Idacorp Inc (IDA) 2015 Q4 法說會逐字稿

Welcome to IDACORP's fourth-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. Lawrence Spencer, Director of Investor Relations. Please go ahead, sir.

Thanks, Karen. We issued our earnings release and Form 10-K before the markets opened today. They are both posted to the IDACORP website. The slides we will be using to supplement today's call can be found on our website as well. We will refer to these 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, Senior Vice President, Chief Financial Officer, and Treasurer, along with other individuals 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 are 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 fourth-quarter 2015 earnings per diluted share were $0.63, a decrease of $0.06 per share from last year's fourth quarter. For 2015, earnings per diluted share were $3.87, $0.02 greater than 2014.

I will turn the presentation over to Steve to discuss the results in greater detail and to review our 2016 key operating metrics.

Thanks, Larry. On slide 5, we present a reconciliation of earnings from 2014 to 2015. Overall, net income increased by $1.2 million over the period. The combined positive effect of customer growth, the fixed cost adjustment mechanism, and other revenue in 2015 increased operating income by $26 million compared with 2014. Lower usage per customer and higher operating and maintenance expense combined with higher depreciation expense and property taxes to partially offset the increase in operating income by $17.1 million.

When combining the above changes with a $21.5 million increase in earnings resulting from reduced Idaho sharing, Idaho Power's operating income was $30.4 million greater in 2015 than in 2014. An additional $7.2 million increase to earnings in 2015 reflects a flow-through benefit from a tax-deductible make-whole premium from an early redemption of long-term debt. These amounts are reduced by higher income tax expense of $11.1 million, primarily due to greater Idaho Power pre-tax earnings, and the $24.5 million tax benefit from a 2014 method change that did not recur in 2015.

Moving now to slide 6, we show IDACORP's operating cash flows for 2015 and 2014, along with the liquidity positions at December 31. Cash flow from operations for 2015 was approximately $353.2 million, a decrease of $11.1 million from 2014, primarily resulting from timing and decreases in working capital.

IDACORP and Idaho Power currently have in place credit facilities of $100 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 2015 and we do not expect to issue new equity during the remainder of 2016.

Turning to slide 7, we are estimating 2016 O&M at between $350 million and $360 million. It is a slightly higher than last year's opening guidance by just under 3%. Actual 2015 expense of $342 million came in at the low end of our prior guidance range, primarily due to lower-than-expected thermal operating costs at our coal facilities.

In 2015, we recorded approximately $3 million of current revenues to be refunded to Idaho's customers and did not amortize any additional accumulated deferred investment tax credits -- or ADITCs -- under our current Idaho regulatory settlement stipulation. For 2016, we forecast using less than $5 million of additional ADITCs to attain a 9.5% return on year-end equity in our Idaho jurisdiction.

In projecting this range, we evaluated a number of scenarios, including the potential benefit that could result from refinancing a series of bonds during 2016. We did a similar but larger bond refinancing in 2015 and it had a favorable impact on income tax expense. Depending on interest rates and timing, a decision to refinance bonds again this year could have an approximate $4 million net tax benefit to earnings.

Our estimated capital expenditure range for 2016 is between $300 million and $310 million, which includes between $20 million and $25 million for emission control equipment at the Jim Bridger plant.

In the liquidity and capital requirements section of the 10-K we filed today, we have included some examples of other ongoing infrastructure projects. For 2017, the estimated capital expenditure range moves to between $275 million and $285 million. In total, over the next five years, estimated capital expenditures are between $1.4 million and $1.5 billion.

On the next row of slide 7, we show that our expected 2016 hydroelectric generation ranges from 6.0 million megawatt to 8.0 million megawatt hours. This figure is lower than our opening guidance in 2015, but reflects improved expectations over our 2015 actual result. As a reminder, the median annual hydroelectric generation is 8.5 million megawatt hours.

Finally, we are initiating our 2016 earnings per share guidance in the range of $3.80 to $3.95 per diluted share, which reflects normal weather conditions and our expectations for continuing cost management.

I will now turn the presentation over to Darrel.

Thanks, Steve, and welcome to all of you joining us on the call this afternoon. And I first would just like to thank all of you that are on the phone for your support throughout the year. We appreciate that very much. I will update you on a few items related to our business and then we will look forward to your questions.

