IDACORP Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 5 speakers on the call.

Operator

Welcome to IDACOR's First Quarter 20 24 Earnings Conference Call. Today's call is being recorded and our webcast is live. A replay will be available later today and for the next 12 months on the IDACORP website. I will now turn the call over to Amy Shaw, Vice President of Finance, Compliance and Risk. Please go ahead.

Speaker 1

Thank you. Good afternoon, everyone. We appreciate you joining our call. This morning, we issued and posted to IDACORP's website our Q1 2024 earnings release and the Form 10 Q. The slides we will reference during today's call are available on IDACORP's website.

Speaker 1

As noted on Slide 2, our discussion today includes forward looking statements, including earnings guidance, spending forecast and regulatory plans that reflect our current views on what the future holds but are subject to risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from statements made today, and we caution against placing undue reliance on any forward looking statements. This cautionary note is included in more detail for your review in our filings with the Securities and Exchange Commission. As shown on Slide 3, Lisa Growe, IDACORP's President and CEO and Brian Buckham, IDACORP's Senior Vice President, CFO and Treasurer will be presenting today. In addition to Lisa and Brian, we have other members of our management team available for a Q and A session following our prepared remarks.

Speaker 1

Slide 4 shows our Q1 financial results. IDACORP's Q1 2024 diluted earnings per share were $0.95 compared with the $1.11 for last year's Q1. Our key metrics and guidance for 2024 remain unchanged, except for our hydro power generation forecast, which has improved. We're reaffirming our full year IDACORP earning guidance range in the range of 5.25 to $5.45 diluted earnings per share. This includes our existing expectation that Idaho Power will use $35,000,000 to $60,000,000 of additional tax credits available to support earnings at the 9.12% return on equity in the Idaho jurisdiction.

Speaker 1

These estimates assume historically normal weather conditions and normal power supply expenses for the remainder of the year. Now I'll turn the call over to Lisa.

Speaker 2

Thanks, Amy, and thanks to everyone for joining us. We're off to a good start in 2024. We had some great spring skiing this year with late storms and snow in the mountains, which has the added benefit of setting us up nicely from a hydro generation perspective. Overall, despite some good snowstorms, weather was generally mild to start the year and we saw that in our financial results compared to last year. Still, our Q1 results were on plan and we're on target for the remainder of the year on our financial guidance as Amy mentioned.

Speaker 2

Our Q1 isn't typically one of our largest revenue quarters due to seasonality, but it does help set us up for the year. Brian will address the financial drivers for the quarter and a financial look ahead in a few minutes. I want to spend some time discussing growth, project development, our regulatory strategy and investments we're making in our system. It's an understatement to say this is an exciting time for our company and we're energized to address the challenges and capitalize on our opportunities. We continue to see customer growth and economic expansion across Idaho Power Service area.

Speaker 2

As shown on Slide 5, our customer base has grown 2.5% since last year's Q1. Moody's is forecasting GDP growth in our region of 4.6% in 2024 and 3.6% in 2025. We believe our low electric rates and reliability continue to help our regional economy outperform national trends. As evidence of that in its recent best states ranking, U. S.

Speaker 2

News and World Report ranked Idaho in the top 3 for growth and economic climate. Idaho Power continues to see significant interest from large projects. In terms of scale, several of them are well over 100 megawatts and our pipeline of prospective customers is as robust as ever and on a multiple gigawatt scale. This is a great time economy and for our company as we work to serve incremental loads of that potential magnitude, particularly when considering our already high customer and load growth rates. Our challenge is to balance realistic timelines for building infrastructure with customers' desired in service dates given the permitting and supply chain constraints the industry has been experiencing.

Speaker 2

As we build infrastructure to reliably meet our growing customer base, we're also focused on maintaining affordability for our customers. Some potential new large load customers have recently paid for their construction studies. Those studies help ensure incremental loads bear the cost of new interconnection facilities required to serve them, which helps facilitate the growth pace for growth approach that helps from an affordability perspective for all of our customers. As noted on Slide 6, we've had productive conversations with Oregon Commission staff and with other key stakeholders as part of our general rate case in Oregon. We recently filed a motion to suspend the case as we've reached a settlement in principle with the Oregon Commission staff and other parties to the case.

