DERIVATIVE FINANCIAL INSTRUMENTS:

3 Months Ended

Mar. 31, 2013

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 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 power 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 and applies collateral related to derivative instruments executed with the same counterparty under the same master netting agreement. Idaho Power does not offset a counterparty's current derivative contracts with the counterparty's long-term derivative contracts, although Idaho Power's master netting arrangements would allow current and long-term positions to be offset in the event of default. Also, in the event of a default, Idaho Power's master netting arrangements would allow for the offsetting of all transactions executed under the master netting arrangement. These types of transactions may include non-derivative instruments, derivatives qualifying for scope exceptions, receivables and payables arising from settled positions, and other forms of non-cash collateral (such as letters of credit). These types of transactions are excluded from the offsetting presented in the derivative fair value and offsetting table below.

Derivative Instrument Summary

The table below presents the fair values and locations of derivative instruments not designated as hedging instruments recorded on the balance sheets and reconciles the gross amounts of derivatives recognized as assets and as liabilities to the net amounts presented in the balance sheets at March 31, 2013 and December 31, 2012 (in thousands of dollars).

		Asset Derivatives								Liability Derivatives
	Balance Sheet Location	Gross Fair Value		Amounts Offset				Net Assets		Gross Fair Value		Amounts Offset				Net Liabilities
March 31, 2013
Current:
Financial swaps	Other current assets	$	2,449	$	(804	)		$	1,645	$	804	$	(804	)		$	—
Financial swaps	Other current liabilities	349		(349		)		—		1,245		(1,064		)	(1)	181
Forward contracts	Other current assets	91		—				91		—		—				—
Long-term:
Forward contracts	Other assets	189		—				189		—		—				—
Total		$	3,078	$	(1,153	)		$	1,925	$	2,049	$	(1,868	)		$	181
December 31, 2012
Current:
Financial swaps	Other current assets	$	5,122	$	(1,683	)	(1)	$	3,439	$	978	$	(978	)		$	—
Financial swaps	Other current liabilities	320		(320		)		—		1,372		(319		)		1,053
Forward contracts	Other current assets	155		(4		)		151		4		(4		)		—
Forward contracts	Other current liabilities	—		—				—		2		—				2
Long-term:
Financial swaps	Other assets	96		—				96		—		—				—
Forward contracts	Other assets	189		—				189		—		—				—
Total		$	5,882	$	(2,007	)		$	3,875	$	2,356	$	(1,301	)		$	1,055

⁽¹⁾Current liability derivatives and current asset derivatives amounts offset include $715 thousand of collateral receivable and $705 thousand of collateral payable for the periods ending March 31, 2013 and December 31, 2012, respectively.

The table below presents the gains and losses on derivatives not designated as hedging instruments for the three months endedMarch 31, 2013 and 2012 (in thousands of dollars).

	Location of Realized Gain/(Loss) on Derivatives Recognized in Income	Gain/(Loss) on Derivatives Recognized in Income (1)
		2013			2012
Financial swaps	Off-system sales	$	1,472		$	4,439
Financial swaps	Purchased power	(14		)	(993		)
Financial swaps	Fuel expense	1,116			(84		)
Financial swaps	Other operations and maintenance	11			(45		)
Forward contracts	Fuel expense	68			—

⁽¹⁾  Excludes unrealized gains or losses on 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 13 for additional information concerning the determination of fair value for Idaho Power’s assets and liabilities from price risk management activities.

The table below presents the volumes of derivative commodity forward contracts and swaps outstanding at March 31, 2013 and 2012.

		March 31,
Commodity	Units	2013	2012
Electricity purchases	MWh	95,040	256,200
Electricity sales	MWh	785,400	1,417,270
Natural gas purchases	MMBtu	10,215,641	10,082,392
Natural gas sales	MMBtu	424,870	913,379
Diesel purchases	Gallons	625,798	807,978

Credit Risk

At March 31, 2013, Idaho Power did not have material credit risk 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 commonly under Western Systems Power Pool agreements, physical gas contracts are usually under North American Energy Standards Board contracts, and financial transactions are usually under International Swaps and Derivatives Association, Inc. contracts. These contracts 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 March 31, 2013, was $2.1 million.  Idaho Power posted $1.5 million of cash collateral related to this amount.  If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2013, Idaho Power would have been required to post $2.3 million of additional cash collateral to its counterparties.