10-K: IDACORP, Inc. Reports Record Earnings for 2023, Driven by Strong Customer Growth and Rate Adjustments

IDACORP, Inc., the parent company of Idaho Power, announced its sixteenth consecutive year of increased earnings in 2023, primarily attributed to customer growth and rate adjustments.

Summary

• IDACORP, Inc. reported an increase in net income for 2023, marking its sixteenth consecutive year of earnings growth.
• Idaho Power, the primary operating subsidiary, saw a 2.4 percent growth in its customer base, contributing $15.7 million to operating income.
• Despite a decrease in per-customer sales volume, operating income was positively impacted by a $15.1 million increase in revenues from the Fixed Cost Adjustment (FCA) mechanism.
• The Idaho Public Utilities Commission (IPUC) approved a settlement in December 2023, increasing annual retail revenue by $54.7 million, effective January 1, 2024.
• Idaho Power filed a general rate case in Oregon in December 2023 and plans to file another in Idaho in June 2024.
• The company's 2023 Integrated Resource Plan (IRP) outlines significant additions to energy and capacity resources over the next 20 years, including solar, wind, and battery storage.
• IDACORP's board approved a 5.1 percent increase in the regular quarterly cash dividend in September 2023.
• Idaho Power is actively pursuing the relicensing of the Hells Canyon Complex (HCC), its largest hydropower generation source, with an estimated annual cost of $35 million to $45 million until a new license is issued.
• The company is also developing the Boardman-to-Hemingway and Gateway West transmission projects to meet future resource needs.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with sustained growth and strategic investments, but is tempered by regulatory uncertainties and operational risks.

Positives

• IDACORP reported its sixteenth consecutive year of increased earnings.
• Idaho Power experienced customer growth of 2.4% in 2023.
• The IPUC approved a settlement resulting in a $54.7 million increase in annual retail revenue.
• The company has a strong focus on renewable energy, with plans to add significant solar, wind, and battery storage capacity.
• IDACORP increased its regular quarterly cash dividend by 5.1% in 2023.
• Idaho Power's reliability metrics were among the best in company history in 2023.
• The company is investing in transmission infrastructure to meet future resource needs.

Negatives

• Lower sales volumes per customer, particularly among residential and irrigation customers, decreased operating income by $31.3 million in 2023 compared with 2022.
• Depreciation expense increased by $25.3 million in 2023 compared to 2022, due in part to an increase in plant-in-service and the impacts of the Bridger Order.
• Non-operating expense, net, decreased $4.7 million in 2023 compared with 2022, partially due to higher interest expense on long-term debt.
• Idaho Power is facing increasing costs associated with environmental regulations and the planned retirement of coal-fired generation plants.
• The company is exposed to risks associated with volatile fuel and power costs, although these are partially mitigated by power cost adjustment mechanisms.

