REGULATORY MATTERS:

6 Months Ended

Jun. 30, 2020

Public Utilities, Rate Matters [Abstract]

Regulatory Matters

REGULATORY MATTERS

Included below is a summary of Idaho Power's most recent general rate cases and base rate changes, as well as other recent or pending notable regulatory matters and proceedings.

Idaho and Oregon General Rate Cases

Idaho Power's current base rates result from orders from the Idaho Public Utilities Commission (IPUC) and Public Utility Commission of Oregon (OPUC), as described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2019 Annual Report.

Idaho Settlement Stipulations

In October 2014, the IPUC issued an order approving an extension, with modifications, of the terms of a December 2011 Idaho settlement stipulation for the period from 2015 through 2019, or until otherwise modified or terminated by order of the IPUC (October 2014 Idaho Earnings Support and Sharing Settlement Stipulation). A May 2018 Idaho settlement stipulation related to tax reform (May 2018 Idaho Tax Reform Settlement Stipulation) provides for the extension of the October 2014 Idaho Earnings Support and Sharing Settlement Stipulation beyond the initial termination date of December 31, 2019, with modified terms that became effective beginning January 1, 2020, related to the accumulated deferred investment tax credits (ADITC) and revenue sharing mechanism. The October 2014 Idaho Earnings Support and Sharing Settlement Stipulation and the May 2018 Idaho Tax Reform Settlement Stipulation are described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2019 Annual Report and include provisions for the accelerated amortization of ADITC to help achieve a minimum 9.4 percent (9.5 percent prior to 2020) return on year-end equity in the Idaho jurisdiction (Idaho ROE). In addition, under the May 2018 Idaho Tax Reform Settlement Stipulation, minimum Idaho ROE would revert back to 95 percent of the authorized return on equity in the next general rate case. The settlement stipulations also provide for the potential sharing between Idaho Power and Idaho customers of Idaho-jurisdictional earnings in excess of 10.0 percent of Idaho ROE.

Based on its estimate of full-year 2020 Idaho ROE, in both the second quarter and first six months of 2020, Idaho Power recorded no additional ADITC amortization or provision against current revenues for sharing of earnings with customers for 2020 under the May 2018 Idaho Tax Reform Settlement Stipulation. Accordingly, at June 30, 2020, the full $45 million of additional ADITC remains available for future use. Idaho Power recorded no additional ADITC amortization or provision against revenues for sharing of earnings with customers during the second quarter and first six months of 2019, based on its then-current estimate of full-year 2019 Idaho ROE.

Idaho Power Cost Adjustment Mechanisms

In both its Idaho and Oregon jurisdictions, Idaho Power's power cost adjustment mechanisms address the volatility of power supply costs and provide for annual adjustments to the rates charged to its retail customers. The power cost adjustment

mechanisms compare Idaho Power's actual net power supply costs (primarily fuel and purchased power less wholesale energy sales) against net power supply costs being recovered in Idaho Power's retail rates. Under the power cost adjustment mechanisms, certain differences between actual net power supply costs incurred by Idaho Power and costs being recovered in retail rates are recorded as a deferred charge or credit on the balance sheet for future recovery or refund. The power supply costs deferred primarily result from changes in contracted power purchase prices and volumes, changes in wholesale market prices and transaction volumes, fuel prices, and the levels of Idaho Power's own generation.

In May 2020, the IPUC approved a $58.7 million net increase in Idaho-jurisdiction power cost adjustment (PCA) revenues, effective for the 2020-2021 PCA collection period from June 1, 2020, to May 31, 2021. The net increase in PCA revenues reflects a return to a more normal level of power supply costs as wholesale market energy prices have come down from unusually high levels reflected in last year's PCA. The reduction in market energy prices results in Idaho Power forecasting lower wholesale energy sales, which serve as an offset to power supply costs. The net increase in PCA revenues also reflects a forecasted reduction in low-cost hydropower generation. The previous PCA for the 2019-2020 collection period also included $7.7 million in one-time customer benefits associated with revenue sharing and income tax reform benefits, which expired in May 2020.

