Idacorp Inc (IDA) 2021 Q4 法說會逐字稿

Welcome to IDACORP's Fourth Quarter and Full Year 2021 Earnings Conference Call. Today's call is being recorded and our webcast is live. A complete replay will be available later today and for the next 12 months on the IDACORP website. (Operator Instructions)

I would now like to turn the call over to Justin Forsberg, Director of Investor Relations and Treasury.

Thanks, Savannah, and good afternoon, everyone. This morning, we issued and posted to IDACORP's website our fourth quarter and year-end 2021 earnings release and Form 10-K. The slides that accompany today's call are also available on IDACORP's website. We will refer to those slides by number throughout the call today.

As noted on Slide 2, our discussion includes forward-looking statements, including earnings guidance and spending forecasts which reflect our current views on what the future holds but are subject to several risks and uncertainties. This cautionary note is also included in more detail for your review in our filings with the Securities and Exchange Commission. These risks and uncertainties may cause actual results to differ materially from statements made today, and we caution against placing undue reliance on any forward-looking statements.

As shown on Slide 3, on today's call, we have Lisa Grow, IDACORP's President and Chief Executive Officer; Steve Keen, IDACORP's Senior Vice President and Chief Financial Officer; and Brian Buckham, IDACORP's Senior Vice President and General Counsel. As previously announced, Brian will assume the role of Chief Financial Officer on March 1. We also have other members of our management team available for a Q&A session after Lisa, Steve and Brian provide updates.

Slide 4 shows our quarterly and annual financial results. IDACORP's 2021 fourth quarter earnings per diluted share were $0.65, a decrease of $0.09 per share from last year's fourth quarter. 2021 full year earnings per diluted share were $4.85, which were $0.16 above 2020. 2021 earnings are the highest in the history of the company and represent the 14th consecutive year of growth in IDACORP's earnings per share. We believe this achievement is unprecedented among publicly traded electric utilities.

Today, we also initiated our full year 2022 IDACORP earnings guidance estimate to be in the range of $4.85 to $5.05 per diluted share, with our expectation that Idaho Power will again not need to utilize in 2022 any of the additional tax credits that are available to support earnings under its Idaho regulatory settlement stipulation. These estimates assume normal weather conditions over the balance of 2022.

I'll now turn the call over to Lisa.

Thank you, Justin, and thanks to everyone for joining us on today's call. I'll begin my remarks today pointing to Slide 5 with the exciting news that IDACORP and Idaho Power just completed the safest year in our company's history. We experienced record low totals for injury, vehicle accidents and employee time lost due to injuries, while 15 employees received the President's Award for Safety, an important recognition for employees whose actions exemplify our safety culture. Safety is one of our core values, and I'm very proud of our employees' efforts to stay safe, both at work and at home. Our company's safety culture was also recognized by the Edison Electric Institute, which recently awarded Idaho Power its inaugural Thomas F. Farrell Safety Leadership and Innovation Award. Safety is such a vital component of our business and of our everyday lives. I commend our leaders and employees for their steadfast commitment to keep themselves, each other and our community safe. Safety allows -- or staying saying safe allows us to give our absolute best efforts to our customers, and we continue to do just that in 2021.

As noted on Slide 6, our customer satisfaction score tied the highest year-end score in our annual work survey while ranking at the top of the list among our peer utilities in a national survey. From working with customers on energy efficiency projects, to developing a new and improved online customer account tool, to expanding our menu of clean energy options, we continue to look for new and innovative ways to interact with our customers and improve our customers' experience.

Reliability also saw another outstanding year as Idaho Power kept customers' lights on over 99.9% of the time. Our field crews, load-serving operators and employees across our organization stepped up throughout the year to ensure power quality and reliability for our customers while overcoming drought conditions, record summer heat and the highest peak demand for energy our company has ever seen.

Turning to Slide 7. As Justin just noted, IDACORP is celebrating its 14th consecutive year of growth in earnings per share. And as he mentioned, we believe this is an achievement unprecedented among investor-owned utilities in the United States. IDACORP's quarterly common stock dividend again increased from $0.71 to $0.75 per share, marking our tenth consecutive year with a dividend increase. With the most recently announced dividend to be paid out at the end of this month, the company has paid a dividend for 314 consecutive quarters since 1943. Steve will discuss the 2021 earnings drivers following my remarks.

