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Idaho Power Customers Can Expect to See
the Cost of Their Electricity Rise this Summer

by Rocky Barker
Idaho Statesman, March 10, 2012

Idaho Power Co. customers can expect to see the cost of their electricity rise this summer, depending on how the Idaho Public Utilities Commission rules on a half-dozen cases before it.

The investor-owned utility that serves nearly 500,000 customers in southern Idaho and eastern Oregon has asked the three-member commission to approve six adjustments that together would increase rates for the average residential customers about $3 a month.

The company also is expected to file its annual power-cost adjustment request soon, which usually would mean a rate decrease after a good water year that benefits the utility's hydroelectric system. But Idaho Power officials have been telling anyone who will listen that their customers are going to pay more this year because of the dramatic increase in wind power they have been forced to purchase under federal law. Exactly how much won't be known until the company files this spring.

No matter what happens, "at the end of the day we pay some of the lowest prices in the country for electric service," notes Greg Said, Idaho Power vice president of regulatory affairs.

So what's behind the new rate proposals?

Idaho Power is asking the PUC to let it put the company's $391 million investment in the Langley Gulch natural gas-fired power plant on its "rate base" -- meaning it can charge its customers for the cost of building the plant. The 300-megawatt plant near New Plymouth is expected to come on line in July. Idaho Power is asking regulators if the company can pay for it by collecting $60 million annually from its Idaho customers -- an increase of 7.1 percent. The PUC tentatively approved that plan in 2009, when the company argued it would need the plant to meet its baseload needs -- especially at peak demand in summer months. That's still true, said Mark Stokes, Idaho Power's power supply manager.

Is he right about that demand?

Some question the need for more power, in light of the recession and the surplus of power available most of the year.

But Stokes argues the gas plant is even more important now. Idaho Power needs plants ready to go when demand rises. Wind energy comes and goes, but a gas plant can smooth out the supply from intermittent wind turbines, Stokes said.

Peter Richardson, an attorney who represents large industrial electric customers and developers of renewable energy, has argued that the Langley Gulch plant is not needed and will cost more over the long haul than the renewable projects Idaho Power has been forced to buy. He argues the PUC should not make Idaho customers pay for Idaho Power's new plant.

Has Idaho Power really been 'forced' to buy wind power? How much? What's the cost?

Yes. Idaho Power has been forced to purchase more than 500 megawatts of wind and other renewable energy under a federal law that gives developers of green energy access to markets that are controlled by monopoly utilities like Idaho Power.

Idaho customers will pay $85 million a year for that wind power, Idaho Power officials say. And that expense will be reflected in the "power cost-adjustment" application that the company has not yet filed.

If they don't want it, why do utilities have to buy this power?

It's required by the Public Utility Regulatory Policies Act. Passed by Congress in 1978, PURPA was written to provide a market and pay a set rate for small producers of what is, usually, renewable energy.

Public utilities like Idaho Power generate the power and control the lines that transmit power to customers. The law was designed to guarantee that small competitors aren't excluded from the market.

What does the public get out of it?

The law allows some competition around the edges in a market where there is none by design.

Proponents say contracted power from small hydro projects approved in the 1980s is cheaper than today's market rates, and they predict renewable power will be cheaper than alternatives before the end of the contracts. And the law encourages development of green energy sources: wind, solar, geothermal, biomass and the like.

If it drives up electric rates, how does the law help?

Well, there's disagreement over the actual effect on rates in Idaho. But in theory, it provides predictable, affordable power. Once an energy producer signs a contract for power, that is the known cost for that power for the life of the contract. If Idaho Power or other utilities were to build the same plant, they would have to pass the costs of fuel and the costs of maintenance along to customers, as the company proposes to do with the Langley Gulch Plant.

How is the price for that electricity set?

The Public Utilities Commission sets the price based on what it would cost the utility to build a new plant to generate electricity -- in this case, a natural gas plant like Langley. That is called the "avoided cost" price.

That makes sense. Why the argument?

Idaho Power and the other utilities say the current PURPA rules in Idaho are not meeting federal law because customers are not supposed to be harmed by the requirement for utilities to buy green power. Idaho Power argues it has had to buy so much of the wind power that it's hurting its customers. The utilities want the PUC to set dramatically lower avoided-cost prices that reflect the value the utilities put on the intermittent -- and less reliable -- wind and solar energy.

Is that all the utilities want?

No. They also want to reduce the length of contracts they have to sign. They want to commit to those rates for five years, not 20 years. And they want to apply the same rules to geothermal and biomass plants, too, even though they don't have the reliability issues of wind (weather changes) and solar (daylight and clear skies are needed).

Ultimately, the Idaho utilities want to create a pricing method based on the need for the energy.

Would that work?

Critics say it would violate the federal law. Richardson said if utilities don't like PURPA's mandate, they should push the Idaho Legislature to deregulate so renewable producers can sell directly to customers.

What are some of the other filings that affect rates?

Idaho Power filed for a rate increase of .11 percent, or $1.4 million, to recover its fixed costs in cases when demand drops because of energy-efficiency programs.

This so-called "decoupling program" allows Idaho Power to recover its costs regardless of how much money the company makes selling its power.

Is this controversial?

Energy-efficiency advocates say such a decoupling approach helps encourage everyone to use less electricity and eliminates pressure for Idaho Power to continually build new plants. If the company can meet growing demand with conservation -- and make money doing it -- then everybody wins, including the environment.

In the long run, these advocates say, a rate increase can actually save customers money by helping them use less electricity.

Is there anything happening that reduces my bill?

Idaho Power is sharing $47 million with customers under a settlement in a rate case with the Idaho Public Utilities staff and other interested parties. Half of that will go into a fund to pay Idaho Power's expenses in future rate cases that customers would otherwise have to cover. The other $27 million is proposed as a rate cut of about 3.21 percent for all residential, industrial and other customers. Idaho Power's stockholders get a more stable rate of return of about 10 percent as a part of the deal.

Plus, in February, the company made four filings that together cut rates by .65 percent -- about 67 cents for the average residential customer.

So how much more will the average residential customer pay?

Idaho Power's proposals would increase the average residential customer's bill about $3. But that doesn't include the effects of the power-cost adjustment, which is still to come.

Plus, don't forget these are just proposals. The three-member Idaho PUC will make its own determination and set the final rates.

What else could affect rates?

Well, that's complicated -- as are most questions related to regulating utilities in Idaho. But several issues could mix things up regarding prices, green energy and utilities in Idaho.

Legislators are considering what to do with a bill that would place a moratorium on wind energy. Some of Idaho Power's biggest Idaho customers are unhappy with the utility's pricing and energy-credit policies, arguing that Idaho Power looks for ways to build projects and spend money -- in order to generate PUC-guaranteed returns -- rather than save its customers money.

And Idaho Power has just asked the commission to consider time-of-day pricing that will allow its customers to save lots of money if they use electricity at periods of low demand.

Whew! Anything else I should know?

Idaho has always prided itself on its cheap hydroelectric power and notes that it will continue to be the cheapest source -- short of simply using less.

But a long campaign to relicense Idaho Power's Hells Canyon dams is expected to end in the next few years. When it does, Idaho customers can be expected to see at least part of that $500 million cost added to the rate base as Idaho Power pays for mitigation efforts and programs to protect fish and wildlife.

Rocky Barker
Idaho Power Customers Can Expect to See the Cost of Their Electricity Rise this Summer
Idaho Statesman, March 10, 2012

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