IDACORP INC quarterly report, Q3 FY2013

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IDACORP, Inc. (NYSE: IDA) — Q3 2013 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2013; unaudited interim results. The combined filing covers IDACORP and its principal operating subsidiary, Idaho Power, a regulated electric utility serving southern Idaho and eastern Oregon. Deloitte reviewed the interim statements; this was not an audit.

Financial performance

Amounts below are in millions of dollars except per-share data. IDACORP’s results largely reflect Idaho Power’s utility operations.

  • Third quarter: Revenue was $381.1, up 14.1% from $334.0. Operating income rose to $115.6 from $109.3, but net income attributable to IDACORP fell to $71.8 from $92.1; diluted EPS declined to $1.43 from $1.84.
  • Nine months: Revenue was $950.0, up 14.5% from $829.9. Operating income increased to $254.4 from $205.6. Net income attributable to IDACORP was $150.8 versus $152.3; diluted EPS was $3.01 versus $3.05.
  • Margins: Operating margin was approximately 30.3% in Q3 versus 32.7% in Q3 2012, and 26.8% for nine months versus 24.8%. Net margin was approximately 18.8% and 24.5% for the respective third quarters, and 15.9% and 18.4% for the respective nine-month periods.
  • Tax effects: Income tax expense at IDACORP was $31.1 in Q3 versus $3.9 a year earlier, and $58.1 for nine months versus $22.8. The comparison reflects differing tax accounting method changes and regulatory flow-through adjustments; a $4.6 tax expense was recorded in Q3 2013 for a generation-property method change, compared with a $7.8 tax benefit in Q3 2012 for a different method change.
  • Cash flow: Nine-month operating cash flow was $247.6, up from $181.5. Capital additions were $165.6 versus $187.8, producing net investing outflow of $160.0 versus $185.3. Financing provided $72.7, compared with a $3.8 outflow in 2012. Ending cash was $186.9 versus $26.5 at year-end 2012.
  • Balance sheet and debt: At September 30, total assets were $5.59 billion and equity was $1.86 billion. Long-term debt was $1.62 billion, with $71.1 million current maturities; IDACORP also had $53.0 million of commercial paper outstanding. Long-term debt was $1.47 billion at year-end 2012. Disclosed debt/equity capital structures were 48%/52% for IDACORP and 50%/50% for Idaho Power. Credit-facility leverage ratios were also 48% and 50%, respectively, versus a 65% covenant ceiling.
  • Liquidity and dividends: No borrowings were outstanding under either revolving credit facility. At September 30, net available facility capacity was $72.0 million for IDACORP and $275.8 million for Idaho Power. The board voted in September to raise IDACORP’s quarterly dividend to $0.43 per share; dividends declared during the first nine months totaled $1.14 per share.

Changes and drivers versus 2012

  • Q3 earnings declined despite higher revenue and operating income, principally because of higher income taxes. Management also cited higher power-supply costs and PCA amortization expense offsetting rate-related revenue gains.
  • For the first nine months, operating income improved by $50.5 million at Idaho Power. Management attributed gains to rate changes, customer growth, increased usage, and lower revenue-sharing costs; higher taxes and lower allowance for funds used during construction offset much of the benefit.
  • General business revenue increased by $43.4 million in Q3 and $122.1 million year to date. Customer count reached 506,328, up 1.3% year over year. Nine-month sales to general business customers rose 3.6% to 11.34 million MWh.
  • Below-normal hydro generation reduced output by 2.3 million MWh for the first nine months. Greater coal and gas generation and purchased power helped meet load; fuel expense rose 42% year over year for the nine months to $155.9 million.
  • Idaho Power’s approved Idaho PCA rate increase of $140.4 million took effect June 1, 2013. These mechanisms recover or refund most power-supply cost fluctuations, but timing differences affect cash flow.

Outlook, risks and notable items

  • 2013 estimates, unchanged from the prior update: Idaho Power O&M expense of $335–$345 million; capital expenditures of $230–$240 million excluding AFUDC; no additional ADITC amortization; and hydro generation of 5.5–6.0 million MWh, below the 8.4 million MWh median. Estimated capital expenditures for 2013–2015 total $805–$845 million.
  • Management expected positive customer growth and reported updated five-year compound annual forecasts of 1.4% for residential load and 2.1% for residential customers. These forecasts are uncertain and may require changes to resource and capital plans.
  • Idaho Power’s Boardman-to-Hemingway transmission project has faced permitting and siting delays, including sage-grouse issues; management expected service in 2020 or later and was reviewing alternative resources. Environmental compliance costs could be significant, and their ultimate amount is not yet estimable.
  • Idaho Power requested regulatory approval for approximately $130 million, including AFUDC, of its share of Jim Bridger SCR investments. The filing was pending. The company also estimated its share of units 3 and 4 SCR costs at approximately $118 million excluding AFUDC.
  • A November 1 filing sought approval to move approximately $106 million of normalized Idaho power-supply expense into base rates effective June 2014. Management said approval would not change total base-rate-plus-PCA collections, but could reduce a future general rate-case increase.
  • Four power-purchase agreements terminated, reducing contractual obligations by approximately $322 million over their 15–20-year terms. Subsequent to quarter-end, Idaho Power entered four wind power purchase agreements with estimated obligations of $200 million over 20 years.
  • Other exposures include variable water availability, fuel and wholesale power prices, PURPA purchases, regulatory cost recovery, pension funding, and environmental and transmission project approvals. The filing reported no material accrued loss contingencies overall; certain potential exposures, including environmental compliance costs and western energy-market “ripple claims,” could not be reliably quantified.
  • Idaho Power contributed $30 million to its pension plan in the first nine months despite no minimum required 2013 contribution. Its reclamation guarantee for its share of Bridger Coal Company obligations was $74 million, supported by a $64 million trust fund.

Investor verification checklist

  • Verify the drivers and expected persistence of the Q3 tax increase, including the $4.6 million method-change charge and the estimated annual effective tax rate.
  • Check actual 2013 Idaho ROE and the resulting customer-sharing provision; $6.2 million had been recorded through September 30.
  • Track hydro conditions, PCA balances and collections, and the rate impact of the pending $106 million base-level power-supply expense filing.
  • Monitor regulatory approval, costs, schedules, and recovery prospects for Jim Bridger SCR work and major transmission projects, especially Boardman-to-Hemingway.
  • Reconcile capital spending and funding needs with the $805–$845 million 2013–2015 estimate, debt issuance plans, and dividend policy.
  • Review the post-quarter wind contracts, environmental rule developments, pension funding needs, and any changes in litigation or contingency estimates.