As noted on Slide 8, customer growth remains strong across Idaho Power service area. Our customer base continued its strong trend and grew 2.8% in 2021. We now serve more than 600,000 customers. According to U.S. News & World Report, Idaho led the U.S. in the rate of population growth in 2021, the fifth consecutive year it has had the nation's highest growth percentage. We view the reliable, affordable, clean energy our company provides as a key driver for continuing to attract new business and residential customers to our service area. Inquiries for incoming and expanding large load projects continue to come in at a rapid pace.

In December, we filed a request with the Idaho PUC for a special contract to bring a 960,000 square foot Meta enterprise data center to Southern Idaho. Meta is set to become a new customer on our system, creating an expected 100 jobs and adding capital investment to the local economy with as many as 1,200 construction jobs needed to build the site. As noted in our public announcement yesterday, Meta plans to begin operations in 2025. The data center also plans to support 100% of its operations through the addition of new renewable resources connected to Idaho Power system using the framework for large power customers outlined in our Clean Energy Your Way program proposal, which Idaho Power filed with the IPUC in December. We look forward to serving the data center's energy needs and working to help Meta meet its own clean energy goals.

In addition to customer growth, the economy within Idaho Power service area continues to outperform national trends. Moody's GDP predicts sustained economic growth going forward. The forecast calls for growth of 5.9% in 2022 and 4.9% in 2023. Unemployment within Idaho Power service area is at 1.8%, which is significantly below the 3.9% reported nationally. Employment in our region grew 2.8% in 2021.

The resource needs identified in our recently filed 2021 Integrated Resource Plan, or IRP, continues our path towards a 100% clean energy future. As highlighted on Slide 9, the plan calls for a conversion of 2 coal units to cleaner natural gas by summer 2024 and operate until 2034, an exit from coal-fired generation entirely by year-end of 2028. This facilitates our move away from coal-fired energy while pivoting to transmission, renewable energy resources and battery storage, along with increased energy efficiency. As noted in our earnings release, we expect the implementation of the IRP could increase our 5-year capital expenditures forecast by nearly $800 million or 40%. We continue to work with our plant co-owner and regulators as we work toward removing coal-fired resources from our system. Our recently resumed filing with the IPUC related to the Jim Bridger plant requests full recovery of and return on investments in the coal-related plant balances to be completed no later than 2030. This filing is consistent with the structure of Idaho Power's previous filing related to the North Valmy and Boardman plant.

In addition to our current low-carbon profile, you will also see on Slide 9 Idaho Power has in place short-term, medium-term and long-term targets for further CO2 reduction. Our short-term target is to reduce CO2 emissions intensity from company-owned generation resources by 35% for the period of 2021 through 2025 compared to the 2005 baseline year. We are finalizing the reduction calculation for the period 2010 through the end of 2021, and it looks like we will do better than our 35% reduction goal. Our medium-term target is based on our IRP, which anticipates a 79% reduction from 2005 emissions by 2030. And of course, our long-term target is to be 100% clean by 2045. While natural gas may be a required resource for the near future to maintain reliability and to cost effectively integrate the large amounts of variable solar and wind power on our system, we will continue to look for ways to reduce or offset this need with clean energy resources and the deployment of new technologies. We believe all of our CO2 emission reduction targets described above are aligned with the Paris Agreement goal of cutting CO2 emissions to net zero by 2050.

Turning to Slide 10. We will need new baseload resources to address load growth, regional transmission constraints and to replace coal in our energy mix. In December, Idaho Power issued its second request for proposal or RFP for new energy capacity resources. All together, the 2 RFPs are looking to add resources to address projected capacity deficits of approximately 101 megawatts in 2023, 85 megawatts in '24 and 125 megawatts in 2025. As of today, we expect to sign contracts soon related to the 2023 deficit to purchase and own 120 megawatts of battery storage assets. We also recently signed a 40-megawatt solar power purchase agreement. These needed new resources will help lead the growing demand for energy during the peak summer evening hours. The 2021 IRP calls for the addition of 700 megawatts of wind, more than 1,400 megawatts of solar and nearly 1,700 megawatts of storage in the 20-year preferred portfolio, in addition to the increased transmission capacity that I will discuss in a moment. The capital expenditure forecast that Brian will address include our plans to invest over $400 million in capital expenditures from 2022 through 2025 for these resource additions.

