IDACORP, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. This annual filing includes unaudited quarterly data; it is not a standalone fourth-quarter filing. IDACORP is a holding company whose principal operating subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon.
Financial results and position
| Metric | 2018 | 2017 |
|---|---|---|
| Operating revenue | $1,370.8 million | $1,349.5 million |
| Operating income | $296.9 million | $315.5 million |
| Net income attributable to IDACORP | $226.8 million | $212.4 million |
| Diluted earnings per share | $4.49 | $4.21 |
| Operating cash flow | $491.6 million | $435.2 million |
| Capital expenditures, cash basis | $277.9 million | $285.5 million |
| Cash and cash equivalents at year-end | $267.5 million | $76.6 million |
| Long-term debt, including current portion | $1,834.8 million | $1,746.1 million |
- Revenue rose about 1.6%, operating income fell about 5.9%, and attributable net income and diluted EPS rose about 6.8% and 6.7%, respectively.
- Calculated from reported figures, operating margin was approximately 21.7% versus 23.4%; net margin was approximately 16.5% versus 15.7%.
- IDACORP’s year-end debt-to-capital ratio for covenant purposes was 44%; Idaho Power’s was 46%. Neither had commercial paper or credit-facility borrowings outstanding at year-end. Available short-term borrowing capacity was $100 million for IDACORP and $275.8 million for Idaho Power.
- IDACORP declared $2.40 per share in dividends for 2018; its stated target payout range is 50%–60% of sustainable earnings. The reported payout ratio was approximately 53%.
- Fourth-quarter snapshot: IDACORP reported diluted EPS of $0.52 and attributable net income of $26.1 million, compared with $0.77 and $38.9 million in fourth-quarter 2017.
Business and material changes
- Idaho Power’s electric utility operations are the primary driver of IDACORP’s results. Retail energy sales were nearly flat at 14.587 million MWh; year-end customer count increased 2.3% to 557,645.
- Higher customer growth, increased FCA revenue, transmission revenue, and lower income-tax expense supported earnings. Offsetting factors included lower retail revenue per MWh, higher operations and maintenance costs, and a $5.0 million provision for customer earnings sharing.
- Federal tax reform reduced the corporate tax rate from 35% to 21%. Regulatory settlements returned estimated tax benefits to customers, including an annual $18.7 million Idaho base-rate reduction and a $1.5 million annual Oregon rate reduction, effective June 2018.
- Wholesale energy revenue increased to $52.8 million from $24.8 million, helped by higher sales volumes and prices. A fourth-quarter natural-gas pipeline rupture in British Columbia contributed to regional price increases. Idaho Power recorded $23.3 million in fourth-quarter financial gas hedge gains, with most expected to benefit customers through power-cost adjustment mechanisms.
- Purchased-power expense increased 18% to $293.8 million, including $189.7 million for PURPA purchases. Fuel expense decreased 9% to $133.2 million, partly reflecting lower gas costs and hedge gains. Hydroelectric generation supplied 65% of system generation.
Outlook, risks and unusual items
- Management estimated approximately $1.5 billion of capital expenditures for 2019–2023. The 2019 construction estimate was $280–$290 million, excluding AFUDC; actual timing and spending may vary materially. Management said it did not anticipate filing a general rate case in the next 12 months.
- Idaho Power forecast 2019 hydroelectric generation of 6.5–8.5 million MWh. The Hells Canyon Complex relicensing process remains unresolved; a new license is not expected before 2022, and relicensing costs were estimated at $30–$40 million annually until issuance, excluding subsequent license-compliance costs.
- Key risks include regulatory recovery and timing, drought and water availability, wildfire and severe-weather exposure, environmental compliance, construction and permitting of major transmission projects, mandatory renewable-power purchases, commodity prices, cyber threats, and pension funding. Management said loss-contingency accruals were not material overall; outcomes and potential exposure for certain matters could not be estimated clearly.
- Idaho Power’s $58.4 million share of Bridger Coal Company reclamation obligations was guaranteed; the associated trust fund held $101.9 million at year-end. The filing described existing wildfire-related claims but said management did not expect their resolution to materially adversely affect the consolidated financial statements.
- Other notable items: Idaho Power issued $220 million of 4.20% first mortgage bonds due 2048 and redeemed $130 million of 4.50% bonds early, paying a $4.6 million make-whole premium. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether regulatory settlements and rate mechanisms continue to support timely recovery of costs, including tax-reform adjustments and power-supply costs.
- Actual capital spending, project approvals and cost recovery for Boardman-to-Hemingway, Gateway West, and Hells Canyon relicensing.
- Hydrology, wholesale power prices, PURPA purchase volumes and costs, and the customer-rate impact of power-cost adjustment balances.
- Exposure from wildfire claims, environmental requirements, plant retirement plans, and pension funding beyond the estimates disclosed.
- Whether liquidity, debt covenants, dividend capacity, and customer growth remain consistent with management’s stated plans.