Idaho Public Utilities Commission

Case No. IPC-E-11-06, Order No. 32250; Case No. IPC-E-11-03, Order No. 32251

June 1, 2011

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

Three rate changes result in net decrease for Idaho Power customers

Customers of Idaho Power Company will be paying slightly lower rates beginning today. Three rate adjustments approved by the Idaho Public Utilities Commission result in a net average decrease of 3 percent for all customer classes and about 1.45 percent for the company’s largest class, residential customers.

The biggest reason for the overall rate decrease is the annual Power Cost Adjustment, which is an average 4.8 percent decrease for all customers (3.6 percent for residential customers). Two other adjustments, the annual Fixed Cost Adjustment (FCA) and a pension fund expense recovery announced May 19 are slight increases.

Power Cost Adjustment

Case No. IPC-E-11-06, Order No. 32250

The PCA tracks Idaho Power’s annual power supply expense, which varies every year depending on water supply, fuel costs and market prices for power. The PCA is calculated, in part, by a forecast of the coming year’s power supply costs. A second component of the calculation is a “true-up” of the preceding year’s revenue forecast with actual power supply costs. The true-up ensures that customers aren’t paying more or less than the company’s actual power supply costs. Idaho Power’s 2010-11 power supply expenses are $40.4 million less than the amount currently collected in the PCA account. As a result, the commission granted the company’s request to reduce the annual PCA surcharge an average 4.8 percent.

Every year on June 1, the Power Cost Adjustment (PCA) results in either a one-year surcharge or credit to customers depending on the previous year’s power supply costs. When snowpack and streamflows are normal or better, Idaho Power can generate more power from its hydroelectric projects. Hydro generation is less expensive for the company than generating from thermal sources or buying power from the regional market, which Idaho Power does during low-water years. When that happens, customers typically get a one-year increase or surcharge.

Also included in this year’s power supply expense account is $10 million in Energy Efficiency Rider expense.

Fixed Cost Adjustment

IPC-E-11-03, Order No. 32251

The commission approved an average 0.74 percent increase to residential and small-business customers in this fourth year of Idaho Power’s pilot Fixed Cost Adjustment program. Other customer classes are not impacted.

The FCA, implemented in 2007, allows Idaho Power to recover the fixed costs it loses when conservation programs result in lower power sales. However, the commission capped the increase in any single year at no more than 3 percent.

Without a mechanism like the FCA, there is a financial disincentive for Idaho Power to promote energy efficiency and conservation because it loses revenue when conservation results in power sales declining. Sometimes referred to as “decoupling” in the utility industry, the FCA decouples or separates Idaho Power’s fixed costs from its energy sales, assuring the utility will be able to recover its fixed costs as established in the most recent rate case regardless of how much energy customers save. If the company under collects its fixed costs of serving customers, customers get a surcharge. Conversely, if the company over collects fixed costs, customers receive a credit, as they did in the first year of the program. The commission capped the percentage increase that could be collected from residential and small-business customers at no more than 3 percent.

This year, Idaho Power under-collected $7.9 million in fixed costs from the residential class and $1.4 million from the small-business class.

When the commission initially approved the program, it did so as a three-year pilot. The commission denied Idaho Power’s 2009 request to make the program permanent until more questions about the program are resolved. However, the commission did agree to extend the pilot program another two years.

Pension plan recovery

IPC-E-11-04, Order No. 32248

As announced on May 19, the commission granted Idaho Power authority to increase its contribution to its pension plan from $5.4 million annually to $17.1 million and spread the increase over three years, resulting in a 1.39 percent increase for all customer classes.