Speaker 2

Details of the settlement aren't public yet. We continue to expect the resulting price changes to go into effect this October. During our last call, I mentioned our notice of intent to file for a rate case proceeding in Idaho in 2024. After what I described as positive discussions with the Idaho Commission staff and other key stakeholders, Idaho Power has decided to file a limited scope rate case on May 31st that will only look at capital additions through the end of 2024 plus labor increases. Also on the regulatory front, our annual spring rate adjustments call for price decreases in both Idaho and Oregon, mostly due to lower actual and forecasted power supply costs.

Speaker 2

We continue to acquire new resources to meet future demand. Turning to Slide 7, as part of our 2026, 2027 RFP process, we procured energy through a long term purchase agreement and we recently filed for a certificate of public convenience and necessity for a large Idaho Power owned battery storage project. Beyond this, we continue to work through the process to negotiate with a short list of bidders, including our own submissions. As we look beyond 2027, we've initiated the RFP process for 2028 resources and additional RFP processes will likely be necessary to fill future anticipated deficits and potentially to incorporate additional new large loads. Transmission remains vital to helping us meet demand, improve reliability and optimize the movement of energy in the West.

Speaker 2

We've experienced regulatory permitting delays on the Boardman to Hemingway project that will likely push the in service date to 2027. We're continuing to work with our Gateway West partner on the timing and allocation of some segments and the overall configuration of the project. We're also pursuing an arrangement with interested parties in the Southwest Intertie project, which would create additional transmission capacity to the Desert Southwest. As we continue to work on these projects, we are evaluating the need for a dispatchable resource to address load growth. In addition, Idaho Power is planning to convert its remaining coal fired units to natural gas, which will reduce the carbon emissions of those units by about half while maintaining their generating capacity.

Speaker 2

We recently completed the conversion of 2 units at the Jim Bridger Power Plant in Wyoming. Those units are operational and will be available to help us serve peak load this summer. We're working with our partners to convert and address the remaining Bridger units over the next several years. This is a low cost solution that reduces our carbon emissions while keeping dispatchable energy resources available to serve our customers. Of course, we're hard at work digesting the EPA's final rules issued last week and we'll evaluate the impact in our analysis.

Speaker 2

It's early and we expect the rules will face legal challenges. Battery storage has already started to help us maintain reliability and affordability. The 100 Megawatt Franklin Solar Project in Southern Idaho is scheduled to come online soon and it will include an additional 60 megawatts of company owned battery storage. These batteries along with the 36 megawatts of batteries coming online soon at the Hemingway substation will add to our portfolio of storage projects, which are already instrumental in integrating intermittent renewable resources onto our system. In closing, I'll point out that as warmer weather approaches, our team and system are ready to respond.

Speaker 2

Protecting our existing system is essential to maintaining safety, reliability and resilience. As highlighted on Slide 8, our wildfire mitigation plan is helping us harden our system, expand our situational awareness capabilities and enhance our vegetation management program. This year, we've expanded our public safety power shutoff program zone and enhanced how we alert customers and communities about wildfire risk. We're proud of our mitigation program and we're continuing to continuously we're continuously making improvements. We also continue to work with industry, federal, state and local partners in that journey.

Speaker 2

The summer brings our highest demand days of the year and with current hydro conditions, our balanced generation portfolio, our enhanced wildfire mitigation plan and our talented employees, we feel ready to safely and reliably serve our customers with the energy they rely on. With that, I'll hand the presentation over to Brian for an overview of our financial results and some additional commentary.

Speaker 3

Hey, thanks Lisa. Hi everybody. Thanks for tuning in for the call. Like usual, I'll start on Slide 9 as our reconciliation. IDORC's net income decreased $7,900,000 in the Q1 of this year compared to the Q1 of last year.

Speaker 3

Recall that last year's Q1 was a record quarter and it was bolstered by weather related higher usage and from atypicallyhightransmissionlinelossrevenues. Next, customer growth increased operating income by $4,700,000 in the 1st quarter. Lisa noted that Idaho Power's customer count grew by 2.5% over the past 12 months. I'll add that the residential customer growth rate was a robust 2.8% over that period as well. We're seeing the impact of industrial growth on our system, having hit a new winter peak load in January and seeing weather normalized quarter over quarter growth in industrial sales volumes of 3.4%, and that's despite a notable temporary decrease from 1 special contract customer during the quarter.

