Idacorp Inc (IDA) 2015 Q1 法說會逐字稿

Good day, and welcome everyone to IDACORP's First Quarter 2015 conference call. Today's call is being recorded and webcast live. A complete replay will 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'd like to turn the call over to IDACORP's Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead.

Thank you, Nicole. And good afternoon, everyone. As you've probably seen, we issued our earnings release form 10Q before the markets opened today. They're both posted to the IDACORP website. We will be using a few slides to supplement today's call and you can also find those on our website. We'll refer to those slides as we work our way through today's presentation.

On today's call we have Darrel Anderson, IDACORP's President and Chief Executive Officer, and Steve Keen, IDACORP's Senior Vice President, Chief Financial Officer, and Treasurer. We also have over individuals available to help answer your questions during the Q&A period.

Before turning the presentation over to Steve I'll cover our Safe Harbor statement on slide 3. Our presentation today will include forward-looking statements. While these forward-looking statements represent our current judgment or opinion of what the future holds, these statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.

So, we caution you against placing undue reliance on these forward-looking statements. Some of the factors and events that could cause future results to differ materially from those included in forward-looking statements are listed on slide 3 and included in our filings with the Securities and Exchange Commission, which we encourage you to review.

On slide 4, we present our quarterly financial results. IDACORP's first quarter 2015 earnings per diluted share were $0.47, a decrease of $0.08 per share from last year's first quarter. I'll turn it over to Steve to discuss the quarterly results in greater detail and review our estimated 2015 key operating metrics.

Thanks, Larry. And good afternoon, everyone.

I want to start with slide 5 where we present a reconciliation of earnings from first quarter 2014 to first quarter 2015. Overall net income decreased by $4 million, largely due to the $5.8 million reduction in Idaho Power's operating income, partially offset by lower income tax expense. The unusually mild weather and Idaho Power Service area during the first quarter of this year lowered operating income by $2.5 million compared with the first quarter of last year. This is primarily due to reduced residential sales, net of relevant power supply and regulatory mechanism adjustments.

The weather impact is shown on page 38 of our form 10Q filed this morning where we discuss the comparison of heating degree days. For the first quarter of 2015 we experienced heating degree days 13% below the first quarter of 2014 and 15% below normal levels. Partially offsetting the weather related decrease was Idaho Power's continued customer growth which contributed $1.9 million to operating income. Darrel will provide additional economic color in a moment.

An additional $3 million reduction primarily due to timing of O&M expenditures for thermal plant maintenance and hydroelectric operating expense, further reduced operating income. These were normal expenditures which occurred earlier this year than in 2014 and we do not anticipate any change to our estimated full year 2015 O&M costs. Finally, increased depreciation expenses lowered operating earnings by $1.2 million due to recent capital initiatives.

The first quarter of 2014 also included a $1 million benefit from amortization of additional accumulated deferred investment tax credit or ADITCs which did not recur in 2015. You may recall that no ADITCs were ultimately used in 2014 and the first quarter additional amortization was reversed in last year's second quarter. With the full balance of $45 million of ADITCs still available, we successfully extended the settlement stipulation with some modifications for years 2015 through 2019.

The settlement stipulation provides that we may use additional ADITCs if necessary in order to reach a return on yearend equity in the Idaho jurisdiction of 9.5%. As pointed out in our earnings press release and form 10Q filing this morning, we do not expect to use additional ADITCs for the remainder of 2015. Finally, lower pretax income as compared with the first quarter of 2014 resulted in a $3.5 million reduction in income tax expense.

Moving now to slide 6 we show IDACORP's operating cash flows for the first quarter of 2014 and first quarter of 2015 along with the liquidity position at March 31. Cash flow from operations for this year's first quarter was $105.4 million, an increase of $8.5 million over last year's first quarter. Changes in power supply costs collected under the Idaho power cost adjustment mechanism partially drove the increase in operating cash flows.

