IDACORP, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. This combined, unaudited quarterly filing covers the three and nine months ended September 30, 2022, and compares results with the same 2021 periods. IDACORP is a holding company whose principal operating subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. Deloitte & Touche reviewed the interim financial statements; this was not an audit.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| IDACORP operating revenue | $518.0 million | $446.9 million | $1,221.0 million | $1,123.1 million |
| Operating income | $128.2 million | $124.2 million | $270.4 million | $277.7 million |
| Net income attributable to IDACORP | $106.4 million | $97.9 million | $216.9 million | $212.8 million |
| Diluted EPS | $2.10 | $1.93 | $4.28 | $4.20 |
| Operating cash flow | Not separately presented for the quarter | $269.0 million | $303.4 million |
- Q3 revenue rose about 16% and net income attributable to IDACORP rose about 9% year over year. For the first nine months, revenue increased about 9%, while attributable net income increased about 2%.
- Operating income margin narrowed to about 24.8% in Q3 from 27.8% a year earlier, and to about 22.1% for the nine months from 24.7%. Higher purchased power costs and operating and maintenance expenses pressured results.
- Nine-month operating cash flow declined about 11% to $269.0 million. Investing cash outflow was $290.4 million, including $305.3 million of property, plant, and equipment additions; financing cash inflow was $32.4 million.
- At September 30, IDACORP reported $226.2 million cash, $79.4 million current maturities of debt, and $2.071 billion long-term debt. Total debt including current maturities was about $2.151 billion. The current ratio was approximately 1.39.
- IDACORP’s covenant debt-to-capitalization ratio was 44%; Idaho Power’s was 46%, below the 65% covenant limit. Idaho Power had drawn the full $150 million two-year term loan, due March 2024. At September 30, available revolving-credit capacity was $100 million for IDACORP and $275.8 million for Idaho Power, after amounts reserved for other uses.
Changes, outlook, and material matters
- Q3 earnings benefited from customer growth, higher usage during warmer, drier weather, the June 2022 Idaho rate increase associated with the Jim Bridger order, and higher transmission revenues. Customer growth was 2.5% over the prior twelve months; retail sales volumes increased 7% in Q3 and 1% year to date.
- Offsetting pressures included inflation-driven labor and supply costs, higher purchased power and fuel costs, and below-average hydro generation. Nine-month other O&M expense increased $31.5 million. Purchased power expense increased $68.1 million year to date. Idaho Power cited coal supply constraints and said it was optimizing coal dispatch to preserve supply for peak periods.
- The Idaho Public Utilities Commission’s Jim Bridger order authorized a 1.5% annual rate increase, or $18.8 million, and regulatory accounting to support recovery of eligible coal-related costs as Idaho Power plans to cease coal operations there by 2028. Related deferrals increased nine-month net income by approximately $15 million. Management estimated an approximately $10 million net-income benefit in 2023, declining annually through 2030.
- Management expects substantial investment: up to $2.8 billion of capital expenditures over 2022–2026. The company believes an Idaho general rate case is likely within the next twelve months. Preliminary 2023 resource-plan forecasts imply 6.8% annual retail-sales growth and 4.8% peak-demand growth over five years, including significant prospective commercial and industrial loads; these forecasts are preliminary.
- Hydropower generation for 2022 was expected at 5.3–5.6 million MWh, versus a 30-year average of about 7.7 million MWh. The company expects ongoing resource and infrastructure needs, with potential additional investment beyond prior plans.
- Moody’s downgraded IDACORP’s long-term issuer rating to Baa2 and Idaho Power’s to Baa1 in July 2022; both remained investment grade with stable outlooks. Management did not expect a material effect on liquidity or debt-market access. A downgrade below investment grade could trigger collateral demands; estimated potential collateral was approximately $47.7 million for commodity contracts, plus up to $18.1 million under specified derivative credit features.
- Other notable items: IDACORP raised its quarterly dividend 5.3%, from $0.75 to $0.79 per share, beginning after the September approval. Idaho Power recorded a $1.1 million fine under a consent judgment concerning water-discharge permits at 15 hydropower projects. Hells Canyon relicensing costs in construction work in progress were $414 million, with annual relicensing costs estimated at $30–$40 million; license timing and ultimate compliance costs remain uncertain.
Key risks and contingencies
Key exposures include regulatory decisions and the timing of cost recovery; inflation, higher interest rates, supply-chain constraints and labor availability; low hydropower output, volatile wholesale power and fuel prices, and coal supply limitations; rapid load growth and the cost and timing of new generation and transmission; wildfire liability and mitigation costs; environmental rules and hydropower relicensing; and customer payment and bad-debt risk. Management said existing legal and loss-contingency accruals were not material as a whole, but outcomes and future accruals remain uncertain. Customer receivables were affected by higher late payments and expected uncollectible write-offs.
Investor verification priorities
- Track whether customer and large-load growth materializes, and how updated forecasts affect capital spending, resource adequacy, and financing needs.
- Verify the timing, requested revenue requirement, and regulatory outcome of the anticipated Idaho general rate case, as well as recovery of wildfire, power-supply, and infrastructure costs.
- Monitor power and fuel prices, hydrology, coal availability, and the portion of supply costs not recoverable through adjustment mechanisms.
- Assess the execution, cost, permitting, and in-service timing of major projects, including Boardman-to-Hemingway, Gateway West, battery storage, and Hells Canyon relicensing.
- Review subsequent credit-rating changes, debt maturities and refinancing costs, covenant headroom, and potential collateral requirements.
- Confirm the ongoing financial effect of the Jim Bridger order and the assumptions behind its estimated 2023 earnings benefit and declining benefits through 2030.