A critical part of our clean future depends on enhanced transmission.

As highlighted on Slide 11, our Boardman to Hemingway high-voltage transmission project, or B2H, continues to be a cost-effective resource in our preferred IRP portfolio and it continues to move forward. In January, Idaho Power entered into a nonbinding term sheet with the project's other 2 participants, Bonneville Power Administration and PacifiCorp, that contemplates Bonneville transferring its share of the project to Idaho Power commensurate with BPA's intent to utilize the line for a minimum of 20 years through a long-term service agreement. Taking over and building BPA's share of the line simplifies permitting and construction of B2H, strengthening our chances of completing the project on schedule so we can meet growing customer demand. Idaho Power has begun pre-construction activities such as detailed design, survey and geotechnical investigation. We expect to finalize B2H permitting in 2022 with the line currently planned to be in service in 2026.

We now expect to invest over $380 million in additional capital expenditures from 2022 through 2026 related to B2H, approaching $500 million in potential Idaho Power total system rate base related to the project by 2026. Given the expected growth in rate base, in-service dates of major capital investments and current growth projections and other factors, Idaho Power's evaluations show the appropriate time to file general rate cases in Idaho and Oregon is approaching. Steady customer growth, constructive regulatory outcomes, effective cost management, project and service date and economic conditions also play significant roles as we refine the need and timing of a future general rate case.

Turning to a more near-term outlook. Slide 12 shows the recent outlook of precipitation and weather from the National Oceanic and Atmospheric Administration. Current weather projections for March through May call for relatively normal conditions. We started with good snowfall in late December and early January, and we hope more is on the way before the winter ends. Clean, low-cost hydro generation has traditionally been our single largest generation resource. Strong hydropower generation helps keep power costs low for our customers as we enter this new phase of growth in Idaho Power systems.

Finally, on Slide 13, you'll see an overview of recently announced changes in our management team and Board of Directors. As we announced last November, Steve Keen, who has played a substantial role in our financial performance over the past several years, announced his retirement to be effective October 1 of this year, which, by that time, will be more than 40 years of service to Idaho Power. The Board of Directors has appointed Brian Buckham to succeed Steve effective March 1, and Steve will stay on as the Senior Vice President until he retires. Pat Harrington, our Corporate Secretary, will assume the role of General Counsel also on March 1. Steve's contributions to Idaho Power are hard to overstate. He has helped us navigate challenges and seize opportunities, always making sure we were well positioned financially to best serve our customers and shareholders. Steve has paved an incredible path and has built a strong finance team, and Brian is well positioned to continue to lead that effort. I hope you will have the opportunity over the next several months to join with me in wishing Steve well. I'd also like to acknowledge our newest board member, Jeff Kinneeveauk, who was appointed last week. Jeff is a Board member of the ASRC, the Arctic Slope Regional Corporation, a private for-profit corporation owned by and representing the business interest of the Iñupiat shareholders and was previously President and CEO of the ASRC Energy Services, one of their largest business units. Jeff has strong Idaho connections having attended Northwest Nazarene University here in the Treasure Valley. And his background makes him a perfect fit for our Board.

With that, I will hand things over to Steve for an overview of our 2021 results.

Thank you, Lisa. And thank you to everyone who has helped me work for the success of this company over the years. Our finance organization has been truly outstanding, and Brian will be leading a skilled team with the likes of Ken Petersen and our talented group of finance leaders. While I'm excited for what lies ahead, I will certainly miss my interactions with all of you. I can't walk through a hotel lobby without remembering our many great discussions about this industry. So here's a virtual toast to each of you for your interest in IDACORP and also for your friendship.

