IDACORP, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. IDACORP is a holding company whose principal operating subsidiary is regulated electric utility Idaho Power. Financial statements are unaudited; the independent accountant performed interim reviews, not audits.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenues | $360.1 million | $318.8 million | $676.1 million | $609.8 million |
| Operating income | $92.4 million | $79.4 million | $153.5 million | $131.0 million |
| Net income attributable to IDACORP | $70.0 million | $60.4 million | $114.9 million | $97.9 million |
| Diluted earnings per share | $1.38 | $1.19 | $2.27 | $1.94 |
Q2 operating margin was approximately 25.7%, versus 24.9% a year earlier; first-half margin was approximately 22.7%, versus 21.5%. Idaho Power reported Q2 net income of $68.8 million, up from $58.9 million, and first-half net income of $113.2 million, up from $95.7 million.
Cash flow and investment: First-half operating cash flow was $167.2 million for IDACORP, up from $128.6 million; investing cash outflow was $107.0 million versus $150.8 million, and financing cash outflow was $75.3 million versus $265.3 million. Property additions were $128.3 million. Cash and cash equivalents were $260.0 million at June 30, compared with $275.1 million at year-end 2020.
Debt and liquidity: Long-term debt was $2.00 billion, essentially unchanged from year-end. Current assets were $673.0 million and current liabilities $331.1 million. At June 30, available revolving credit was $100 million for IDACORP and $275.8 million for Idaho Power after amounts identified for other use; neither company had commercial paper or credit-facility borrowings outstanding. Covenant leverage ratios were 43% and 46%, respectively, against a 65% maximum.
Changes and drivers
- IDACORP net income rose $9.6 million in Q2 and $17.0 million in the first half. Management attributed the improvement mainly to customer growth, higher per-customer electricity use, and increased transmission wheeling revenue.
- Retail sales volumes rose 14% in Q2 and 8% year to date, reflecting warmer, drier weather, irrigation demand, customer growth, and more normal commercial and industrial activity compared with COVID-affected 2020. Customer count grew 2.9% over the prior 12 months; a new system peak of 3,751 MW was set June 30.
- Lower hydropower and coal generation drove greater reliance on purchased power and natural gas. Q2 purchased-power expense increased $34.3 million to $96.1 million; first-half expense rose $41.1 million to $164.1 million. Power-cost adjustment mechanisms mitigate much, but not all, of supply-cost volatility.
- Q2 other operations and maintenance expense increased $5.3 million, largely due to maintenance timing at jointly owned thermal plants and higher performance-based compensation.
Outlook, regulation, and risks
- Management expects approximately $2.0 billion in capital expenditures over 2021–2025. Estimates, excluding AFUDC, are $320–$330 million for 2021, $340–$350 million for 2022, and $1.25–$1.35 billion for 2023–2025. Management believes liquidity sources will meet needs for at least the next 12 months.
- Idaho Power expects hydropower generation of 5.0–6.0 million MWh in 2021, below its 30-year annual average of approximately 7.7 million MWh. It expects to need about 80 MW of additional capacity as early as summer 2023 and issued a request for proposals. Management did not anticipate filing a general rate case in the next 12 months; the filing gives no numeric full-year earnings or EPS guidance.
- Idaho regulators approved a $39.1 million annual PCA revenue increase and a $2.8 million FCA increase, both effective June 1, 2021. Applications were pending for $3.9 million of aggregate depreciation-related rate adjustments and a $30.8 million annualized Jim Bridger-related revenue requirement; requested effective date was December 1, 2021.
- The IPUC authorized deferral of certain incremental wildfire-mitigation costs for future rate review. Idaho Power projects five-year spending of about $47 million in wildfire-related O&M and $35 million in system-hardening capital expenditures.
- Moody’s changed its outlook for IDACORP and Idaho Power from stable to negative in June, citing financial-profile concerns relative to A-rated peers. A downgrade below investment grade could trigger collateral demands; Idaho Power estimated potential additional collateral of approximately $27.6 million under June 30 market conditions.
- Principal risks include drought and hydrology, extreme heat and wildfire exposure, purchased-power prices and availability, regulatory cost recovery, infrastructure permitting and construction, environmental and hydropower relicensing requirements, customer collections, and financing conditions. COVID-19 relief measures and related economic conditions have increased aged receivables and uncollectible-account risk. Existing legal-contingency accruals were not material, although future accruals could be material.
- Management’s stated long-term clean-energy goal is to provide customers with 100% clean energy by 2045. Idaho Power continues work on major transmission projects and Hells Canyon Complex relicensing; timing, costs, approvals, and ultimate cost recovery remain uncertain.
Investor verification priorities
- Confirm whether higher load growth and weather-driven usage persist, and how much resulting earnings are offset by power-supply costs and FCA/PCA mechanisms.
- Track actual hydropower output, purchased-power costs, and the timing and recovery of deferred power costs.
- Check regulatory decisions on the pending depreciation and Jim Bridger rate requests, and on reviews of the PCA and FCA mechanisms.
- Monitor capital-spending execution, the 80 MW resource procurement, transmission-project permitting and ownership, and Hells Canyon relicensing costs and schedule.
- Assess the implications of Moody’s negative outlook, credit ratings, covenant headroom, and potential collateral requirements.
- Review wildfire claims, mitigation spending and recovery, customer receivables and bad-debt trends, and any material changes in contingencies.