownlee Reservoir are at or near normal levels, reservoirs further
upstream from Brownlee are at significantly lower than normal levels, according to Idaho
Power.
Less hydro generation also resulted in lower-than-expected surplus sales. Idaho Power
anticipated $98.5 million in power sales, but realized only $66.8 million. Ninety-five percent of
the revenue from off-system sales is shared with customers and applied against the annual
PCA.
Under the company’s proposal, the PCA rate for residential customers would be 0.485 cents per
kWh.

Fixed Cost Adjustment

The FCA ensures that 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. Last year’s FCA was an average 27-cent per month decrease. This year,
the company proposes an increase in the FCA rate for residential customers to 0.2913 cents per
kWh, up from 0.177 cents. The rate for small-business customers would be 0.3709 cents per
kWh, up from 0.226 cents.

Customers sometimes get the impression they are penalized for reduced consumption because
they pay an FCA surcharge during some years as well as an Energy Efficiency Rider, said Gene
Fadness, commission spokesman. “Actually, the opposite is true. Without those programs in
place and the opportunity for the company to recover its fixed costs, energy bills would be even
higher,” he said. The assurance of fixed cost recovery reduces overall risk for the company,
keeping its credit rating up and borrowing costs lower, which also benefits customers.

The commission is accepting public comment on the FCA proposal through May 8 and on the
PCA proposal through May 16.

Comments are accepted via e-mail by accessing the commission’s homepage at
www.puc.idaho.gov and clicking on "Case Comment Form,” under the “Electric” heading. Fill in
the case number (IPC-E-14-03 for the FCA and IPC-E-14-05 for the PCA) and enter your
comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to
[phone].
Customers can also review the company’s applications and supporting documents as well as
other parties’ comments as the case progresses by going to the commission’s website and
selecting “Open Cases” under the Electric heading and scrolling down to the above case
numbers.
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