Now let's move to Slide 14, where you'll see our full year 2021 financial results as compared to 2020. We had a very good year, boosted by positive weather impacts, continued strong customer growth and more typical operating and maintenance expenses, allowing IDACORP to achieve its highest earnings ever reported with more than $245 million in net income. On the table of quarter-over-quarter changes, you'll see our continuing customer growth added $16 million to operating income. Cooling degree days were 28% higher than 2020, and the hot and dry conditions led to our respective 6% and 1% higher irrigation and residential per customer usage, while more normal operating conditions led to a 3% higher usage per commercial and industrial customers. You'll note on the table that the combined usage changes led to a $13.4 million increase to operating income.

Right below this, you'll see a decrease in operating income of $13.4 million that relates to the charge or change in the per megawatt hour revenue, net of power supply costs and power cost adjustment impacts year-to-year. A partial driver of this relates to the decrease in annual customer rates, reflecting the full depreciation of all Boardman power plant investments after ceasing coal-fired operations at that plant in October of 2020. In addition, the balance of the decrease relates to the amount of net power supply expenses that were not deferred to Idaho Power's power cost adjustment mechanisms. Recall that Idaho customers generally bear 95% of power cost fluctuations, and those costs were higher as the summer heat wave in 2021 impacted wholesale energy prices at a time of increased energy usage by our customers. .

The summer heat wave, combined with cold weather in the Southwest, in early 2021, led to higher transmission wheeling-related revenues, which increased operating income by $16.4 million. These higher weather-related wheeling volumes were in addition to 2 new long-term wheeling agreements that also increased transmission wheeling-related revenues beginning last April and running through March of 2024. Wheeling customers also paid 10% more for Idaho Power's OATT rate that increased in October of 2020 to reflect higher transmission costs. The OATT rate increased an additional 4% on October 1, 2021, to account for higher cost of the transmission system going forward.

Next on the table, other operating and maintenance expenses increased by $9.2 million, primarily due to a return to more normal levels of purchased services and maintenance costs compared with the previous year, which was more negatively impacted by the COVID-19 pandemic. Also, labor-related other O&M expenses increased slightly in 2021. And in a moment, Brian will discuss our future expectations related to O&M.

Idaho Power also recorded $0.6 million as a provision against current revenues to be refunded to customers through a rate reduction expected to take effect in June 2022. The sharing is premised on our regulatory mechanism in Idaho and based on the full year 2021 return on year-end equity in the Idaho jurisdiction having exceeded 10%. We have now been able to share nearly $130 million with Idaho customers while the earnings support and revenue sharing mechanism has been in place. This represents more than 6% of total Idaho jurisdiction net income since 2011.

Non-operating expense led to a $3.1 million decrease in earnings, mostly due to an actuarial related medical plan charge that is not expected to recur. And finally, income tax expense increased $7.7 million this year due mostly to greater 2021 pretax income. The changes collectively resulted in a net increase to IDACORP's net income of $8.2 million or $0.16 per share.

With that, I'll turn the call over to Brian.

Thanks, Steve. As Lisa noted, you have a tremendous legacy with this company, and I'm grateful to have a few more months to work with you and gather more of your knowledge before you retire. I've been with IDACORP for nearly a dozen years, but for some of you I'm a new face. Over the past few months, I've met some of you who are on the call, and I'm looking forward to spending more time with all of you going forward.

I'll start on Slide 15, which shows our initial full year 2022 earnings guidance and our current key financial and operating metrics estimates. As Justin noted earlier, we expect IDACORP's 2022 earnings to be in the range of $4.85 to $5.05 per diluted share. This guidance assumes normal weather and economic conditions for the year, and it also assumes Idaho Power will use no additional tax credits in 2022 under the Idaho regulatory stipulation, which provides support in the Idaho jurisdiction at a 9.4% return on year-end equity. We expect our full year O&M expense to fall in the range of $355 million to $365 million. And as we've accomplished in the past, we'll be striving to keep O&M relatively flat with last year. It's fair to say this goal will be challenged by the level of customer and load growth we're experiencing in our service area as well as the associated cost pressures. I'll discuss the 5-year CapEx forecast in a moment, but I'll mention we currently expect the 2022 capital expenditures to significantly increase from our actual 2021 CapEx to the new range of $480 million to $500 million, reflecting the capital spending needs Lisa outlined earlier. And finally, we expect hydro power generation to fall in the range of 5.5 million to 7.5 million megawatt hours.

