IDACORP, Inc. — Q1 2019 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly report for IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company, for the three months ended March 31, 2019, compared with Q1 2018. Idaho Power is a regulated electric utility serving southern Idaho and eastern Oregon. Its sales and earnings are seasonal; first-quarter results are not necessarily indicative of full-year performance. Deloitte & Touche reviewed the interim statements and reported no material modifications were needed.
Financial highlights
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| IDACORP operating revenues | $350.3 million | $310.1 million | +13% |
| IDACORP net income attributable to IDACORP | $42.7 million | $36.1 million | +$6.5 million |
| Diluted EPS | $0.84 | $0.72 | +17% |
| Operating income | $58.1 million | $50.6 million | +15% |
| Net cash from operating activities | $57.0 million | $91.7 million | -$34.7 million |
| Capital additions, cash basis | $61.3 million | $67.0 million | -$5.7 million |
| Cash and cash equivalents, March 31 | $231.3 million | $267.5 million at Dec. 31, 2018 | -$36.2 million |
| Long-term debt, March 31 | $1.835 billion | $1.835 billion at Dec. 31, 2018 | Broadly unchanged |
IDACORP operating margin was approximately 16.6%, versus 16.3% in Q1 2018; net income attributable to IDACORP was approximately 12.2% of revenue, versus 11.7%. Dividends paid were $32.3 million, or $0.63 per share. At quarter-end, IDACORP reported total assets of $6.388 billion, total equity of $2.386 billion, and current assets of $576.3 million against current liabilities of $273.5 million.
Idaho Power’s net income was $41.6 million, up from $35.9 million. Its operating revenues were $349.8 million, versus $309.5 million. Operating cash flow was $54.4 million, down from $89.4 million; cash ended the quarter at $131.1 million. Idaho Power reported $1.835 billion of long-term debt and a 46% covenant leverage ratio (IDACORP: 44%).
Material changes and drivers
- Retail electricity sales rose 4% to 3.371 million MWh; customer count grew 2.4% year over year to 560,492. Colder weather increased residential use per customer by approximately 3%.
- Wholesale energy revenue rose $33.4 million to $47.2 million, with volumes unchanged at 860,000 MWh. Average realized revenue per MWh more than tripled, reflecting elevated regional power prices, including constrained natural gas flows after a pipeline rupture in British Columbia.
- Fuel expense increased $24.1 million, or 87%, as thermal generation more than doubled and hydroelectric generation fell 23%. Natural-gas hedging gains of $12.4 million partly offset fuel costs; most realized benefits flow to customers through power-cost adjustment mechanisms.
- Transmission wheeling-related revenue rose $4.0 million. Equity-method investment earnings declined $1.9 million, partly offset by improved non-operating income. No additional Idaho ADITC amortization was recorded in Q1 2019, compared with $0.5 million in Q1 2018.
- Operating cash flow declined principally from working-capital timing, including higher receivables and accounts payable payments, and a $10 million year-over-year adverse impact from changes in regulatory assets and liabilities. Investing outflows were $56.7 million; financing outflows were $36.4 million.
Outlook, regulatory matters, and risks
- Management maintained its outlook described in the 2018 Annual Report. It expects customer growth to continue and approximately $1.5 billion in capital expenditures over 2019–2023. No specific 2019 earnings or EPS guidance is stated in the provided filing text.
- Management expects to meet capital and debt-service needs for at least the next 12 months using cash, operating cash flow, credit facilities, commercial paper, and debt-market access. As of March 31, available revolving capacity was $100 million for IDACORP and $275.8 million for Idaho Power; neither had commercial paper outstanding. Both were in compliance with covenants.
- Idaho Power does not anticipate filing a general rate case in the next 12 months. Pending Idaho filings include a $50.1 million annual PCA revenue decrease and a $19.2 million FCA recovery increase for the June 2019–May 2020 period, plus a request for $1.2 million of annualized recovery related to the North Valmy exit agreement. Regulatory outcomes were pending as of the report date.
- Idaho Power announced a goal of providing customers 100% clean energy by 2045. It signed a 20-year, 120-MW solar power purchase agreement, subject to regulatory approval, with an initial stated price of $21.75/MWh and estimated contractual obligations of $136 million over the term. Four replacement PURPA hydro contracts added approximately $18 million of obligations over 20 years.
- Idaho Power plans to end participation in North Valmy Unit 1 coal operations in 2019 and Unit 2 in 2025, subject to the relevant agreement and regulatory process. Hells Canyon Complex relicensing remains a major uncertainty: the filing cites $304 million of accumulated relicensing costs and an expected license no earlier than 2022; ultimate license requirements and associated costs are not yet known.
- Key risks include regulatory cost recovery and allowed returns, fuel and wholesale power prices, hydrology and drought, wildfire and other liability claims, environmental compliance, project permitting and capital costs, and access to financing. A credit downgrade below investment grade could trigger collateral demands; estimated potential collateral on the energy and fuel portfolio was approximately $6.5 million. Existing legal-contingency accruals were not material, but wildfire-related claims and environmental matters remain under monitoring.
Investor verification priorities
- Track regulatory decisions on the PCA, FCA, Valmy recovery, and proposed solar contract, including resulting customer rates and earnings effects.
- Assess whether elevated wholesale prices and thermal generation costs persist, and how power-cost adjustment mechanisms affect cash timing and customer refunds or recoveries.
- Monitor operating cash flow, working-capital movements, and funding needs against the planned $1.5 billion five-year capital program and expected debt issuance.
- Verify Hells Canyon relicensing milestones, final water-quality certifications, and whether future license-driven spending can be recovered through rates.
- Evaluate wildfire exposure, environmental compliance costs, and other contingencies; the filing states that existing claims are not expected to have a material adverse effect, but outcomes remain uncertain.