IDACORP, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2010; filed August 5, 2010. IDACORP is a holding company whose principal operating subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. Financial statements are unaudited; the independent accountants performed interim reviews, not audits.
Financial performance
| IDACORP consolidated | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Operating revenue | $241.8 million | $243.6 million | $494.7 million | $472.2 million |
| Operating income | $36.6 million | $49.5 million | $70.7 million | $85.1 million |
| Net income attributable to IDACORP | $39.2 million | $27.5 million | $55.3 million | $46.4 million |
| Diluted earnings per share | $0.82 | $0.58 | $1.15 | $0.99 |
Q2 revenue was slightly lower year over year, while six-month revenue increased about 5%. Operating income declined in both comparisons, but reported net income and EPS rose, primarily because of a substantial income tax benefit from a tax accounting method change. The $25.2 million estimated cumulative tax benefit covered tax years 1999–2009; Idaho Power also recorded an estimated $3.6 million benefit from the method in its 2010 tax provision and increased its uncertain-tax-position liability by $10.9 million. The tax method remained subject to IRS review.
For the six months, operating cash flow was $187.2 million, versus $110.6 million in 2009. Investing cash outflow was $148.7 million, including $166.7 million of property additions, partly offset by $19.2 million from utility asset sales. Financing cash outflow was $62.1 million; dividends paid were $28.8 million. Cash and cash equivalents were $29.5 million at June 30, down from $53.0 million at year-end.
At June 30, total assets were $4.28 billion. IDACORP reported $1.29 billion of long-term debt and $129.8 million of current maturities of long-term debt; the latter included Idaho Power’s $120 million first-mortgage bond maturity in 2011. IDACORP had $17.5 million of commercial paper outstanding and no credit-facility loans. Net available revolving credit was $82.5 million for IDACORP and $275.8 million for Idaho Power. Leverage ratios were 50% and 52%, respectively, below the 65% covenant limit; both companies reported covenant compliance.
Changes and operating drivers
- IDACORP diluted EPS rose from $0.58 to $0.82 for Q2 and from $0.99 to $1.15 year to date. The tax benefit materially elevated reported earnings; underlying operating income weakened.
- Idaho Power sales volumes fell 4% in Q2 and 5% year to date. Management attributed lower demand to mild, wet weather, conservation, and weak local economic conditions; irrigation sales fell 15% in both comparisons.
- Hydroelectric generation declined 23% in Q2 as 2010 snowpack was 69% of average, compared with 94% in 2009. Reduced surplus generation contributed to lower off-system sales revenue.
- Rate changes increased general-business revenue, partly offset by lower usage. An Idaho PCA decrease and base-rate increase took effect June 1; together they lowered customer rates by $58.2 million, or 6.49%.
- Operating cash flow improved year over year, helped by lower deferred power-supply costs and collections of prior-period receivables. Capital additions increased substantially compared with 2009.
Outlook, regulation, and risks
Management left its 2010 estimates unchanged for Idaho Power O&M expense ($295–$305 million), capital expenditures ($355–$365 million), and non-regulated subsidiary earnings and holding-company expenses (breakeven to positive $3 million). The hydroelectric-generation estimate was revised to 7.0–8.0 million MWh from 6.5–8.5 million MWh. Idaho Power expects capital expenditures to total more than $1 billion from 2010 through 2012 and expects internal cash generation after dividends to cover less than the full requirement.
Construction continued on the Langley Gulch natural-gas plant, estimated at $427 million including AFUDC, with $102 million incurred by June 30 and commercial operation targeted for 2012. Idaho Power received a $47 million federal smart-grid grant matching its planned investment. Transmission projects, permitting, and environmental requirements could add cost or delay construction.
Idaho’s general rate moratorium runs through January 1, 2012, with specified exceptions. The settlement also provides for customer sharing of Idaho-jurisdictional earnings above a 10.5% return on equity and possible additional tax-credit amortization if return falls below 9.5%. Management did not expect additional 2010 amortization and reversed $4.5 million recorded in Q1.
Key risks include uncertain hydroelectric output and water rights; rate-recovery and regulatory decisions; pension funding; environmental compliance and greenhouse-gas rules; and construction, fuel, and wholesale power costs. Possible early closure of the Boardman coal plant could affect Idaho Power’s 10% ownership interest. Potential pollution-control costs include an estimated $120 million Idaho Power share for SCR at Bridger and $52–$56 million for Boardman under existing requirements; Boardman closure proposals could change those costs. The Pacific Northwest energy-refund proceedings remain unresolved and their financial impact could not be estimated. Management stated other discussed legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain.
New long-term purchase and transport commitments include an estimated $569 million for geothermal power purchases from 2012–2037, about $109 million for wind and other alternative-energy purchases, $32 million for gas pipeline transportation, and $47 million for coal transportation. These are contractual obligations over multiple years, not current-period expenses.
Most important facts for investors to verify
- How much of the earnings increase is attributable to the one-time tax-method benefit, and the outcome and timing of IRS review, including the $10.9 million uncertain-tax-position liability.
- Whether lower sales volumes and hydro generation persist, and the effects on power costs, off-system sales, and cash flow.
- Whether Idaho Power can fund its multiyear capital program and refinance the $120 million 2011 maturity on acceptable terms.
- Final regulatory outcomes on rates, pension-cost recovery, hydroelectric relicensing and water rights, and Boardman environmental requirements or closure.
- Developments in unresolved Pacific Northwest refund proceedings and other contingencies, for which the filing says the effect cannot currently be estimated.