IDACORP, Inc. 10-Q Summary — Quarter Ended June 30, 2019
Business context and reporting period. IDACORP is a holding company whose principal operating subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. This combined, unaudited Form 10-Q reports second-quarter and first-half 2019 results; interim results are seasonal and are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Operating revenues | $316.9 million | $340.0 million | $667.2 million | $650.1 million |
| Operating income | $71.8 million | $82.8 million | $129.9 million | $133.4 million |
| Net income attributable to IDACORP | $53.2 million | $62.3 million | $95.8 million | $98.4 million |
| Diluted EPS | $1.05 | $1.23 | $1.90 | $1.95 |
| Operating margin | 22.7% | 24.4% | 19.5% | 20.5% |
Cash flow and balance sheet. First-half operating cash flow was $166.1 million, down from $196.4 million; capital expenditures were $129.9 million, leaving approximately $36.2 million after capital spending. Cash and equivalents were $239.7 million at June 30, 2019, versus $267.5 million at year-end 2018. Long-term debt was $1.84 billion. Current assets of $599.5 million exceeded current liabilities of $295.6 million. Covenant leverage ratios were 43% for IDACORP and 45% for Idaho Power, below the 65% limit; both reported compliance. IDACORP paid $64.0 million in common dividends during the first half.
Changes and drivers versus prior periods
- Q2 operating revenues fell about 6.8% and net income attributable to IDACORP declined about 14.7%; first-half revenues rose about 2.6% while net income declined about 2.6%.
- Lower per-customer use was the primary Q2 earnings headwind: wetter conditions reduced irrigation pumping, and cooler weather reduced cooling demand. Customer growth of 2.5% over the prior 12 months partially offset lower usage.
- First-half wholesale energy revenue increased to $63.4 million from $22.7 million, supported by higher regional market prices and increased sales. This helped offset weaker retail revenue.
- First-half fuel expense rose $23.4 million, or 48%, mainly because thermal generation increased 64% as hydroelectric generation declined 8%. Natural gas hedge gains of $12.4 million reduced fuel expense; most realized gains benefit customers through power-cost adjustments.
- First-half operating cash flow decreased, with timing of accounts payable payments and regulatory balances among the factors cited by management.
Outlook, regulation, risks, and unusual items
- Management expects approximately $1.5 billion of capital expenditures over 2019–2023. Estimated accrual-basis construction expenditures are $280–$290 million for 2019, $285–$300 million for 2020, and $875–$925 million for 2021–2023, excluding AFUDC.
- Idaho Power reported customer growth of nearly 6,800 in the first half and expects continued growth. Its 2019 resource plan forecasts 20-year annual growth of 1.0% in retail sales and 1.2% in peak demand. Management expects 2019 hydropower generation of 8.0–9.0 million MWh, versus a 20-year average of 7.5 million MWh.
- Management does not anticipate filing a general rate case in the next 12 months. Idaho’s 2019–2020 power cost adjustment reduced customer collections by $50.1 million; this mechanism largely passes through power-supply cost differences. The fixed-cost adjustment increased by $19.2 million.
- Idaho regulators approved recovery of $1.2 million in annual levelized Valmy-related costs effective June 1, 2019. Idaho Power requested an Oregon rate decrease of $3.2 million annually, which remained pending at filing.
- Idaho Power’s 2019 resource plan includes planned Valmy unit exits in 2019 and 2025, early retirement of two Jim Bridger units in 2022 and 2026, and solar additions. Management cautioned that modeling and project uncertainties could change the preferred plan; additional Idaho-specific modeling was expected by October 2019.
- The Hells Canyon Complex relicensing remains a material long-term matter: $311 million of costs, including AFUDC, was in construction work in progress; a new FERC license was not expected before 2022. Idaho Power estimates certain settlement measures will cost $20 million over the first 20 years of a new license. Third parties challenged Oregon’s water-quality certification in July 2019.
- A 20-year agreement to buy output from a proposed 120-MW solar facility would add $136 million to contractual obligations and was subject to regulatory approval. Additional replacement and renewable power contracts increased obligations by approximately $24 million over 20 years.
- Key risks include regulatory cost recovery, weather and hydrology, wildfire liability, environmental compliance, large infrastructure and relicensing costs, commodity markets, and financing conditions. Existing contingency accruals were not material, but future accruals could be material. The interim financial statements received an independent accountant’s review, not an audit.
Important facts for investors to verify
- Whether customer usage and weather normalize, and how customer growth translates into sales and earnings.
- Actual power-supply costs, hedge outcomes, wholesale market revenues, and subsequent PCA collections or refunds.
- Capital spending, project timing and cost recovery, especially for transmission projects and Hells Canyon relicensing.
- Regulatory outcomes for the Oregon Valmy request and the proposed solar purchase agreement, and any changes to Idaho’s resource plan.
- Potential wildfire, environmental, water-quality, or other legal liabilities and whether costs can be recovered through rates or insurance.
- Liquidity, debt covenant headroom, and dividend capacity as capital investment continues.