Risks

• State or federal regulators may not approve customer rates that provide timely or sufficient recovery of Idaho Power's costs or allow Idaho Power to earn a reasonable rate of return.
• Idaho Power's regulatory cost recovery mechanisms may not function as intended and are subject to change or elimination.
• Changes in customer growth and customer usage may negatively affect IDACORP's and Idaho Power's business, financial condition, and results of operations.
• Changes in weather conditions, severe weather, and the impacts of climate change can affect IDACORP's and Idaho Power's operating results and cause them to fluctuate seasonally.
• Liability from fires could adversely impact IDACORP's and Idaho Power's business, financial condition, and results of operations.
• New advances in power generation, energy efficiency, alternative energy sources, or other technologies that impact the power utility industry could decrease customer energy demand and revenues.
• Acts or threats of terrorism, acts of war, social unrest, cyber or physical security attacks, and other malicious acts could adversely impact IDACORP's and Idaho Power's business, financial condition, and results of operations.
• Changes in capital expenditures for infrastructure and the risks associated with permitting and construction of utility infrastructure can significantly affect IDACORP's and Idaho Power's financial condition and results of operations.
• Demand for power could exceed supply, resulting in deliverability risks and increased costs for, or difficulty in, purchasing capacity in the market or acquiring or constructing additional generation resources and battery storage facilities.
• Factors contributing to lower hydropower generation can increase costs and negatively impact IDACORP's and Idaho Power's financial condition and results of operations.
• Idaho Power's use of coal and natural gas to fuel power generation facilities exposes it to commodity availability and price risk.
• Idaho Power's power supply, transmission, and distribution facilities are subject to numerous operational risks.
• Purchases of power mandated by PURPA from renewable energy projects may increase costs and adversely affect Idaho Power's and IDACORP's results of operations and financial condition.
• IDACORP's and Idaho Power's activities are concentrated in one industry and in one region.
• The impacts of a retiring workforce with specialized utility-specific functions and the inability to hire qualified third-party vendors could increase costs and adversely affect IDACORP's and Idaho Power's financial condition and results of operations.
• Co-owners of Idaho Power's generation and transmission assets may have unaligned goals and positions.
• Changes in legislation, regulation, and government policy may have a material adverse effect on IDACORPs and Idaho Powers business.
• Changes in income tax laws and regulations, or differing interpretation or enforcement of applicable laws by the U.S. Internal Revenue Service or other taxing jurisdictions, could have a material adverse impact on IDACORPs or Idaho Powers financial condition and results of operations.
• IDACORP's and Idaho Power's businesses are subject to an extensive set of environmental laws, rules, and regulations.
• Obligations imposed in connection with hydropower license renewals and permitting may require large capital expenditures, increase operating costs, reduce hydropower generation, and negatively affect IDACORP's or Idaho Power's results of operations and financial condition.
• Idaho Power could be subject to penalties, reputational harm, and operational changes if it violates mandatory reliability and security requirements.
• IDACORP and Idaho Power are subject to costs and other effects of legal and regulatory proceedings, disputes, and claims.
• Changes in accounting standards or rules may impact IDACORP's and Idaho Power's financial results and disclosures.
• Volatility or disruptions in the financial markets, failure of IDACORP or Idaho Power to satisfy conditions necessary for obtaining loans or issuing debt securities, and denial of regulatory authority to issue debt or equity securities, may negatively affect IDACORPs and Idaho Powers ability to access capital and/or increase their cost of borrowing and ability to execute on their strategic plans.
• A downgrade in IDACORPs and Idaho Powers credit ratings could affect the companies ability to access capital, increase their cost of borrowing, and require the companies to post collateral with transaction counterparties.
• Stakeholder actions and increased regulatory activity related to ESG matters, particularly global climate change and reducing GHG emissions, could negatively impact IDACORP and Idaho Power.
• Idaho Powers energy risk management policy and programs relating to economically hedging commodity exposures and credit risk may not always perform as intended, and as a result, IDACORP and Idaho Power may suffer losses.
• The performance of pension and postretirement benefit plan investments, increasing health care costs, and other factors impacting plan costs and funding obligations could adversely affect IDACORP's and Idaho Power's financial condition and results of operations primarily cash flows and liquidity.
• If the assumptions underlying coal mine reclamation at Bridger Coal Company and related forecast trust fund growth are materially inaccurate, Idaho Powers costs could be greater than anticipated or be incurred sooner than anticipated.
• As a holding company, IDACORP does not have its own operating income and must rely on the cash flows from its subsidiaries to pay dividends and make debt payments.
• The market price of IDACORP's common stock may be volatile.
• IDACORP's charter and bylaws and Idaho law could delay or prevent a change in control that shareholders may favor.
• Statutory and regulatory factors will limit another partys ability to acquire IDACORP and could deprive shareholders of the opportunity to gain a takeover premium for their shares of common stock.

Future Outlook

Idaho Power expects continued growth in its customer base and energy demand, necessitating significant investments in generation, transmission, and distribution infrastructure. The company anticipates capital expenditures of up to $4.4 billion from 2024 through 2028. Idaho Power is also focused on achieving its goal of providing 100% clean energy by 2045 and is actively pursuing the relicensing of the HCC.

Industry Context

Idaho Power's announcement aligns with broader industry trends of increasing investment in renewable energy sources, grid modernization, and transmission infrastructure. The company's focus on clean energy and its efforts to address climate change risks are consistent with the direction many utilities are taking in response to regulatory pressures and stakeholder expectations.

