March 9, 2006



Case No. IPC-E-04-15

Contact: Gene Fadness (208) 334-0339




Commission investigating new rate mechanism


State regulators, Idaho Power Company and representatives of environmental and industrial groups are resuming settlement discussions over the establishment of a rate mechanism that will remove financial barriers to utilities that want to invest in and encourage energy efficiency and conservation programs.


Idaho Power, like other electric utilities, recovers most of its fixed costs of doing business through the rates it charges customers. The Idaho Public Utilities Commission sets rates based on assumptions that project a utility’s annual sales. If energy efficiency programs are successful, electrical demand is decreased and sales decline. If sales lag below rate case assumptions, the utility may not recover its commission-approved fixed-cost revenue requirement, which can be harmful to a utility’s financial performance


Following Idaho Power’s 2003 rate case, the commission opened a new case to investigate financial disincentives to utility investment in energy efficiency programs. Commission staff, representatives from the company, the Northwest Energy Coalition and Industrial Customers of Idaho Power participated in workshops to address the issue.


Idaho Power has filed an application and testimony favoring an annual “Fixed-Cost Adjustment,” that “decouples” or separates utility sales from revenue so there is less of a disincentive for companies to invest in energy efficiencies. The Fixed-Cost Adjustment, if implemented, would annually adjust rates up or down to recover the difference between the fixed costs authorized by the commission in the most recent rate case and the fixed costs the utility actually recovered from customers during the previous year.


With the use of this proposed rate mechanism, the utility is less impacted by decreases in energy sales, thus removing any disincentives for utilities to aggressively pursue opportunities to reduce electric consumption.


A study of Idaho Power’s fixed costs collected and fixed costs allowed by the commission over the last 10 years shows that residential and small-commercial customers would have received increases during some of those 10 years and decreases in other years. The study showed that the average monthly impact to a residential bill over the entire 10-year period was a 64-cent increase. To the average commercial customer, the monthly impact was a 31-cent increase.


Idaho Power is proposing that the initial Fixed-Cost Adjustment apply only to residential and small-commercial customers and that a cap allowing no more than a 3 percent increase be allowed even if there were years when the difference between actual sales and fixed costs allowed was greater than 3 percent.


Customers benefit from energy efficiency programs because they preclude or delay the need for building new power plants, preclude or delay expansion of distribution and transmission facilities, reduce electrical demand during peak periods when power is most expensive, reduce pollution and provide other environmental benefits.


If approved, the FCA adjustment would likely made at the same time as the yearly power cost adjustment, or PCA. The PCA annually adjusts rates up or down to account for above-normal or below-normal power supply costs. In Idaho Power's territory, power supply costs are largely determined by two factors: 1) water levels – Idaho Power generates about half its power from hydroelectric dams – and 2) the cost of buying power on the wholesale market. When streamflows are above normal, customers typically get a PCA credit. When streamflows are below normal and Idaho Power must generate power from more expensive sources, customers typically get a PCA surcharge.


Parties desiring to intervene to participate in the settlement discussions, present evidence and cross-examine witnesses must petition the commission by March 17. Persons who want to present their views without parties’ rights of participation are not required to intervene and can comment anytime. Comments are accepted via e-mail by accessing the commission’s homepage at and clicking on "Comments & Questions." Fill in the case number (IPC-E-04-15) and enter your comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.


Documents related to this case are available on the commission’s Web site. Click on “File Room” and then on “Electric Cases” and scroll down to the above case number.