Idacorp Inc (IDA) 2011 Q1 法說會逐字稿

Good day and welcome everyone to the IDACORP's first quarter 2011 conference call. Today's call is being recorded and webcast live. A complete replay will also be available from the end of the day for a period of 12 months on the company's website at www.Idacorpinc.com. (OPERATOR INSTRUCTIONS)

At this time I would like to turn the call over to the Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead, sir.

Thank you Denise and good afternoon everyone. Welcome to our May 5, 2011 earnings release conference call. We issued our earnings release before the markets opened today and that document, along with our SEC Form 10-Q, is now posted to our IDACORP website at www.Idacorpinc.com.

We will be using a few slides to supplement today's call and these are also located at our IDACORP website. We will refer to specific slide numbers as we work our way through today's presentation.

Now moving to slide two, on the call today we have LaMont Keen, IDACORP and Idaho Power President and CEO, and Darrel Anderson, IDACORP and Idaho Power Executive Vice President of Administrative Services and CFO. We also have other individuals available to help answer your questions during the Q&A period.

Before turning the presentation over to LaMont, I'll cover a few details with you. First, our Safe Harbor statement is on slide three.

Our presentation today contains forward-looking statements and it is important to note that the Company's future results could differ materially from those discussed. While these forward-looking statements represent our current judgment of what the future holds, these statements are also subject to risk and uncertainties that may cause actual results to differ materially from statements being made today.

As a result, we caution you against placing undue reliance on these forward-looking statements which reflect our opinion only as of today. A discussion of factors that could cause future results to differ materially can be found on slide three and in our filings with the Securities and Exchange Commission, which we encourage you to review.

Referring to slide four, I'll briefly discuss the financial results from today's earnings press release. First quarter 2011 net income attributable to IDACORP was $29.7 million, $13.6 million more than the previous year's first quarter.

Idaho Power's first quarter 2011 net income was $29.8 million compared to $18.2 million in the first quarter of 2010. IDACORP earnings increased by $0.26 per diluted share quarter-over-quarter to $0.60 per diluted share. As indicated in today's earnings press release, we are maintaining our 2011 earnings guidance in the range of $2.80 to $2.95 per diluted share and as a reminder, our 2011 guidance does not include potential benefits that would result from the settlement of the uniform capitalization tax method change.

I'll now turn the presentation over to LaMont.

Thanks Larry and welcome to our call, participants. We thank you for your interest in IDACORP and we should now be on slide number five for those following along in the slide deck.

We are pleased with our first quarter financial performance. More normal winter weather conditions resulted in increased retail sales volume and increased hydro generation. The base rate adjustments under our regulatory settlement in Idaho that went into effect on June 1 of last year also helped increase earnings this year versus last year's relatively weak first quarter.

The base price adjustments that went into effect last year provided for annual recovery of $63.7 million of greater power supply expenses outside of the PCA and $25 million annual recovery of other operating and capital costs. These adjustments will be in effect for all 12 months this year versus seven months last year.

The Company also amortized additional accumulated deferred investment tax credits, or ADITC, in the first quarter based upon our estimated return on yearend equity which does not take into account the impact of a resolution of the uniform capitalization tax method change in 2011. However, the current ADITC estimate is of a lesser amount in the first quarter than the amount recorded though ultimately reversed for the first quarter of last year.

If the U.S. Congressional Joint Committee on Taxation approves our uniform capitalization methodology this year it is unlikely that any amortization of additional ADITC will occur in 2011 and any prior accrual will be reversed. Darrel will discuss this further in his remarks.

Snowpack accumulations in the Snake River Basin are above normal and we have increased our estimated hydro generation for the year. This bodes well for system operations and for our customers as they reap most of the benefits of lower net power supply costs. It is still too early to determine what river flows will be this summer but it is always nice to begin with a healthy snowpack to provide fuel for our extensive hydro generation resources.

The anticipated abundance of hydro generation capacity was a contributor to our annual PCA filing with the IPUC in March which requested a $40.4 million reduction in current Idaho PCA rates, effective for the period from June 1, 2011 to May 31, 2012.

The economic downturn is still impacting our service area and Idaho's unemployment rate exceeds the national average. Efforts are underway by political, civic, and business interests to reinvigorate the level of local economic activity and we hope the state rebounds along with the rest of the nation over the next few years.

We continue to closely monitor our operating expenses and capital additions in light of the economic conditions. Work on our Langley Gulch combined cycle natural gas fired power plant continues on time and within budget to enable us to reliably serve our current customers and support an eventual strengthening in our service area economy. Its importance to reliability grows as greater levels of intermittent renewable energy are added to our system.

Longer term, we continue to execute on our three part plan of responsible planning, responsible development and protection of resources, and responsible energy usage.