Speaker 3

Also the net increase in retail revenues per megawatt hour net of the various adjustments and mechanisms shown on the slide increased operating income by $4,500,000 compared to the Q1 of last year. This benefit was mostly due to the increase in base rates from the 2023 Idaho general rate case settlement, which was effective on January 1 this year. So going the other way, the benefit from customer growth was offset by a $9,100,000 decrease in usage per retail customer, which is about $0.19 of EPS compared with the Q1 of last year. While some customer classes saw a reduction in usage, usage per residential customer decreased most significantly as more moderate temperatures led residential customers to use less energy for heating purposes. And for some context on that, heating degree days were 6% below normal for the period and about 13% lower compared to last year's Q1.

Speaker 3

So the bulk of the $0.19 comparable decline is weather related. Next up, transmission wheeling related revenues, net of the power cost adjustment impacts decreased $2,800,000 on a relative basis. Total revenues earned during the Q1 of this year increased 12% compared with last year, which was mostly due to an increase in wheeling volume. However, effective January 1, financial settlement of transmission line losses is subject to the PCA mechanism by virtue of the Idaho General Rate Case settlement and that results in a smaller overall contribution of transmission revenues to net income compared with the Q1 of last year. Total other O and M expenses increased $13,800,000 in the Q1 of 2024 compared with the Q1 last year.

Speaker 3

Initially, this would seem high, but the increase was mostly related to about $4,000,000 of increased straight line amortization of pension related expenses and about $8,000,000 of increases in wildfire mitigation program and related insurance expenses. These increases are in large part offset by increases in retail revenues as more costs are now recovered in base rates from the 2023 Idaho general rate case settlement. We effectively converted a portion of those expenses from regulatory deferrals to O and M expenses, but with offsetting revenues this year as part of that settlement. We have an existing regulatory mechanism in place to recover the increased costs. Remember that our full year O and M guidance range is $40,000,000 to $50,000,000 higher than last year's actual O and M results and that includes as O and M, the pension and wildfire mitigation amortizations were now recovering in revenues.

Speaker 3

I think it's also important to realize that mechanically the revenues related to these increased costs are not collected at the same rate as the expenses are recorded in the interim periods throughout the year. There's a disconnect in timing of recovery with an intended earnings impact. And that's because collection on those elements of O and M is based largely on volumetric rates, meaning a disproportionate amount of revenue to cover the cost should show up in the Q3, whereas we record the expenses straight line during the year. For the last 5 years, on average, Q1 of the year has only provided about 18% of our annual earnings due to seasonality. Higher labor costs is the other notable area I'd mentioned as a contributor to higher O and M expenses in the Q1.

Speaker 3

Depreciation expense increased $8,600,000 which was due primarily to an increase in plant and service. With the level of CapEx we had in 2023 and into this year, the magnitude of this increase is something we expected. Moving on in the table, other net changes in operating revenues and expenses increased operating income by $5,900,000 This was primarily due to a decrease in net power supply expenses that were not deferred for future recovery and rates through power cost adjustment mechanisms. Think of that as Idaho Power's 5% share of the power supply costs subject to the PCA mechanism in Idaho turning out much more favorable this year than last year. More moderate wholesale natural gas and power market prices in the Western U.

Speaker 3

S. And increased wholesale energy sales fortunately decreased Idaho Power's net power supply expenses in the Q1 this year. That benefit along with continued collection on the existing PCA deferral had a notable cash flow benefit that I'll get to shortly. Non operating expense on a net basis increased $1,800,000 Not surprisingly with last year's debt issuances, interest expense on long term debt was higher in the Q1 this year compared with last year's Q1. The increase was partially offset by an increase in AFUDC.

