Idacorp Inc (IDA) 2015 Q3 法說會逐字稿

Welcome to IDACORP's third 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 would like to turn the call over to Mr. Steve Keen, Senior Vice President, CFO, and Treasurer. Please go ahead, sir.

Thank you, Chanel, and good afternoon, everyone. Today we are changing our normal lineup slightly. As many of you may know, Larry Spencer has been contemplating some planned surgery, and he is currently out on leave. We wish him the very best and plan to see him in a few weeks when he has fully recovered.

In his absence, it is my pleasure to introduce you to Justin Forsberg, who has been working with Larry the last few months and who will be assisting us at the upcoming EEI Financial Conference. Justin has spent time in public accounting and has been a key member of our financial reporting team for a number of years.

Justin will lead us off this morning. So, I will turn the call over to him.

Thanks, Steve.

We issued our earnings release and Form 10-Q before the markets opened today, and they are both posted to the IDACORP website. The slides we'll be using to supplement today's call can be found on our website, as well. We will refer to those slides as we work our way through today's presentation.

In addition to Steve Keen, on today's call we have Darrel Anderson, IDACORP's President and Chief Executive Officer, along with other individuals available to help answer your questions during the Q&A period.

As noted 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 forward-looking statements made today. So, we caution you against placing undue reliance on 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 and year-to-date financial results. IDACORP's third quarter 2015 earnings per diluted share were $1.46, a decrease of $0.27 per share from last year's third quarter. For the first nine months of 2015, earnings per diluted share were $3.24, $0.08 greater than the same period in 2014.

I'll turn it back to Steve to discuss the results in greater detail and review our 2015 key operating metrics.

Thanks, Justin.

On slide 5, we present a reconciliation of earnings from third quarter 2014 to third quarter 2015. Overall, net income decreased by $13.6 million over the period. The primary contributor to the reduction was a $12.4 million increase in income tax expense, which shows up near the bottom of the chart.

Last year, a tax method change provided an additional $11.7 million benefit to third quarter net income related to the required adjustment for pre-2014 tax years. No such prior-year modification was required this year since the new method was fully implemented during 2014.

Now, returning to the top of our reconciliation, lower temperatures in the third quarter this year compared to last year resulted in decreased customer usage by residential customers. This decrease in residential sales volumes also led to lower revenue, as fewer customers reached or were within the higher-priced tiered rates under our rate structure. The combination of these two factors resulted in a $9.4 million decrease in operating income.

Summer seemed to arrive early this year, with warmer weather delivering favorable results in the second quarter, while temperatures were more moderate in this year's third quarter.

Partially offsetting this decline was a $3.4 million increase in operating income attributable to continued customer growth. From September 2014 to September 2015, the number of Idaho Power customers increased by 1.8%.

And finally, Idaho Power has not recorded an accrual for revenue sharing during 2015 under its Idaho regulatory settlement, while in the third quarter of 2014 the Company recorded $4.9 million of customer sharing. For 2015, we currently do not expect to amortize any additional ADITCs, and we will share with customers if we reach the upper end of our earnings guidance range.

Moving now to slide 6, we show IDACORP's operating cash flows for the first nine months of 2015 and the comparable period in 2014, along with liquidity positions at September 30.

Cash flow from operations for this year's first nine months was approximately $291 million, a decrease of $25 million from the first nine months last year. The primary drivers for the reduction in operating cash flow were a $19 million decrease in working capital and an $11 million decrease from changes associated with regulatory accounts. These reductions were partially offset by a $4 million net income increase.

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 6.

Also, there are 3 million IDACORP common shares available for issuance under IDACORP's continuous equity program. No shares were issued during the third quarter, and we do not expect to issue new equity during the remainder of 2015.

Turning now to slide 7, on a year-to-date basis net income is ahead of 2014 and in line with our expectations. We continued to maintain our focus on operational efficiencies and have no changes to our estimate of 2015 O&M at between $340 million and $350 million.

We also do not expect to amortize any additional accumulated deferred investment tax credits in 2015.

The estimated 2015 capital expenditure range for Idaho Power remains between $300 million and $310 million. However, we are tightening our projected hydroelectric generation range from 6 million to 7 million megawatt hours to a range of 5.7 million to 6.2 million megawatt hours.

And finally, we are maintaining our 2015 IDACORP earnings per share guidance range of $3.75 to $3.90 per diluted share.

I'll now turn the presentation over to Darrel.

Thanks, Steve, and good afternoon to all of you on the call.

I will cover a few items with you related to our business, including an update on our PURPA proceedings, some recent acknowledgments the Company received, and a look at some key economic indicators. I will also address briefly the upcoming weather picture and the Company's dividend approach.

On the regulatory front, you may recall that earlier this year Idaho Power filed an application requesting that the Idaho Public Utilities Commission reduce the maximum required term for prospective PURPA power purchase agreements from 20 years to two years. On August 20, the commission issued its order approving the Company's request.

This is good news for our customers whose rates could be impacted by long-term purchase agreements when we predict no near-term need for new generation capacity.

As shown on slide 8, Idaho Power continues to receive national recognition from media outlets. In the September issue of Public Utilities Fortnightly, Idaho Power is ranked number 11 of investor-owned utilities in the publication's list of the 40 best energy companies.

