DERIVATIVE FINANCIAL INSTRUMENTS:

12 Months Ended

Dec. 31, 2012

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Financial Instruments

DERIVATIVE FINANCIAL INSTRUMENTS

Commodity Price Risk

Idaho Power is exposed to market risk relating to electricity, natural gas, and other fuel commodity prices, all of which are heavily influenced by supply and demand.  Market risk may also be influenced by market participants’ nonperformance of their contractual obligations and commitments, which affects the supply of or demand for the commodity.  Idaho Power uses derivative instruments, such as physical and financial forward contracts, for both electricity and fuel to manage the risks relating to these commodity price exposures.  The objective of Idaho Power’s energy purchase and sale activity is to meet the demand of retail electric customers, maintain appropriate physical reserves to ensure reliability, and make economic use of temporary surpluses that may develop.

All commodity-related derivative instruments not meeting the normal purchases and normal sales exception to derivative accounting are recorded at fair value on the balance sheet.  Because of Idaho Power's PCA mechanisms, unrealized gains and losses associated with the changes in fair value of these derivative instruments are recorded as regulatory assets or liabilities. With the exception of forward contracts for the purchase of natural gas for use at Idaho Power’s natural gas generation facilities, Idaho Power’s physical forward contracts qualify for the normal purchases and normal sales exception.

All of Idaho Power's derivative instruments have been entered into for the purpose of economically hedging forecasted purchases and sales, though none of these instruments have been designated as cash flow hedges under derivative accounting guidance. Idaho Power offsets fair value amounts recognized on its balance sheet related to derivative instruments executed with the same counterparty under the same master netting agreement.

Derivative Instruments Summary

The tables below presents the fair values and locations of derivative instruments not designated as hedging instruments recorded on the balance sheets at December 31, 2012 and 2011 (in thousands of dollars).

	Asset Derivatives			Liability Derivatives
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
December 31, 2012
Current:
Financial swaps	Other current assets	$	5,122	Other current assets	$	978
Financial swaps	Other current liabilities	320		Other current liabilities	1,372
Forward contracts	Other current assets	155		Other current assets	4
Forward contracts				Other current liabilities	2
Long-term:
Financial swaps	Other assets	96
Forward contracts	Other assets	189
Total		$	5,882		$	2,356
December 31, 2011
Current:
Financial swaps	Other current assets	$	4,361	Other current assets	$	1,036
Financial swaps	Other current liabilities	1,526		Other current liabilities	4,755
Forward contracts	Other current assets	70		Other current liabilities	1,370
Long-term:
Financial swaps	Other assets	359		Other liabilities	108
Total		$	6,316		$	7,269

The table below presents the gains and losses on derivatives not designated as hedging instruments for the year endedDecember 31, 2012 and 2011 (in thousands of dollars).

	Location of Gain/(Loss) on Derivatives Recognized in Income	Gain/(Loss) on Derivatives Recognized in Income(1)
		2012			2011
Financial swaps	Off-system sales	$	15,104		$	9,594
Financial swaps	Purchased power	(6,280		)	(7,124		)
Financial swaps	Fuel expense	(6,359		)	501
Financial swaps	Other operations and maintenance	(302		)	425
Forward contracts	Fuel expense	(1,755		)	—

⁽¹⁾ Excludes changes in fair value of derivatives, which are recorded on the balance sheet as regulatory assets or regulatory liabilities.

Settlement gains and losses on electricity swap contracts are recorded on the income statement in off-system sales or purchased power depending on the forecasted position being economically hedged by the derivative contract.  Settlement gains and losses on both financial and physical contracts for natural gas are reflected in fuel expense.  Settlement gains and losses on diesel derivatives are recorded in other operations and maintenance expense.  See Note 16 for additional information concerning the determination of fair value for Idaho Power’s assets and liabilities from price risk management activities.

Idaho Power had volumes of derivative commodity forward contracts and swaps outstanding at December 31, 2012 and 2011 set forth in the table below.

		December 31,
Commodity	Units	2012	2011
Electricity purchases	MWh	404,990	225,600
Electricity sales	MWh	1,373,525	1,298,420
Natural gas purchases	MMBtu	13,476,660	7,928,311
Natural gas sales	MMBtu	3,932,889	352,129
Diesel purchases	Gallons	833,921	1,273,997

Credit Risk

At December 31, 2012, Idaho Power did not have material credit exposure from financial instruments, including derivatives.  Idaho Power monitors credit risk exposure through reviews of counterparty credit quality, corporate-wide counterparty credit exposure, and corporate-wide counterparty concentration levels.  Idaho Power manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and requiring contractual guarantees, cash deposits, or letters of credit from counterparties or their affiliates, as deemed necessary.  Idaho Power’s physical power contracts are under Western Systems Power Pool agreements, physical gas contracts are under North American Energy Standards Board contracts, and financial transactions are under International Swaps and Derivatives Association, Inc. contracts. These contracts all contain adequate assurance clauses requiring collateralization if a counterparty has debt that is downgraded below investment grade by at least one rating agency. 

Credit-Contingent Features

Certain of Idaho Power's derivative instruments contain provisions that require Idaho Power's unsecured debt to maintain an investment grade credit rating from Moody's Investors Service and Standard & Poor's Ratings Services.  If Idaho Power's unsecured debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions.  The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position at December 31, 2012, was $2.4 million.  Idaho Power posted no collateral related to this amount.  If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2012, Idaho Power would have been required to post $5.9 million of cash collateral to its counterparties.