IDACORP, Inc. 10-Q Summary — First Quarter 2013
Business context and reporting period
Combined unaudited quarterly filing for IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company, for the three months ended March 31, 2013, compared with the same 2012 period. Idaho Power is a regulated electric utility serving southern Idaho and eastern Oregon. Interim results are seasonal and are not necessarily indicative of full-year performance. The financial statements received an independent accountant review, not an audit.
Key financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| IDACORP operating revenue | $264.9 million | $241.1 million |
| IDACORP operating income | $59.4 million | $39.9 million |
| IDACORP net income attributable to IDACORP | $33.5 million | $24.9 million |
| Diluted earnings per share | $0.67 | $0.50 |
| Idaho Power net income | $34.0 million | $25.8 million |
| IDACORP operating cash flow | $54.0 million | $37.7 million |
| Capital expenditures | $52.0 million | $48.4 million |
| Dividends declared per IDACORP share | $0.38 | $0.33 |
IDACORP’s operating margin was approximately 22.4%, versus 16.5% in Q1 2012. Operating cash flow exceeded reported capital expenditures by about $2.0 million before dividends and other cash uses. Cash declined to $24.5 million from $26.5 million at year-end 2012.
At March 31, IDACORP reported $1.536 billion of long-term debt, $83.8 million of commercial paper, and $1.1 million of current debt maturities. Its reported debt-to-capitalization ratio was 48%; Idaho Power’s was 49%, both below the 65% credit-facility limit. Available short-term borrowing capacity was approximately $57.9 million for IDACORP and $259.2 million for Idaho Power. No loans were outstanding under either revolving credit facility.
Material changes versus the prior comparable period
- Net income attributable to IDACORP rose $8.6 million, and diluted EPS increased from $0.50 to $0.67. Management attributed the improvement principally to 2012 rate increases, including Langley Gulch plant rate recovery, and higher customer usage during an abnormally cold winter.
- General business revenue increased $34.8 million, reflecting rate changes (+$25.8 million), cold-weather usage (+$9.4 million), and customer growth, partly offset by the loss of Hoku Materials service revenue.
- Off-system sales revenue fell $11.8 million (43%), as sales volume declined 48% amid lower hydro generation and higher customer load; higher average prices partly offset the decline.
- Purchased power expense increased $8.6 million and fuel expense rose $16.4 million, mainly due to greater PURPA purchases, increased thermal generation, lower hydro generation, and operation of the Langley Gulch gas plant. PCA mechanisms defer or recover most power-supply cost variations, but affect cash-flow timing.
- Operating cash flow increased year over year, in part because Idaho Power made a $34 million pension contribution in Q1 2012 and none in Q1 2013.
Outlook, regulation, risks and unusual items
- Forecasts: 2013 Idaho Power O&M expense is estimated at $340–$350 million; capital expenditures excluding AFUDC at $245–$255 million; and hydroelectric generation at 5.0–7.0 million MWh, revised down from 6.0–8.0 million. Management estimated no additional ADITC amortization in 2013. Total capital expenditures for 2013–2015 were estimated at $815–$835 million.
- Rates and cost recovery: Idaho Power’s April 2013 Idaho PCA filing requested a $140.4 million rate increase for June 2013–May 2014 and proposed deferring $52.5 million to the following collection period; the filing was pending. The increase reflected weak hydro conditions, market prices, and other PCA factors. Approval and timing affect customer bills and utility cash flows.
- Hydro and operating conditions: Forecast hydro generation is below the 2012 actual 8.0 million MWh and the 8.6 million MWh median. Lower generation can increase reliance on fuel and purchased power. Cold weather supported Q1 demand, but the business remains seasonal.
- Investment and financing: Idaho Power issued $150 million of first mortgage bonds on April 8, 2013, after quarter-end, at 2.50% due 2023 and 4.00% due 2043. It intended to use part of the proceeds to repay $70 million of 4.25% bonds maturing in October 2013. IDACORP had approximately $539 million of shelf capacity remaining.
- Projects and environmental exposure: Hells Canyon Complex relicensing, transmission projects, and environmental compliance may require substantial investment; timing and total costs are uncertain. Boardman is scheduled to stop coal-fired operations by the end of 2020. Idaho Power’s study supported planned environmental-control investments at Jim Bridger and Valmy, while noting further review may be warranted for Valmy if costs rise. A co-owner’s announced potential Valmy divestiture or retirement plans were under discussion.
- Contingencies: Termination of four power purchase agreements reduced contractual payment obligations by approximately $322 million over their 15- to 20-year terms. A $74 million reclamation guarantee was supported by a $69 million trust fund. Management said loss-contingency accruals were not material; some exposures, including environmental compliance and unresolved proceedings, could not be reliably estimated.
- Dividend outlook: IDACORP declared $0.38 per share for the quarter. Management anticipated recommending at least a 10% quarterly dividend increase in September 2013; the board retains discretion.
- Reporting item: IDACORP corrected a prior-period classification of $2.5 million of operating expenses, primarily senior-management security costs, from other income to operating expenses. The correction did not affect previously reported net income or cash flows.
- Forward-looking results depend on regulatory decisions and cost recovery, weather and water availability, customer demand, commodity and purchased-power prices, environmental rules, project approvals, pension funding, and access to capital. Management reported no material change in previously disclosed risk factors and stated that disclosure controls were effective.
Important facts for investors to verify
- IPUC’s decision and timing on the requested $140.4 million PCA increase and proposed $52.5 million deferral.
- Actual 2013 hydroelectric generation versus the revised 5.0–7.0 million MWh estimate, and related fuel, purchased-power, and cash-flow effects.
- Whether customer growth, weather-normalized usage, and rate changes sustain earnings after the unusually cold quarter.
- Capital spending, environmental-control obligations, and permitting schedules for major generation and transmission projects.
- Completion of the October 2013 bond refinancing, liquidity availability, and compliance with leverage and dividend restrictions.
- Future pension contributions, regulatory recovery of deferred costs, and developments in environmental, water-rights, and other legal proceedings.