IDACORP, Inc. 2017 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2017. IDACORP is a holding company whose principal business is regulated electric utility Idaho Power, serving more than 545,000 customers in southern Idaho and eastern Oregon. The filing is a combined annual report for IDACORP and Idaho Power; figures below identify the registrant where relevant. This is a full-year 10-K, not a standalone fourth-quarter report.
Key financial metrics
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| IDACORP operating revenue | $1.349 billion | $1.262 billion |
| Operating income | $304.4 million | $271.8 million |
| Net income attributable to IDACORP | $212.4 million | $198.3 million |
| Diluted earnings per share | $4.21 | $3.94 |
| Operating margin, calculated | Approximately 22.6% | Approximately 21.5% |
| Cash from operations | $438.0 million | $347.7 million |
| Capital expenditures | $285.5 million | $297.0 million |
| Long-term debt, including current portion | $1.746 billion | $1.746 billion |
| Cash and cash equivalents | $76.6 million | $61.5 million |
Net income margin was approximately 15.7% in 2017. Operating cash flow less property and plant additions was approximately $152.5 million. At year-end, IDACORP reported total assets of $6.045 billion and equity of $2.256 billion. Its debt-to-equity capital structure for covenant purposes was 44% debt; Idaho Power’s was 46%. IDACORP had $100 million of revolving credit capacity available and Idaho Power had $275.8 million net available, with no commercial paper outstanding at year-end. IDACORP dividends declared were $2.24 per share; the payout ratio was 53%.
Fourth-quarter supplemental data: IDACORP revenue was $305.6 million and diluted EPS was $0.77, compared with $293.6 million and $0.66 in the fourth quarter of 2016.
Material changes versus the prior comparable period
- Annual revenue rose approximately 6.9%, operating income 12.0%, net income attributable to IDACORP 7.1%, and diluted EPS 6.9% versus 2016.
- Management attributed earnings growth primarily to customer growth, higher usage, rate changes including the Valmy settlement, and increased transmission revenue. Customer count grew 2.0% and general business electricity sales increased 3.0%.
- Above-normal precipitation lifted hydroelectric generation 39% to 8.9 million MWh, or 65% of system generation. Lower thermal generation reduced fuel expense by $33.7 million; increased hydro output also supported higher off-system sales volumes, although average sale prices declined.
- Cash from operations increased $90.3 million. Capital spending was lower year over year, while depreciation expense increased $18.4 million, primarily reflecting the Valmy settlement and rate changes.
- The Tax Cuts and Jobs Act prompted remeasurement of deferred taxes and reduced reported net deferred tax liabilities by approximately $672 million. The remeasurement increased 2017 income tax expense by $1.7 million at IDACORP and $2.0 million at Idaho Power; regulatory treatment of future tax benefits remained under review.
Outlook, commentary, risks, and unusual items
- Management estimated 2018 hydroelectric generation of 7.5–9.5 million MWh. Idaho Power planned to begin Western Energy Imbalance Market participation in April 2018, subject to conditions and regulatory matters.
- Idaho Power expected approximately $1.5 billion in capital expenditures over 2018–2022, including annual estimates of $280–290 million for 2018 and $285–300 million for 2019. Management said it did not anticipate filing an Idaho or Oregon general rate case in 2018.
- Key investment risks include regulatory decisions and delays in recovering costs through rates; hydrology, drought and weather; significant infrastructure needs; environmental compliance and plant retirement costs; fuel and purchased-power costs; and customer growth, usage and self-generation trends.
- Hells Canyon Complex relicensing remains a major uncertainty. Idaho Power estimated annual relicensing costs of $25–35 million until a new license, which it did not expect before 2022; ultimate license requirements and compliance costs were unclear. A proposed settlement recognizing $216.5 million of costs as reasonably incurred awaited IPUC approval. The filing records a $5.0 million pre-tax charge related to the settlement.
- Valmy settlement stipulations provide for accelerated depreciation, cost recovery, and a plan to end Idaho Power’s participation in unit 1 by the end of 2019 and unit 2 by the end of 2025. Management estimated an approximately $5 million annual after-tax earnings benefit, expected to decline gradually through 2028.
- Reported regulatory assets were approximately $1.1 billion and regulatory liabilities approximately $0.7 billion; recovery or refund depends on regulatory treatment. Contractual cash obligations totaled $8.042 billion, including $4.124 billion of cogeneration and small-power-production purchase obligations.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Important facts for investors to verify
- Track IPUC and OPUC decisions on the Tax Cuts and Jobs Act, including customer rate changes and the treatment of tax benefits.
- Verify IPUC approval and eventual rate recovery of the Hells Canyon relicensing settlement, and monitor license timing, conditions, and related costs.
- Assess whether forecast capital spending and transmission projects proceed on schedule and remain recoverable through rates.
- Monitor hydroelectric conditions, PURPA purchase obligations, and power-cost adjustment mechanisms for effects on cash flow, customer rates, and earnings.
- Review dividend sustainability against earnings, capital needs, debt covenants, and Idaho Power’s ability to distribute cash to the holding company.