Moving on to slide number six, our 2011 integrated resource plan, or IRP, is nearing completion and we expect to file it with regulators in Idaho and Oregon this summer. The IRP is our 20 year plan or roadmap for matching anticipated loads with resources. The development process includes representation from community, government, and environmental organizations.

In other regulatory activity, the Company filed requests for two small rate adjustments in Idaho, allowed under the rate settlement, to increase charges under our fixed cost adjustment mechanism and for pension cost funding. These two filings together requested cost recovery of $14.7 million annually to be effective June 1. We also recently filed a Notice of Intent to file a new general rate case in Idaho this year. The earliest we can file the general rate request is June 1, 2011 with new rates going into effect no sooner than January 1, 2012 pursuant to the regulatory settlement.

Notably, we also recently received an order from the Idaho Commission, approving our 2011 retirement benefits package. This application was not seeking cost recovery.

And now on to slide number seven, we are also currently involved in hearings at the IPUC along with other electric utilities in Idaho with regard to the proper project size and output pricing that should apply to mandated purchases through the Public Utility Regulatory Policies Act, or PURPA. A recent spike in PURPA projects seeking to sell the output of their projects to the company will substantially increase operating costs over time and could negatively impact reliability because of the intermittent nature of many of these resources. Idaho Power wants the planning and implementing of these resources to consider all impacts -- cost, reliability, and the environment -- similar to our collaborative IRP process.

And to conclude my remarks, we have a solid first quarter on the books to get the year off to a good start. Rest assured that we apply ourselves every day to achieving continued success in 2011 and are taking the steps we believe are necessary to enable continued success in 2012 and beyond.

I'll now hand off to Darrel Anderson who will further update you on our financial results.

Thanks LaMont and good afternoon everyone. Today I will discuss some key items that impact our first quarter earnings results as compared to the first quarter of 2010, our current liquidity position at IDACORP, changes to the expected hydroelectric generation range, and our income tax projects. I will also review our earnings guidance range as well as an estimate of where we could expect sharing with customers and shareholders to begin.

This sharing occurs if Idaho Power were to achieve a 10.5% return on yearend equity in the Idaho jurisdiction in accordance with the terms of the January 2010 Settlement Agreement. After that, we look forward to taking your questions.

Before I jump into some of the details on the slides, I wanted to highlight improvements in our operating income over the last year. IDACORP's operating income for the quarter was up 47% over last year which as LaMont commented on earlier, is partially a result of our ability to get base price adjustments last year to the 2010 Idaho Settlement Agreement while diligently managing operating expenses.

Our operating results this year reflect our success at closing the regulatory lag gap in operating earnings. However, the lag continues to be evidenced by the fact that we currently expect to amortize approximately $15 million of additional accumulated deferred investment tax credits this year to reach a 9.5% return on yearend equity in Idaho. This is one of the reasons we filed our Notice of Intent to file a general rate case in Idaho. Filing of the notice gives us the option to file a general rate case in Idaho as early as June 1, 2011.

Now I will address the more specific changes in the quarter. On slide eight we present a reconciliation of net income attributable to IDACORP from first quarter 2010 to first quarter 2011.

This shows an increase of net income from $16.1 million to $29.7 million. Changes in rates and power supply costs net of power cost adjustment mechanisms accounted for $9.8 million of the pre-tax earnings increase while increased sales volumes from cooler temperatures led to $5.6 million of additional operating income.

Income tax expense at Idaho Power increased $4.9 million over first quarter 2010 primarily due to higher pre-tax earnings.

Now I'd like to turn the discussion to IDACORP's liquidity for the first quarter 2011. IDACORP's cash flow from operations for the first three months of 2011 was $93.2 million, a decrease of $7.2 million from the prior year's first quarter. The primary contributors to the decline were changes in working capital accounts including accounts receivable and fuel inventory combined with the impact of changes due to reduction in PCA rates. These decreases more than offset improved operating cash flow from increased net income and an increase in operating cash from income tax refunds as compared to last year.

Key financing activities during the first quarter 2011 included Idaho Power's repayment at maturity of $120 million in first mortgage bonds, $15 million in cash dividend payments, and IDACORP's net borrowing of $7 million of commercial paper. As of March 31, 2011 there were approximately 1.2 million IDACORP common shares remaining available for issuance under the continuous equity program and we did not issue any shares under this program during the quarter.

Cash and cash equivalents at the end of the quarter totaled $94 million compared to $229 million at the end of 2010. Commercial paper outstanding at March 31, 2011 was $74 million at IDACORP compared to $67 million at December 31, 2010. Idaho Power Company had no commercial paper outstanding at either March 31, 2011 or December 31, 2010.

