IDACORP, Inc. 2016 Form 10-K Summary
Business context and reporting period. This combined annual report covers the fiscal year ended December 31, 2016; it is not a standalone fourth-quarter filing. IDACORP is a holding company whose principal business is regulated electric utility Idaho Power, serving approximately 535,000 customers in southern Idaho and eastern Oregon. The annual financial figures below are for IDACORP unless otherwise noted; dollar amounts are in millions except per-share data.
Key financial metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Operating revenue | $1,262.0 | $1,270.3 | Down $8.3 (0.7%) |
| Operating income | $271.8 | $282.1 | Down $10.3 (3.7%) |
| Net income attributable to IDACORP | $198.3 | $194.7 | Up $3.6 (1.9%) |
| Diluted earnings per share | $3.94 | $3.87 | Up $0.07 (1.8%) |
| Net cash from operating activities | $347.7 | $353.2 | Down $5.5 |
| Capital expenditures | $297.0 | $294.0 | Up $3.0 |
| Cash and cash equivalents at year-end | $61.5 | $114.8 | Down $53.3 |
| Long-term debt, including current portion | $1,745.7 | $1,726.5 | Up $19.2 |
Operating margin was approximately 21.5% versus 22.2% in 2015; net margin attributable to IDACORP was approximately 15.7% versus 15.3%. Operating cash flow less capital expenditures was approximately $50.8 million, compared with $59.2 million. Year-end total assets were $6.29 billion and total equity was $2.16 billion. IDACORP’s times-interest-earned ratio after tax was 3.15, compared with 3.12.
Liquidity and financing. At December 31, IDACORP had $61.5 million in cash; Idaho Power had $44.1 million. Net unused short-term credit capacity was approximately $354 million across the two companies, after Idaho Power’s commercial paper and other identified use. Covenant leverage ratios were 45% for IDACORP and 47% for Idaho Power, below the 65% facility limit. Operating cash flow declined, and the companies expect to fund substantial investment through operating cash flow, debt, commercial paper and credit facilities.
IDACORP paid $105 million in dividends in 2016; dividends declared were $2.08 per share and the payout ratio was 53% of actual earnings. Its stated long-term target payout ratio is 50%–60%, subject to board discretion and restrictions.
Fourth-quarter snapshot
Unaudited fourth-quarter 2016 IDACORP revenue was $293.6 million, net income attributable to IDACORP was $33.2 million, and diluted EPS was $0.66. The comparable 2015 quarter reported revenue of $285.4 million, attributable net income of $31.8 million, and diluted EPS of $0.63. The filing cautions that quarterly results are not necessarily indicative of full-year results.
Material changes and drivers versus 2015
- IDACORP’s earnings rose despite lower operating income; Idaho Power net income declined to $189.2 million from $191.0 million. Earnings from other subsidiaries increased IDACORP net income by $5.3 million, including a $3.7 million after-tax gain from an IESCo settlement concerning California energy-market proceedings.
- Idaho Power customer count grew 1.8%, contributing an estimated $15.6 million to general business revenue. Lower usage per customer reduced revenue by $21.3 million, largely due to milder summer weather, a shorter irrigation season and energy efficiency.
- Off-system sales revenue fell $5.7 million to $25.2 million as market prices and sales volumes declined. Purchased power expense increased $19.3 million to $245.8 million, while fuel expense decreased $6.7 million to $179.5 million.
- Other operations and maintenance expense rose $9.7 million, primarily from labor-related costs and scheduled Langley Gulch maintenance; depreciation increased $5.6 million.
- Idaho Power’s hydroelectric generation increased to 6.4 million MWh from 5.9 million MWh, but remained below median conditions. Hydro provided 53% of system generation. Coal generation declined and natural-gas generation also decreased as purchased power was favored at times by market economics and resource availability.
- Operating cash flow at Idaho Power fell to $311.3 million from $346.4 million. IDACORP cash declined partly because of capital spending, debt retirement and dividends.
Outlook, commentary, risks and unusual items
- Capital plan: Management estimates approximately $1.5 billion of capital expenditures over 2017–2021. Idaho Power’s forecast, excluding AFUDC, is $290–$300 million for 2017, $285–$295 million for 2018 and $900–$950 million for 2019–2021. Actual timing and amounts may differ materially.
- Hydro and system planning: Idaho Power estimates 2017 hydro generation of 7–9 million MWh. Its 2017 resource plan was expected in June 2017. The company anticipated joining the Western Energy Imbalance Market in spring 2018, subject to approvals and other conditions.
- Rates and cost recovery: Idaho Power’s most recent general rate cases reset base rates in 2012; management said it would continue assessing the need and timing of new cases. Pending filings sought revised depreciation rates and accelerated depreciation of North Valmy by 2025, with proposed aggregate annual rate increases of $7.4 million and $29.6 million, respectively. Recovery and timing depend on regulators.
- Major project and environmental exposure: Hells Canyon Complex relicensing costs were $249 million in construction work in progress at year-end. Management estimated annual costs to obtain a new license of $25–$35 million until issuance, which it did not expect before 2021; eventual license-compliance costs were not yet estimable. Water-quality and endangered-species requirements could add costs or affect generation. Boardman is scheduled to end coal operations by 2020; North Valmy’s potential early closure and further Jim Bridger pollution controls remain material planning issues.
- Power purchase commitments: PURPA-related purchases cost $153.7 million in 2016, up from $131.3 million. Total contractual cash obligations were $8.22 billion, including $4.31 billion for cogeneration and small-power-production purchases; these totals span multiple years and are not current-year liabilities.
- Unusual financing and tax items: Idaho Power issued $120 million of 4.05% bonds due 2046 and redeemed $100 million of 6.15% bonds early, paying a $14 million make-whole premium. The premium generated an approximately $5.6 million flow-through income-tax benefit; management also expected future interest savings. A new share-based compensation accounting standard contributed tax benefits in 2016.
- Contingencies and principal risks: Regulatory decisions may delay or limit recovery of costs; hydrology, weather, wholesale prices, fuel and PURPA costs affect cash flow and earnings; and major transmission projects face permitting, construction and cancellation risks. The companies also cite pension funding, environmental compliance, reliability, cyber security, and financing risks. The Hoku bankruptcy complaint seeking up to approximately $36 million was dismissed with prejudice in December 2016. Management said loss-contingency accruals were not material overall and did not expect other proceedings discussed to have a material adverse effect, while acknowledging outcomes can be uncertain.
- Audit and controls: Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting for both registrants.
Most important facts for investors to verify
- Whether Idaho and Oregon regulators approve the pending depreciation filings and how any resulting costs and rate changes affect earnings and customer bills.
- Hells Canyon relicensing milestones, total compliance obligations, cost recovery, and potential effects on hydroelectric output.
- Progress, permitting, ownership shares and final economics of Boardman-to-Hemingway and Gateway West, compared with the stated capital forecast.
- Hydrology, customer usage and growth, wholesale power prices, and the trajectory of PURPA purchase volumes and costs.
- Capital spending, operating cash flow, debt issuance and refinancing needs, and continued compliance with financing covenants and dividend restrictions.
- Whether environmental rules or plant-retirement decisions change the economics of North Valmy, Boardman or Jim Bridger, including any cost-recovery consequences.