General Rate Case FAQs

1. How much is the increase?
2. If there’s so much water, why are rates going up?
3. What kinds of cost increases are driving this increase?
4. Why does Idaho Power need to make these investments?
5. Why is it important to recover the increase from customers?
6. Previous rate increases were due to growth in the number of customers and a growing demand for electricity. Why are you raising rates when growth has slowed?
7. What is causing the increase in the cost of materials for Idaho Power?
8. Why are your labor costs going up?
9. How do my rates compare to others around the country?

 

1. How much is the increase?

Idaho Power is sensitive to the challenges faced by its customers in these difficult economic times and does not take lightly any request to increase rates. We are continually looking for ways to provide services to our customers efficiently and at low cost. Customers continue to pay some of the lowest rates in the country for electric service.

On Dec. 30, the Idaho Public Utilities Commission issued an order in Idaho Power’s 2011 general rate case filed June 1. The commission ordered a base rate increase of 4.19 percent effective Jan. 1 per a settlement reached Sept. 23 with the company, the commission staff and customer groups. The commission also ordered a rate decrease to the Energy Efficiency Rider, from 4.75 percent to 4.00 percent.

This increase in rates is important for Idaho Power to achieve fair and timely recovery of its investment in its electrical system, which today’s rates do not fully provide. Idaho Power has not earned its authorized rate of return in any of the last five years.

In the current economic environment, timely and fair recovery of investments is critical to helping us attract capital investment and manage financing costs. By providing for fair and timely recovery of investments in the systems and activities that serve our customers, this rate increase is in the best interests of Idaho Power, its shareholders, and the people and communities it serves.

2. If there’s so much water, why are rates going up?

Even though we have good water years, power supply expenses only represent a portion of our total revenue requirement. Rates associated with that portion decreased by $40 million on June 1, 2011. The expenses addressed in this case relate to all other costs we are incurring to provide safe, reliable service to our customers.

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3. What kinds of cost increases are driving this increase?

Decisions about energy are some of the most important choices facing our nation and our company today. Continued growth in demand for electricity, investments in aging infrastructure and expenses related to higher compliance and reliability requirements are driving the need to invest large amounts of capital to expand and improve electricity supply and reliability for our customers. This increases our need to access both the debt and equity markets to fund large amounts of capital investment in the system. These are challenges facing utilities across the nation, and our company is no different.

Since our last general rate case in 2008, we have added more than $450 million in gross plant that were investments needed to continue to provide safe and reliable electric service to our customers.

4. Why does Idaho Power need to make these investments?

Despite considerable investment and expansion in recent years, much of our system today is fully utilized. To provide safe, reliable service to all customers we must make major investments in both new and existing infrastructure. We are adding capacity to our base load generation, transmission system and distribution facilities in order to ensure an adequate supply of electricity to customers, to provide service to new customers and to maintain system reliability.

Idaho Power and the utility industry in general are experiencing a cycle of heavy infrastructure investment. Although there has been a pause in the rapid growth experienced a few years ago, there is still growth. Idaho Power continues to add new customers, albeit at a slower rate. However, data shows that our service area will continue to grow and we must be prepared for that growth when it occurs.

Idaho Power’s aging transmission and distribution infrastructure requires continuing upgrades and replacement. Our aging hydroelectric and thermal generation facilities also require continuing upgrades and component replacement, and environmental concerns require the replacement or retro-fitting of aging equipment—often with more expensive technology. In addition, we are operating in an environment of ever increasing reliability and compliance standards that require increased levels of investment.

Idaho Power’s legal obligation to serve and its sense of responsibility to customers provide no other options to serving the continued needs of existing customers and those that are expected to come to our service area. We are addressing them on both the supply-side and demand-side of the equation. In addition to expanding our production and delivery systems, we are aggressively promoting demand-side management and energy efficiency programs and services. These efforts serve to reduce the pace of growth in a cost-effective manner by delaying the need for additional generating resources. Additionally, these efforts help to educate customers on wise, responsible use of their precious resources.

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5. Why is it important to recover the increase from customers?

One of the reasons is rates in effect today (absent the stipulation ended Dec. 31, 2011, which froze customer base rates for three years) do not provide the rate of return necessary to assure access to the capital markets under reasonable terms to finance needed investments. Any delay in or lack of recovery of prudent operating or financing costs is seen as unnecessary risk by the financial community, including the credit rating agencies, during this time of plant expansion and difficult economic times.

6. Previous rate increases were due to growth in the number of customers and a growing demand for electricity. Why are you raising rates when growth has slowed?

Although we expect to add up to 8,000 customers per year over the next three years, the primary cause of the need for an increase is associated with investments in aging infrastructure, expenses related to higher compliance and reliability requirements, and an expectation of increased energy usage. These factors drive our new utility investment so that we can continue to serve our nearly 500,000 customers safely and reliably on a 24/7 basis.

7. What is causing the increase in the cost of materials for Idaho Power?

We are experiencing dramatic price shifts related to the costs of key materials like transformers, wood poles, pole line hardware and cables/conductors due to the significant increase in commodities (copper, aluminum and steel) prices over the last couple years. As we continue to make investments in our aging infrastructure, we experience increased overall product costs. Idaho Power proactively engages the market to ensure competitive pricing from its suppliers through its strategic sourcing process.

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8. Why are your labor costs going up?

Idaho Power closely monitors trends in the utility industry and attempts to ensure our overall compensation package is within market ranges. Our compensation philosophy is to provide a balanced, competitive and sustainable total compensation package to our employees, ensuring we attract and retain high-quality employees and motivate them to achieve performance goals that benefit our customers and shareholders. Maintaining a competitive compensation package allows us to recruit and retain our highly skilled workforce to serve customers.

In recent years we have been more conservative with our general wage adjustments in comparison with the increases of our peer intermountain utilities. Because of this we have fallen behind those companies on base salary for some of our critical operations roles. Again this year, in light of the current economic conditions, Idaho Power made the decision to grant a general wage adjustment below the required increase to remain competitive.

Idaho Power granted a 2 percent general wage adjustment in 2011. According to its analysis of Salary Increase Budget Surveys in the utility industry, companies were projecting an average salary increase budget of 2.8 percent.

9. How do my rates compare to others around the country?

Idaho Power customers pay some of the lowest monthly bills for residential electric service, according to the July 1, 2011 Edison Electric Institute (EEI) Rate Comparison. The semi-annual survey looks at average rates paid by residential, commercial and industrial customers in investor-owned utilities across the nation. Of 176 residential surveys submitted, Idaho Power ranked 12th lowest. This is an improvement from the same time the previous year, when we ranked 20th lowest. On average, our residential customers pay $83.93 for 1,000 kilowatt-hours (kWh) of electricity, down from $84.94 in the July 2010 survey, which was down from $85.42 in the July 2009 survey.

Idaho Power believes its low rates are reflective of its historically low embedded costs, including its hydroelectric plants and its ability to effectively manage expenses. Looking forward, Idaho Power faces increasing costs to serve new loads similar to that of peer utilities.

Additionally, customers saw an overall reduction in rates of 4.6 percent in 2010 and 3.2 percent in 2011. This was due in large part to the annual Power Cost Adjustment (PCA) adjustment which hits bills on June 1 of each year.

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