Current revolving credit facilities at IDACORP and Idaho Power are $100 million and $300 million, respectively, with $26 million available at IDACORP and $276 million available at Idaho Power as of March 31, 2011. While IDACORP had no loans outstanding under its credit facility at March 31, 2011 the facilities can be used for commercial paper backup and the available balance is reduced by the amount of commercial paper outstanding. Both of these facilities expire in April 2012.

While our financing plans and needs for 2011 could change based on a number of factors, our equity needs for the remainder of 2011 are not expected to exceed what would be the anticipated proceeds from our currently available 1.2 million shares under the continuous equity program and from our dividend reinvestment and employee plans.

I will now discuss the status of the audit proceedings related to our two tax method changes. On April 22, 2011 IDACORP and the Internal Revenue Service reached an agreement on Idaho Power's tax accounting method change for capitalized repairs. The Service finalized the 2009 examination and submitted its report on the 2009 tax year to the Joint Committee for review. IDACORP considers the capitalized repairs method effectively settled and believes that no material income tax uncertainties remain for the method. As such, Idaho Power expects to recognize approximately $3 million of its previously unrecognized tax benefits for this method in the second quarter of 2011 and IDACORP and Idaho Power will pay previously accrued income tax liabilities of approximately $4 million and $7 million, respectively, as a result of the settlement.

With IDACORP's 2009 tax year now submitted to the Joint Committee, the uniform capitalization method agreement with the Service will be reviewed. If the Joint Committee approves the agreement, Idaho Power would consider the method effectively settled and will recognize approximately $60 million of its previously unrecognized tax benefits for this method in the quarter in which such approval occurs.

If approved, Idaho Power expects to increase the uniform capitalization tax deductions included in its current year tax provision as well. We expect that the increased deduction would produce approximately $5 million to $6 million of additional tax benefit annually. While we cannot predict when the Joint Committee will complete its review or the outcome of that review, we believe the likelihood of receiving a determination in 2011 is enhanced given the case was submitted in April 2011.

I'll now update you on the change in our expected annual hydroelectric generation and the key operating and financial metrics for 2011. This information is on slide nine.

With the abundant storms in our region through April of this year, the expected hydroelectric generation range for 2011 increased to the range of 8.5 million to 10.5 million megawatt-hours as compared to our previous range of 7.5 million to 9.5 million megawatt-hours. This range reflects actual hydroelectric generation through March and estimated ranges of hydroelectric generation for the remainder of the year.

For reference, our mild median annual hydroelectric generation is 8.6 million megawatt-hours, adjusted to reflect the current level of water resource development.

Now I'd like to review our 2011 earnings guidance. As Larry indicated earlier, we are maintaining our current 2011 annual earnings guidance in the range of $2.80 to $2.95 per diluted share. This range includes an assumption that we would amortize approximately $15 million of additional accumulated deferred investment tax credits of which we recognized $3.9 million in the first quarter of 2011.

We have up to $25 million available that we could recognize this year in order to attain a 9.5% return on yearend equity in the Idaho jurisdiction. As a reminder, this guidance does not include any of the potential benefits that could result from the settlement of the uniform capitalization method change that I have just discussed.

I would like to expand a little more on the potential impact of the January 2010 Idaho Settlement Agreement on our full year 2011 earnings. The Agreement states that if Idaho Power's return on yearend equity exceeds 10.5% in the Idaho jurisdiction for 2011, Idaho Power is required to share with Idaho customers, 50% of the earnings in excess of the 10.5%.

If Idaho Power's 2011 net income reaches the 10.5% return level as provided for in the Idaho settlement, we estimate that earnings at IDACORP could approximate $3.15 to $3.25 per share. Earnings beyond this level would be available for sharing. The earnings range is based on a number of assumptions including the level of net income, yearend common equity balances, and jurisdictional allocations and could vary significantly depending on actual results.

Should we be successful with the Joint Committee review process this year and realize the approximate $60 million benefit associated with the uniform capitalization method change, we would expect to exceed the sharing threshold.

This concludes my financial update. Now we'd like to respond to your questions.

Thank you. (OPERATOR INSTRUCTIONS) The first question comes from the line of Paul Ridzon.

Good afternoon and congratulations on a good quarter. It's my understanding that there are several other uniform capitalization before the Joint Committee right now. If one of those were to receive an affirmative outcome would you translate that as to similar enough that you could reverse the reserve?

Paul, this is Darrel. We're actually not aware of who is in the queue with respect to Joint Committee and based on our information right now but if someone or an entity was to get approval of a similar spec and circumstances then we would obviously evaluate that against our method and determine whether or not that would be enough evidence for us to go ahead and recognize that benefit.

Ok, thank you.

Thanks Paul

Your next question comes from the line of Brian Russo.

Hi good afternoon.

Hi Brian.

