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IDACORP Inc. (NYSE:IDA)

Q1 2014 Earnings Conference Call

May 1, 2014 04:30 AM ET

Executives

Lawrence Spencer - Director, IR

Steve Keen - SVP and CFO

Darrel Anderson - President and CEO

Greg Said - VP, Regulatory Affairs of Idaho Power Company

Analyst

Paul Ridzon - KeyBanc

Brian Russo - Ladenburg Thalmann

Operator

Good day, and welcome, everyone, to IDACORP’s First Quarter 2014 Conference Call. Today’s call is being recorded and webcast live. A complete replay will also 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 the Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead, sir.

Lawrence Spencer

Thank you, Esteban, and good afternoon, everyone. Welcome to our first quarter 2014 earnings release conference call. We issued our earnings release before the markets opened today and that document, along with our SEC Form 10-Q, is now posted to our website at www.idacorpinc.com. We will be using a few slides to supplement today’s call, and these are also located on our website. We’ll refer to specific slide numbers as we work our way through today’s presentation.

On Slide 2, we show the presenters on today’s call. Darrel Anderson, IDACORP’s President and Chief Executive Officer; and Steve Keen, IDACORP’s Senior Vice President, Chief Financial Officer and Treasurer. We also have other individuals available to help answer your questions during the Q&A period.

Before turning the presentation over to Steve, I’ll cover our Safe Harbor statement which is on Slide 3. Our presentation today contains 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 statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements. A discussion of factors and events that could cause future results to differ materially from those included in forward-looking statements can be found on Slide 3 and in our filings with the Securities and Exchange Commission, which we encourage you to review.

On Slide 4, we present the quarterly financial results. IDACORP’s first quarter 2014 earnings per share were $0.55, a decrease of $0.15 per share from last year’s first quarter. Please remember that the 2013 results have been adjusted upward by $1.7 million over what we had reported last year’s first quarter to reflect the change in method of accounting for investments in qualified affordable housing projects. Refer to Slide 5 for the 2013 quarterly earnings per diluted share as originally recorded and as adjusted for the adoption of accounting standards update 2014-01.

I’ll now turn the presentation over to Steve to discuss the results in greater detail and review our key operating metrics.

Steve Keen

Thanks, Larry, and good afternoon, everyone. On Slide 6, we present a reconciliation of earnings from first quarter 2013 to first quarter 2014. As mentioned in our earnings release, our solid first quarter results were in line with our expectations while IDACORP's net income decreased by $7.8 million from the first quarter of 2013 to the same period this year, we view this year’s results a return to more typical first quarter levels especially after the cold temperatures early last year resulted in atypically higher first quarter’s results.

Idaho Power’s $10.8 million decrease in operating income primarily resulted from lower overall usage per customer. Decreased usage due to warmer and more normal temperatures in 2014 caused fewer customers to reach higher rate tiers under Idaho Power’s tiered billing rate system. Heating degree days in the first quarter of 2013 were about 14% above normal, compared to heating degree days that were slightly below normal in the first quarter of 2014.

The decrease in Idaho Power’s operating income was partially offset by a $3.5 million reduction of income tax expense tax associated with lower Idaho Power pretax income. We also recorded nearly $1 million of additional accumulated deferred investment tax credits under our Idaho regulatory settlement in the first quarter of 2014. We did not record any additional ADITCs in the first quarter of 2013.

Now moving Slide 7, here we show IDACORP’s first quarter 2014 operating cash flows and liquidity positions at March 31. Cash flow from operations in the first quarter of this year was $96.9 million, an increase of $42.9 million over the first quarter of 2013. The majority of the increase results from a change in power supply cost collected under the Idaho PCA mechanism, which increased cash flows by $35 million. The remaining change resulted from working capital and other items.

In regard to additional cash flow from our Idaho PCA mechanism, our 2014 annual PCA request filed on April 15 proposed an $11.1 million increase to customer rates for one year beginning June 1, 2014. This proposal approximates a 1% increase to customer rate and is significantly more moderate than last year’s approved increase of $140.4 million. IDACORP and Idaho power currently have in place credit facilities of $125 million and $300 million respectively to meet short-term liquidity and operating requirement.

The liquidity available under the credit facilities is shown on Slide 7. Also there are 3 million IDACORP common shares available for issuance under IDACORP’s continuous equity program. No shares were issued during the first quarter of 2014 and we do not expect to issue new equity during 2014, except for modest amounts relating to employee compensation plans.

On Slide 8. We show the individual sharing components of the December 2011 Idaho Regulatory Settlement Agreement. As discussed in our Form 10-Q filed earlier today, we expect to use less than $5 million of additional accumulated deferred investment tax credits in 2014. Idaho Power has the full fully $45 million of originally allocated credits available for use in 2014 under the current settlement agreement. Darrel will speak to the anticipated filing of a request for an extension to this agreement in his comment.