Turning to slide 8, as we began 2016, we reached an exciting Company milestone: Idaho Power's centennial. For 100 years, we have provided reliable, responsible, fair-priced energy services to our customers while continuing to provide a solid investment option to our owners.

As we look back at the strong foundation that led to the success and longevity of the Company, we also look forward to the challenges and opportunities that the next century provides as we continue on as an independent, integrated electric utility. Our focus remains on our core business. 2015 marked IDACORP's eighth consecutive year of earnings-per-share growth, which has been positive for both our shareholders and our customers.

As Steve noted, in 2015, Idaho Power recorded no additional ADITC amortization, leaving $45 million of additional ADITC available for future use. Our earnings for the year resulted in sharing approximately $3 million with customers. This continued a trend of several years of sharing with customers, amounting to more than $120 million.

There have been major changes in our industry over the last 100 years, but much has remained consistent. We keep our owners, customers, and employees top of mind, along with an emphasis of on revenue growth and optimization in all areas of the Company.

In addition, we focus on a purposeful succession plan for our leadership positions. Last week, we announced that our Vice President of Regulatory Affairs, Greg Said, will be retiring after over 35 years with the Company. Because of our purposeful efforts around building our bench, we will see a seamless transition in this key role with the appointment of Tim Tatum to succeed Greg effective March 1.

Tim has been integral to our regulatory efforts over the years and will bring with him 20 years of experience, from customer service to regulatory activities, with our Company. We thank Greg for his many years of service and wish him the best in the next chapter of his life.

Moving to slide 9, Idaho Power's service area experienced strong customer growth in 2015, registering a 1.8% increase from 2014 to 2015. Idaho Department of Labor data shows that the number of people employed in Idaho Power's service area increased by over 22,000 from December 2014 to December of 2015, an increase of 4.9%.

Also in December 2015, the unemployment rate in Idaho Power's service area was a low 3.9%, which compares favorably to the US rate of 5%. Another indicator of growth in our state is United Van Lines' Annual Movers Study that was released at the beginning of this year. Idaho Power -- Idaho has moved up from the tenth position in 2014 to the fourth spot in 2015. The survey tracks customers' state-to-state migration patterns over the past year and further supports our belief in the attractiveness of the state of Idaho and our service area.

As we move into 2016, a few key items that you should watch for include the following. Based on what we know today, we do not expect to file a general rate case in 2016, but we will continue to evaluate the timing of a general rate case. We do expect our PCA and FCA to be filed on their normally scheduled time frames.

We expect the Bureau of Land Management to issue a final environmental impact statement during 2016 and a record of decision in late 2016 or early 2017 on the Boardman-to-Hemingway transmission line project. While this does not complete the required permitting process, these are key milestones for the project. We continue to expect this project to become in service in 2022 or beyond.

We also anticipate making a final decision on our participation in the Western Energy in-balance market during 2016. We expect that participation in the in-balance market will provide benefits that should reduce net power supply costs through customers with a modest benefits back to owners.

Switching gears, we are proud to announce that a few days ago, we launched a new IDACORP website. You can see part of this new homepage on slide 10. Today the site is available for you and anybody else looking for information about the Company. I think you'll find it cleaner, clearer, and easier to use. When you have a moment, please visit idacorpinc.com and check it out. And if you have suggestions for improvement or information that you would like us to consider adding, please let us know.

I would like to thank Larry Spencer and Justin Forsberg for help spearheading this effort, along with our corporate communications and information technology teams in making this happen to help enhance the investor experience.

Finally, let's move to slide 11 for a look at what Mother Nature may have in store in the spring precipitation and temperature forecast. According to the National Oceanic Atmospheric Administration, in March through May, we are looking at about a 33% to 40% chance of above-normal precipitation in the southern portion of our service area and normal precipitation levels in the northern portion. The spring outlook also shows a 33% to 50% chance of above-normal temperatures.

Idaho Power stands ready to meet the expected energy needs of our customers, no matter how the weather develops. Also remember that the annual power costs and fixed cost adjustment mechanisms allow us to share most of both of those risks and rewards of water- and weather-related conditions with our customers.

And now Steve and I and others on the call today will be happy to answer any questions you have.

