IDACORP, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2014. This combined, unaudited filing covers IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company. Idaho Power is a regulated electric utility serving southern Idaho and eastern Oregon. The interim financial statements were reviewed by Deloitte & Touche, not audited.
Financial results and key metrics
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| IDACORP operating revenue | $292.7 million | $264.9 million |
| IDACORP operating income | $48.6 million | $59.4 million |
| IDACORP net income attributable to IDACORP | $27.4 million | $35.2 million |
| Diluted earnings per share | $0.55 | $0.70 |
| Dividends declared per share | $0.43 | $0.38 |
| Operating cash flow | $96.9 million | $54.0 million |
| Capital additions | $59.2 million | $52.0 million |
IDACORP’s operating margin was approximately 16.6%, compared with 22.4% in Q1 2013, calculated as operating income divided by operating revenue. Idaho Power reported net income of $27.9 million, down from $34.0 million.
Revenue growth reflected higher general business revenue and off-system sales. However, lower operating income and earnings primarily reflected milder weather and reduced customer electricity use. Off-system sales revenue rose 84% to $29.2 million, while general business sales volume fell 5% to 3.186 million MWh. Residential usage per customer declined 11%; customer growth partly offset that decline.
Operating cash flow increased year over year, partly due to changes in regulatory balances and working capital, including cash-flow timing. Investing cash outflow was $55.3 million, and financing cash outflow was $31.5 million. Cash and cash equivalents were $88.3 million at quarter-end.
At March 31, IDACORP had $1.614 billion of long-term debt, $1.1 million of current debt maturities, and $47.3 million of commercial paper outstanding. Its leverage ratio was 47%; Idaho Power’s was 48%. Available short-term borrowing capacity was reported at $77.7 million for IDACORP and $275.8 million for Idaho Power. Both companies were in compliance with financial covenants.
Material changes and operating drivers
- IDACORP net income attributable to the company declined $7.8 million year over year. Management attributed the principal earnings pressure to lower sales volumes and rates associated with customer usage, which reduced Idaho Power operating income by $12.7 million, net of related power-supply and PCA effects. Customer growth added $1.8 million to operating income.
- Warmer-than-normal Q1 2014 conditions contrasted with unusually cold Q1 2013 weather. Management cited heating degree days approximately 14% above normal in Q1 2013 and slightly below normal in Q1 2014.
- Off-system sales volumes increased 63% to 816,000 MWh, aided by favorable wholesale market conditions and lower system loads. Fuel expense rose 13% to $55.3 million, principally reflecting increased natural-gas generation.
- Operating and maintenance expense increased less than 1%, which management linked primarily to expense-control and optimization efforts.
- The 2013 comparison reflects retrospective adoption of the proportional amortization method for affordable-housing investments, which increased reported Q1 2013 IDACORP net income by $1.7 million.
Outlook, regulatory matters, and risks
- Management said its 2014 outlook was consistent with its prior annual-report outlook. It estimated Idaho Power O&M expense of $335–$345 million, additional ADITC amortization of less than $5 million, capital expenditures excluding AFUDC of $280–$295 million, and hydroelectric generation of 5.5–7.5 million MWh. The hydro generation range was raised from 5.0–7.0 million MWh.
- Idaho Power estimated capital expenditures of $1.47–$1.56 billion over 2014–2018. Management expected to fund remaining 2014 requirements with existing cash and operating cash flows, with credit facilities and commercial paper available as additional liquidity.
- The IPUC approved a change to the recovery method for normalized power-supply expense, effective June 1, 2014. It reallocates collection between Idaho base rates and the PCA and, according to the filing, does not change aggregate collections. Applications were pending for an $11.1 million net Idaho PCA rate increase and a $6.0 million increase in the Idaho fixed cost adjustment.
- Idaho Power expected to seek an extension of its regulatory settlement stipulation. The stipulation permits additional ADITC amortization under specified ROE conditions and provides for sharing earnings above specified Idaho ROE thresholds. Q1 2014 included $950,000 of additional ADITC amortization; the company expected less than $5 million for the full year.
- Hydrology, weather, customer demand, wholesale power and fuel prices, and regulatory cost recovery remain important earnings and cash-flow variables. The PCA mechanisms pass through most power-supply cost fluctuations, but timing differences affect cash flows.
- Environmental compliance could require substantial future investment or affect generation-plant operations. Idaho Power said it could not estimate the financial impact of proposed Clean Water Act rule changes. SCR controls are planned at Jim Bridger; the filing also describes permitting and timing uncertainty for major transmission projects.
- Idaho Power planned at least $20 million of pension contributions in 2014, including a $6.5 million contribution made in April. It expects significant pension contribution obligations in 2015 and beyond, with regulatory cost recovery lagging cash contributions.
- Five additional renewable-power purchase agreements cover approximately 43 MW and are expected to require $164 million of payments from 2014 through 2036. Idaho Power also guaranteed $74 million of its share of Bridger Coal reclamation obligations; the reclamation trust held $65 million.
- Management said legal-contingency accruals were not material overall. Potential “ripple claims” related to historical western energy proceedings remained unresolved and unaccrued; management described their potential exposure as not reasonably estimable and stated it would defend its position.
Important facts for investors to verify
- Whether customer usage, weather, and off-system sales trends persist beyond this seasonally sensitive quarter.
- Outcomes and timing of the pending Idaho PCA and fixed-cost-adjustment applications, and any extension of the regulatory settlement stipulation.
- Hydroelectric generation relative to management’s 2014 range, and the effects on power costs, wholesale sales, and cash flows.
- Capital spending, pension funding, and project schedules, including environmental controls and transmission permitting.
- Availability and cost of financing, credit ratings, covenant headroom, and any collateral demands following a downgrade.
- Future environmental compliance costs, water-rights developments, and the resolution of outstanding legal or regulatory proceedings.