Other significant drivers were changes in deferred taxes, changes in taxes accrued and receivables and changes in other liabilities. IDACORP and Idaho Power currently have in place credit facilities of $125 million and $300 million respectively to meet short-term liquidity and operating requirements.

The liquidity available under the credit facilities is shown on the bottom of slide six. Also, there are 3 million IDACORP common shares available for issuance under IDACORP's continuous equity program. No shares were issued during the first quarter and we do not expect to issue new equity during the remainder of 2015 except for modest amounts relating to employee compensation plans.

On March 6, 2015, Idaho Power issued $250 million of first mortgage bonds with a coupon rate of 3.65% and maturity of March 1, 2045. Part of the proceeds were used to redeem prior to maturity $120 million of 6.025% first mortgage bonds due in July of 2018. The redemption included payment by Idaho Power of a make whole premium of $17.9 million.

On an annualized basis, the net reduction in pretax interest expense on $120 million of redeemed bonds is approximately $2 million. We expect the payment of the make whole premium will also result in a current income tax deduction which under Idaho Power's regulatory flow through tax accounting will produce an income tax benefit of approximately $7 million which we expect to record in the second quarter of 2015. The remaining net proceeds are expected to be used for general corporate purposes.

Turning now to slide 7, we continue to estimate 2015 O&M at between $340 million and $350 million. And as I previously mentioned, we do not expect to amortize any additional ADITCs in 2015 even though we had lower earnings in the first quarter this year compared to last year's first quarter. Due to the abnormally warm quarter, snowpack levels and projected spring runoff have deteriorated. As a result we are lowering our projected hydroelectric generation range from 7 million to 9 million megawatt hours down to 5 million to 7 million megawatt hours. And finally, we are maintaining our 2015 IDACORP earning per share guidance range from $3.65 to $3.80 per diluted share.

Before I turn the presentation over to Darrel I wanted to update you on a couple of regulatory filings. On April 15, Idaho Power filed an application with the Idaho Commission requesting a $10.1 million net decrease in Idaho PCA rates effective for the PCA collection period of June 1, 2015 to May 31, 2016. The requested net decrease in Idaho PCA rates included the application of a customer rate credit of $8 million for sharing with Idaho customers according to the terms of the December 2011 settlement stipulation. An order from the IPC is pending. If approved, new rates would go into effect June 1.

We also recently filed two settlement stipulations with the Idaho Commission, pertaining to how the power cost adjustment and fixed cost adjustment mechanisms operate. To briefly summarize these two changes, the PCA stipulation resolves contingent around how the mechanism operates by utilizing an Idaho sales based computation rather than one based on system loads. The FCA stipulation recognizes weather as a component of the fixed cost collection and is expected to moderate weather impacts on fixed cost collections.

In other words, in years where weather significantly increases sales, FCA support will be reduced, recognizing the higher collection of a fixed cost component with each sale. Conversely, in years where weather significantly reduces sales, the FCA will provide additional support, recognizing the lower collection of fixed cost components due to lower overall sales. Both of these settlement stipulations are discussed more fully on page 49 of our first quarter form 10Q.

I will now turn the presentation over to Darrel.

Thanks, Steve. And thanks, everyone, for joining us this afternoon.

There are a few areas I would like to update you on before we turn to questions. I will start with a look at some customer and economy related metrics. Idaho Power's customer count has continued to grow and we continue to expect positive customer growth. As Steve just mentioned, customer growth contributed $1.9 million to operating income and increased general business revenues by $2.6 million in the first quarter of 2015 when compared with the first quarter of 2014.

For the 12 months ended March 31, 2015, the customer growth rate was 1.6%. As of March 2015 unemployment in our service area was 4% compared to 5.5% at the national level. During the first quarter employment in our service area increased approximately 1.5% now exceeding 467,000 people.

Moody's Analytics forecasted as of March 2015 growth in gross area product in our service area is expected to be 3.2% and 3.8% for 2015 and 2016 respectively. These updated gross area product figures reflect an increase from the January 2015 estimate of 3.1% and 3.5% for the same period. We continue to be optimistic about growth in our service territory despite what some of the national headlines indicate in other parts of the country.