(Operator Instructions) Paul Ridzon, KeyBanc.

I had a question. Does the FCA capture variations in usage patterns or is that just designed to capture weather variances? Underlying the usage per customer kind of conservation (multiple speakers).

Yes, the FCA is really designed to be somewhat of a proxy for the use of customers. And so as use declines, it does recover some of that cost. The term is slipping my mind right this moment, but it is a decoupling mechanism that we put in place and it helps us account for that. Because you made an assumption during the rate case that isn't exactly playing out, if you have had declining usage per customer. So that is its primary --

Weather or conservation gets captured.

Well, it does now. Previously, they had less of a weather component, but with the change that they put in in the spring last year, it now really adjusts to actual. So it is picking up more than just that component use.

And can you give a sense of what you expect the effective tax rate to be? I assume a little bit higher this year, given that last year had the reduction for the debt premium.

The guidance that Gene and I talked about -- it is still in the low 20%s. And I think it is a little more variable, but I think that is still a reasonable number to assume going into it. And I wanted to just follow up, Paul, on your first question. That FCA is focused at residential and small commercial customers only.

Okay. And then lastly, I saw it in your K, you paid, it looks like, a $30 million premium for corporate life insurance. Is that a new program or can you just give some background on that?

That is simply an investment vehicle. It is a Rabbi Trust that is there that we have funded over the years and those funds were just in different investments. It is simply a life insurance product that is a means of investing. That is all it was. And the funds really were there previously. So it was really a transfer from one investment to another.

(Operator Instructions) Brian Russo, Ladenburg Thalmann.

Could you maybe talk about the timing that you are considering some refinancing this year?

We -- I guess we haven't set our timing at this point, but we basically get through year end and then we start watching the market and looking based on need. The one thing we have to assess now is just how much do we need, which we are watching that. We had a little more defined need, I think, coming into last year, but we always approach that somewhat from an opportunistic standpoint.

And is the refinancing captured in the guidance?

You are talking about if we were to do a -- you're talking about calling early the bonds? [at that point]

Yes. Exactly. That it has a positive [tax bracket].

It's really kind of two separate things. You can call the bonds and you can do financing. They don't have to be connected. But what -- we have that, and in my script, I mentioned that we included that in the scenarios we looked at. And even with that, there is possibility that you could use some credits. There are things that move up and things that move down and it depends on what combination shows up where we ultimately end. We opted to say $0 to $5 million as the place we felt most comfortable coming out with guidance.

Right. Okay. And what is driving the O&M higher? Because you have been pretty disciplined over the last couple of years with kind of flattish O&M. Just curious what is driving it higher in 2016.

Again, if you look at -- that is why I put a little bit of comment in there. Partly, we had really good success this past year in that some of the O&M we had planned on went down. So we look a little less successful against that low number.

Year over year, if you look at -- take the midpoint of the ranges and compare them, it is sub-3%. And I would argue that you can't hold flat forever. We do have pressures and wages and government entities and other things that raise our costs that we really don't have a choice but to deal with.

Now, that doesn't mean we won't attempt to make further savings and to do better as we go forward. As you saw last year, we actually came in at the low end of the range. So we will do everything we can as we move through the year to manage that O&M cost.

Brian, this is Darrel. One thing I would just add on the O&M side is we have had -- again, we run our gas lines pretty hard. And so we do have a periodic maintenance expense coming in at Langley Gulch that will be happening in 2016 that wasn't necessarily there in 2015. It doesn't happen every year.

It all depends on the amount of usage, and since we ran that pretty hard in 2015, we got there maybe more quickly than we thought. So we do have a periodic enhancement in the expenses there related to Langley Gulch.

Okay. Then lastly, when do you expect the Jim Bridger upgrade to be completed?

This is Daryl. I will start, and Steve maybe finishes. But we did finish Unit 3 in 2015. And then Unit 4 is scheduled this year.

Right. I'm curious as to the timing in 2016.

I think it is in and around midyear -- end of second, early third quarter.

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

Again, for all of you that were on the call, thank you very much for your interest in IDACORP and Idaho Power. We wish you the best of the rest of your day and thanks a lot. Thank you.

And that concludes today's conference. Thank you for your participation.