IDACORP, Inc. Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2015; financial statements are unaudited. IDACORP is a holding company whose principal operating subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. Results are seasonal and affected by weather, hydroelectric conditions, energy markets, and regulatory decisions.
Key financial metrics
Amounts below are IDACORP consolidated unless noted. Dollar amounts are in millions except per-share data.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Operating revenue | $369.2 | $382.2 | $984.9 | $992.7 |
| Operating income | $104.7 | $105.7 | $233.5 | $226.1 |
| Net income attributable to IDACORP | $73.3 | $86.9 | $162.8 | $158.8 |
| Diluted EPS | $1.46 | $1.73 | $3.24 | $3.16 |
| Operating margin | 28.4% | 27.7% | 23.7% | 22.8% |
| Net margin | 19.9% | 22.7% | 16.5% | 16.0% |
For the first nine months, operating cash flow was $290.8 million, down from $315.8 million; capital expenditures were $235.9 million, versus $200.9 million. Cash and equivalents were $121.3 million at September 30, 2015, compared with $56.8 million at year-end 2014. Long-term debt was $1.742 billion, up from $1.614 billion. Current assets of $494.3 million exceeded current liabilities of $205.3 million. IDACORP reported a 46% covenant leverage ratio; Idaho Power reported 48%, versus a 65% maximum.
Changes versus comparable periods
- Third-quarter revenue fell $13.0 million and attributable net income fell $13.6 million year over year. Management attributed the earnings decline chiefly to higher income tax expense, including comparison against a 2014 tax-method-change benefit; milder weather and lower per-customer usage also reduced earnings.
- Nine-month revenue declined $7.8 million, while attributable net income rose $4.0 million and diluted EPS increased from $3.16 to $3.24. Results benefited from customer growth, FCA revenue changes, and comparison with 2014 customer revenue sharing and tax items.
- Off-system sales revenue declined to $23.3 million for nine months from $56.4 million, reflecting less surplus hydroelectric output, lower sales volumes, and less favorable wholesale-market conditions.
- Cash from operations decreased despite higher nine-month net income, including from pension contributions, regulatory-account timing, and working-capital changes.
Outlook, management commentary, and risks
- Management maintained its 2015 estimate for Idaho Power O&M expense of $340–$350 million and capital expenditures of $300–$310 million. It lowered expected 2015 hydroelectric generation to 5.7–6.2 million MWh from 6.0–7.0 million MWh; 2014 generation was 6.2 million MWh.
- Idaho Power expects about $1.5 billion in capital expenditures over 2015–2019. Management said existing cash and operating cash flows, supplemented as needed by debt, commercial paper, and credit facilities, should fund requirements for at least the next 12 months.
- IDACORP’s board raised the quarterly dividend from $0.47 to $0.51 per share, starting in Q4 2015. Its stated long-term payout target is 50%–60% of sustainable earnings; future dividends remain at board discretion.
- In March, Idaho Power issued $250 million of 3.65% bonds due 2045 and in April redeemed $120 million of 6.025% bonds due 2018, paying a $17.9 million make-whole premium. No loans were outstanding under either company’s credit facilities at quarter-end; IDACORP had $3.6 million of commercial paper outstanding.
- Regulatory recovery, drought and hydroelectric output, weather and customer demand, wholesale power prices, PURPA obligations, and environmental compliance could materially affect results and cash needs. HCC relicensing costs in construction work in progress were $214 million; timing, license requirements, and eventual compliance costs remain uncertain.
- Potential contingencies include a Hoku bankruptcy trustee complaint seeking up to approximately $36 million; the company said potential loss could not be reasonably estimated and intends to defend the claim. Legacy Western energy-market proceedings also remain unresolved, with possible “ripple claims” unquantifiable. Management reported no material accruals for loss contingencies overall.
- Four solar power purchase agreements were terminated, reducing estimated obligations by $483 million over their terms; seven new agreements add an estimated $135 million of payments from 2017–2036. A proposed $72 million gas-plant service agreement was not yet effective pending reconsideration of accounting treatment.
Important facts for investors to verify
- Whether 2015 hydroelectric generation and operating results track management’s revised estimates, and how drought affects power purchases and cash flow.
- Regulatory outcomes and timing for PCA/FCA mechanisms, Idaho ROE sharing or ADITC amortization, and recovery of major capital and relicensing costs.
- Progress, total costs, permitting, and rate recovery for the Boardman-to-Hemingway and Gateway West transmission projects and Jim Bridger environmental upgrades.
- Developments in the Hoku claim, Western energy proceedings, and environmental rules that could create material costs or liabilities.
- Funding needs, debt issuance and refinancing, covenant headroom, and whether dividend growth remains supported by earnings and capital requirements.