IDACORP, Inc. 2019 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2019; the 10-K was filed February 20, 2020. This combined filing covers IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company. Although the request references 2019 Q4, the filing principally reports full-year results; selected fourth-quarter figures are noted below. Idaho Power is a regulated electric utility serving approximately 572,000 customers in southern Idaho and eastern Oregon.
Key financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| IDACORP operating revenue | $1,346.4 million | $1,370.8 million |
| Operating income | $298.3 million | $296.9 million |
| Net income attributable to IDACORP | $232.9 million | $226.8 million |
| Diluted EPS | $4.61 | $4.49 |
| Operating cash flow | $366.6 million | $491.6 million |
| Capital expenditures, cash additions to property, plant and equipment | $278.7 million | $277.9 million |
| Long-term debt, including current portion | $1,836.7 million | $1,834.8 million |
| Cash and cash equivalents | $217.3 million | $267.5 million |
| Operating margin, calculated as operating income/revenue | 22.2% | 21.7% |
IDACORP’s net income rose 2.7% and diluted EPS rose 2.7%. Idaho Power reported net income of $224.4 million, up from $222.3 million. IDACORP’s year-end assets were $6.64 billion and shareholders’ equity was $2.46 billion. Its return on year-end common equity was 9.4%, compared with 9.6% in 2018.
At year-end, IDACORP and Idaho Power had no short-term borrowings outstanding. Available revolving credit was $100 million for IDACORP and $275.8 million for Idaho Power, net of amounts identified for other use. Covenant leverage ratios were 43% and 45%, respectively, against a 65% limit. Idaho Power’s current ratio was not stated as a headline metric in the filing.
For Q4 2019, IDACORP reported revenue of $292.8 million, operating income of $54.3 million, net income attributable to IDACORP of $47.1 million, and diluted EPS of $0.93. Q4 2018 figures were $311.9 million, $48.3 million, $26.1 million, and $0.52, respectively.
Material changes versus the prior comparable period
- Annual revenue declined 1.8%, while operating income increased 0.5% and net income attributable to IDACORP increased $6.1 million.
- Customer count grew 2.5%, adding an estimated $18.8 million to Idaho Power operating income. Lower usage per customer reduced operating income by $21.4 million, mainly because wetter and milder conditions reduced irrigation electricity use per customer by 12%.
- Wholesale energy revenue increased $18.4 million (35%) as the average sales price rose to $32.80/MWh from $23.53/MWh, despite a 3% decrease in sales volume. Regional gas-price disruption following a 2018 pipeline rupture contributed to elevated prices in early 2019.
- Retail revenue fell $44.5 million, including lower usage and customer refunds/collections through power-cost adjustment rates. Most PCA-related revenue changes were offset by corresponding expense changes and did not materially affect operating income.
- Fuel expense increased $23.7 million (18%), principally due to higher gas generation and lower gains on financial gas hedges. Purchased-power expense decreased $8.5 million.
- Operating cash flow fell $125.0 million. Changes in regulatory balances reduced cash inflows by $53 million; working-capital timing and lower distributions from the Bridger Coal investment also contributed.
- The 2019 tax expense was higher than 2018, when tax benefits included deferred-tax remeasurement and bond-redemption costs. Vintage investment tax credits reduced 2019 tax expense by $3.4 million, most of which management does not expect to recur.
Outlook, management commentary, risks and unusual items
- Management expects more than $1.6 billion in Idaho Power capital expenditures over 2020–2024; the forecast totals approximately $300–310 million for 2020, $305–315 million for 2021, and $1.0–1.05 billion for 2022–2024. Management said it did not anticipate filing a general rate case in 2020.
- Idaho Power estimated 2020 hydropower generation of 6.5–8.5 million MWh. Actual output depends on water conditions; lower hydro generation can increase fuel and purchased-power costs, with customer recovery potentially delayed.
- The Hells Canyon Complex relicensing process remains unresolved. Idaho Power estimated annual relicensing costs of $30–40 million until a new license, expected no earlier than 2022; future license compliance costs could also be substantial but were not yet estimable. The filing reports $326 million of HCC relicensing costs in construction work in progress.
- Transmission investment and permitting remain significant execution risks. The Boardman-to-Hemingway project is estimated to cost $1.0–1.2 billion in total, with Idaho Power’s ownership share and timing subject to change; litigation challenging federal approvals was pending. The 2019 plan anticipated service in 2026 or later.
- Idaho Power ended participation in North Valmy Unit 1 in December 2019; it plans to exit Unit 2 by 2025 and Boardman coal operations by the end of 2020. The amended resource plan also anticipates staged exits from Jim Bridger units by 2030 and 120 MW of solar in 2022; timing and economics remain uncertain.
- Regulatory assets were approximately $1.4 billion and regulatory liabilities approximately $0.8 billion at year-end. Recovery and refund depend on regulatory treatment; a change in the probability of recovery could require write-offs.
- Other principal risks include rate-setting and cost-recovery decisions, hydrology and drought, wildfire liability and insurance limits, environmental and endangered-species requirements, construction delays, PURPA purchase commitments, cybersecurity, pension funding, and access to financing. Existing legal contingency accruals were not material, but outcomes and potential future costs may be uncertain.
- Idaho Power’s two pollution-control bond series were remarketed at lower rates in 2019; management estimated annual interest savings of about $5.6 million for five years and $3.9 million thereafter for the remaining term of the longer-lived bonds. IDACORP raised its quarterly dividend to $0.67 per share and adopted a target long-term payout ratio of 60–70% of sustainable earnings; dividends remain at the board’s discretion.
- The independent auditor issued unqualified opinions on the financial statements and internal controls. The audit identified regulated-utility accounting as a critical audit matter because balances depend on judgments about future regulator decisions.
Most important facts for investors to verify
- Whether operating cash flow can recover as regulatory balances and working-capital timing normalize, given the decline in 2019 cash generation.
- Whether the $1.6 billion-plus capital program, including HCC relicensing and major transmission projects, proceeds on schedule and is recoverable through rates.
- How hydrology, purchased-power costs, PURPA obligations, and customer load growth affect earnings and liquidity, notwithstanding PCA mechanisms.
- The outcome and timing of HCC licensing and related legal proceedings, and the eventual capital and operating costs of license conditions.
- Whether the dividend target is consistent with future earnings, investment needs, credit metrics, and subsidiary dividend restrictions.