IDACORP, Inc. 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. Filed August 2, 2018. IDACORP is a holding company whose principal operating subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. Financial statements are unaudited; the independent accountant performed interim reviews, not audits.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| IDACORP operating revenue | $340.0 million | $333.0 million | $650.1 million | $635.6 million |
| Operating income | $82.8 million | $81.9 million | $133.4 million | $135.5 million |
| Operating margin | 24.4% | 24.6% | 20.5% | 21.3% |
| Net income attributable to IDACORP | $62.3 million | $49.8 million | $98.4 million | $82.9 million |
| Diluted EPS | $1.23 | $0.99 | $1.95 | $1.65 |
Revenue rose 2.1% in Q2 and 2.3% year to date; attributable net income increased 25.0% and 18.7%, respectively. The lower tax burden was a major contributor: the six-month effective tax rate was 9.2%, versus 21.8% in 2017. IDACORP declared dividends of $0.59 per share in Q2 and $1.18 per share for the first half.
- Cash flow: Six-month operating cash flow was $196.4 million for IDACORP, compared with $189.0 million a year earlier. Capital additions were $133.6 million; investing cash outflow was $108.9 million. Ending cash was $183.1 million, versus $76.6 million at year-end 2017.
- Debt and liquidity: Long-term debt was $1.834 billion, up from $1.746 billion at year-end. Idaho Power issued $220 million of 4.20% bonds due 2048 and redeemed $130 million of 4.50% bonds due 2020, paying a $4.6 million make-whole premium. No commercial paper or credit-facility borrowings were outstanding; available revolving capacity was $100 million at IDACORP and $275.8 million at Idaho Power. Covenant leverage ratios were 44% and 46%, respectively, against a 65% limit.
- Balance sheet: IDACORP reported total assets of $6.206 billion and equity of $2.298 billion at June 30, 2018. Idaho Power’s cash was $149.2 million. The companies said they expect to meet requirements for at least the next 12 months using cash, operating cash flows, credit facilities, commercial paper, and debt-market access.
Performance changes and drivers
- Q2 earnings benefited from customer growth, higher irrigation usage, and increased FCA revenues. Customer count grew 2.2% over the 12 months through June; lower precipitation contributed to irrigation usage rising about 15% in Q2.
- For the first half, lower residential usage amid milder weather reduced operating income, partly offset by $11.0 million of higher FCA revenues. Retail sales volume declined 1%, while Q2 retail sales volume increased 3%.
- Wholesale energy revenue rose to $10.2 million in Q2 and $24.3 million for the first half, supported by higher sales volumes and prices, increased hydro generation, and Western EIM participation beginning April 4.
- Six-month purchased-power expense increased $14.3 million, while fuel expense decreased $7.4 million, primarily reflecting greater hydroelectric generation. Other O&M expense increased $4.7 million for the first half.
- IDACORP’s six-month operating income declined despite higher revenue, reflecting operating expense growth. Income tax expense fell by $13.1 million, primarily due to federal and Idaho rate reductions and the tax benefit from the bond redemption costs.
Outlook, regulation, risks, and unusual items
- Management maintained its existing strategy and expected continued customer growth. Idaho Power reported approximately 5,700 additional customers in the first half and expects about $1.5 billion of capital expenditures over 2018–2022. Estimated construction expenditures, excluding AFUDC, are $280–290 million in 2018, $285–300 million in 2019, and $850–900 million over 2020–2022.
- Management did not anticipate filing a general rate case in the next 12 months. Tax-reform settlements reduced Idaho base rates by $18.7 million annually and Oregon rates by $1.5 million annually beginning June 1, 2018; Idaho customers also receive specified temporary PCA rate reductions. The Idaho earnings support and sharing mechanism was extended indefinitely, with modified terms effective in 2020.
- The 2018–2019 Idaho PCA rates decreased by $22.6 million, mainly reflecting better-than-expected water conditions. The FCA decreased by $19.4 million. Idaho Power expects 2018 hydro generation of 8.0–9.0 million MWh, compared with a 20-year annual average of 7.6 million MWh.
- Key risks include regulatory cost recovery and rate decisions, weather and hydrology, fuel and purchased-power costs, large infrastructure and Hells Canyon relicensing costs, environmental rules, and permitting and litigation. Management said environmental matters could materially affect future costs, but the financial impact of pending environmental requirements was not estimable.
- Hells Canyon relicensing costs of $216.5 million were found prudent by the IPUC and eligible for future rate recovery; total HCC relicensing costs in construction work in progress were $282 million. The new license timing and requirements remain uncertain. Idaho Power also entered solar and biomass PURPA contracts adding approximately $51 million of obligations over 20 years.
- Other notable items: Idaho Power made $20 million of discretionary pension contributions in the first half and could contribute up to another $20 million during 2018. The companies identified no material change in off-balance-sheet arrangements, no material legal accruals, and no material adverse effect expected from ordinary-course proceedings. The companies adopted several accounting standards in 2018 without material financial-statement impact; the impact of the upcoming lease standard remained under evaluation.
Important facts for investors to verify
- Whether customer growth, summer weather, irrigation demand, and hydro conditions sustain earnings and cash flow in the second half; interim results are seasonal and not necessarily indicative of full-year performance.
- How tax-reform rate reductions, regulatory deferrals, and the extended Idaho earnings-sharing mechanism affect future earnings and customer rates.
- Whether planned capital spending and Hells Canyon, Boardman-to-Hemingway, and Gateway West projects receive timely approvals and cost recovery.
- How pension contributions, borrowing needs, and debt-market conditions affect liquidity and leverage as capital expenditures continue.
- Developments in environmental and species regulation, hydroelectric relicensing, and related litigation that could affect operations, costs, or generation.