Q3 2019 Earnings Call
Welcome to Corp's third quarter 2019 earnings conference call.
Today's call is being recorded and webcast slides.
Complete replay will be available from the end of the day for a period of 12 months on the company's website.
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No I will turn the call Justin Forsberg, <unk> director of Investor Relations and Treasury. Please go ahead.
Good afternoon, everyone.
Before the markets opened this morning, we issued an posted IDACORP website, both our third quarter 2019 earnings release and Form 10-Q .
Slides that accompany today's call are also available on our website, we refer to those flights my number throughout the call.
As noted on slide two our discussion today includes forward looking statements, including earnings guidance, which reflect our current views on what the future hole.
These forward looking statements are subject to risks to several risks and uncertainties some of which are listed on slide to.
This cautionary note is also included in a more detailed in our filings with the Securities and Exchange Commission, which you should review.
These risks and uncertainties may cause actual results to differ materially from statements made today and we cautioned against placing undue reliance on any forward looking statements.
As shown on slide three on today's call, we have Darrel Anderson, IDACORP, President and Chief Executive Officer, Lisa grow President of Idaho Power Company, and Steve King Senior Vice President Chief Financial Officer and Treasurer.
We also have another company representatives available to help answer any questions. You may have after Steve Lisa and Darryl provide updates.
On slide four we present, our quarterly financial results I'd have Corp.'s 2019 third quarter earnings per share per diluted share were one dollar and 78 cents a decrease of 24 cents per share over last year's third quarter.
IDACORP earnings per diluted share for the first nine months of 2019 were $3.68 a decrease of 29 cents per share over the first nine month nine months of 2018.
Year to date IDACORP earnings or the second highest achieved in its history exceeded only by last year's record results.
Today, we raised the bottom end over a full year 2019 earnings guidance estimate to the range afford hours and 40 cents to afford hours and 50 cents per diluted share.
We also decreased both into the range of our estimate of operating and maintenance expenses by $5 million I.
Ill now turn the call over to Steve.
Thanks, Justin and happy Halloween everyone.
Overall, despite some challenging weather, we saw operating income relatively flat to last year's third quarter.
The nonrecurring effective income tax reform another positive tax return adjustments last year led to our lower net income.
With that I'll walk you through the drivers quarter over quarter on slide five.
Customer growth has continued to rise in Idaho power service area at a rate of 2.6% over the last 12 months.
This growth along with lower expenses, nearly offset the decrease in retail and transmission revenues, resulting from the combination of milder regional weather and greater precipitation in our service area.
Net customer growth added $5.5 million to operating income in the quarter.
And overall decrease in usage per customer mostly related to lower irrigation sales and whether decreased operating income by $8.6 million.
An increase of $1.7 million in fixed cost adjustment revenues next on the table Austin its most of the lower usage per customer in the residential and small general service category.
Precipitation in the Boise area for the quarter went from about 110th of an inch last year to nearly a full then just this year.
In addition, overall cooling degree days were 7% below last year.
Next on the table net retail revenues per megawatt hour decreased operating income by $1 million.
The settlement stipulations associated with the income tax reform or reduce revenues more significantly this year as anticipated.
These items together and that to a 2.4 million dollar decrease to operating income.
Transmission Wheeling related revenues were down about 24% or $5.1 million lower hydro power generation in the Pacific northwest and more moderate temperatures throughout the region resulted in lower Wheeling volumes this year.
In addition, the open access tariff rates declined by about 11% over the comparable period, the tariff rate filed with the federal Energy Regulatory Commission declined an additional 13% effective October one of 2019.
Next on the table other operating and maintenance expenses decreased by $4.4 million due to a 1.6 million dollar decrease in labor and benefit costs in 2019, and a 2.9 million dollar on M. noncash amortization expense a regulatory deferrals in 2018 related to tax.
Before that did not continue.
Finally during last year's third quarter, Idaho power recorded $1.5 million as a provision against revenues for sharing of earnings with customers under the Idaho, earning support and sharing mechanism.
