IDACORP, Inc. 2011 Form 10-K Summary
Business context and reporting period
This is IDACORP’s annual report for the fiscal year ended December 31, 2011, not a standalone fourth-quarter filing. Idaho Power, a regulated electric utility serving southern Idaho and eastern Oregon, generated 99% of IDACORP’s 2011 net income. The combined filing also includes separate financial statements for Idaho Power.
Financial performance and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Operating revenue | $1.027 billion | $1.036 billion |
| Operating income | $164.2 million | $198.7 million |
| Net income attributable to IDACORP | $166.7 million | $142.8 million |
| Diluted EPS | $3.36 | $2.95 |
| Operating margin | 16.0% | 19.2% |
| Operating cash flow | $310.2 million | $305.4 million |
| Capital expenditures | $337.8 million | $338.3 million |
| Cash and cash equivalents, year-end | $27.8 million | $228.7 million |
| Long-term debt, including current portion | $1.489 billion | $1.611 billion |
Net income rose despite lower operating income, primarily because of a large income-tax benefit. The 2011 income-tax benefit was $52.1 million, compared with a $0.7 million benefit in 2010. IDACORP’s total assets were $4.961 billion and equity was $1.662 billion at year-end. Commercial paper outstanding was $54.2 million; year-end undrawn credit availability was reported as $70.8 million at IDACORP and $275.8 million at Idaho Power. Leverage ratios were 48% and 49%, respectively, below the 65% credit-facility limit.
Material changes versus the prior year
- Revenue declined 0.9% and operating income declined 17.3%; diluted EPS increased 13.9%.
- Approval of a tax accounting method change enabled recognition of $56.9 million in previously unrecognized tax benefits for prior tax years. This was substantially an earnings benefit, not a 2011 cash inflow; related refunds were received in 2010.
- Idaho customer-sharing mechanisms reduced revenue by $27.1 million and added $20.3 million of pension expense, partly offsetting the tax-related earnings uplift.
- Above-average water conditions lifted hydroelectric generation to 10.9 million MWh from 7.3 million MWh in 2010. Coal generation fell, while off-system sales volumes rose and average sale prices fell 29%.
- PURPA purchases increased to 1.5 million MWh and $90.3 million from 0.9 million MWh and $56.0 million. Total purchased-power expense rose 14%, while fuel expense declined 18%.
Outlook, commentary, risks and unusual items
- Management’s 2012 estimates: Idaho Power O&M expense of $325–$335 million; capital expenditures of $230–$240 million; hydroelectric generation of 7.5–9.5 million MWh; and non-regulated subsidiary earnings plus holding-company expenses of $0–$3 million. Total 2012–2014 capital spending was estimated at $720–$740 million.
- The Idaho regulator approved a $34 million annual base-rate increase, effective January 1, 2012. A proposed Oregon rate-case settlement remained subject to regulator approval at the report date. The Idaho fixed-cost adjustment mechanism’s continuation as a permanent rate feature was also pending.
- Langley Gulch, a 300-MW gas-fired plant, was expected to enter service by July 1, 2012, with a project commitment estimate of $427.4 million. Transmission projects Boardman-to-Hemingway and Gateway West remained subject to permitting, approvals, cost and schedule risks.
- Key operating exposures include hydrology and Snake River water rights, regulatory recovery of costs, mandated intermittent renewable purchases and integration costs, fuel and wholesale-market prices, pension funding, and environmental requirements. Boardman coal operations are scheduled to cease by the end of 2020; Idaho Power’s estimated share of required control capital was $6 million, apart from other costs and obligations.
- Hoku Materials had not taken significant service and had overdue bills. A settlement stipulation filed in February 2012 proposed reducing its minimum monthly charge to $0.8 million through July 2013, with deferred amounts potentially recovered later; IPUC approval was pending.
- Several legal and regulatory matters remain unresolved. The filing says potential losses for certain matters, including the Boardman EPA notice and Pacific Northwest power-refund proceedings, could not be estimated clearly. Management reported no material accruals for legal proceedings as a whole.
Important facts for investors to verify
- How much of the 2011 EPS increase is repeatable after excluding the tax-method benefit and the associated customer-sharing and pension effects.
- Final regulatory decisions on the Oregon rate case, Idaho fixed-cost adjustment, PURPA pricing and contract terms, and Hoku’s service agreement.
- Langley Gulch’s final cost, in-service timing, and rate recovery; and permitting, funding, and construction progress for major transmission projects.
- Actual 2012 hydroelectric generation, purchased-power costs, and cash-flow effects if water conditions or wholesale prices differ from management’s assumptions.
- Future pension contributions, environmental compliance costs, and potential outcomes of the disclosed legal, water-rights, relicensing, and reliability matters.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.