SAN FRANCISCO -(Dow Jones)- The Idaho Public Utilities Commission lowered the amount of money IdaCorp Inc.'s (NYSE:IDA) (IDA) Idaho Power Co. (NYSE:IDA) can charge customers quickly for unforeseen power expenses, the commission said in a press release Friday.
Idaho Power (NYSE:IDA) had asked the commission last year to lower a certain deduction in the utility's annual Power Cost Adjustment to about $2.4 million from about $5.9 million. Instead, the commission raised the deduction to about $10.3 million, thus reducing the amount of money the utility can charge customers for unexpected power costs.
The yearly adjustment allows the utility to charge customers extra when its power costs are higher than expected and can also result in credits to customers when those costs are lower than expected. In a dry year, Idaho Power's (NYSE:IDA) hydroelectric plants produce less, and the utility must generate more electricity from expensive natural gas-fired plants or buy power in the market. In a year of heavy precipitation, like 2006, costs are lower than expected and customers receive a credit.
When the utility submits its costs for the annual rate adjustment, it deducts costs associated with serving new customers. Since 1993, the commission has pegged the new-customer cost at $16.84 for every megawatt-hour delivered to new customers. Last spring, Idaho Power (NYSE:IDA) asked the commission to lower the deduction to $6.81/MWh, which would have significantly increased the power supply expense the company could collect from customers. Idaho Power (NYSE:IDA) said the deduction should be based on actual costs of serving new customers rather than projected marginal costs.
The commission not only disagreed with the utility's reasoning, it decided that new-customer costs needed to be raised to $29.41/MWh.
"We said, no, you don't get to recover all of your expenses right away. The Power Cost Adjustment is for extraordinary costs associated with unusual water or market conditions. Adding new customers isn't extraordinary," said commission spokesman Gene Fadness.
"In the meantime, they're getting revenue from those new customers," said Fadness.
Idaho Power (NYSE:IDA) is still reviewing the decision and declined to say immediately how it might affect earnings or cash flow.
Avista Corp. (NYSE:AVA) (AVA) and Berkshire Hathaway's (NYSE:BRKB) (BRKB) PacifiCorp are the two other investor-owned utilities operating in Idaho. Avista also gets an annual power cost adjustment, which will likely be changed in line with the Idaho Power (NYSE:IDA) decision. PacifiCorp doesn't get the yearly adjustment because it's not as dependent on hydroelectric generation as Idaho Power (NYSE:IDA) and Avista.
For the most part, Idaho Power (NYSE:IDA) will recoup costs associated with new customers after those costs are reviewed by the commission in setting basic rates. The utility does lose a little money in adding customers, but that's covered by the utility's profit on its operations, the commission ruled. The issue has become more important to Idaho Power (NYSE:IDA) because the population in the Boise area has been rapidly growing.
This week's decision also increases any credits the utility must give customers when costs are unexpectedly low.
"Credits are rare to begin with, but if we had agreed to use their $6.81/MWh rate, that would probably have done away with credits altogether," said Fadness.
Since 1993, Idaho Power's (NYSE:IDA) average power supply expense has been $85.9 million above that collected in basic rates, according to the commission. The highest year was $240 million in 2002 resulting from the Western energy crisis of 2000- 2001. The lowest is this year, when above-average water conditions and normal market conditions in 2006 resulted in the utility refunding $46.8 million not needed for power supply. Customers received about a 16% reduction in bills.
Commission staff argued that the amount subtracted from the yearly adjustment for load growth should be $40.87/MWh, but the commissioners decided that could be harmful to the utility.
The commission expects Idaho Power (NYSE:IDA) in all future rate cases to update its load growth adjustment.
-By Mark Golden, Dow Jones Newswires; 415-765-6118; Mark.Golden@dowjones.com
(END) Dow Jones Newswires 01-12-07 1454 Copyright (c) 2007 Dow Jones & Company, Inc.