As we currently anticipate Idaho jurisdictional return on your end equity to be less than 10%. This year, Idaho power is not recorded any such provision in 2019.
These items collectively net to an operating income that is comparable with last year's third quarter.
Earnings of equity method investments, which largely consistent earnings were Bridger coal company returned to a more normal level this quarter, resulting in a 2.5 million dollar decrease to earnings.
For the full year, we expect these earnings to be inline with prior years.
A $2.2 million positive change in non operating income and expense offset much of this decrease.
As for income taxes, the third quarter of 2018 included $5.7 million of tax benefits at Idaho power from re measurement of deferred taxes due to income tax reform.
There was no such Remeasurement in 2019.
Also typical third quarter updates to deferred income tax and flat related tax return adjustments increased Idaho Power's income tax expense this year compared to a decrease in last year's third quarter.
Overall, I don't powers and IDACORP net income were $12.2 million and $12.3 million lower than the third quarter of last year, respectively.
IDACORP and Idaho power continue to maintain strong balance sheets, including investment grade credit ratings and sound liquidity, enabling us to fund ongoing capital expenditures and dividend payment.
Regarding dividends in September .
The board of directors approved to 6.3% increase than the quarterly dividend from 63 cents to 67 cents.
This latest increase means that IDACORP has increased the annualized dividend by a total of 123% since 2011.
We also expect to recommend an annual dividend increase of 5% or more to the board of directors in the coming here and there will be providing additional color on our dividend policy later on the call.
In addition, Idaho power purchase to Remarket Remarketed two of its outstanding series of pollution control tax exempt bonds. This August totaling about $166 million with a great outcome.
Just two bonds were remarketed with substantially the same remaining terms, but with lower interest rates.
The term interest rate on the 49.8 million dollar bond due in 2024 decreased from 5.5, 0.15% to 1.4 or 5%.
And the term interest rate on $116.3 million bond due in 2026 decreased from 5.25% to 1.7%.
Going forward, we expect the lower interest rates to reduce interest expense by approximately $5.6 million annually for the next five years until the smaller bond matures.
And $3.9 million annually thereafter for the final two years, the long life bonds.
This successful transaction benefits, both shareholders and customers.
On slide six we show IDACORP is operating cash flows along with our liquidity positions as of the end of September 2019.
Cash flows from operations were about $79 million lower than the first nine months of 2018, mostly related to changes in income tax balances and regulatory assets and liabilities as well as the timing of working capital receipts and payments and lower net income.
The liquidity available under IDACORP, and Idaho Power's credit facilities, the shown on the bottom of slide six.
At this time, we do not anticipate issuing additional equity in the remainder of 2019 over the relatively nominal amounts under compensation plans.
Slide seven shows our updated full year 2019 earnings guidance, and our key financial and operating metrics estimate.
With financial performance to date, and our outlook for the balance of the year, we have lifted the lower end of IDACORP 2019 earnings guidance to the range at $4.40 to $4, a 50 cents per diluted share.
In the Idaho jurisdiction, we are currently forecasting Idaho power to be at or above a 9.5% return on your end equity.
With our full $45 million of allocated tax credit support still available if needed.
We have also changed your expected on Rep, Olin M. range to $345 million to $355 million, which would not only be lower than last year's owner of expenses, but also keep open and close to the $350 million level for the eight straight year.
We reaffirm our expectation that capital expenditures will be in the range of $280 million to $290 million.
Our current reservoir storage and scream flow forecasts suggest that hydropower generation should now be in the range of eight to 8.5 million megawatt hours.
As always our metrics reflect an assumption of normal weather conditions for the remainder of the year.
Looking ahead to this year's fourth quarter keep in mind that in the fourth quarter of 2018.
Idaho power recorded $3.5 million of revenue sharing.
And the earnings from Bridger coal company were negative.
Assuming normal weather conditions, we expect this year's fourth quarter earnings to be more typical because we do not expect it to include revenue sharing adjustments under the Idaho sharing mechanism and we expect full year Bridger coal company results to be inline with prior years.
