DERIVATIVE FINANCIAL INSTRUMENTS:

3 Months Ended

Mar. 31, 2016

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 months endedMarch 31, 2016 and 2015 (in thousands of dollars).

		Gain/(Loss) on Derivatives Recognized in Income(1)
	Location of Realized Gain/(Loss) on Derivatives Recognized in Income	Three months ended March 31,
		2016			2015
Financial swaps	Off-system sales	$	1,446		$	2,996
Financial swaps	Purchased power	(13		)	(635		)
Financial swaps	Fuel expense	(2,815		)	(746		)
Financial swaps	Other operations and maintenance	(115		)	(2		)
Forward contracts	Purchased power	—			3
Forward contracts	Fuel expense	(4		)	(5		)

⁽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 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 12 for additional information concerning the determination of fair value for Idaho Power’s assets and liabilities from price risk management activities.

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, 2016 and December 31, 2015 (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, 2016
Current:
Financial swaps	Other current liabilities	$	516	$	(516	)	(1)	$	—	$	8,004	$	(1,792	)	$	6,212
Forward contracts	Other current assets	64		—				64		—		—			—
Forward contracts	Other current liabilities	—		—				—		31		—			31
Long-term:
Financial swaps	Other assets	52		—				52		—		—			—
Financial swaps	Other liabilities	4		(4		)		—		84		(34		)	50
Total		$	636	$	(520	)		$	116	$	8,119	$	(1,826	)	$	6,293
December 31, 2015
Current:
Financial swaps	Other current assets	$	999	$	(785	)		$	214	$	785	$	(785	)	$	—
Financial swaps	Other current liabilities	177		(177		)		—		5,146		(177		)	4,969
Forward contracts	Other current assets	64		—				64		—		—			—
Forward contracts	Other current liabilities	—		—				—		3		—			3
Long-term:
Financial swaps	Other assets	148		(22		)		126		22		(22		)	—
Total		$	1,388	$	(984	)		$	404	$	5,956	$	(984	)	$	4,972

⁽¹⁾ Current liability derivative amount offset includes $1.4 million of collateral receivable for the period ending March 31, 2016.

The table below presents the volumes of derivative commodity forward contracts and swaps outstanding at March 31, 2016 and 2015 (in thousands of units).

		March 31,
Commodity	Units	2016	2015
Electricity purchases	MWh	500	442
Electricity sales	MWh	18	288
Natural gas purchases	MMBtu	13,723	15,775
Natural gas sales	MMBtu	150	852
Diesel purchases	Gallons	802	183

Credit Risk

At March 31, 2016, 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 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, 2016, was $7.9 million.  Idaho Power posted $1.4 million cash collateral related to this amount.  If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2016, Idaho Power would have been required to post an additional $8.2 million of cash collateral to its counterparties.