Moving to Slide 16, you'll see our 5-year CapEx forecast has grown by approximately $800 million from last year's 5-year forecast, which is an increase of 40%. And while much of the increase relates to additional potential capacity resources and the now incorporated assumption that Idaho Power will build and own 45% of the B2H project, the overall amount of ongoing capital spending is a notable lift to the previous base levels, which were closer to $300 million per year for the past few years. These anticipated higher levels of spending reflect the ongoing need to continue upgrading existing infrastructure and respond to the needs of a growing service area and customer expectations. As you can see, we expect to be very busy over the next few years implementing our capital spending and infrastructure development plans.

Turning to Slide 17. We provide a refreshed look at the projected total system rate base over the next 5 years, which includes our assumptions that the Federal Energy Regulatory Commission could grant a new license for the Hells Canyon Complex in 2024. You can see on the slide that our capital forecast could result in an increase in rate base of about $2.2 billion over the next 5 years for a cumulative average growth rate of 9.8%. A variety of factors, including those that Lisa previously mentioned like customer growth and cost management, illustrate why our efforts to determine the timing of filing general rate cases will be ongoing. At this point, while we're doing that assessment, we believe the time Idaho Power could file general rate cases in Idaho and Oregon is approaching, as Lisa mentioned. Keep in mind that Idaho Power is required to file a notice of intent to file a general rate case with the Idaho commission at least 60 days before filing an application. As we look to our anticipated increased CapEx forecast, IDACORP and Idaho Power continue to maintain strong balance sheets, including investment-grade credit ratings and sound liquidity. And we expect this to enable us to fund our growing capital expenditures and deliver on our dividend plan to share owners.

IDACORP's operating cash flows and liquidity position as of the end of 2021 are included on Slide 18. Cash flows from operations in 2021 were about $25 million lower than 2020, and that decrease was mostly related to typical items such as the timing of tax payments as well as working capital fluctuations. The liquidity available under IDACORP's and Idaho Power's credit facilities is shown in the middle of Slide 18. At this time, we don't anticipate issuing any equity outside of our compensation plans in 2022. And you can also see on the slide that we target a 50-50 capital structure at Idaho Power. And as we work to fund our upcoming capital plans, we plan to primarily finance the execution of those projects with debt, at least until the ratio is closer to target. Overall, our existing cash, operating cash flow and access to liquidity, along with expected regulatory support from our annual adjustment mechanisms, is a substantial backstop to our expected near-term capital and operating needs.

As you'll see on Slide 19 that in addition to our current equity heavy capital structure, we believe our current debt profile and bond maturities provides for significant flexibility and windows of opportunity for debt issuances.

With that, Lisa, Steve and I and others on the call are happy to answer your questions.

(Operator Instructions) And our first question will come from Julien Dumoulin-Smith of Bank of America.

And again, Steve, talk about leaving on a high note here. Wow, what an incredible year you guys just had -- really top notch. Absolutely, wow. And maybe to that point, actually, can we go back to your comments in the remarks on rate case timing? I just wanted to understand a little bit more on the relative merits of timing. What are the factors here that you're thinking about? Obviously, capital, but what else? I mean, tax credits, what else could be driving the timing of this as it kind of looms over us in the next few years?

Well, I can start, and then I'll hand it off to Steve. Certainly, the things that you mentioned, our capital plan, our financing of that, cost increases with materials and wage pressure. There's just -- there's a lot of things that are sort of coming together for that, that are changing, and we're watching very carefully. So Steve, what else would you add?

Yes, Julien, I would say it's really that if we can deliver earnings that make you and the other analysts and all of our share owners happy and we can do that without having to go to the customer, we prefer to do that. And it's been a pretty successful run that we've had with that. And I think the things that are looming now is substantially more capital expenditure. We had a little more O&M expense this year, but I think it was more of a return to kind of what we expected maybe had we not gone through the pandemic anyway. And so we're still feeling we can be -- we're hopeful that we can hold the line on what we put out there as a goal this year. It will have some challenges. But it's more really that we look at if we can get to an earnings result that is going to be good for shareowners without having to go to the customer. We do that. It's just we can see the convergence of a point when we put out too many dollars on these -- the new things we're required to put in both to handle growth and bring on these new cleaner resources that at some point, you have to get paid for those things. And that -- those -- that line's going to cross, and it's looking closer as we get there. And we will keep evaluating that. We've said that we do that really every year. and have for some time. So we'll just be watching that and be closer. Things like Hells Canyon also are looming not too far in the future. So something is going to be the item that trips that wire, and we need to come in and go with the general.