With that I'll turn the presentation over to Darryl. Thanks, Steven Thanks to everyone for joining today's call I will break format, a little bit today and begin my remarks by acknowledging some organizational changes that reflect our long term succession planning efforts.
As we announced in September and we show on Slide eight Idaho Power's Board of directors name Lisa grow as President effective October Onest.
Lisa brings a tremendous level leadership to this ROE has a deep passion for our company actually has demonstrated during an outstanding 32 year career with Idaho power.
Our deep industry experience has been key during a time of unprecedented operational and financial success.
I continue as CEO of Idaho power, and President and CEO of IDACORP.
Lisa has held many important roles over the years, primarily in leadership positions within engineering and operations. Most recently served as Idaho power as senior Vice President and Chief operating Officer.
With leases promotion to President the Board also named Adam mentioned, as Idaho, Power's, New Senior Vice President and Chief operating Officer.
Adam brings a unique background about entering a lot to his new role. He joined the company is legal counsel in 2011 and has a sense served in several key leadership positions. Most recently as vice president of customer operations and business development.
Lisa and Atms promotions were among several changes to our executive team effective on October Onest. These changes are highlighted on slide eight and more details are posted it on IDACORP and Idaho Power's websites.
With that I'd like now to turn in the next portion of the call over to the Idaho Power's New President Lisa grow.
Thank you Darryl I'm excited to be here with everyone today, and I'm thrilled and honor to serve as the president of Idaho power.
With Darryl our board of directors and the entire executive team. Our company has an outstanding leadership leadership group and I am grateful for the opportunity to serve them sort of went up.
I would like to walk through some of the high level trends that are helping drive our business.
Customer growth is at the forefront as shown on slide nine.
As Steve noted growth continued upward with a customer growth rate of 2.6% over the past 12 month.
It continues to be an exciting fine to live and work in Idaho with new customers of all kinds moving into an expanding in our service area.
We hear many of these customers we hear from many of these customers that the reliable affordable clean energy that Idaho power provides its one of the key drivers for the economic decisions they are making in our region.
As far as the activity from large business customer scarce, particularly the food processing manufacturing and distribution of sectors I have a few to highlight today.
Notable large load projects that came online during the third quarter include an expansion should the tamarac mill in the northern part of our service area and a large expansion of Idaho milk products in the agricultural area located in South Central Idaho that continues to see major growth.
Some of you might not be aware, but Idaho is actually the third largest milk producing state in the country.
We also have several large industrial and commercial projects scheduled to begin taking service later in 2019 and beyond.
Excluding our recently announced 650000 square foot Amazon distribution center in the Boise Valley.
The center, which is expected to bring a thousand jobs to the area as a forecasted in service date of September 2020.
Moodys current forecast of gross domestic product in Idaho power service area predicts growth of 3.7% in 2019 and 4.2% in 2020.
Employment within our region also remains on an upward trend compared with this time last year employment within Idaho power service area has grown 3.3% with 543000 people now employed again, a new record.
Unemployment in Idaho power service area at the end of this third quarter was 2.8% compared with 3.5% nationally.
Turning to slide 10, and our most recently filed integrated resource plan, Idaho power identified ending its participation into Jim Bridger coal fired units in 2020 to 2026, respectively.
Supporting our clean by 45 in 2045 goal.
Early exit already planned at balmy and Boardman coal plants. The gym Bridger plant represents the third and closing chapter along our path away from coal and we are committed to working with all interested parties to ensure the timing of the exit.
To make sure that the timing of the exit will make sense for both shareholders and customers, while looking for prudent new investment options to replace the loss capacity that will result.
As a reminder, we have been providing some additional modeling within our integrated resource planning process and we plan to supplement the currently filed RP with additional information and modeling results by the end of 2019 or early 2020.
The results of this effort could change the timing of potential exits from the gym Bridger units, which would ultimately be done in collaboration with Pacific core the majority co owner in the plant.
On another generation as you recall that Idaho Power's signed a 20 year power purchase agreement earlier this year for planned 120 megawatt solar facility.
This month, Idaho power exercised its contractual right in the agreement.
