IDACORP, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. This combined filing covers IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company. Interim financial statements are unaudited; the independent accountants performed a review, not an audit.
Business context and financial results
Idaho Power is a regulated electric utility serving southern Idaho and eastern Oregon. IDACORP’s reportable segment is utility operations. Unless stated otherwise, figures below are for IDACORP consolidated and dollar amounts are in millions.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Operating revenue | $279.4 | $292.7 |
| Operating income | $42.9 | $48.6 |
| Net income attributable to IDACORP | $23.4 | $27.4 |
| Diluted earnings per share | $0.47 | $0.55 |
| Dividends declared per share | $0.47 | $0.43 |
| Operating cash flow | $105.4 | $96.9 |
| Capital expenditures | $78.4 | $59.2 |
At March 31, cash and cash equivalents were $317.2 million, compared with $56.8 million at December 31, 2014. Current liabilities were $347.3 million, including $121.1 million of current debt maturities. Long-term debt was $1.742 billion; total debt, including current maturities, was approximately $1.863 billion. IDACORP and Idaho Power reported covenant leverage ratios of 49% and 51%, respectively, and compliance with financial covenants. IDACORP had $81.6 million of net available short-term borrowing capacity; Idaho Power had $275.8 million.
Changes versus the prior-year quarter
- IDACORP net income fell $4.0 million and diluted EPS declined from $0.55 to $0.47. Total operating revenue decreased $13.3 million.
- Milder winter weather reduced residential usage; general business sales volume fell 2%, while customer growth was 1.6% year over year. Management attributed $2.5 million of lower operating income to reduced usage, partly offset by $1.9 million from customer growth.
- Off-system sales revenue declined $16.2 million, reflecting lower sales volumes and prices versus unusually favorable wholesale-market conditions in early 2014. Fuel expense fell $23.9 million as thermal generation declined; hydroelectric generation rose 17% year over year.
- Other operations and maintenance expense increased $3.0 million, primarily from maintenance timing and hydroelectric operating costs; depreciation increased $1.2 million. Lower pretax income reduced tax expense. Q1 2014 included $0.95 million of additional ADITC amortization, subsequently reversed in Q2 2014; none was recorded in Q1 2015.
- Operating cash flow increased despite lower earnings. The quarter’s financing inflow was primarily driven by new debt issuance, and should not be treated as recurring operating cash generation.
Outlook, management commentary, and notable developments
- Management said its overall 2015 outlook was consistent with its prior annual report. Current estimates were Idaho Power O&M expense of $340–$350 million, capital expenditures of $300–$310 million, and no additional ADITC amortization. The hydroelectric generation forecast was reduced to 5.0–7.0 million MWh from 7.0–9.0 million MWh previously; 2014 generation was 6.2 million MWh.
- Idaho Power estimated $1.5 billion of capital expenditures over 2015–2019. Major projects include generation upgrades and transmission development; project timing, approvals, and ultimate costs remain uncertain. Management expects to meet requirements for at least the next 12 months through operating cash flows, existing cash, and financing access.
- On March 6, Idaho Power issued $250 million of 3.65% first mortgage bonds due 2045. It redeemed $120 million of 6.025% notes on April 23, paying a make-whole premium of about $17.9 million. Management expected an approximately $7 million income-tax benefit in Q2 2015 and an incremental net-income benefit from lower interest expense.
- After quarter-end, four solar power purchase agreements terminated following an uncured counterparty breach, reducing stated contractual payment obligations by about $483 million over their 20-year terms.
- Regulatory filings include a requested $10.1 million decrease in Idaho PCA rates and a requested $2.0 million increase in the Idaho fixed cost adjustment; both were pending. Proposed PCA and FCA methodology changes were also pending IPUC approval, and their effects were not included in Q1 statements.
- Environmental compliance is a significant uncertainty. Idaho Power expected to record a higher asset retirement obligation and corresponding regulatory asset in Q2 following the EPA coal-combustion-residuals rule, but could not estimate the amount. Future compliance costs and potential effects of emissions rules and hydroelectric relicensing also remain uncertain.
- Other risks include weather and hydrology, wholesale power and fuel prices, regulatory cost recovery, environmental requirements, major project permitting, pension funding, and credit-rating changes. A downgrade below investment grade could trigger collateral demands; estimated potential collateral calls under current conditions were about $7 million. The filing reported no material accrued loss contingencies, but some proceedings remain unresolved.
Key facts investors should verify
- Whether the lower 2015 hydroelectric-generation outlook, weather, and wholesale-market conditions affect full-year earnings and power costs.
- IPUC decisions on the PCA/FCA filings and proposed mechanism changes, including their customer-rate and earnings effects.
- The Q2 accounting amount for the coal-ash rule, the expected tax benefit from the debt redemption, and ongoing environmental and Hells Canyon relicensing costs.
- Capital-spending needs, project approvals and recovery in rates, pension contributions, and liquidity after the debt refinancing.
- Whether terminated solar agreements create any remaining disputes or replacement-resource costs, notwithstanding the stated reduction in contractual obligations.