IDACORP, Inc. 2010 Form 10-K Summary
Business context and reporting period
This combined annual report covers IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company, for the fiscal year ended December 31, 2010. Idaho Power is a regulated electric utility serving approximately 492,000 customers in southern Idaho and eastern Oregon. It generated 98.5% of IDACORP’s 2010 net income. The filing also provides unaudited fourth-quarter results.
Key financial metrics
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Operating revenue | $1,036.0 million | $1,049.8 million | Down 1.3% |
| Operating income | $198.7 million | $203.6 million | Down 2.4% |
| Net income attributable to IDACORP | $142.8 million | $124.4 million | Up 14.8% |
| Diluted earnings per share | $2.95 | $2.64 | Up 11.7% |
| Operating margin | 19.2% | 19.4% | Down 0.2 percentage points |
| Net margin attributable to IDACORP | 13.8% | 11.8% | Up 2.0 percentage points |
| Cash provided by operations | $305.4 million | $284.4 million | Up $21.0 million |
| Capital expenditures | $338.3 million | $251.9 million | Up $86.3 million |
| Long-term debt, including current maturities | $1,610.9 million | $1,419.1 million | Up 13.5% |
Margins are calculated from reported revenue and income figures. Operating cash flow less construction expenditures was approximately negative $32.9 million before asset-sale proceeds and other investing items. Cash and cash equivalents ended 2010 at $228.7 million, versus $53.0 million a year earlier. Current assets were $460.6 million and current liabilities $449.1 million. IDACORP’s year-end debt-to-capitalization ratio was 52%; Idaho Power’s was 53%, both below the 65% credit-facility limit.
Idaho Power issued $200 million of first mortgage bonds in 2010, at 3.40% due 2020 and 4.85% due 2040. Its effective debt cost was 5.53% at year-end, down from 5.76%. IDACORP had $33.1 million of unused capacity on its $100 million credit facility after commercial paper; Idaho Power had $275.8 million available on its $300 million facility. Both facilities were scheduled to terminate in April 2012. IDACORP and Idaho Power paid dividends of approximately $58 million each in 2010; IDACORP declared $1.20 per share.
Material changes and drivers versus prior periods
- Net income rose despite lower operating income, largely because of tax-accounting method changes. The repair-cost change contributed an estimated $41.5 million net-income benefit in the year-over-year reconciliation. The uniform-capitalization method generated a reported tax benefit, but an uncertain-tax-position liability substantially offset it.
- Retail general-business electricity sales fell about 3.1%, from 13.95 million MWh to 13.51 million MWh. Management attributed the decline mainly to mild weather, conservation, weak economic conditions, and slow customer growth. Customer count rose 0.5%.
- General-business revenue declined $13.4 million. Rate changes added $16.9 million, but lower usage reduced revenue by $33.4 million; customer growth added $2.9 million.
- Hydroelectric generation fell 9% to 7.34 million MWh, or 86% of median generation, as water conditions were below average. Purchased-power expense declined $23.4 million, while fuel expense increased $10.1 million, largely because of higher coal costs.
- Off-system sales revenue decreased $16.2 million to $78.1 million, as lower hydro generation reduced surplus energy available for sale. Higher regional wholesale prices partly offset the volume decline.
- Cash from operations improved, but capital spending increased materially and Idaho Power contributed $60 million to its pension plan. Year-end cash also benefited from tax-related cash flows and financing activity.
- Fourth-quarter IDACORP revenue was $232.0 million, operating income $39.0 million, net income attributable to IDACORP $20.4 million, and diluted EPS $0.41, compared with $253.1 million, $38.9 million, $23.5 million, and $0.49, respectively, in fourth-quarter 2009.
Outlook, management commentary, risks and contingencies
Management’s 2011 operating estimates include Idaho Power O&M expense of $300–$310 million, capital expenditures of $320–$330 million, hydroelectric generation of 7.5–9.5 million MWh, and non-regulated subsidiary earnings and holding-company expenses of $0–$3 million. These are operating estimates, not an EPS or net-income forecast. Total capital expenditures for 2011–2013 were expected to be $775–$805 million, with internal cash generation after dividends insufficient to cover all requirements.
- Major projects: Langley Gulch, a 300 MW summer-capacity gas plant, had an estimated total cost of $427 million including AFUDC; $206 million had been incurred by year-end. Commercial operation was contracted for November 2012, while management estimated June 2012. Transmission projects Boardman–Hemingway and Gateway West carry significant cost, permitting, and schedule uncertainty.
- Regulation and rate recovery: Idaho’s general-rate moratorium runs through January 1, 2012, subject to specified exceptions. Management was evaluating rate-case needs; the first opportunity to file a new Idaho general rate case was June 2011. Regulators may limit or delay recovery of operating costs, capital investment, pension costs, and environmental spending.
- Water and hydroelectric power: Hells Canyon and Swan Falls were operating under annual licenses while multi-year relicensing proceeded. Environmental conditions, water-quality certifications, and endangered-species consultation remain unresolved and could require costly modifications or reduce generation. Snake River water rights and a dispute involving the Bureau of Reclamation’s American Falls Reservoir contract also remain matters to monitor.
- Environmental and generation exposure: Coal-plant regulation may increase costs or affect plant economics. Boardman’s owners approved a plan for coal-fired operations to cease by December 31, 2020, subject to regulatory implementation; Idaho Power owns 10%. EPA notices and litigation concerning Boardman were directed at its operator, but may affect Idaho Power as a co-owner. The filing estimates environmental capital expenditures of $16 million in 2011 and $109 million in 2012–2013, plus operating costs.
- Power purchases and renewables: Idaho Power had 126 signed agreements with cogeneration and small-power projects representing 1,188 MW of nameplate capacity, including projects expected to come online by 2014. Intermittent output, above-market contract pricing, integration requirements, and transmission needs may affect system operations and customer costs. In February 2011, the Idaho commission temporarily reduced the qualifying size limit for published avoided-cost rates for wind and solar projects to 100 kW.
- Tax uncertainty: Tax method changes produced substantial 2010 tax benefits and cash effects, but remained subject to audit or further review. Year-end uncertain tax positions were $74.4 million, including $59.7 million related to the uniform-capitalization change.
- Pension funding: The pension plan was underfunded by $172.9 million at year-end. Estimated minimum contributions were $3 million in 2011 and $46 million in 2012, with further contributions expected thereafter; regulatory recovery of future contributions was not assured.
- Other risks and proceedings: Risks include hydrology, fuel and wholesale-market prices, weather, economic conditions and customer collections, project cost overruns, credit and counterparty exposure, environmental compliance, and regulatory or legal outcomes. The filing describes unresolved western energy-market proceedings and water-related litigation; management could not predict all outcomes or quantify some potential effects.
Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded that internal controls were effective as of December 31, 2010.
Most important facts for investors to verify
- How much of the 2010 earnings increase reflects recurring utility performance versus tax-method benefits, and the final resolution of related audits and uncertain tax positions.
- Hydrology, actual 2011 hydroelectric generation, and resulting power-purchase needs and PCA cash-flow timing.
- Whether regulators permit timely recovery of costs, including pension contributions and major capital investments, given the Idaho rate moratorium and pending proceedings.
- Updated cost, schedule, ownership share, and approvals for Langley Gulch, Boardman–Hemingway, and Gateway West.
- Developments in Hells Canyon and Swan Falls relicensing, Snake River water matters, environmental requirements, and Boardman-related proceedings.
- Funding and liquidity capacity as capital spending, debt maturities, pension contributions, and long-term power-purchase obligations come due.