To negotiate during the fourth quarter the acquisition of the facility.
Power purchase agreement and acquisition are subject to state regulatory approval.
Last quarter, Daryl stated that we did not plans to file a general rate case in Idaho, Oregon in the next 12 months.
That remains to today as we look towards the next 12 months.
Steady load growth combined with increases in our customer base.
Constructive regulatory outcomes and effective management of operating expenses all played significant roles as we look at the need and timing of our next general rate case.
Next week in connection with the financial conference. We plan to publicly provide on IDACORP website and in an 8-K, we will file some further context surrounding where we see forecasted rate base today as well as explore some potential scenarios for Idaho Power's future rate base growth.
Before turning the presentation back over to Daryl I would like to recognize our employees for the great work they have done on the customer experience front.
We'll see on slide 11 that while Idaho, Power's scores and JD power and other national rankings have traditionally been strong.
We have made great strides over the last over the past two years and are continuing to improve in fact during the third quarter. The results at the 2019 residential study showed record high scores for our company, which put Idaho power among the highest scoring energy companies in the nation.
Outstanding reliability.
And a better customer experience on our website to a redesign bill and an enterprise wide focus on customer service virtually every Idaho power employee has played a role in this excess.
It is something we are very proud of and it raises the bar for measuring customer satisfaction going forward.
And with that I will turn the time back over to Darryl. Thank you Lisa.
Stephen leases remark share today have done a good job outlining some of the opportunities our company is facing as well as the excellent job. Our employees are doing to help ensure our continued financial and operational success.
I want to briefly returned to the dividend topic.
As Steve mentioned and as you can see on slide 12, our customer growth and financial success has enabled us to more than double the quarterly dividends since 2011.
We continue to expect to stay near the upper end of our current target dividend payout range of between 50 and 60% of sustainable IDACORP earnings.
We expect to further discuss what's the board the appropriate target payout ratio in mid November .
We recognize that while we began raising the dividend about eight years ago, we set a target payout ratio within median of our utility peers in mind.
We also recognize that many of our peers have increased their target payout ratios over the years and immediate is now higher than a level. We currently target.
This fact will inform our discussion with the board at its meeting next month as we consider it potential increase to the recommended target payout ratio range.
Yes. It is Halloween, we think it is only appropriate to end with 13 slide and I will use the 13th slide for look at the projected whether outlook.
The national Oceanic and atmospheric administration currently suggests an equal chance of above or below normal precipitation levels throughout most of Idaho power service area, and a 40% to 50% chance of above normal temperatures into the early winter months.
Of note our early look at October whether statistics indicate it was the coldest October since 1985.
With heating degree days, showing about 50% above normal for the month.
It looks to be a brisk evening Tonight for those trick or treaters in our service area.
Reservoir storage levels continue into this year snow season should continue to provide favorable conditions for generation of low cost hydropower next year.
As a reminder, our power cost adjustment mechanisms in Idaho, and Oregon significantly reduced earnings volatility related to changes in our resource mix and associated power supply costs that can fluctuate greatly due to weather.
In addition, the fixed cost adjustment mechanism in Idaho reduces some of the volatility of temperature changes for residential and small commercial customer classes.
With that Steve lease and I and others on the call we'll be happy to answer questions. You may have.
Thank you we're now ready to begin the question and answer session.
If you would like to ask a question. Please do so by pressing star one on your phone.
We remind you to ensure your mute function is turned off before you ask your question.
We'll take as many questions as time permits on a first come first sort of basis.
Once again that is star one on your phone to ask a question now.
The first question is from Brian Russo with Sidoti. Please go ahead.
Hi, good afternoon.
Hey, Brian Air from him.
Yeah. Thanks.
Just.
There anymore PCP remarketing opportunities.
We should be aware of.
Neutral.
Oh, no more now I'm sorry.
Brian and that's the end of our pollution control bonds that is the only set that we've still got outstanding. So no there won't be another set there I think we will continue to monitor the rest of our bond portfolio.
Add it all depends on interest rates and.
Where that stands with there's opportunities to.
Refinance earlier or not.
