IDACORP, Inc. — Q1 2012 Form 10-Q
Business context and period. This combined, unaudited quarterly filing covers the three months ended March 31, 2012, with comparisons to Q1 2011. IDACORP is a holding company whose principal subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. The quarter’s results are seasonal and are not necessarily indicative of full-year performance.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| IDACORP operating revenue | $241.1 million | $251.5 million |
| Operating income | $42.3 million | $50.1 million |
| Net income attributable to IDACORP | $24.9 million | $29.7 million |
| Diluted EPS | $0.50 | $0.60 |
| Operating cash flow | $37.7 million | $93.2 million |
| Capital expenditures | $48.4 million | $101.9 million |
| Cash at March 31 | $8.9 million | $27.8 million at Dec. 31, 2011 |
Revenue fell about 4.1%, operating income 15.5%, net income attributable to IDACORP 16.2%, and diluted EPS 16.7% year over year. Calculated operating margin was approximately 17.6%, versus 19.9% a year earlier; attributable net margin was approximately 10.3%, versus 11.8%. Idaho Power reported net income of $25.8 million, down from $29.8 million.
Operating cash flow declined by $55.6 million. Management cited a $34 million pension contribution, less favorable income-tax cash flows, changes in PCA-related cash flows, and lower distributions from Bridger Coal in the prior-year comparison. Operating cash flow less utility capital expenditures was negative $10.7 million. Investing outflow was $49.0 million and financing outflow $7.6 million.
At March 31, IDACORP reported $1.487 billion of long-term debt, $1.064 million of current debt maturities, and $63.0 million of notes payable; shareholders’ equity was $1.671 billion. Current assets were $323.3 million and current liabilities $283.9 million (current ratio approximately 1.14). Credit-facility leverage ratios were 48% for IDACORP and 49% for Idaho Power, below the 65% covenant limit; both were in compliance. Credit facilities were undrawn, with reported net availability of $63.5 million for IDACORP and $274.3 million for Idaho Power at quarter-end.
Drivers and material changes
- Milder weather reduced first-quarter customer usage 3.1%; general-business sales fell from 3.241 million to 3.178 million MWh. Management attributed about $2.8 million of lower operating income to lower sales volumes.
- Off-system sales revenue declined 7.2% to $27.7 million despite higher volume, as average sales prices fell 19.1% amid abundant regional supply.
- Purchased-power expense rose $9.2 million, principally from a 70% increase in purchases under PURPA contracts as new wind facilities came online. Fuel expense increased $2.8 million, and other O&M increased $7.9 million, including higher pension, labor, consulting, and software costs.
- Lower additional accumulated deferred investment tax credit (ADITC) amortization reduced year-over-year results by approximately $3.0 million. Q1 2012 included $0.8 million of additional amortization, compared with $3.9 million in Q1 2011.
- Offsets included rate and regulatory changes, higher Bridger Coal earnings, lower long-term interest expense, and increased allowance for funds used during construction. Idaho Power’s 2011 Idaho rate settlement increased annual base-rate revenue by $34 million, effective January 1, 2012; Oregon’s settlement added $1.8 million annually, effective March 1.
Outlook, regulatory matters, and risks
- Management maintained its 2012 estimates: Idaho Power O&M of $325–$335 million; capital expenditures of $230–$240 million; hydroelectric generation of 7.5–9.5 million MWh; and non-regulated subsidiary earnings and holding-company expenses of $0–$3 million. Expected 2012 additional ADITC amortization was less than $5 million. These are operating metrics, not consolidated earnings guidance.
- Idaho Power estimated total 2012–2014 capital expenditures of $720–$740 million. Langley Gulch, a roughly 300 MW gas-fired plant, was expected in service by July 1, 2012; Idaho and Oregon rate recovery applications were pending, with Oregon recovery by the requested date considered unlikely.
- Idaho Power requested a $43 million Idaho PCA rate increase for June 2012–May 2013, reflecting projected power costs, particularly PURPA purchases. The IPUC made the fixed-cost adjustment permanent, while requiring a proposal to address load changes unrelated to efficiency; a related rate filing remained pending.
- Hydroelectric generation was 68% of system generation in Q1. Full-year 2012 generation was forecast at 7.5–9.5 million MWh, versus 10.9 million MWh in 2011; actual output depends on water, snowpack, and weather.
- Idaho Power contributed $34 million to its pension plan in Q1 and expects significant contributions in coming years. Environmental compliance, hydroelectric relicensing and water rights, transmission permitting, fuel and wholesale-power prices, and regulatory cost recovery remain important uncertainties.
- A solar power-purchase agreement termination reduced contractual obligations by approximately $90 million over its 25-year term. Idaho Power disclosed a $63 million share of Bridger Coal reclamation guarantees; the reclamation trust held $88 million. A tentative, immaterial settlement in one Pacific Northwest refund matter was subject to FERC approval; the broader proceeding remained unresolved and loss exposure was not estimable.
- After quarter-end, Idaho Power issued $150 million of first-mortgage bonds and announced redemption of $100 million of 4.75% bonds due November 2012. IDACORP’s quarterly dividend increased to $0.33 per share from $0.30.
Important facts for investors to verify
- Whether Idaho and Oregon regulators approve requested rate recovery, particularly for Langley Gulch and the Idaho PCA adjustment, and when those changes take effect.
- Actual hydroelectric generation and wholesale power prices versus management’s forecast, as well as PURPA purchase volumes and costs.
- Full-year earnings effects of lower ADITC amortization, pension costs and contributions, and the Idaho ROE sharing mechanism.
- Capital spending, financing needs, and liquidity after the April bond issuance and planned redemption.
- Developments in unresolved regulatory, environmental, water-rights, and litigation matters; management stated that certain possible losses could not be estimated.