Comparison to Industry Standards

• Idaho Power's customer growth rate of 2.4% in 2023 is higher than the national average for electric utilities. According to the U.S. Energy Information Administration, the average annual growth rate in the number of electric utility customers in the United States was around 0.7% from 2017 to 2021.
• Idaho Power's planned investments in renewable energy, particularly solar and battery storage, are in line with industry trends. Many utilities across the country are increasing their renewable energy portfolios to meet clean energy goals and reduce carbon emissions. For example, Duke Energy plans to add 2,400 MW of solar and 1,100 MW of battery storage by 2029, and Xcel Energy plans to add 5,500 MW of wind and solar by 2030.
• Idaho Power's focus on transmission infrastructure development, including the Boardman-to-Hemingway and Gateway West projects, is also consistent with industry trends. Many utilities are investing in transmission projects to improve grid reliability, integrate renewable energy resources, and meet growing energy demand. For example, American Electric Power is investing $8.2 billion in transmission projects from 2023 to 2027, and NextEra Energy is investing $6.5 billion in transmission projects from 2022 to 2025.
• Idaho Power's planned exit from coal-fired generation by 2030 is in line with the broader industry trend of retiring coal plants due to economic and environmental factors. Many utilities have announced plans to retire coal plants in the coming years, including Duke Energy, which plans to retire all of its coal plants by 2035, and Xcel Energy, which plans to retire all of its coal plants by 2030.
• Idaho Power's goal of providing 100% clean energy by 2045 is ambitious but aligns with the goals of several other utilities and states. For example, Xcel Energy has a goal of providing 100% carbon-free electricity by 2050, and California has a goal of achieving 100% clean energy by 2045.

Management Changes

Legal Proceedings

• Idaho Power is involved in various lawsuits, regulatory proceedings, disputes, and claims that could result in adverse judgments or settlements, fines, penalties, injunctions, or other adverse consequences.
• In June 2022, Idaho Power and the IDEQ entered into a consent judgment to resolve a National Pollutant Discharge Elimination System permitting issue related to 15 of Idaho Powers hydropower projects that required Idaho Power to pay a $1.1 million fine, implement interim measures for compliance, and ultimately submit applications for new permits at each of the dams subject to the consent judgment.
• One party filed in Union County Circuit Court contesting the EFSCs approval of the first amendment to the site certificate for the Boardman-to-Hemingway transmission line project.

Related Party Transactions

• Idaho Power performs corporate functions such as financial, legal, and management services for IDACORP and its subsidiaries.
• Idaho Power billed IDACORP $1.1 million in 2023, $0.9 million in 2022, and $0.8 million in 2021 for these services.
• Idaho Power purchases all of the power generated by four of Ida-Wests 50 percent owned PURPA qualifying hydropower projects located in Idaho.
• Idaho Power purchased $9.1 million in 2023, $7.9 million in 2022, and $8.2 million in 2021 of power from Ida-West.
• IERCo, Idaho Power's wholly-owned subsidiary, is a joint-owner of BCC.
• Idaho Power's coal purchases from BCC were $67.9 million in 2023, $60.4 million in 2022, and $59.7 million in 2021.

Stakeholder Impact

• Shareholders: IDACORP's continued earnings growth and dividend increases may positively impact shareholder value. However, regulatory uncertainties and potential cost increases could pose risks.
• Employees: Idaho Power's focus on employee safety, competitive compensation, and development programs may contribute to a positive work environment. However, the transition away from coal-fired generation could impact employment at affected facilities.
• Customers: Rate increases approved by regulators may impact customer bills. However, investments in renewable energy and grid modernization could enhance reliability and provide long-term benefits.
• Suppliers: Idaho Power's significant capital expenditure plans may create opportunities for suppliers of equipment and services related to generation, transmission, and distribution infrastructure.
• Creditors: IDACORP's and Idaho Power's ability to access capital markets and maintain investment-grade credit ratings is crucial for funding their operations and investments. Changes in financial performance or regulatory outcomes could impact their creditworthiness.

Next Steps

• Idaho Power plans to file a general rate case or limited issue rate proceeding in Idaho on or after June 1, 2024.
• The company will continue to pursue the relicensing of the HCC, with an estimated annual cost of $35 million to $45 million until a new license is issued.
• Idaho Power will continue the development of the Boardman-to-Hemingway and Gateway West transmission projects.
• The company will implement its 2023 IRP, which includes significant additions to energy and capacity resources.
• Idaho Power will continue its efforts to achieve its goal of providing 100% clean energy by 2045.
• Idaho Power anticipates completing the RFP process for new energy and capacity resources in the first half of 2024.

Key Dates

Keywords

electricity, power generation, transmission, distribution, utility, regulated rates, hydropower, renewable energy, coal-fired generation, natural gas-fired generation, energy efficiency, customer growth, load growth, capital expenditures, regulatory compliance, environmental regulations, Hells Canyon Complex, relicensing, Boardman-to-Hemingway, Gateway West, PURPA, ESG, Idaho, Oregon