IDACORP, Inc. — Q1 2011 Form 10-Q
Business context and reporting period
Combined, unaudited quarterly filing for IDACORP, Inc. and its principal operating subsidiary, Idaho Power Company, for the three months ended March 31, 2011; filed May 5, 2011. Idaho Power is a regulated electric utility serving southern Idaho and eastern Oregon. Interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| IDACORP operating revenue | $251.5 million | $253.0 million |
| Operating income | $50.1 million | $34.0 million |
| Net income attributable to IDACORP | $29.7 million | $16.1 million |
| Diluted EPS | $0.60 | $0.34 |
| Operating cash flow | $93.2 million | $100.5 million |
- Operating margin was approximately 19.9%, versus 13.5% in Q1 2010. IDACORP’s total revenue slipped about 0.6%, while operating income rose about 47% and attributable net income about 85%.
- Idaho Power reported net income of $29.8 million, up from $18.2 million. Income tax expense rose with pretax earnings; IDACORP’s effective tax rate was 14.1% versus 7.5%.
- IDACORP cash and cash equivalents were $93.9 million at March 31, down from $228.7 million at year-end. Investing outflow was $100.0 million, largely utility construction; financing outflow was $128.0 million, including repayment of $120 million of bonds and dividends.
- Long-term debt was $1.487 billion; IDACORP also had $74.1 million of commercial paper outstanding. Idaho Power had no short-term borrowings. Available revolving credit, net of identified uses and commercial paper, was $25.9 million for IDACORP and $275.8 million for Idaho Power.
- IDACORP and Idaho Power leverage ratios were 50% and 51%, respectively, within the 65% facility covenant. Both were in compliance with covenants. Quarterly dividend declared was $0.30 per share.
Material changes and operating drivers
- Management attributed improved earnings mainly to regulatory and rate changes, including PCA and fixed-cost adjustment mechanisms, and higher sales volumes. Cooler weather supported heating demand; general-business electricity sales increased to 3,241 thousand MWh from 3,109 thousand MWh.
- Idaho Power operating income increased $16.3 million. Management cited a $9.8 million benefit from rate and regulatory changes and a $5.6 million benefit from higher sales volumes. Rate changes reduced general-business revenue by $10.4 million, substantially offset in part by lower PCA amortization expense.
- Hydroelectric generation increased to 2,699 thousand MWh from 1,902 thousand MWh, reducing coal generation and fuel expense. Off-system revenue fell 13% to $29.8 million despite higher sales volumes, as average realized prices declined 22%.
- Purchased-power expense rose $3.9 million, partly because new PURPA projects came online; fuel expense fell $7.3 million as thermal generation declined. Higher coal cost per MWh partly offset lower fuel use.
Outlook, management commentary, and risks
- Management estimated 2011 Idaho Power O&M expense at $300–$310 million and capital expenditures at $320–$330 million, both unchanged from prior estimates. Expected hydroelectric generation was raised to 8.5–10.5 million MWh from 7.5–9.5 million; non-regulated subsidiary earnings and holding-company expenses remained estimated at $0–$3 million. No specific full-year EPS guidance was provided.
- Capital expenditures were expected to total $770–$800 million over 2011–2013. The Langley Gulch gas plant had an estimated total commitment of $427 million and was expected to enter service by June 2012; the prior contractual target was November 2012. Management expected minimal external financing needs in 2011, but anticipated a mix of internal and external funding beyond 2011.
- Idaho Power filed for a $40.4 million net reduction in Idaho PCA rates effective June 2011, a $3.0 million FCA increase, and increased annual recovery of pension contributions from $5.4 million to approximately $17.1 million. These requests were pending at the report date. Management also notified regulators of its intent to file a general rate case on or after June 1, 2011, without committing to file.
- IRS agreement on the capitalized-repairs tax method was expected to yield approximately $3 million of previously unrecognized tax benefits in Q2, with approximately $4 million and $7 million of accrued tax liabilities payable by IDACORP and Idaho Power, respectively. A separate Joint Committee review of the uniform-capitalization method could, if approved, permit Idaho Power to recognize about $60 million of tax benefits and generate an estimated $5–$6 million of additional annual tax benefit. Timing and outcome were uncertain.
- Key risks include regulatory recovery of costs and allowed returns; hydrology and water rights; fuel, purchased-power and wholesale-price volatility; construction and financing requirements; environmental rules and coal-plant compliance; and litigation or regulatory proceedings. The filing discusses unresolved western energy refund proceedings, Boardman environmental allegations, and water-rights matters. Management could not predict outcomes of several proceedings, though it did not expect some of them to have a material adverse effect.
- Idaho Power guaranteed $63 million of its one-third share of Bridger Coal reclamation obligations; the company cited a trust fund and surcharge mechanism and estimated minimal fair value for the guarantee. A downgrade below investment grade could prompt collateral demands; estimated additional collateral exposure was approximately $14 million.
Most important facts to verify
- Whether the requested Idaho and Oregon rate changes, pension recovery, and any general rate case were approved, and their effective dates and earnings or cash-flow impacts.
- Whether Joint Committee review approved the uniform-capitalization tax method and whether the potential $60 million tax benefit and ongoing tax effects were realized.
- Actual 2011 hydroelectric generation, PCA true-ups, customer demand, and wholesale prices compared with management’s assumptions.
- Langley Gulch project cost and schedule, total capital spending, and whether the company’s stated limited 2011 financing need remained achievable.
- Developments in material litigation, water-rights and environmental matters, and any resulting obligations or recoverable costs.