I do think we felt like we were through the majority of those but if interest rates continue to stay where they are there could be opportunities.
Got it and then.
Your comments earlier about the solar PPI and.
The option.
To purchase it or.
Right of first offer.
I guess.
Anymore insight onto that actual solar project.
Megawatts.
I guess you are the offtaker, but just add anything any more detail on that would be great.
Brian This is Daryl if it's a 120 megawatts project.
So it's it's pretty good size it'd be the largest in Idaho.
Okay and it needs regulatory approval. So that assumes at some point you can I want to add it to rate base.
Brian its.
It is structured as a PPA. So it's a purchase of power I think if.
As we pursue or look into whether we could be an owner. It may put us in that same position that it would be some sort of a it would be a pricing constructed around what's in that.
Purchase power agreement right now I don't really envision it becoming a true rate base asset the way it's entered into the the consideration it could become Brian it could become an investment outside of Idaho power could be Nonres Nonresi investment.
For US right now there's others on the things that we are looking at right now I would just say, Brian a key component of why it's even beacon being considered is the pricing and so it is it would be around delivering that price that would make it into attractive thing that the commission might approval if that price.
And that will be what the commission will be deciding based on.
Other information, we still need to provide them.
Yet.
As to whether or not they feel like thats a good choice to take.
Make it investment or a commitment I guess, you would say for what they believe is a lower cost.
Opportunity going down the road against other things that might be in the IR piece. So they will have to look at that determine if it's prudent probably does lock it in on a price and make it a little more of that nature of it.
Of an asset then something we would put in rate base.
Got it understood Okay and then.
Not to jump ahead too far but.
The expectation for rate base current rate base disclosures.
Hi.
Just curious how are you going to treat.
CWIP balance on Hells Canyon, I mean is that going to be carved out or just.
Any insight there.
Well.
There is I think what we envision is giving you an idea of.
The different buckets of spans over a couple of periods of time, maybe one in the near term that's kind of in our five year window and some that are a little longer.
That amount has largely been reviewed from the standpoint of its its prudency at least the bulk of it that weve continued to spend dollars. So there's some beyond what was what went through the prudency review, but it will need to be close to plan at sometime in the future and we'll give you an idea of when that is without specifics because.
As you know that has.
Then a difficult year to hit but it is in its nearing the window, where we have to start looking at that as a likely rate base.
Adam in the near future.
Okay and then.
So, yes, I'd say the other piece I think the new news with that one will be once it's closed the obligations that come along with the training that license also introduce new spending down the road and that's a piece I don't think we've talked to you very much about.
Okay, and then lastly, just.
Can you just comment on your participation in the I am.
How's that going is it actually reducing costs and where do you see that whole.
I am construct going and the future.
So.
Brian we're going to test Park, a heads up our power supply group as well as today issue as sort of instrumental at the I am effort with her and her team. So we'll asset test just briefly comment on how he I am as working for us and maybe a regional perspective.
So the I am continues to provide benefit.
Idaho power and the region.
Hello.
Most regional benefits for that.
As as always Theres. Some question about the total value, but we continue to see benefit at the local level and increases in dispatch of unit.
In our service territory.
Supplying the market as well as opportunities to buy at lower cost than what we could dispatch.
And Brian as a reminder, you have the benefits of the I am end up going back to our customers, which does help us manage the the price impacts to customers, which when you look at the bigger picture Regulatorily It sets up a real positive.
That way. So that's been spent today, it's been good and it continues to get larger with more participants coming on and we got Bonneville now scheduled to join and some others coming on down so it's getting.
Much larger footprint.
Great. Thank you very much.
Thank you Brian Thank you.
And final opportunity press star one to signal for a question and we'll pause for just a moment.
Okay.
That concludes the question and answer session for today Mr. Anderson I will turn the conference back to you.
Thank you so much and thank you for all participating on our call today. We appreciate your continued interest in our company and we look forward to seeing many of you in Orlando at the conference and other low over a week or so so thanks, thanks very much happy Halloween.
That concludes today's conference. Thank you for your participation you may now disconnect.