Got it. And maybe if I can ask you another question trying to culminate this a little bit further. I mean, how are you thinking about the longer-term EPS trajectory here? I mean you've got a lot of different pieces moving, obviously, a lot higher CapEx. But perhaps as you think about getting visibility on these various investments, at what point in time do you actually get a more formal update to the long-term target?

Yes, I would say, and Lisa, I'll just weigh in, then you can take it, if you'd like. But I think -- I think these are formulating pretty quickly right now. I mean this growth that we had in 2021, it was a step-up from '20. And then you put in the bigger customers with the one that was just announced. Those are big shifts. And as we roll that in, I think you'll see a better projection. And we've talked about the fact that the way you predict our future earnings is going to likely shift over to the rate base look, the way you've done in most of the industry. It will be a little less on how much new customer growth and how cost control work and a little bit more on where that's driving us as a company in size. And I think that when that switch happens, you'll get a better view of the future because it will be based on those projections we're giving you on capital.

Got it. And super last quick detail on equity. I know you made some comments in the prepared remarks there, but just across the full year or the multiyear outlook rather than just '22 here.

Yes. I would just say we're going to go to debt first, would be my -- I think Brian concurs with that, that we have some room that we can do growth and really fund it all with the lowest cost of capital, which is the debt. And then when we get to the point that we do need to issue both, I think we'll be assessing options there on what's the best way to do that. But I think it's out a little ways. We have some room. And the good earnings years actually give us more room before we have to do that. So each year that we've had positive results helps us out a little bit with that.

Got it. What's the metric you're targeting just as you think about that [estimate to debt] since you say they [have business on] funding it with that?

Yes. It's -- we're mainly target -- I think when we get to a rate case, we would probably be in and around 50-50. Our FFO from debt, we haven't actually always put that out, but -- and partly is because I think we're -- with our really long lives of our assets, our collection is slightly slower than some. If you have all gas assets or nonproduction -- we have production assets that have been around for 100 years. So it slows things down when you're getting paid over a really long time. But needless to say, our cash flow has been really strong and it -- we feel very good about where we sit there. It's more in line that I think we'll be watching that debt-equity ratio and wanting to keep them approaching and locked in around that 50-50. That's probably our optimal place when we get back to the rate planning.

Right. Excellent. So those 2 kind of sound like they'll be teed up one next to the other eventually.

Our next question will come from Brian Russo with Sidoti.

Can you hear me?

Yes. We can hear you.

So just on Boardman to Hemingway line and the development there on the regulatory side, I think we're awaiting a final order from the Energy Facility Siting Council in Oregon in the second half of 2022. Is that still kind of the time line? And then we're also expecting a conditional use permit in Idaho. Maybe just if you could add some clarity on the time line there. And then I think there's still some pending litigation or a contested case that's ongoing, if you could just address that as well?

Sure. You're correct that we're expecting the [EFSC] process to complete at the end of -- towards the end of this year. And then I'll -- Adam, I'll hand that over.

Yes, that's correct. And then we're in the middle of doing preconstruction activities as well, which we hope to have our 30% design here coming out in the next couple of months. We've had an RFP out to builders who will ultimately construct the line. We're doing geotech work as well. So in addition to the state permitting, we're making good progress, I think, on the reconstruction side, too. I think when you mentioned CUPs, I think you might be referring to Gateway West mainly. And so with Gateway, we continue to keep an eye on that. it's being built by PacifiCorp kind of East working its way West. We continue to put it in our integrated resource plan -- it shows up as being a solid benefit but probably after B2H is when that would come into place.

And you might -- to make sure I understood, Brian. Are you asking about a CPCN for Boardman to Hemingway?

Yes. What's the next -- also the regulatory approvals?