Just in terms of your liquidity, in the event that the subcommittee review of the uni-cap extends into 2012, do you have enough liquidity to bridge the gap or will you need to tap the equity markets to help finance Langley Gulch and ongoing operations?

Brian, this is Darrel. That's a good question. First of all, while that would obviously be helpful to us, a couple of other things have taken place this year. In particular, bonus depreciation is providing us some additional liquidity and we talk a little bit about that in our 10-Q where we talk about what we believe is our current estimate which we estimate about $42 million is our estimated reduction in our federal tax liability so that provides us some additional liquidity and so we will continue to kind of evaluate that against the benefits associated with the uni-cap project but we think that does help us and as we look to 2012, we still are looking at some just modest financing requirements as we sit here today.

Okay great and maybe you could just elaborate a little bit more as to why you still face challenges in earning the 9.5% floor and need these ADITC credits to support that.

Brian, a couple of things that contribute to the lag and I think that's what you're probably referring to which is why we still are being required to recognize some ITCs. You have to think about first of all, we will have been out now for three years and we have had increasing costs associated with just operating the business whether it's operating and maintenance expenses at our thermal facilities, whether it's wage and benefit changes. Those things are all creating some upward pressures on prices. In addition, we've also added a significant amount of new capital over this last three year period. If you take a look at what we've been adding, that puts a fair amount of upward pressures on prices also. So really, you take a look just at those two things in particular and those are a fair amount to pushing as to why we're not earning where we need to be and then there's a few other factors that are out there. But those are a couple of key ones.

Okay and any way to quantify the impact of hydro conditions in the first quarter? I realize you only retain 5% of the benefit but just trying to get a better sense for kind of the sensitivity just because hydro conditions are well above normal and some of your other northwest peers are reporting solid results as a result of that.

Brian, you're right. Some of our peers I think are also experiencing some of the same hydro benefits that we are, not only our peers but Bonneville and others and so what you're seeing actually is while we have additional generation that we think that's really good, at the same time you see, if we do have excess energy we're selling it into a market that is a pretty low market. And the other thing you have to consider and LaMont alluded to this a little bit, is the fact that those hydro sales are competing with other generation like wind today that is really driving that price down and that's a bit what's having a negative impact on -- we're not getting the true value I would say, out of the hydro system. It's because of what you see happening in the marketplace.

Ok, thanks a lot.

You can take a look at that in the 10-Q where we show a little bit of a summary of our sales and purchases in there and you see that there is a delta between what we have to buy and the reason our buy is up is because we are being, we have contracts with some of these PURPA agreements where we're being required to buy that at prices that are higher than sometimes we have to resell that back in the market.

Thank you.

Thanks Brian.

And your next question comes from the line of Sarah Akers. Please proceed.

You mentioned earlier that the earliest Idaho Power would file for new rates would be June 1 of '11 but then you also mentioned the regulatory lag issues. Due to that, should we expect that you will file on June 1 or are there factors that could cause you to delay that filing?

Sarah, this is Darrel. You know, we filed our Notice of Intent on April 1. You understand that that means we have then the ability to do that so we have to do that so we can't file any earlier than 60 days after that. I would say that we're in the process of assessing that but we did file the intent. We did talk a little bit about the lag issue so we do believe there is a need so you'll kind of have to continue to track that as we manage that but we will obviously acknowledge that when we do make that ultimate decision.

Okay and then separately, you guys made a filing with the IPUC requesting a change to the LGAR rate. Has the IPUC made a decision on that or what's the timing and expectation there?

Sarah, this is Darrel. I'm going to have Greg Said, our VP of Regulatory Affairs, kind of talk to you about that one.

The change in the, what's now called the load change adjustment rate has been approved by the Commission using the methodology proposed.

Ok, great thanks.

Thanks Sarah.

And your next question comes from the line of John Ali. Please proceed.

Good afternoon guys. Just a quick question. I might have missed it during the commentary but if you could expand a little bit more on the ongoing benefits potential of the uni-cap deduction?

We're estimating as we sit here today that that number is in the $5 million to $6 million range based on what we know today.

Okay and would that be at the parent or would that be at the Idaho Power level?

That's an Idaho Power benefit.

Okay so in theory, that would I guess get factored into rates?

Over the long term that would get trued up when we would file our next rate case. That actually has the potential to help offset the needs in some other areas.

Okay, that's an after tax number, right?

Right.

Thank you.

Thanks

(OPERATOR INSTRUCTIONS) And we'll pause for just a moment.

That concludes the question and answer session for today. Mr. Keen, I will turn the conference back to you.

Thank you Denise and thank all of you on the call for participating on the call this afternoon and for your interest in IDACORP and we'll keep you informed as events progress. Have a good day.

That concludes today's conference. Thank you for your participation. Have a great day.