Taking a look now at hydroelectric matters, as of April 20, the snow water equivalent above ground reservoir in Hells Canyon was 52% of normal. As Steve noted earlier, we have reduced our expected level of hydro generation for the year as a result of a number of factors.

We have seen the percent of snow water equivalent above ground reservoir in Hells Canyon decline from just under 90% of normal in February to 52% of normal as of April 20. While not part of our hydro system, for purposes of regional comparison, levels for the Columbia were 48% of normal as of April 20 and just under 70% in February.

Lower than anticipated precipitation combined with unseasonably warm temperatures has had the impact of reducing the potential for hydro generation during the year. Obviously we would like to see these numbers higher but through our risk management program we continue to effectively manage our resource portfolio to address this decline and expected hydro generation. We have taken steps to balance the resource portfolio with regional purchases, coal and natural gas generation, and demand response programs. In times like these a balanced resource portfolio becomes even more valuable.

As a reminder, from a financial perspective, nearly all of the change in net power supply costs will be addressed via the power cost adjustment mechanisms we have in Idaho and Oregon, minimizing impacts to the bottom line.

This summer, we expect to file our 2015 integrated resource plan which our biannual 20 year resource planning document. In it we look at a large range of portfolio options for providing reliable and responsible fair pricing energy to our customers. As shown on slide 8, this plan will provide several alternatives to address the EPA's proposed Rule 111(d) along with the Boardman to Hemingway and Gateway West transmission line projects.

Included in these scenarios are options reflecting a glide path away from coal. Part of that glide path includes taking the Boardman, Oregon coal plant offline in 2020 and with it our 10% stake. We also continue to assess the future of our jointly owned North Valmy coal plant in Nevada and with it our 280 plus megawatts. Our integrated resource plan to be released in the late June timeframe will contain scenarios dealing with this plant.

The Boardman to Hemingway project is the backbone of many of the scenarios being studied in the 2015 IRP. This line is being modeled as a resource from a market purchase and reliability perspective. We would be relying on the new line to serve peak loads. It also is being looked at as a low carbon option as it targets resources that would already be available in the timeframes we need it.

You may remember that the Bureau of Land Management issued a draft environmental impact statement for the project last December. The comment period closed March 19 with approximately 400 comments received from various stakeholders. Idaho Power expects the BLM to issue a final environmental impact statement during 2016. Idaho Power continues to expect the in-service date would not be before 2021.

Slide 9 is a look at the projected May to July weather outlook. Current projections suggest that there's a 40% chance for above normal precipitation in Idaho Power's service area and generally between a 40% to 60% chance of above normal temperatures.

Before opening for questions, I wanted to remind everyone that our annual meeting of shareholders will be held at 10 AM Mountain Time, Thursday May 21, 2015 which we will also be webcasting live.

And now I and others on the call will be happy to answer your questions.

(Operator Instructions) Paul Ridzon, Keybanc.

Good afternoon. Can you hear me?

Hi, Paul. You bet.

Hi, Paul.

Hi. A couple quick questions. One, the lower hydro forecast was essentially captured in your recent PCA filings so it should have minimal impact. Is that the right way to look at it?

As we said today, it's based on a forecast and as things continue to change obviously that would get captured in any variances as we go into this next year. But we took our best shot when we made that filing as a April 15.

So, that filing captures the deterioration we saw since February?

It does capture a lot of that deterioration that we saw since February. It doesn't capture all of it, obviously, just because of the passage of time. And it also doesn't capture any potential benefits that could come also with for instance a late spring precip fall or any other things. So, there is a cut off on it. It's not one of those living documents that continue to go on.

Then on the make whole premium you have a $17 million make whole premium and that's partly offset by a $7 million tax benefit or does that make whole premium get amortized over the original life of the bonds?

