IDACORP, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014; filed October 30, 2014. IDACORP is a holding company whose principal operating subsidiary is regulated electric utility Idaho Power, serving southern Idaho and eastern Oregon. Interim financial statements are unaudited and were reviewed by the independent accountants, not audited.
Financial performance
Amounts below are IDACORP consolidated figures unless stated otherwise; dollars in millions except per-share data.
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Operating revenue | $382.2 | $381.1 | $992.7 | $950.0 |
| Operating income | $105.7 | $115.6 | $226.1 | $254.4 |
| Net income attributable to IDACORP | $86.9 | $73.1 | $158.8 | $154.8 |
| Diluted EPS | $1.73 | $1.46 | $3.16 | $3.09 |
| Operating margin | 27.7% | 30.3% | 22.8% | 26.8% |
- Revenue rose 0.3% in Q3 and 4.5% year to date; operating income fell 8.5% and 11.1%, respectively. IDACORP-attributable net income increased 18.8% in Q3 and 2.6% for nine months.
- Q3 net income benefited materially from lower income tax expense, including an $11.1 million tax benefit from capitalized-repairs method changes. The filing attributes $15.7 million of the nine-month year-over-year net-income improvement to tax method changes.
- Cash from operations for nine months was $315.8 million, versus $247.6 million in 2013. Capital spending was $200.9 million; investing cash outflow was $192.6 million. Financing cash outflow was $90.3 million, including $65.0 million of dividends. Cash increased to $111.0 million from $78.2 million at year-end 2013.
- At September 30, long-term debt was $1.614 billion and notes payable/commercial paper was $31.8 million, all at IDACORP holding company level. Consolidated equity was $1.953 billion. Reported debt/equity capital structures were 46%/54% for IDACORP and 47%/53% for Idaho Power.
- IDACORP declared dividends of $1.29 per share during the first nine months, compared with $1.14 a year earlier. The board approved a subsequent quarterly dividend increase to $0.47 per share in September.
Business drivers and changes versus prior period
- Milder temperatures and heavier rainfall reduced customer usage: general business sales volume declined 4% both for Q3 and year to date. Q3 weather-related lower usage reduced operating income by an estimated $8.3 million; nine-month impact was $29.7 million.
- Customer growth partially offset lower usage. Customers increased 1.4% over the twelve months to September 30, reaching 513,549; growth contributed an estimated $3.0 million to Q3 and $7.3 million to nine-month operating income.
- Off-system sales revenue rose to $15.4 million in Q3 from $11.2 million and to $56.4 million for nine months from $31.6 million, aided by favorable market conditions and greater surplus generation. Hydroelectric generation increased 10% in Q3 and 11% year to date.
- Higher depreciation, property taxes, and payroll/benefit costs, lower customer usage, and increased revenue sharing weighed on operating income. Year-to-date purchased-power expense rose $15.2 million; fuel expense was up $1.0 million.
- Q3 earnings also reflect a $4.9 million provision for customer revenue sharing, based on the forecast that Idaho-jurisdiction ROE would exceed 10%. Operating margin declined despite higher net income, highlighting the impact of tax benefits on reported earnings.
Outlook, regulation, risks, and unusual items
- Management said its outlook remained consistent with the 2013 Form 10-K. For 2014 it estimated Idaho Power O&M expense of $335–$345 million, capital expenditures excluding AFUDC of $280–$295 million, and hydroelectric generation of 5.9–6.4 million MWh. Planned capital expenditures for 2014–2018 were $1.47–$1.56 billion.
- Management expected positive customer growth and continued substantial infrastructure investment. The long-term dividend payout target remained 50%–60% of sustainable earnings. Management stated that available cash and operating cash flows should meet capital needs for at least the next twelve months, with credit facilities and commercial paper available for shortfalls.
- The IPUC approved an extension, with modifications, of Idaho’s ROE-based ADITC and earnings-sharing settlement through 2019, subject to its terms. An open IPUC review of the fixed-cost adjustment could result in significant changes; a separate PCA review closed without a retroactive change, while discussions on accuracy of the mechanism continued.
- Environmental compliance is a material longer-term uncertainty. The EPA’s proposed carbon-emissions rule could require significant investment or affect generation and customer rates; the company could not estimate its financial impact. Other evolving rules and permitting requirements also may raise costs.
- Idaho Power added 13 renewable power purchase agreements with about 176 MW of combined capacity and expected payments of $659 million through 2038; three agreements, covering about 120 MW and $449 million, remained subject to IPUC approval. In October 2014, it signed 11 additional solar sales agreements totaling about 280 MW and expected payments of $915 million, also subject to approval.
- Key project and operating exposures include Hells Canyon Complex relicensing costs of $194 million in construction work in progress, transmission project permitting and construction, pension funding, hydrological variability, fuel and wholesale power prices, and integration of intermittent renewable resources. The company expected significant pension contribution obligations from 2015 onward.
- Management reported that legal-contingency accruals were not material; potential “ripple claims” from western energy proceedings were unaccrued and exposure could not be estimated. The company stated that other proceedings were not expected to have a material adverse effect, while noting uncertainty in environmental and regulatory outcomes.
Most important facts for investors to verify
- How much 2014 earnings growth is attributable to the nonrecurring $11.1 million tax benefit and other tax-rate changes, versus recurring utility performance.
- Whether customer usage, weather, and irrigation conditions recover, and whether customer growth offsets lower consumption and rising operating costs.
- Idaho Power’s final 2014 Idaho ROE and resulting customer sharing, plus the practical effects of the settlement extension and pending FCA/PCA reviews.
- Capital spending, project timing and rate recovery, including Hells Canyon relicensing and major transmission investments; monitor the pending regulatory approvals for renewable contracts.
- Potential environmental-rule costs, pension funding needs, and liquidity/collateral sensitivity to credit-rating changes. At September 30, credit facilities were undrawn; reported leverage ratios were below the 65% covenant limit.