Sorry, I thought you said CUP. So CPCN yes, as soon as we get the state permitting process through, we would file, hopefully, a CPCN towards the end of this year.

With both Idaho and Oregon.

With both Idaho and Oregon, yes.

Okay. Great. And then also on Boardman to Hemingway, the transmission agreement that you're likely to sign with BPA. Is that like incremental revenue and margin relative to the $500 million of incremental rate base that you'd earn a return on?

Yes. So I -- go ahead, Ken.

Brian, that -- it would be kind of bifurcated. So retail customers would be paying a portion of that and then BPA paying a portion of the revenue requirement associated with the $500 million.

Okay. Got it. Understood. And then just on the O&M forecast. Basically, over 10 years of flat annual growth in O&M. And with the inflationary environment that we're in, what were kind of the assumptions made in that forecast that made you comfortable to actually convey and incorporate the relatively flat O&M in your guidance?

Well, I will start. I mean it is certainly something that we have been laser-focused on for more than a decade. It's really finding efficiencies and looking for ways to take cost out of how we serve our customers. But it's true that we're seeing cost increases as just about everybody is whatever industry you're in and certainly in our industry. So we continue to try to balance our cost management with these increased costs. But again, as we mentioned, that's sort of -- there's not an infinite capacity to do that. And so we're going to do everything we can and then that will be, I think, one of the triggers that would lead us to a rate case. Anything that you guys would add?

No, the only thing I might add, too, Brian, is the growth has just been so explosive here that as we've grown more, we have more to maintain. And so you start to see a little bit of increase in O&M just based on the amount of customers that we're seeing out there, which is a good thing. But at the end of the day, sometimes that puts a little bit of stress and pressure on O&M as well.

And then just on the guidance, it seems that your initial guidance for many years now has been relatively conservative. And as you move through the year, that midpoint increases. So I'm just wondering what should we look for this year for the same type of guidance update trends? Is it just weather in the third quarter? Or is it just sales versus costs? Just a little bit more insight there. And then does the range -- is that bookend by the 9.4% floor and the 10% bit sharing band?

Again, I'll start here. I think it's sort of all of the above. You know that we are conservative, we like to deliver on what we say. And so we are watching growth, we're watching weather. And so while we do tend to -- third quarter is our biggest quarter for sure. And so I would say I don't see anything particularly unique that's in front of us. It's sort of how our business has been going over the last few years, but growth sort of surprised us last year, too, in addition to a historic heat dome. So we'll be watching for those things.

Okay. Got it. And is there any regular -- yes, go ahead.

Brian, I might just add too if you don't mind, the -- if you look at last year's guidance, we opened at $460 million to $480 million. So we're $0.25 above that at both the bottom and the top. It doesn't look quite as robust when you look at where we finished because we had a really strong finish. But we have said over the years that it's hard to grow off of growth, and we're 14 years in a row, but we haven't had any kind of a reset. And so we probably are a little modest at the start, but just like last year, we moved that guidance up a couple of times. I think as we got into summer, we moved it a bit and then we tightened it later in the year. So we'll look for those opportunities. And that's what we hope is that we have good news, and we can pass that on.

Understood. And then just on the regulatory cap structure target of 50-50. Is there any regulatory appetite to maintain a higher regulatory equity ratio? Is there any recent precedent in any regulatory outcomes where you've been granted a higher equity ratio than 50%?

Brian, we don't have a whole lot of recent activity at all that I'd point to.

Yes.

We have seen some of our peers get slightly over the 50% in equity. So I don't know that it would be impossible to be a little bit off -- it's just -- I think we do longer term and planning directionally that 50-50 is a good marker to remember. We'll try and be in and around it.

Okay. Great. And Steve, thank you for the help over the years.

You bet. Thanks a lot, Brian. I've really enjoyed our time together.

And our next question will come from Chris Ellinghaus with Siebert Williams.

Congratulations to Brian and Pat and especially you, Steve. I do hope you enjoy your retirement. Brian, as far as looking at this CapEx slide and your discussion about equity in the cap structure, can I assume that within sort of this time line this time horizon that you do imagine some equity?