Speaker 3

The average construction work in progress balance was higher from our elevated CapEx. Interest income also increased due to higher interest rates and higher average cash and cash equivalent balances. There's a regulatory lag in recovery on our interest expense to finance our CapEx and in recovery over a higher depreciation expense. That lag results largely from historic averaging on rate base in our Idaho 2023 rate case. As Lisa noted, our upcoming limited issue rate case in Idaho is one where we intend to use year end rate base to help mitigate that lag from both depreciation and interest expense.

Speaker 3

It's the next iteration of our regulatory approach and our intent in the case is to better match resources that are in service with collection through rates on those resources. The decrease in income tax expense was the result of lower income before income taxes and an $8,800,000 increase in additional investment tax credit amortization. Remember, we record our additional investment tax credit amortization ratably per quarter based on our expectation for the year. So we reported $12,500,000 of additional investment tax credit amortization under the Idaho regulatory settlement stipulation during the Q1. And last year, we reported $3,800,000 of additional amortization in the Q1.

Speaker 3

As Lisa mentioned, we're beginning to see the results of our 2026 to 2027 RFP process. We were hoping to have enough details to provide a new update on our CapEx forecast today, both in terms of the timing of currently planned projects and the size of potential capital additions from new projects. But at this point, we're planning to get further into the RFP process before we provide that update. What I can say at this point, there's a high potential for a considerable increase in our total 5 year CapEx figure compared to what we forecasted in February of this year. That of course depends on RFP results, on the timing of projects, regulatory outcomes, all of which are moving targets, but they're becoming more certain.

Speaker 3

So it's potentially a sizable increase on an already large CapEx spend, but we hope to have more details and a better quantification by our next quarterly call. Maintaining our capital structure and managing dilution to fund our accretive growth investments is top of mind and is paramount to our financial strength. We're still planning to finance our CapEx with a blend of debt and equity issuances to stay at a fifty-fifty capital structure. We're fortunate that we don't have any sizable debt maturities to address in the next few years. And in fact, nothing of magnitude in any given year until 2,037, which helps on the credit side.

Speaker 3

Also as of today, we've yet to draw any of the funds from our November 2023 forward equity offering, but we expect to issue it all this year. As we've previously discussed, we also plan to put in place an ATM program to help with equity needs on a go forward basis to support our ongoing capital plan. Timing wise, it will likely be at some point in Q2. We plan to incorporate a forward sale option on the ATM program like we did on our November secondary offering last year. Turning to Slide 10.

Speaker 3

As we expected, cash flow from operations improved pretty dramatically for the Q1 of 2024 compared to last year. We actually saw a net $200,000,000 comparative increase in operating cash flow. The June 2023 power supply cost rate change along with the January 2024 general rate case change helped in that regard. So did a substantial moderation in power supply cost volatility compared to last year. On Slide 11, maybe most notable on the slide, we expect IDACORP's diluted earnings per share this year to be squarely in the range of $5.25 to $5.45 for the full year.

Speaker 3

And that's underpinned by strong customer growth, operational efficiency and continued cost management, a thoughtful regulatory approach and the benefits of the ADITC mechanism. Our forecast ranges for additional investment tax credit amortization and O and M are unchanged. We do continue to anticipate spending between $925,000,000 $975,000,000 on CapEx for 2024. So as I noted earlier, looking out further, it's a moving target and biased upwards over the next 5 years. Finally, we raised our hydropower generation forecast.

Speaker 3

We now expect hydropower generation to be within the range of 6,500,000 to 8000000 megawatt hours for the year, an increase of a tightening from our earlier estimate of percent to 7.5 percent. We have solid carryover from the prior year and we have a relatively strong snowpack this year. So good news on hydropower and for our irrigation customers this year. With that, we're happy to address questions.

Operator

We are now ready to begin the question and answer session for attendees who have joined on the Q and A line. Your first questions come from the line of Alex Mortimer from Mizuho. Please go ahead.

Speaker 2

Hi, Alex. Hi, good

Speaker 4

afternoon, Alex. Hi, Alex. Hi, Alex. So you've been clear in the past about maybe your reluctance to issue an EPS CAGR. But are there any forms of additional guidance or disclosures, such as maybe a forward financing plan, even in a range form that you'd be open to initiating at some point to provide additional clarity?

