IDACORP, Inc. — Q3 2020 Form 10-Q Summary
Business context and reporting period
Combined quarterly filing for IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company, for the quarter and nine months ended September 30, 2020. Idaho Power is a regulated electric utility serving southern Idaho and eastern Oregon; results are seasonal, with peak sales typically during the summer. Financial statements are unaudited, and the interim review by Deloitte did not identify material modifications needed for GAAP conformity.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $425.3 million | $386.3 million | $1,035.0 million | $1,053.5 million |
| Operating income | $124.8 million | $114.2 million | $255.8 million | $244.1 million |
| Net income attributable to IDACORP | $102.0 million | $89.9 million | $199.9 million | $185.7 million |
| Diluted earnings per share | $2.02 | $1.78 | $3.95 | $3.68 |
| Operating cash flow | Not stated separately | Not stated separately | $284.0 million | $287.0 million |
Q3 revenue increased 10.1% year over year; nine-month revenue declined 1.8%. IDACORP-attributable income rose 13.5% for the quarter and 7.6% year to date. Q3 operating margin was approximately 29.3% versus 29.5% a year earlier; nine-month operating margin was 24.7% versus 23.2% (calculated as operating income divided by operating revenue).
At September 30, 2020, IDACORP had $312.0 million in cash and cash equivalents and $25.0 million in short-term investments. Total assets were $6.93 billion; long-term debt was $2.00 billion, with no current portion reported. Its $100 million revolving credit facility was undrawn. Idaho Power had $236.2 million cash, $275.8 million of available short-term borrowing liquidity, and $2.00 billion long-term debt. Covenant leverage ratios were 44% for IDACORP and 46% for Idaho Power, below the 65% maximum. Nine-month capital expenditures were $213.4 million; operating cash flow was $284.0 million for IDACORP and $285.1 million for Idaho Power.
Material changes versus the prior comparable period
- Q3 earnings improved mainly on customer growth, higher residential and irrigation usage, increased transmission wheeling revenues, lower O&M expense, and lower income taxes.
- Customer count grew 2.6% over the 12 months ended September 30, to 583,079. Retail sales volume increased 2% in both the quarter and year-to-date periods.
- Nine-month wholesale energy revenue fell $45.7 million as sales volumes were 53% lower than in 2019, when unusually high regional prices supported opportunistic sales. Q3 wholesale revenue, by contrast, increased $6.9 million.
- Purchased power expense increased 11% in Q3 and 6% year to date. Fuel expense increased 27% in Q3, largely because Idaho Power dispatched more coal generation.
- IDACORP’s nine-month operating cash flow was nearly flat year over year, while investing outflows increased to $242.1 million from $192.6 million. Net financing cash flow shifted to a $52.8 million inflow from a $101.4 million outflow, reflecting debt issuance and repayments.
Outlook, management commentary, risks and unusual items
- Management continued to expect customer growth and approximately $1.6 billion of capital expenditures over 2020–2024. Estimated electric-plant additions are $300–$310 million for 2020, $305–$315 million for 2021, and $1.0–$1.05 billion for 2022–2024. Management expects available cash, operating cash flow, credit facilities, commercial paper and debt markets to meet capital and debt-service needs for at least 12 months.
- No general rate case is anticipated in the next 12 months. Idaho Power received approval for a $58.7 million Idaho power-cost-adjustment rate increase effective June 1, 2020, and a $0.7 million fixed-cost-adjustment increase.
- COVID-19 reduced commercial customer usage and increased late payments and expected bad-debt write-offs. The customer receivables allowance rose to $3.9 million, or 3.7% of receivables, from $1.4 million and 1.9% at year-end 2019. Idaho Power recorded a $0.7 million regulatory asset for eligible COVID-related costs; recovery through future rates remains subject to later ratemaking treatment.
- Idaho Power issued $230 million of 4.20% bonds due 2048 and $80 million of 1.90% bonds due 2030, and redeemed $75 million of 2.95% notes early, paying a $3.3 million make-whole premium, and $100 million of 3.40% bonds. The quarterly IDACORP dividend was increased from $0.67 to $0.71 per share.
- Boardman coal plant operations ceased in October 2020 as planned. Idaho Power continues to face permitting and cost uncertainty for major transmission projects and hydropower relicensing; the Hells Canyon Complex license is not expected before 2022, with $346 million of relicensing costs in construction work in progress.
- Principal risks include COVID-19 impacts on customer loads, collections, employees and suppliers; regulatory cost recovery; hydrology and weather; wildfire liability; environmental and permitting requirements; commodity and purchased-power costs; and access to financing. Management stated that the ultimate COVID-19 financial impact remained uncertain. No material legal accruals were reported; existing claims were not expected to have a material adverse effect, though future accruals could be material.
Important facts for investors to verify
- Whether customer arrears and the higher bad-debt allowance stabilize, and whether regulators ultimately permit recovery of COVID-related costs.
- How customer growth, commercial load recovery, weather, hydropower output and wholesale market conditions affect future earnings and cash flows.
- Capital spending, financing needs, debt levels and covenant headroom as large infrastructure projects proceed.
- Regulatory outcomes and timing for Boardman rate adjustments, the Idaho rate framework, Hells Canyon relicensing and the Boardman-to-Hemingway transmission project.
- Whether the planned maintenance work deferred to 2021, environmental obligations and coal-plant transition costs change the company’s expense or investment outlook.