IDACORP, Inc. 10-Q Summary — First Quarter 2018
Business context and reporting period
Combined, unaudited quarterly filing for IDACORP, Inc. and its principal utility subsidiary, Idaho Power Company, for the three months ended March 31, 2018, compared with the same period in 2017. Idaho Power generates, transmits, and distributes electricity in southern Idaho and eastern Oregon; its rates and operations are regulated. Results are seasonal and the first-quarter results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| IDACORP operating revenue | $310.1 million | $302.5 million; up 2.5% |
| IDACORP net income attributable to shareholders | $36.1 million | $33.1 million; up 9.2% |
| IDACORP diluted EPS | $0.72 | $0.66 |
| Operating income | $50.6 million | $53.6 million; down 5.7% |
| Net income margin | 11.6% | 10.9% (calculated) |
| Operating cash flow | $91.7 million | $113.7 million |
| Capital additions | $67.0 million | $73.9 million |
| Cash and cash equivalents at quarter-end | $307.3 million | $76.6 million at Dec. 31, 2017 |
| Debt at quarter-end, including current maturities | $2.0 billion | $1.75 billion at Dec. 31, 2017 |
| Dividend declared per share | $0.59 | $0.55 |
Idaho Power reported Q1 net income of $35.9 million, versus $32.5 million. IDACORP issued results reflecting higher equity-method investment earnings and lower income-tax expense, partly offset by lower operating income. The income-tax benefit largely reflected the reduction in federal and Idaho corporate tax rates. IDACORP and Idaho Power reported leverage ratios of 46% and 48%, respectively, against a 65% credit-facility covenant limit.
Material changes versus the prior comparable period
- Retail electricity sales volumes fell 5%, mainly because milder winter weather reduced heating demand. Customer count grew 2.1% year over year, reaching 547,397.
- Lower customer usage reduced operating income, but higher Fixed Cost Adjustment (FCA) revenue partly offset the effect. The FCA contributed $13.9 million in Q1 2018 versus $5.2 million in Q1 2017.
- Hydroelectric generation rose 15% on stronger water conditions. Wholesale energy revenue increased $6.1 million, while fuel expense fell $8.5 million.
- Purchased-power expense increased $12.8 million, primarily because purchases under PURPA contracts rose 37% by volume. Depreciation expense also increased $3.3 million.
- Operating cash flow declined, including the effects of higher pension contributions and working-capital timing. Financing cash flow included $220 million of new long-term debt.
Outlook, commentary, risks, and unusual items
- Management maintained its previously stated outlook and expects approximately $1.5 billion in capital expenditures from 2018 through 2022. Q1 construction expenditures were about $65 million, excluding AFUDC.
- Idaho Power forecast 2018 hydroelectric generation of 7.5–9.5 million MWh, versus a 20-year average of 7.6 million MWh. Water conditions affect both generation costs and wholesale-sale opportunities.
- Idaho Power did not anticipate filing a general rate case in 2018. Pending Idaho proposals included a $22.6 million annual PCA rate decrease and a $19.3 million FCA decrease, both for the June 2018–May 2019 period.
- A proposed Idaho tax-reform settlement, not yet approved as of the filing, would reduce customer base rates by $18.7 million annually beginning June 1, 2018, and provide additional customer benefits through the PCA mechanism. Idaho Power recorded a $5.0 million Q1 revenue reduction for tax benefits expected to be returned to Idaho and Oregon customers; Oregon treatment remained under discussion.
- Idaho Power issued $220 million of 4.20% first-mortgage bonds due 2048 in March. After quarter-end, it redeemed $130 million of 4.50% bonds due 2020 and paid a $4.6 million make-whole premium.
- Other developments included commencement of Idaho Power’s Western Energy Imbalance Market participation on April 4, 2018, and IPUC approval in April of a settlement finding $216.5 million of Hells Canyon Complex relicensing costs prudently incurred and eligible for future rate recovery.
- Key risks include regulatory decisions and cost-recovery timing, weather and hydrology, fuel and purchased-power costs, environmental compliance, Hells Canyon relicensing, major infrastructure projects, and access to financing. Idaho Power’s $58.4 million share of Bridger Coal reclamation obligations was supported by a $106.3 million reclamation trust fund. Management said accrued legal contingencies were not material; environmental-regulation impacts could not be estimated.
- The interim financial statements were reviewed, not audited, by the independent accounting firm. The filing reported effective disclosure controls and no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether regulators approve the proposed tax-reform settlement and the requested PCA and FCA rate changes, and the resulting impact on customer rates and earnings.
- Whether actual water conditions, hydroelectric output, and customer demand align with management’s 2018 expectations.
- How planned capital spending, regulatory recovery timing, and the Hells Canyon relicensing process affect cash flow and returns.
- The effect of increased PURPA purchase volumes and other power-supply costs, including the ability to recover costs through adjustment mechanisms.
- Debt and liquidity after the post-quarter bond redemption, including the premium paid and remaining financing capacity.