IDACORP, Inc. — 2014 Form 10-K Summary
Business context and reporting period. This combined annual report covers IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company, for the fiscal year ended December 31, 2014. IDACORP is a holding company whose results are driven primarily by Idaho Power, a regulated electric utility serving approximately 516,000 customers in southern Idaho and eastern Oregon. Figures below are consolidated IDACORP figures unless otherwise noted.
Financial performance and condition
| Metric | 2014 | 2013 | Change / context |
|---|---|---|---|
| Operating revenue | $1.283 billion | $1.246 billion | Up 2.9% |
| Operating income | $253.7 million | $291.7 million | Down 13.0%; operating margin was 19.8%, versus 23.4% |
| Net income attributable to IDACORP | $193.5 million | $182.4 million | Up 6.1%; net margin was 15.1%, versus 14.6% |
| Diluted EPS | $3.85 | $3.64 | Up 5.8% |
| Cash provided by operations | $364.3 million | $305.5 million | Up $58.8 million |
| Capital expenditures, excluding AFUDC | $265 million | $228 million | Construction expenditures including AFUDC were $274.1 million |
| Long-term debt, including current portion | $1.616 billion | $1.616 billion | Long-term debt on the balance sheet was $1.614 billion |
| Cash and cash equivalents | $56.8 million | $78.2 million | Year-end notes payable were $31.3 million |
| Dividends declared per share | $1.76 | $1.57 | Quarterly dividend raised to $0.47 per share in 2014 |
IDACORP’s year-end capital structure was 46% debt and 54% equity; Idaho Power’s was 47% debt and 53% equity. At year-end, undrawn credit availability was approximately $93.7 million for IDACORP and $275.8 million for Idaho Power. The companies reported compliance with credit facility covenants. The filing cites no significant long-term debt maturities until 2018.
Material changes versus 2013
- Net income increased despite a $38.0 million decrease in Idaho Power operating income. More moderate weather reduced customer usage, lowering operating income by $38.1 million; customer growth added $9.1 million of operating income.
- Lower income tax expense was the key offset: tax method changes for prior years increased 2014 net income by $29.1 million versus 2013, and other tax benefits contributed to a reported $56.7 million year-over-year decrease in income tax expense.
- 2013 included an $11.6 million gain on sale of investments that did not recur in 2014.
- General business electricity sales fell 4% to 14.092 million MWh, while total revenue rose. Off-system sales revenue increased 42% to $77.2 million, supported by favorable market conditions and greater surplus energy.
- Hydroelectric generation improved to 6.2 million MWh from 5.7 million, but remained below the 8.5 million MWh historical median. Purchased power expense rose 11% to $244.6 million; fuel expense fell 6% to $201.2 million.
- Operating cash flow rose, supported in part by regulatory asset/liability movements and improved receivable balances. Capital spending also increased.
Outlook, management commentary, and key risks
- 2015 estimates: Idaho Power forecast O&M expense of $340–$350 million, capital expenditures excluding AFUDC of $300–$310 million, and hydroelectric generation of 7–9 million MWh. Management estimated approximately $1.5 billion of capital expenditures over 2015–2019. No 2015 general rate case was expected in Idaho or Oregon; the filing provides no EPS or earnings guidance.
- Regulation and cost recovery: An October 2014 Idaho settlement extended, with modifications, an earnings-support and customer-sharing mechanism through 2019. It permits up to $45 million of additional ADITC amortization over the period, subject to conditions, and shares earnings above specified Idaho ROE thresholds. The IPUC’s review of the fixed cost adjustment remained open and could result in significant changes. PCA mechanisms mitigate much, but not all, power-cost volatility and may delay cash recovery.
- Major investment projects: Jim Bridger emissions-control upgrades were estimated at $113 million for Idaho Power’s share; $46 million had been spent by year-end 2014. Regulators had not granted an advance binding commitment to rate-base treatment. The Boardman-to-Hemingway and Gateway West transmission projects face permitting, environmental, cost, and timing uncertainty. Boardman-to-Hemingway was expected in service in 2021 or later.
- Hydro and environmental exposure: Hells Canyon relicensing remains unresolved; $199 million of related costs was in construction work in progress at year-end, and required license conditions and associated costs were undetermined. Environmental rules may require substantial additional capital or operating expense, with recovery through rates not assured.
- Renewable purchases: Idaho Power had 781 MW of PURPA projects online and an additional 521 MW projected by June 2017. These long-term purchases can exceed market prices and create integration challenges. After Idaho Power sought shorter future contract terms, the IPUC temporarily reduced the maximum term from 20 years to five years pending proceedings.
- Other risks and contingencies: Results are sensitive to weather, drought and water rights, fuel and wholesale power prices, customer growth and usage, regulatory decisions, construction execution, pension funding, and credit access. The filing describes unresolved western energy-market “ripple claims” for which no accrual was recorded because exposure could not be estimated. Management said recorded loss-contingency accruals were not material; outcomes remain uncertain. BCC reclamation guarantee exposure was $70 million, supported by a $67 million trust fund.
- Unusual items: Tax-method changes materially benefited 2014 earnings. The pension discount-rate assumption declined, increasing benefit obligations; the pension plan was underfunded by approximately $285 million at year-end. Management expected at least $20 million of pension contributions in 2015 despite no estimated minimum contribution requirement.
Most important facts for investors to verify
- How much of 2014’s earnings growth came from tax-method benefits and whether those benefits recur; operating income declined substantially.
- Progress and regulatory cost recovery for the Hells Canyon relicensing, Jim Bridger emissions controls, and the two major transmission projects.
- Whether the IPUC changes the fixed cost adjustment or other mechanisms that support fixed-cost and power-cost recovery.
- Hydrologic conditions, hydroelectric output, and the effect of PURPA purchases on costs, wholesale sales, and customer rates.
- Capital-spending needs, pension funding, liquidity, and the ability to maintain dividends while financing planned infrastructure investment.
- Developments in environmental regulation, permitting, and litigation, including the unquantified potential exposure from ripple claims.
The independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting for both IDACORP and Idaho Power.