Speaker 3

Yes, Alex. I think one thing that we'll likely do going forward is when we update our capital plan, our CapEx forecast with results of the RFP and other changes that we have in terms of project timing, We'll likely reissue a rate based CAGR on that as well. And this quarter, we also included, Quip, so that you can see the changes in the Quip balance over time for the next 5 years. And you can use that with estimates of regulatory and structural lag in that in order to come up with a forecast of potential growth over time. In terms of an actual EPS forecast, our plan is to execute well in the regulatory arena and see where that takes us.

Speaker 4

Understood. And then quickly just to tie out the CapEx updates. How should we think about the cadence of these updates? I know you mentioned the Q2 call, should we expect that that's sort of the entire update for the year? Or I know last year you had the Q3 and then the Q4 update.

Speaker 4

Can you just provide sort of any clarity on what the timing of updates throughout the year might look like?

Speaker 2

This is Lisa. I think it will depend on how the negotiations go from the RFPs that we're currently involved with. So our hope is that it would be available an update would be available in the Q2. But I don't know that we have a specific cadence that we're getting ready to roll out a 2028 RFP that would be sometime probably not until early next year, I would imagine that we would be making announcements there. Anything that you would add, Adam?

Speaker 3

No, I think you covered it. And Alex, what I'd add is our typical cadence was to do it only on the 4th quarter update. We did a 3rd quarter update last year because the amount had increased so substantially. Remember our CapEx adjustment, we increased our CapEx forecast by about 21% from our 2023 estimate to our 2024 estimate. So there was already a large increase.

Speaker 3

And so as we updated the 10 Q, we had a disclosure we made on the increase in CapEx there. So the update we would make in the Q2 was one we'd hoped to make earlier, but just based on the timing of RFPs, don't feel comfortable doing that yet. So looking ahead, I would expect it on an annual basis in the on the Q4 call, generally without interim updates unless there's material changes.

Speaker 4

Understood. And just one more quickly. Can you provide any detail on what motivated the decision to file a limited scope case versus a full case this time around? Could potentially see this type of approach utilized sort of more frequently in the coming years with maybe some bigger, I'll call them like full cases to true up every few years or just sort of any additional detail on what the regulatory strategy might look like going forward?

Speaker 2

Well, we certainly take each year and look at what our needs are. But in this case, since we had just finished the 2023 rate case and used a 13 month average on the capital investments, we felt like we had to come back in to shore that up. And then of course, like all utilities, we're seeing some upward pressure on labor. So we felt like it was more sort of a true up. And then of course, given the capital plan that we have, we'll evaluate what's needed in the next one.

Speaker 2

That of course depends on really what's going on in our jurisdictions at the time. So I don't know that we have a particular cadence on one than the other. It's really situational. But we're feeling good about the approach we're taking and of course, affordability is something that we're really thinking carefully about.

Speaker 3

Yes. And Alex, what I would add to that is one thing that you've seen our track record of is managing O and M pretty steadily. We had a 1% CAGR for quite a while. And part of that is when we look at our case going forward, there's certainly incremental O and M, but our mantra is to control that going forward. So if you look at what the building blocks of our A case would be, so long as we continue to be really prudent on our O and M spending that helps with the design of the case.

Speaker 3

Also in terms of just regulatory lag, we're seeing it mostly in depreciation and interest expense as I mentioned a while ago. And so a rate base related case to focus on the assets that are in service while they're serving customers getting recovery on those is one of our focuses for this particular case. If you remember that the outcome of our prior case, we did shore up cash quite a bit in terms of amortizing off some of the regulatory assets we had, notably pension and the wildfire mitigation plan. So since we've shored up that cash component of the case, really it becomes rate base that we're particularly focused on given the high CapEx that we have and that we're going to see for a long time going forward.

Speaker 4

All makes sense. Thank you for the update and congrats on a great quarter.

Speaker 3

Great. Thank you,

Operator

There are no further questions this time. That concludes the question and answer session for today. Ms. Crow, I will turn the conference back to you.

Speaker 2

Thank you all for joining us this afternoon and for your continued interest in IDACOR. I hope you all have a great evening. Thank you.

Operator

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

Powered by Quartr
Earnings Conference Call
IDACORP Q1 2024
00:00 / 00:00