I think one thing that Steve mentioned, I'll reiterate is that we do have quite a bit of room on the debt side, quite a bit of headroom there, if you look at a 50-50 cap structure compared to where we are today. So we do have some pretty sizable capital projects in the mix. So there is possibility that equity comes into our window in the next few years, certainly. But again, we're going to target that 50-50 and try to use that lower cost debt headroom first.

Sure. Lisa, you talked about the additional capacity needs. Can you just talk about sort of what the company's philosophy is versus ownership and PPAs right now?

Sure. We certainly would like to own as much as we can, not just because we're a for-profit entity, but I just believe that the business model of being a regulated monopoly and having the obligation to serve is it incents us to make those longer-term investments and we build the system so that we can really survive the extreme that -- you can look at Texas and some of the -- where it's more merchant-based where that's not always the case. Now having said that, it's -- I think it's a little bit of all of the above where I think PPAs have a place in our portfolio, if you will. And so we're not trying to make it all one thing, but we're very careful -- we've had cases where people have said that they want to bid into an RFP and then they pull out because they decide they don't want to do that. That's really hard to build a system based on that. And then finally, as our system changes and we're shifting into our clean portfolio, the way you operate that, we haven't done that in our history. And so we're learning. And it may be really hard to contract for the services that we might need that we haven't experienced yet. And so having ownership and that capability to run the system the way we need to, to keep our liability in focus and keep costs down, I think all of that together is how we're viewing it. So short version is all of the above. Long version as we think there's an advantage to the utility owning it so that we can fulfill our obligation to serve.

Okay. You talked about the gas conversions as sort of, I guess, sort of a stop gap measure. What are your thoughts strategically for future capacity, batteries, solar, wind, whatever? What do you envision your future additions mix looking like? And do contracts like Meta sort of skew your thought process a little bit about what types of resources you do want?

Well, I think that, again, we are moving forward in cleaning up our portfolio by removing coal. So there's a shorter-term view of what we need to do something now and what's available is wind, solar and storage. I don't feel like we're getting anything skewed by having Meta have their requirements. And you could argue that it sort of enhances our move towards that goal. But when you think about how do we get there all the way to 2045 and 100%, there's going to have to be something else. And we've talked about it before that I think hydrogen is very interesting, small modular reactors are interesting. I think there's going to have to be some other technology. I don't think that wind and solar and shorter duration batteries are the full answer. So we've got time to really evaluate what that -- fits into our portfolio. And then in the meantime, to your point, of the gas conversion, that helps us lower our carbon footprint and keep the system reliable and affordable. So I think that's just a great example of how this transition is going to look. Anything that you would add, Adam?

No, just that addition to that, obviously, transmission is a big part of how we have diversified as well. And having 2 projects that are close to being permitted, it's something that we think is pretty special in the industry, and we're going to continue to focus on diversifying how we bring energy to us through transmission as well.

Great point, Adam. Thanks for that.

You talked about the long stretch that you're looking at, the long window 2045 plus. Are you thinking that over time, longer duration storage technologies as part of that expectation of what we'll fill in as well?

Absolutely. Absolutely.

I think when we're going to start to see it dropping off a little bit is in the wintertime when you start to look at the 2030, 2035 time frame, that's when you really need to have longer duration storage. And so we're hopeful that as technologies progress, we'll get there.

Sure. Lastly, as you start to approach that next general rate case. Have you got any thoughts about how you might envision adjustments to your mechanism through that case?

We had some adjustments that we just went through. And Ken, do you have something to add there?

Well, the ADITC is evergreen and carries through to -- for the next rate case, if we actually have the credit still available. So if we're able to save them, that mechanism would just move forward. The other mechanisms that we have would also move forward, they would be updated like the FCA would have new fixed cost built into it PCA would have new power supply cost baked into it. So those are all natural movements that occur in a rate case.

(Operator Instructions) And with no further questions, that will conclude the question-and-answer session for today. Ms. Grow, I will turn the conference back to you.

Thank you all for your continued interest in IDACORP, and we look forward to seeing some of you at the upcoming conferences that we plan to attend over the next several weeks. I continue to wish you all good health, and I hope you have a great afternoon or evening, depending on where you are. Thank you very much.

And that will conclude today's conference. Thank you for your participation, and you may now disconnect.