Risk Management

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Risk Management

• Western Conference of Public Utility
  Commissioners
• June 21, 2005
• Boise, Idaho

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Idaho Power Company

• Service Area Southern Idaho/Eastern Oregon
• 96 of Idaho Powers retail sales in Idaho
• 4 in Oregon
• 24,000 mile2 Service Area
• Population of Service Area 900,000
• Summer Peak Load 3,000 MW
• Winter Peak Load 2,100 MW
• Number of Customers 440,000

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Generation -- Average Water Year
60 30 10
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Northwest Energy Market

• Active for decades
• Characterized by utilities working cooperatively
  to optimize each ones system resources
• Dual peaking within the region
• For Idaho Power
• Ability to plan resources based upon median
  water conditions
• Emphasis on buying and selling in the short-term
  markets which were historically low-priced and
  stable

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Power Cost Adjustment

• In 1993 Idaho Power implemented a PCA
• to address the impact of fluctuations in hydro
  operating conditions on the companys power
  supply expenses
• following seven years of drought
• The rate mechanism accounts for the systems
  variable energy costs
• Fuel and purchased power offset by surplus sales
• The PCA adjusts rates each May based upon a
  forecast of the next years costs and a true-up
  of the past year
• Customers and company share in both costs and
  benefits so both have an interest in every
  transaction

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Western Energy Crisis 2000/2001

• The late 1990s brought an increased interest in
  electric restructuring
• An influx of new marketing companies to the
  region
• A change in the complexion of the northwest
  markets
• The combination of a California market meltdown
  in 2000 and a northwest drought in 2001 created
  the perfect storm
• Western wholesale energy prices climbed to an all
  time high December Mid-C heavy load price
  averaged 565/MWh with spikes to 3200/MWh
• Idaho Powers stream flows were 46 of normal

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The PCA was Stress-Tested

• Idaho Power was suddenly caught buying power and
  creating programs in an unprecedented,
  high-priced market
• These extraordinary costs were captured in our
  PCA and submitted in our annual filings for
  recovery
• 217 million in 2001 (primarily purchases)
• 244 million in 2002 (primarily programs)
• Because of the record high amounts, the IPUC held
  multiple hearings to review the costs and to
  review issues such as resource planning, transfer
  pricing, and appropriate risk management

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Prospective Case IPC-E-01-16

• In the 2001 PCA order, the IPUC separated a
  number of issues into a separate docket dealing
  with issues prospectively
• The IPUC described the issues to be addressed as
  interim and prospective issues regarding Idaho
  Powers trading practicesterms of the IES
  Agreementshort-term planning
• Trading practices including hedging and risk
  management strategies were assigned to this case

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The Process

• Following hearings and determinations on the
  historical risk management issues, the company,
  its customer groups, and the IPUC staff went
  through a series of workshops to address the
  utility's risk issues
• Idaho Power engaged Risk Advisory to assist in
  developing risk management policy and procedures
  that would consider our unique situation
• Ultimately, after months of education and
  discussion, all parties agreed and the IPUC
  approved a stipulation regarding how risk would
  be managed by the utility