10-Q: IDACORP and Idaho Power Report First Quarter 2024 Results, Impacted by Weather and Regulatory Changes

IDACORP and Idaho Power's first quarter 2024 earnings were down compared to the same period last year, primarily due to decreased customer usage and increased operating expenses, partially offset by rate increases and regulatory adjustments.

Summary

• IDACORP's net income decreased by $7.9 million in the first quarter of 2024 compared to the first quarter of 2023, primarily due to lower net income at Idaho Power.
• Idaho Power's customer base grew by 2.5% year-over-year, adding approximately 15,800 customers.
• Usage per retail customer decreased, particularly for residential customers due to milder temperatures, reducing energy consumption for heating.
• Retail revenues per MWh increased due to an overall increase in Idaho base rates effective January 1, 2024, per the 2023 Settlement Stipulation.
• Transmission wheeling-related revenues decreased due to a change in financial settlement of transmission line losses, now subject to the PCA mechanism.
• Other operations and maintenance expenses increased by $13.8 million, driven by higher pension-related expenses and increased wildfire mitigation program costs.
• Depreciation expense increased by $8.6 million due to an increase in plant-in-service.
• Non-operating expenses increased by $1.8 million due to higher interest on long-term debt, partially offset by increased AFUDC and interest income.
• Income tax expense decreased due to lower pre-tax income and increased additional ADITC amortization.
• Idaho Power recorded $12.5 million in additional ADITC amortization in the first quarter of 2024, compared to $3.75 million in the same period of 2023.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is positive customer growth and strategic investments, the decrease in net income and increased operating expenses raise concerns. The delays in the transmission line project and the potential for increased costs due to regulatory changes and environmental compliance add to the uncertainty. The sentiment is neutral to slightly negative.

Positives

• Customer growth continues, with a 2.5% increase in the customer base year-over-year.
• Idaho Power is actively pursuing new resources to meet growing demand, including battery storage and renewable energy contracts.
• The 2023 Settlement Stipulation provides for accelerated amortization of ADITC, enhancing earnings stability.
• The company is actively managing its power supply costs through hedging and power cost adjustment mechanisms.
• Idaho Power is working to include completed capital projects into rate base through regulatory filings.

Negatives

• Net income decreased due to lower customer usage and increased operating expenses.
• Transmission wheeling-related revenues decreased due to a change in financial settlement of transmission line losses.
• Other operations and maintenance expenses increased significantly, driven by pension and wildfire mitigation costs.
• Depreciation expense increased due to an increase in plant-in-service.
• The company is facing potential delays in the construction of the Boardman-to-Hemingway transmission line.

Risks

• Regulatory decisions by the IPUC, OPUC, and FERC could impact Idaho Power's ability to recover costs and earn a return on investment.
• Changes to or elimination of Idaho Power's regulatory cost recovery mechanisms could negatively affect financial performance.
• Delays and cost overruns associated with capital expenditures for utility infrastructure projects could impact profitability.
• Power demand exceeding supply and the volatility of new load demand could increase costs for purchasing energy and capacity.
• Economic conditions, including inflation and increasing interest rates, could impact operations, capital investments, and customer demand.
• Severe weather conditions, wildfires, and other natural disasters could affect customer sales, hydropower generation, and repair costs.
• The advancement of self-generation and alternative energy sources could reduce Idaho Power's sale of electric power.
• Variable hydrological conditions and over-appropriation of water in the Snake River Basin could impact hydropower generation.
• Disruptions or outages of Idaho Power's generation or transmission systems could result in liability and increased costs.
• The company faces risks related to acts of terrorism, cyber attacks, and other malicious acts.
• Changes in tax laws or related regulations could impact the availability of tax credits.
• The company faces challenges in obtaining and complying with required governmental permits and approvals.
• The company's ability to obtain debt and equity financing could be affected by credit ratings and market conditions.
• The company faces risks related to its hedging strategies and potential losses on those hedges.
• Changes in actuarial assumptions and interest rates could affect pension and post-retirement plan funding obligations.
• The company faces remediation costs associated with the planned cessation of coal-fired operations.
• The company's ability to pay dividends could be affected by financial performance and capital requirements.
• The company faces changing market dynamics due to the emergence of day-ahead energy and transmission markets.

Future Outlook

Idaho Power plans to file a limited issue rate case in Idaho on or after May 31, 2024, and is awaiting the outcome of its general rate case in Oregon. The company expects to continue investing in infrastructure to meet growing customer demand and address projected energy and capacity deficits. The company expects its capital expenditures on infrastructure investments in the next five years or more will be considerable as it works to address projected energy and capacity deficits.

Management Comments

• Management's outlook and strategy remain consistent with the discussion in the 2023 Annual Report.
• Idaho Power continues to focus on timely recovery of costs and earning a reasonable return on investment.
• Idaho Power is working to put in place innovative regulatory mechanisms, and prudent management of expenses and investments.
• Idaho Power intends to pursue timely inclusion of completed capital projects into rate base as part of future general rate cases or other appropriate regulatory proceedings.

Industry Context

The report reflects the challenges faced by utilities in the western United States, including managing increasing customer demand, integrating renewable energy sources, and addressing the impacts of climate change. The company's focus on infrastructure investment and regulatory mechanisms is consistent with industry trends aimed at ensuring reliability and affordability of electricity.

Comparison to Industry Standards

• The customer growth rate of 2.5% is above the national average for electric utilities, indicating strong regional demand.
• The company's reliance on hydropower is higher than the national average, making it more susceptible to hydrological conditions.
• The company's focus on battery storage and renewable energy contracts aligns with industry trends towards decarbonization.
• The company's capital expenditure plans are significant, reflecting the need for infrastructure upgrades to meet growing demand, similar to other utilities in high-growth regions.
• The company's use of power cost adjustment mechanisms is a common practice in the industry to mitigate the impact of volatile fuel and purchased power costs.
• The company's engagement in relicensing of hydropower projects is a common challenge for utilities with aging infrastructure, similar to other utilities with large hydropower assets.
• The company's wildfire mitigation efforts are consistent with industry best practices in regions with high wildfire risk, similar to other utilities in the western United States.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and earnings per share.
• Customers may experience rate changes due to regulatory filings and power cost adjustments.
• Employees may be affected by changes in pension plans and workforce adjustments.
• Suppliers and contractors may be impacted by changes in capital expenditure plans and project timelines.
• Creditors may be affected by changes in the company's debt levels and credit ratings.

Next Steps

• Idaho Power plans to file a limited issue rate case in Idaho on or after May 31, 2024.
• The company is awaiting the outcome of its general rate case in Oregon.
• Idaho Power will continue to evaluate its RFP for additional resources to address projected capacity deficits.
• The company will continue to pursue the permitting and construction of the Boardman-to-Hemingway and Gateway West transmission lines.
• Idaho Power will continue to monitor and comply with environmental regulations and pursue relicensing of its hydropower facilities.

Key Dates

Keywords

Idaho Power, IDACORP, Utilities, Energy, Power Generation, Transmission, Regulation, Rate Case, Financial Results, ADITC, Power Cost Adjustment, Renewable Energy, Battery Storage, Capital Expenditures, Hydropower, Wildfire Mitigation