Idaho Public Utilities Commission

Case No. IPC-E-11-08, Order No. 32426

December 30, 2011

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

Idaho Power increase is a net 3.44 percent

Base electric rates for customers of Idaho Power Company increase by 4.2 percent on Jan. 1. Part of that 4.2 percent is an increase in the monthly customer service charge from $4 to $5. However, there is also a 0.75 percent decrease to the energy efficiency rider, resulting in a net average increase of 3.44 percent.

The commission’s order approves a negotiated settlement between the utility, commission staff and customer groups representing all major customer classes.

In June, Idaho Power asked for an average 10 percent increase. The original application asked for an $81 million increase to annual revenue in light of more than $450 million the company invested in infrastructure since its last rate case in 2008. The settlement adopted today allows a $34 million increase to annual revenue.

Most of the reduction in revenue requirement was achieved by shifting $24 million in expense related to small-power projects to the Power Cost Adjustment mechanism made every June 1. Nearly $300,000 in expense related to turbine inspection was deferred and amortized over four years and about $436,000 for a Light Detection and Ranging survey was deferred and amortized over 10 years.

The revenue adjustments “reduce the magnitude of the proposed rate increases and benefit all customer classes,” the commission said. “In particular, we note that the settlement stipulation represents a significant reduction – almost 60 percent – in the company’s initially proposed rate increase.” Randy Lobb of commission staff stated the settlement resulted in a “better outcome for customers than could reasonably be anticipated through litigation.”

Idaho Power was allowed a 7.86 percent rate of return on its Idaho jurisdictional rate base of $2.35 billion. It requested 8.17 percent.

Parties to the settlement also agreed that there would be no increase in the winter for energy consumption within the third tier, which is above 2,000 kilowatt-hours per month. The commission said maintaining the third block non-summer rate of 8.46 cents per kWh will moderate the impact on customers who heat their homes with electricity. Rural Idaho customers who do not live near natural gas pipelines have few options to control winter use.

The commission conducted two customer workshops before the settlement and three public hearings and a technical hearing after the settlement was proposed. More than 100 customers submitted written comments, all opposed to the rate increase citing the weakened economy and adverse impacts on residential customers with low and fixed incomes.

The commission cannot, by state law, arbitrarily refuse to consider utility rate increase requests without first considering the evidence presented by the utility, intervening parties and customers. The burden of proof is on the utility to justify the expenses it seeks to recover through rates as 1) necessary to serve customers and 2) prudently incurred. The commission may accept, reject or modify the company’s request. All commission decisions can be appealed to the state Supreme Court by the utility, intervenors or customers.

Participants in the settlement representing primarily residential customers included commission staff and the Community Action Partnership Association of Idaho (CAPAI). Other participants included the Idaho Irrigation Pumpers Association, the Industrial Customers of Idaho Power, the Department of Energy, Micron Technology, the Idaho Conservation League, the Snake River Alliance, the Northwest Energy Coalition and Hoku Materials.

CAPAI did not sign the settlement mainly because Idaho Power has not agreed to increase its funding for a low-income weatherization program. CAPAI asked that the company increase its funding for the program by 125 percent, from $1.2 million to $2.7 million. The commission declined, stating concerns about cost-effectiveness. “Because ratepayers fund Idaho Power’s weatherization programs, we have a responsibility to ensure these programs are cost-effective and designed to maximize benefits for all customers,” the commission said. The commission will open a case and convene public workshops to determine the best methods for establishing the level of investment in low-income weatherization.

The commission deferred decisions about other issues on which the parties could not agree, including whether the Fixed Cost Adjustment rider on customer bills should become permanent. A final decision on the FCA will be made by March 30. The commission also did not decide whether overhead amounts for line extensions for customers requesting new service should be increased.

The energy efficiency rider, which is reduced from 4.75 percent of customer’s billed rate to 4 percent, funds a number of conservation programs that reduce the need for Idaho Power to acquire additional generation or buy power from other providers. All of the programs funded by the rider must pass three cost-effectiveness tests that demonstrate customer rates would be higher without the programs in place. Because $11.2 million of those programs are being shifted into base rates, parties argued the rider should be decreased to as low as 3.4 percent. Others, including the Idaho Conservation League, Snake River Alliance and Northwest Energy Coalition, said the rider should remain at 4.75 percent because Idaho Power is still directed to continue to pursue all cost-effective energy efficiency and some “headroom” is needed to provide for planned growth in conservation programs.

When it filed the rate case in June, Idaho Power said it made significant investment in pollution control equipment in four units and upgraded a turbine in one unit of the Jim Bridger power plant, a coal-fired facility in southwest Wyoming. Idaho Power also completed construction of a new 500-kilovot Hemingway transmission station and the associated Hemingway to Bowmont 230-kV transmission line at a total cost of $54 million. The company also completed construction of the Long Valley Operations Center in Lake Ford to replace the existing McCall Operations Center.

The company’s application further stated that the cost of building materials has increased dramatically since the last time the company was granted a general rate increase. In that two-year period, the company claimed aluminum costs increased 59 percent; copper, 104 percent and standard plate steel, 83 percent.

Idaho Power serves nearly 500,000 customers in southern Idaho and eastern Oregon.

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-11-08.

Interested parties may petition the commission for reconsideration by no later than Jan. 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.

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