DERIVATIVE FINANCIAL INSTRUMENTS:

6 Months Ended

Jun. 30, 2019

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 primary objectives of Idaho Power’s energy purchase and sale activity are 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 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. 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 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 that follows.

The table below presents the gains and losses on derivatives not designated as hedging instruments for the three and six months ended June 30, 2019 and 2018 (in thousands).

		Gain/(Loss) on Derivatives Recognized in Income(1)
	Location of Realized Gain/(Loss) on Derivatives Recognized in Income	Three months ended June 30,						Six months ended June 30,
		2019			2018			2019			2018
Financial swaps	Operating revenues	$	414		$	27		$	(2,789	)	$	266
Financial swaps	Purchased power	(56		)	13			687			(189		)
Financial swaps	Fuel expense	7			(112		)	12,402			(800		)
Financial swaps	Other operations and maintenance	—			31			—			38
Forward contracts	Operating revenues	—			—			64			2
Forward contracts	Purchased power	—			(7		)	(64		)	(20		)
Forward contracts	Fuel expense	—			10			416			24

(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 operating revenues or purchased power depending on the forecasted position being economically hedged by the derivative contract. Settlement gains and losses on 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 11 - "Fair Value Measurements" for additional information concerning the determination of fair value for Idaho Power’s assets and liabilities from price risk management activities.

Credit Risk

At June 30, 2019, 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 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 Idaho Power 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 June 30, 2019, was $4.6 million. Idaho Power posted $1.8 million cash collateral related to this amount. If the credit-risk-related contingent features underlying these agreements were triggered on June 30, 2019, Idaho Power would have been required to pay or post collateral to its counterparties up to an additional $4.6 million to cover the open liability positions as well as completed transactions that have not yet been paid.

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 June 30, 2019, and December 31, 2018 (in thousands).

		Asset Derivatives								Liability Derivatives
	Balance Sheet Location	Gross Fair Value		Amounts Offset				Net Assets		Gross Fair Value		Amounts Offset			Net Liabilities
June 30, 2019
Current:
Financial swaps	Other current assets	$	5,003	$	(915	)		$	4,088	$	915	$	(915	)	$	—
Financial swaps	Other current liabilities	173		(173		)		—		2,940		(173		)	2,767
Forward contracts	Other current assets	197		—				197		—		—			—
Long-term:
Financial swaps	Other liabilities	71		(71		)		—		746		(71		)	675
Total		$	5,444	$	(1,159	)		$	4,285	$	4,601	$	(1,159	)	$	3,442
December 31, 2018
Current:
Financial swaps	Other current assets	$	4,639	$	(984	)	(1)	$	3,655	$	938	$	(938	)	$	—
Financial swaps	Other current liabilities	—		—				—		806		—			806
Forward contracts	Other current liabilities	—		—				—		104		—			104
Long-term:
Financial swaps	Other assets	—		—				—		64		—			64
Total		$	4,639	$	(984	)		$	3,655	$	1,912	$	(938	)	$	974

(1) Current asset derivative amounts offset include $45 thousand of collateral payable for the period ending December 31, 2018.

The table below presents the volumes of derivative commodity forward contracts and swaps outstanding at June 30, 2019 and 2018 (in thousands of units).

		June 30,
Commodity	Units	2019	2018
Electricity purchases	MWh	216	323
Electricity sales	MWh	106	58
Natural gas purchases	MMBtu	13,980	12,371
Natural gas sales	MMBtu	308	233
Diesel purchases	Gallons	—	451