IDACORP, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. Combined unaudited quarterly filing for the three and six months ended June 30, 2015, for IDACORP and its principal operating subsidiary, Idaho Power. Idaho Power is a regulated electric utility serving approximately 520,000 customers in southern Idaho and eastern Oregon. Interim results are seasonal and are not necessarily indicative of full-year results. The independent accountants reviewed, but did not audit, the interim statements.
Financial results and position
Amounts below are in millions of dollars except per-share data. IDACORP amounts are consolidated and attributable earnings are identified.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Operating revenue | $336.3 | $317.8 | $615.7 | $610.5 |
| Operating income | $86.0 | $71.8 | $128.9 | $120.4 |
| Net income attributable to IDACORP | $66.1 | $44.5 | $89.5 | $71.9 |
| Diluted EPS | $1.31 | $0.89 | $1.78 | $1.43 |
| Dividend declared per share | $0.47 | $0.43 | $0.94 | $0.86 |
- Margins: IDACORP operating margin was approximately 25.6% in Q2 2015 versus 22.6% a year earlier; net margin was approximately 19.7% versus 14.0%.
- Cash flow, six months: Operating cash flow was $171.0 million, compared with $163.3 million; capital additions were $153.0 million, compared with $128.3 million. Net investing cash outflow was $150.6 million. Cash increased to $131.0 million from $56.8 million at year-end.
- Liquidity and debt: At June 30, cash was $131.0 million, current assets $528.0 million, and current liabilities $233.8 million. Long-term debt was $1.742 billion; IDACORP also had $27.0 million of commercial paper outstanding. Available short-term borrowing capacity was $98.0 million for IDACORP and $275.8 million for Idaho Power. Covenant leverage ratios were 47% and 49%, respectively, against a 65% limit; both companies reported covenant compliance.
- Capital and dividends: Equity was $2.003 billion and total assets were $5.897 billion. IDACORP’s long-term dividend payout target remains 50%–60% of sustainable earnings.
Material changes and drivers
- Q2 IDACORP attributable net income rose $21.5 million year over year; first-half income rose $17.6 million. Idaho Power’s operating income increased $14.5 million in Q2 and $8.7 million for the first half.
- Q2 general-business sales volume increased 4%, supported by dry spring conditions and unusually hot June weather; customer growth also contributed. Customer count increased 1.7% over the twelve months to June 30.
- The IPUC’s FCA methodology change, applied retroactively to January 1, 2015, contributed $7.4 million of first-half revenue in Q2 for first-quarter activity. First-half FCA revenue was $10.8 million higher year over year.
- Six-month income tax expense declined $7.3 million at IDACORP, primarily due to the tax deduction from the $17.9 million make-whole premium paid on early debt redemption. Management identified a $7.2 million tax benefit related to the redemption.
- Off-system sales revenue fell $7.9 million in Q2 and $24.1 million year to date, reflecting less surplus hydroelectric output, higher customer load, and less favorable wholesale markets. First-half general-business revenue nevertheless increased $30.2 million.
- Idaho Power issued $250 million of 3.65% bonds due 2045 and redeemed $120 million of 6.025% bonds due 2018, paying the $17.9 million make-whole premium. Four solar power purchase agreements were terminated after counterparty breach, reducing stated contractual obligations by approximately $483 million over 20 years.
Outlook, risks and contingencies
- Management said its outlook was consistent with the 2014 Form 10-K. 2015 estimates were: Idaho Power O&M expense $340–$350 million; capital expenditures excluding AFUDC $300–$310 million; hydroelectric generation 6.0–7.0 million MWh; and no additional ADITC amortization. The hydroelectric estimate was raised from 5.0–7.0 million MWh. Idaho Power expects approximately $1.5 billion of capital spending over 2015–2019.
- Management cites customer growth, weather, water availability, fuel and wholesale power prices, regulatory cost recovery, environmental requirements, financing access, and operating reliability as important factors. PCA mechanisms pass most power-supply cost fluctuations through to customers, but timing differences can affect cash flow.
- Environmental and infrastructure costs may be substantial. Idaho Power recorded a $5 million increase in asset retirement obligations related to coal-combustion residual rules. It also estimates its share of Jim Bridger SCR upgrades at approximately $109 million, with the project reported on schedule and at or below estimate.
- Idaho Power’s 2015 IRP identifies no new resource needs before 2025 in its preferred portfolio, but timing and resource assumptions remain uncertain. The proposed Boardman-to-Hemingway and Gateway West transmission projects face permitting, regulatory, cost, and schedule uncertainties.
- A Hoku bankruptcy trustee complaint seeks recovery of payments of up to approximately $36 million; Idaho Power said potential liability could not be reasonably estimated and intends to defend the case. Legacy Western energy-market proceedings also remain unresolved, with possible losses not estimable and no accrual recorded. Aggregate recorded loss-contingency accruals were not material, though future accruals could be material.
- Idaho Power expects at least $30 million of pension contributions in 2015 and anticipates significant contribution obligations in 2016 and beyond. A below-investment-grade downgrade could prompt collateral demands; estimated additional collateral exposure was approximately $16 million at June 30.
- Four other notable items: a proposed 25-year gas-plant maintenance agreement estimated at $72 million, subject to IPUC approval; pending approval of a transmission transaction with PacifiCorp; ongoing Hells Canyon relicensing costs estimated at $20–$30 million annually until license issuance; and regulatory proceedings on PURPA contract terms.
Most important facts for investors to verify
- Whether Q2 earnings growth—particularly the $7.4 million retroactive FCA revenue and the debt-redemption tax benefit—persists in subsequent periods.
- Actual 2015 hydroelectric generation, customer demand, and the resulting power-supply costs and PCA deferrals or recoveries.
- Progress and final costs for the $1.5 billion five-year capital program, major transmission projects, and environmental upgrades, including recovery of costs through rates.
- Developments in the Hoku litigation, Western energy proceedings, and key regulatory matters, including PURPA and transmission-rate decisions.
- Debt financing, pension funding needs, liquidity, and covenant headroom as investment spending continues; the filing states no full-year EPS guidance.