Idaho Power again made a substantial jump in the rankings. We moved from 39th in 2012 to 29th in 2013 to 17th in 2014 and now to number 11 this year. We are very proud of our upward trajectory on this prominent list. The Fortnightly 40 measures utilities' long-term performance and ranks them according to operating efficiency, asset utilization, and financial leverage.

You'll see on slide 9 that Idaho Power was also featured in the October issue of United Airlines' Hemispheres magazine. Our Company was highlighted as one of the innovators in the dossier section of the magazine focusing on Idaho.

The story looked at some of Idaho's most forward-thinking organizations and highlighted our clean, green hydroelectric base and our long history of providing responsible energy. It also focused on our low rates and how they benefit our state's economic development efforts.

We have seen and continue to expect growth in our service area. According to preliminary Idaho Department of Labor data for September 2015, total employment in the service area was almost 480,000, compared with just over 458,000 in September 2014, a notable increase of almost 5%. The unemployment rate for the service area was 4%, compared to 5.1% at the national level according to US Department of Labor data.

As of September 2015, Moody's Analytics forecasts growth in gross area product for Idaho Power service area of 4.8% and 6.3% for 2015 and 2016, respectively. These are up from this year's second quarter estimates of 4.6% and 5.4%, respectively.

Moody's Analytics also forecasts that new single-family and multifamily housing starts in our service area are expected to average approximately 8,800 units annually over the next years, compared to an annual average of approximately 5,700 units over the last three years.

Customer growth for the 12 months ended September 30, 2015, was 1.8%, reaching almost 523,000 total customers.

We view these items to be positive economic indicators that will help continue to drive load growth in our service area.

I want to provide a brief update on the precipitation and temperature forecast for November 2015 through January 2016. Meteorologists are calling for an El Nino weather pattern to set up in the west. On slide 10, you will see that a dry and warm start to the winter could be on the way. That is one view of the El Nino we could experience, but history shows a lot of variability, with both high and low stream flows even in El Nino years.

Weather prediction has never been an easy undertaking. Regardless, Idaho Power stands ready to meet the expected energy needs of our customers. Idaho Power also has regulatory mechanisms, such as the annual power cost adjustment, and fixed cost adjustment mechanisms that allow us to share both the risks and the rewards of weather-related conditions with our customers.

And last but not least, I'd like to update you on our dividend, as seen on slide 11. On September 17, IDACORP's Board of Directors approved an 8.5% increase in the regularly quarterly cash dividend on IDACORP's common stock, from $0.47 per share to $0.51 per share. This increased dividend amount commences with the dividend payable in the fourth quarter this year.

IDACORP's Board of Directors has approved dividend increases in each of the last four years, representing a cumulative increase of 70% in IDACORP's quarterly dividend over that period.

The increased dividend on an annualized basis places us at the lower end of our target dividend payout ratio based on our current 2015 earnings per share guidance range. As of today, management anticipates that it will continue recommending to the Board of Directors future annual increases to the common stock dividend of greater than 5% until we approach the upper end of our target payout range of 50% to 60% of sustainable earnings.

In closing, the first nine months of 2015 have been strong, both financially and operationally. Our earnings for that period were ahead of last year, and Idaho Power system has performed well despite below-average stream flows.

In part because of our balanced portfolio of generation resources, we have continued to reliably serve our customers while reducing our carbon output by approximately 9% as compared to 2014. We are positioned well as we look forward to the beginning of our next 100 years in 2016.

And now, Steve and I, as well as others here today, will be happy to answer questions you may have.

Chanel, are you there?

(Operator Instructions) Paul Ridzon, Keybanc.

I saw your article in the Hemispheres magazine, Darrel. It looked good.

You have not booked any reserves for refunds so far this year, have you?

That's correct, Paul. We have laid up no sharing reserve at this time.

Do you have your trailing-12 ROE?

Yes, if you hang on a second. Give me one second. I can probably pull it out, I hope.

At the IDACORP level, is that what you're looking for?

Idaho Power

Idaho Power, it is on a 12-month basis about 10.6%.

And then, I don't know if you have this available, but can you kind of parse out that $9.4 million weather impact into how much was tier pricing and how much was volume?

Paul, we can circle back if we can pull that out. That's not a number I have handy. We don't -- in fact, it's somewhat difficult to break that out. I think we could find that.

Okay. Maybe I'll circle back.

(Operator Instructions) Sarah Akers, Wells Fargo.

I just have a question on the sales breakdown. So, in the 10-Q you have the megawatt hour sales, and it looks like industrial is fairly flat year to date. And given the positive trends in the economy, that was a little bit surprising. Is there anything going on in the numbers there? Can you comment on that trend?

Sarah, we're looking at the numbers right now. And what I would say, you are right. If you take a look at the nine months and -- even the nine months and the three months, they are fairly flat.

I think a lot of the other activity that we're seeing is actually showing up in the commercial side versus the industrial side, is where some of these customers are landing. So, from a customer class prospective, that's where a lot of those would be showing up because they don't reach the size, the scope, and scale that would land in an industrial category.

Got it. Great. That's all I had.

(Operator Instructions)

And that concludes the question-and-answer session for today. Mr. Anderson, I will turn the conference back to you.

Thanks, Chanel, and thanks to all of you guys for reaching out and calling in today for our call. We hope we get a chance to see many of you guys when we're down in Florida at the EEI Financial Conference.

And so, with that, we wish you a good rest of your day. Thanks a lot.

That concludes today's conference. Thank you for your participation.