Moving now to our estimated 2014 operating and financial metrics shown on Slide 9. All of the metrics including the earnings guidance range remained unchanged from those reported on February 20, 2014 with the exception of the estimated hydroelectric generation. We have increased the expected range to 5.5 million to 7.5 million megawatt hours from a range of 5 million to 7 million megawatt hours previously. This compares with a median of 8.4 million megawatt hours.

We entered 2014 with low reservoir carryover and less-than-normal snowpack conditions. Since then, winter and spring storms have helped improve our snowpack to slightly over 100% in normal. However, our water outlook remains only modestly improved due to the low reservoir carryover.

I will now turn the presentation over to Darrel to discuss recent regulatory actions in our continued economic progress.

Darrel Anderson

Thanks, Steve. As some of you may know, today is my first official day on the job as the President and CEO of IDACORP. It’s also the first day on the job for Steven Keen in his role as Senior Vice President and Chief Financial Officer. LaMont Keen retired effective yesterday and we thank him for all his significant contribution over his 40-year career with the Company. He has left a great legacy for us to build on and I am excited about what the future holds for IDACORP and Idaho Power Company. LaMont remains on the Boards of both companies.

I have a few brief comments on a couple of regulatory topics and an update on our economy and how it is performing, as well as a brief discussion on the summer weather outlook. As to regulatory items in March, Idaho Power received an order from the Idaho Commission approving Idaho Power’s application to collect approximately $100 million of normalized or base level power supply expenses in customer base rates, instead through the annual Idaho PCA mechanism. While the approval does not change the aggregate amount of revenue collected from customers through base rates and the PCA mechanism, we expect it to reduce the amount of any base rate increases that Idaho Power would request in a future Idaho general rate case.

As we have discussed in the past, our current December 2011 settlement agreement in Idaho provides for additional amortization of accumulated deferred investment tax credits or revenue sharing under certain criteria and runs through December 31, 2014. We are currently preparing an application that would request an extension of that settlement with similar terms and conditions beyond 2014. We anticipate filing this application by the end of May. As to the service area economy, Idaho Power believes that service area has characteristics that continue to make it desirable for the expansion of existing businesses and for attracting new businesses and residential customers.

Let me highlight few items. Construction activity continues to be strong, including the start of a recent project consists of $100 million continuing care retirement community in Boise. The project owner says it is expected to create more than 2000 construction and 150 operational jobs. The state as a whole has received attention from an economic development standpoint on a number of fronts. Idaho was recently ranked as a state with the fifth best economic outlook by the authors of Rich States, Poor States published by the American Legislative Exchange Council.

A few other recognitions are shown on Slide 10. Boise in particular has received favorable national attention. Time Magazine ranked Boise number one out of nine cities for getting it right. Boise was also recently named the city to move to in 2014 by Simple Moving Labor. The December 2013 Moody's Analytics Report includes favorable comments on the Boise MSA and the State of Idaho, citing higher wage jobs and strong economic recovery. The trend of economic recovery in Idaho Power’s service area is seen on Slide 11 with customer and average employment growth.

The number of customers additions for the 12 months ended March 2014 more than doubled that of 2010 while the average first quarter service area employment grew from approximately 423,000 to 453,000 or by more than 30,000 jobs from 2010 to 2014. Again, these were all signs of improved economic conditions in our service area.

Before moving to Q&A, Slide 12 provides an update on the June through August 2014 weather outlook as provided by the National Oceanic and Atmospheric Administration or NOAA. We can see from the precipitation and temperature maps that NOAA is predicting that precipitation is expected to have an equal chance of being above normal, normal, or below normal. However, we typically only receive about 10% of our annual precipitation over this summer period.

Temperatures for southern Idaho however are generally expected to have a 40% to 50% chance of above normal temperatures. The key consideration is that warmer spring and summer temperatures could lead to greater than normal loads over the period for residential, commercial, and irrigation customers.

With those comments, we would now like to answer any questions that you may have.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will begin the question and answer session. The session will be conducted electronically. (Operator Instructions). Our first question comes from Paul Ridzon with KeyBanc.

Paul Ridzon - KeyBanc

First of all, Darrel and Steve, congratulations on officially assuming your new roles. Can you parse out the impact of less tiered rates from the $25 million swing or the $0.25 swing in earnings?