Paul, the make whole will be amortized in and slightly raised as that interest cost of the 3.65 will go up slightly. It gets amortized over the 30 years of the new bond. So, the flow through is really a -- it would be a current deduction this year. You would see the benefit in 2015. And that $2 million figure that I threw out compares the old interest rate, the roughly 6% versus the new interest rate and with the make whole premium added on to it but still the net is $2 million a year positive.

Thank you. And then when are you considering closing Valmy?

We actually, Paul, what we're doing now is we're running a series of scenarios as part of the integrated resource plan and in that plan there's a range of options that are currently being evaluated as far as the scenario there, anywhere from 2019 to 2025 all the way to the end of its estimated use of life. All those different scenarios are being evaluated in the 20 plus scenarios that we are looking at in the current portfolio.

So, Valmy doesn't have a date certain when it's going to be retired?

We do not have a date certain at this time. There's a lot of those dates are still subject to discussions with our partners and we'll continue our ongoing analysis as part of our IRP.

Thank you very much.

Thank you, Paul.

Brian Russo, Ladenburg Thalmann.

Good afternoon.

Hi, Brian.

Hi, Brian.

Maybe we could just talk about the ADITC and your ability to not need them this year. I would've thought with sales down and with the incremental timing of the O&M expense you might have to use some ADITCs in the first quarter but then I see you have a $5 million tax benefit from the make whole premium. If it wasn't for the tax benefit, do you have any thoughts on whether you would need any ADITCs in this first quarter?

Brian, the question you're asking is a good one and as you know the mechanism would kick in. We actually would've stayed within our guidance range really regardless and credits would've kicked in in support of this and kept us within our guidance range.

I would say if we didn't have the deduction for the tax benefit we would've been near that line and if anything we would've used a very modest amount of tax credits but it really does -- there's other factors are coming in as well but it certainly wouldn't have been -- it would've been in the range that we said before of less than $5 million type range. We might've cross the line. But as we sit here today with everything else factored in -- we think we don't see a need to use ADITCs at all.

Got it. Okay. And if you could, the O&M expense, you know, year over year it's projected to be down and it was obviously up in this first quarter. So, any idea how the O&M will play out in the next three quarters?

We believe we're on track with what we originally telegraphed to everyone. And this was really timing. These are normal expenditures. They just hit a little bit earlier and we had some costs to hit first quarter this year that last year really fell into second quarter. That is not a signal that there's any pending uptick in O&M. We're sticking with our opening guidance. As you know, we've had a real focus on managing O&M and as I said, I don't believe it can continually drop, but we can continually manage it and control the level that it goes up. We're doing a great job at that.

Great. And my last question is can you remind us or talk about the dynamic of below normal hydro conditions and mild weather and sales to your irrigation customers? If there's any correlation or sensitivity there?

Brian, I will attempt to talk about this a little bit but obviously it's been drier. It's fair to say that, yes, we're seeing irrigation coming on earlier.

The flip side of that equation, depending on the crops that are in the ground and the length of which they're going to have the opportunity to irrigate, it might mean they stop irrigating sooner. And so, this precipitous drop in the hydro situation and all the factors that have really come in the last six weeks or so, six or eight weeks where the precipitation we anticipated didn't show up and other things.

And so, what we're not 100% sure of is what the ag community has with respect to crops in the ground. They're well aware of things but -- so we're not sure when that's going to stop but we have seen an early rush of irrigation early because of the nature of the temperatures as well as the lack of precipitation.

Okay. So, you're seeing higher irrigation sales earlier this year due to this dynamic?

That's correct.

Thank you very much.

Thanks, Brian.

Thank you. That concludes the question and answer today. Mr. Anderson, I'll turn the conference back to you.

Well, thanks, everybody, for participating today. We truly appreciate your interest in our Company and we hope to have you guys tune in for our annual meeting comments in May. Thanks for taking the time today. I appreciate it.

That concludes today's conference. Thank you for your participation. Everyone, have a great day.