Idaho Public Utilities Commission

Case No. IPC-E-08-10, Order No. 30722

January 30, 2009

Contact: Gene Fadness (208) 334-0339, 890-2712

Website: www.puc.idaho.gov.

 

Idaho Power gets 3.1 percent increase; 1.6 percent for residential customers

 

Rates for Idaho Power Company customers will increase by an average 3.1 percent effective Feb. 1, according to an order issued today by the Idaho Public Utilities Commission. Rates for residential customers will increase an average 1.6 percent.

 

Last July, Idaho Power asked the commission to approve an overall average 9.89 percent increase with a requested 6.31 percent increase for residential customers. The utility asked to increase its annual revenue requirement by $66.6 million. Today’s order authorizes a $20.87 million increase in annual revenue.

 

The order also establishes a year-round, three-tiered rate structure for residential customers to promote energy efficiency and provide cost-saving opportunities. The new non-summer residential rate of 5.58 cents per kilowatt-hour for the first 800 kWh of monthly use is actually less than the current non-summer rate of 5.78 cents per kWh.

 

Idaho Power proposed a two-tiered rate under which customers would pay a rate 20 percent higher than the first tier once their monthly consumption exceeded 600 kWh. Instead, the commission adopted a three-tiered rate of 5.58 cents per kWh for non-summer use up to 800 kWh; 6.2 cents per kWh for use between 801 and 2000 kWh and 7.13 cents for use of 2,001 kWh or more. During the summer months, the first tier is 5.78 cents, the second tier is 6.59 cents and the third tier, 8.17 cents. Idaho Power’s current summer rate is 5.78 cents on the first 300 kWh and 6.51 cents for use beyond that.

 

Rates for other customer classes vary depending largely on how much it costs to serve each customer class. The rates approved by the commission for the major rate classes (with the company’s original proposal in parenthesis) are as follows:

 

Residential – 1.61 percent (6.3 percent)

Small commercial – 0.42 percent (10.6 percent)

Large commercial – 3.35 percent (15 percent)

Industrial – 5.62 percent (15 percent)

Irrigation – 6 percent (15 percent)

 

In adopting a significantly smaller revenue requirement than the utility requested, the commission noted the deteriorating economic conditions since Idaho Power made its application to the commission last July. “The volatility of the market, and general financial distress on both a state and national level have triggered significant commission concern about ambitious financial projections based on 2007 customer growth” and then extrapolated by the company into 2008, the commission said.

 

The commission said it expects Idaho Power to continue to demonstrate its ongoing efforts to reduce operating costs and increase efficiencies. Because of the tough economic climate, the commission said all utilities’ fiscal responsibility will be “reviewed extensively and continually.”

 

Even in tough economic times, the commission must abide by state statutes requiring that regulated electric utilities be allowed to recover all prudently incurred expenses in order to serve customers in a safe and reliable manner. When the commission denies cost recovery to a utility, it must be able to legally demonstrate why the utility’s costs were not prudently incurred or in the best interest of customers.

 

The commission disallowed some of Idaho Power’s proposed expenses. The utility proposed to include in its revenue requirement an increase of nearly $16 million in operation and maintenance expenses over 2007 levels based on anticipated growth in its service territory. The commission allowed $2.87 million, noting that this is an area where Idaho Power has the most discretion to control costs. The commission also deducted $11.2 million from the company’s proposed $91.4 million in net power supply costs (fuel to operate plants, power purchases from the wholesale market and other utilities and purchases from in-state small-power facilities).

 

The commission disallowed the following amounts in these other categories: employee incentive compensation accounts ($3.2 million), legal services ($192,300) and employee purchase card expenses ($885,000). Idaho Power agreed with commission staff’s findings to reduce $1.4 million in depreciation expense and $2 million in payroll expense due to a lack of increase in employees during 2008. The company said it has responded to the economic slowdown by instituting a selective hiring freeze. The commission also is requiring Idaho Power to reimburse customers $3.26 million over five years. That is the amount credited to Idaho Power by federal agencies after it successfully challenged the amount of fees it had to pay the Federal Energy Regulatory Commission and other agencies during 1999-2006.

 

Idaho Power maintained a near 10 percent increase was necessary to recover investments including $578 million for 13 new substations, 1,157 miles of distribution lines and 190 miles of transmission lines over the last three years. During the same time period, the company claims it increased the amount of electricity it buys from other utilities from $876 million to more than $2 billion. That includes purchases from renewable sources, including wind and geothermal. The company anticipates spending about $900 million during 2008-2010 in construction expenditures.

 

In a departure from past practice, the commission allowed the utility to include a greater proportion of projected costs in rates to more closely align rates with the company’s expenses, thereby improving its credit rating and borrowing capacity. Typically, only actual, historical costs are included in rates. But because of the time it takes to process a rate case (about six months), the company often incurs expense that it cannot recover until months after new plant is in use. The commission allowed Idaho Power to include major plant addition in excess of $2 million that was to be completed by Dec. 31, 2008 and allowed it to include an escalation in some expense accounts where a specific trend could be identified. However, the commission did not allow as much in forecasted expense as Idaho Power wanted.

 

The commission approved an 8.18 percent rate of return and 10.5 percent return on common equity. The company requested 8.55 percent and 11.25 percent respectively. Evidence supported a finding that a slightly higher rate of return is required than the current 10.25 percent, the commission said, in order to attract investors and to improve the company’s credit ratings, which can benefit customers by lowering Idaho Power’s borrowing costs.

 

The company’s ongoing construction needs also prompted the commission to include in rates an allowance for funds used during construction (AFUDC) totaling $6.8 million related to the Hells Canyon relicensing projects. Typically, AFUDC is not included in rates until a project is in use and benefitting customers. In 2006, the Idaho Legislature amended a 1984 statute that prohibited the commission from including those costs in rates except in extreme emergencies. The 2006 amendment said construction work in progress and plant held for future use can be included in rates if the commission makes an explicit finding that including those costs is in the public interest.

 

Including the Hells Canyon costs is in the public interest, the commission said, because paying down some relicensing accounts now will mean smaller rate increases in the future because all prudently incurred relicensing costs will have to be included in future rates. Further, the commission said, “Idaho Power’s cash flow will improve, which will help maintain its credit strength to access funds for ongoing construction projects.” The commission said the relicensing effort, which is required by the Federal Energy Regulatory Commission and has cost $95.6 million through 2007, is unlike a typical construction project because it has been under way for nearly 10 years with no certain completion date. Further, Idaho Power is able to use the Hells Canyon complex hydroelectric projects during relicensing, thus benefiting customers.

 

The commission also approved a request by the Community Action Partnership Association of Idaho (CAPAI) to require Idaho Power to provide $25,000 annually to each of the state’s five community-action regions for energy-efficiency education projects. The commission declined a request by CAPAI that Idaho Power increase funding for low-income weatherization. The commission said the utility is already actively involved in funding low-income weatherization projects.

 

Other parties in the case besides CAPAI, which represents low- and fixed-income customers, included the Idaho Irrigation Pumpers Association, the Industrial Customers of Idaho Power, Micron Technology, the U.S. Department of Energy (on behalf of the Idaho National Laboratory), the Kroger Company (dba Fred Meyer and Smith’s) and the Snake River Alliance. The commission also held three public workshops for customers, three public hearings and a four-day technical hearing.

 

A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to Case Number IPC-E-08-10.

 

Interested parties may petition the commission for reconsideration by no later than Feb. 20. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

 

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.