Darrel Anderson

Are you saying specifically how much was due to tiers and how much was due to just usage? It’s a little of both. It was really all temperature driven. I think we put that in mainly to highlight that we get higher usage and we have tired rates both in the winter and the summer. That can impact our revenue in a little more dramatic way than simply a continuation up and down from our normal rates, our base rate. While we’re talking, they’re looking to see if there is breakout. I’m not sure we have a split into how much was just volume and how much was tiers. We might have to circle back as we get that answer but I think we put that in primarily because I think some believe we are familiar with tier grades during the summer. But our tier grades actually run through the entire year. They are little greater magnitude in the summer but they are in existence really through the entire year.

Paul Ridzon - KeyBanc

Why you’re looking I guess when you file for extension of the current settlement, are there any major changes you anticipate putting in your request filing?

Darrel Anderson

This is Darrel. Right now, actually, we’re in the process of drafting that filing right now and as we look at it today, it appears it’s going to cover very similar to the provisions that we’ve had in the last one. Again we haven’t finalized all the particular provisions, but we’re going to file something that looks a lot like what we have today.

Steve Keen

Paul, just to finish up, it looks like the rate change portion of that increase was a little over $6 million [ph].

Operator

Out next question comes from Brian Russo with Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Could you just reiterate the rate change from tiered rate? Did you say $2 million?

Steve Keen

Yes, it’s actually around $2 million to $2.5 million, somewhere in there.

Brian Russo - Ladenburg Thalmann

Based on Darrel’s comments toward the end of his remarks on weather et cetera, it seems like that the next couple of months could possibly shape up like you had last year and the year before where the irrigation customers ran their pumps a lot more generating more load for you guys?

Steve Keen

Just a couple of things on that Brain. First of all as it relates to irrigation customers, the good news we saw over this last 6 or 8 weeks was the increase in our snowpack. While you don’t see a significant increase in our amount of hydrogenation, it did happen a bit. The majority of the benefit is coming because of the increased snowpack is the fact that it will allow the irrigation customer class actually to have an opportunity to irrigate possibly longer than they might otherwise have because as had we stayed on the path we were, there may have been limitations on how much water they could use.

So the upside of the increase in snowpack for us is we think it allows that customer class to get a plan on more of a normal course of water might otherwise not have been there. So that’s one piece of it. As it relates to the weather charge, again, those are NOAA’s expectations. We look at those as one set of data points. I can’t tell you whether it’s going to trend that way or not, but as it looks, it does suggest that it could warmer than normal.

Brian Russo - Ladenburg Thalmann

Okay, understood. Should we still be using like a 1.4% load growth assumption?

Steve Keen

That’s the number that we have – obviously that is the number that was in our last IRP and we haven’t really updated that number. And we’re actually right in the process of going through that for the 2015 numbers. And so we’ll probably have a number for you later in the year if that number were to move as part of the IRP process. And remember that’s 1.4% on peak and 1.1% on energy on average.

Brian Russo - Ladenburg Thalmann

Okay. And what’s the effective tax rate in 2014?

Steve Keen

If you take a look at our 10-Q and take a look on page I think on around 18, you’re seeing an effective rate around 24% or so. We don’t see anything that’s going to be probably move it much. It shouldn’t move one way or the other too much on that depending on what -- unless the service decides to do some different things with some the tax regulations. But right now we would anticipate in the mid-20.

Brian Russo - Ladenburg Thalmann

Okay. You mentioned on the last call that you had some meetings with the Commission staff and interveners, regarding a filing to extend the current ADITC and rate structure. Has there been any more dialogue since then that you could share with us?

Unidentified Company Representative

Brian I’m going to ask Greg Said, who heads up our regulatory side. He is the one that’s had those conversations. So I will let him speak to it since you’ll first person comment that way.

Greg Said

We have not had additional comments since the last time we had the discussion.

Brian Russo - Ladenburg Thalmann

Okay. Then just on that topic. So you file the end of May. Does a procedural schedule get set, that we can track certain dates for filings? Or is it just kind of behind the senses discussions with staff and interveners to reach some sort of agreement?

Greg Said

No, it will be established at the time of following the filing and so can they either address the issue though a fully litigated proceeding or they could decide to review it under a modified procedure that would take less than full seven months that would be required under the other process. Either way, we file by the end of this month, we will have decision by end of the year.

Steve Keen

Hey Brian, just one follow-up. You asked about -- when you were talking temperatures. I want to make sure everybody knows that we do our forecasting and our planning. We do look at normal temperatures typically. We’re not factoring in any kind of expectation up or down. We look at normal and just want to make sure you weren’t thinking we had -- because we showed the NOAA chart, that that was factored in that it was higher. That’s something, what happens -- it gets rolled in after its happened and not as an expectation.

Operator

(Operator Instructions) that concludes the question-and-answer session for today. Mr. Keen, I will turn the conference back to you.

Steve Keen

Thank you very much everyone. We just want to express our appreciations for following our Company and thank you again for today’s call. That concludes our conference. Thanks, everybody.

Operator

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

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