Previously, in May 2019, the IPUC issued an order approving a $50.1 million net decrease in PCA rates, effective for the 2019-2020 PCA collection period from June 1, 2019, to May 31, 2020. The net decrease in PCA revenues reflected reduced power supply costs due to higher-than-expected wholesale energy sales and positive results from natural gas hedging activities, which combined to reduce actual net power supply costs for the 2018-2019 PCA year (April 2018 through March 2019). The net decrease in PCA revenues for the 2019-2020 PCA collection period also included a $5.0 million credit to customers for sharing of 2018 earnings under the October 2014 Idaho Earnings Support and Sharing Settlement Stipulation and a $2.7 million credit for income tax reform benefits related to Idaho Power's open access transmission tariff (OATT) rate under the May 2018 Idaho Tax Reform Settlement Stipulation. 

Idaho Fixed Cost Adjustment Mechanism

The Idaho jurisdiction fixed cost adjustment (FCA) mechanism, applicable to Idaho residential and small general service customers, is designed to remove a portion of Idaho Power’s financial disincentive to invest in energy efficiency programs by separating (or decoupling) the recovery of fixed costs from the variable kilowatt-hour charge and linking it instead to a set amount per customer. Under Idaho Power's current rate design, Idaho Power recovers a portion of fixed costs through the variable kilowatt-hour charge, which may result in over-collection or under-collection of fixed costs. To return over-collection to customers or to collect under-collection from customers, the FCA mechanism allows Idaho Power to accrue, or defer, the difference between the authorized fixed-cost recovery amount per customer and the actual fixed costs per customer recovered by Idaho Power during the year. The IPUC has discretion to cap the annual increase in the FCA recovery at 3 percent of base revenue, with any excess deferred for collection in a subsequent year. In June 2020, the IPUC approved an increase of $0.7 million in recovery from the FCA from $34.8 million to $35.5 million, with new rates effective for the period from June 1, 2020, to May 31, 2021. Previously, in May 2019, the IPUC issued an order approving an increase of $19.2 million in the FCA from $15.6 million to $34.8 million, with rates effective for the period from June 1, 2019, to May 31, 2020.

Deferred Costs for COVID-19 Public Health Crisis

Idaho Power has incurred, and expects to continue to incur, costs associated with its response to the COVID-19 public health crisis, including information technology expenditures for remote work, higher than average levels of bad debt expense related to uncollectible accounts associated in part with its suspension of disconnects, and suspension of late payment fees. Accordingly, in March and April 2020, Idaho Power submitted applications to the OPUC and IPUC, respectively, requesting authorization to defer incremental costs associated with its response to the COVID-19 public health crisis. Idaho Power requested authorization to establish a new regulatory asset to record the deferral of incremental costs and, in the Idaho jurisdiction, unrecovered costs associated with the COVID-19 response. Both applications requested only the authority to defer these costs and to determine ratemaking treatment at a later date. Subsequent to Idaho Power's application, the IPUC opened a general docket to address the issue. On July 8, 2020, the IPUC issued an order authorizing Idaho Power and other utilities to account for unanticipated, emergency-related expenses incurred due to the COVID-19 public health crisis by recording the expenses as regulatory assets for possible recovery through future rates. The order also requires utilities to account for the decreases in expenses resulting from the COVID-19 public health crisis, such as reduced employee travel and training, and apply these reductions in expenses to offset the deferral account balance. Additionally, the order addressed potential reductions in revenue due to the COVID-19 public health crisis, allowing utilities to track reduced revenues from customer classes not included in an FCA-type mechanism for possible movement to the regulatory asset account at a later date. Idaho Power plans to resume disconnections and accruing late fees beginning in early August 2020. In the second quarter of 2020, Idaho Power recorded a $0.6 million regulatory asset for its estimate of unanticipated, emergency-related expenses, including higher bad

debt expense, net of estimated savings. As of the date of this report, Idaho Power has not received authorization in the Oregon jurisdiction to defer any such costs.