Q4 2019 Earnings Call
Thanks, Gary and good afternoon everyone before the markets open this morning. We issued and posted a website both our fourth-quarter and full-year 2019 earnings release and and report on form 10-K the slides that accompany today's call are also available on our website will refer to those slides by number throughout the call.
As noted on slide to our discussion today includes forward-looking statements including earnings guidance, which reflect our current views on what the future holds but are subject to several risks and uncertainties. This cautionary note is also included in more detail for your review in our filings with the Securities and Exchange Commission 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.
As shown on slide three on today's call. We have Darrel Anderson, either Corpus president and chief executive officer Lisa grow president of Idaho Power Company and Steve Kean senior vice president and Chief Financial Officer. We also have other company Representatives available to help answer any questions you may have after Steve Lisa and Darrell provide updates.
Side for we present our quarterly and annual Financial results. I had a corpse 2019 fourth-quarter earnings per diluted share or 93 cents an increase of $0.41 per share over to your fourth quarter. I had a corpse earnings per diluted share for the full year 2019 were $4.61 an increase of $0.12 per share over 2018 off these full year results represent the 12th straight year of earnings growth for idacorp and are the highest achieved in its history idacorp cumulative average growth rate and diluted earnings per share a 7.9% since 2007 today. We also initiated our full year 2020 idacorp earnings guidance estimate to be in the range of $4.45 to $4.65 per diluted share with our expectation that Idaho Power will not need to utilize any of the tax credits in 2020 that are available to support phone number.
In Idaho under its settlements.
station with the Idaho Public Utilities Commission
I will now turn the call over to Darryl. Hey, thanks Justin. And thanks everyone for joining us on today's call last week. We announced it after twenty-four years with the company that I would retire effective June 1st of this year in connection with with this decision our board of directors elected Lisa grow to succeed me as president and CEO of Idaho and Idaho Power effect on June 1st and also appointed her to the boards of directors of both companies effective last week. She's an electrical engineer by training and she's got over 32 years of experience at Idaho Power only does she have a long tenure at the company. She also has a long history with auto power as her grandfather was alignment with the company for thirty years prior to Lisa joining the company.
She has contributed significantly to the operational financial success of Idaho Power since becoming an officer in 2005.
She has earned the opportunity to take over the reins as we move forward into twenty-twenty and Beyond many of you have met Lisa and I welcome you welcome you to join me in congratulating her in her new roles. I look forward to continuing to serve as a member of the board of directors. Once I step away from my executive roles with that short introduction. I will now turn the timer Lisa for some updates on the company as well as ongoing economic activities. I am honored by the opportunity to succeed you and I look forward to the exciting times ahead. In addition to the financial success noted by Justin, Idaho Power set records across several of our important metrics safety customer satisfaction and reliability.
Find we see details of the companies record employee safety results in 2019. We are very excited and proud to see injuries at an all-time low as we continue to spend significant time on our safety culture and to emphasize the importance of safety at work and at home
a record-setting results in residential and business customer satisfaction are shown on slide six as the population within our service area continues to grow Idaho Power is working hard to meet our customers evolving needs most Idaho Power customers experience most Idaho customer's experience and overall price decrease for the second consecutive year 2019 with business customers rates going down by at least 5% Idaho power's efforts to keep prices affordable provide personal service and improve the customer experience are paying off as overall customer satisfaction metrics continue to rank near the top of the list among R. Utilities.
Ability to keep peace of the customer satisfaction puzzle and is also included on five six, which shows another outstanding year.
Idaho Power kept customers lights on 99.9 75% of the time in 2019 and overall system reliability was among the best in company history finishing very close to 2018 s record results as noted on slide. Seven, Idaho Power service area continues to experience substantial customer growth for the third year in a row, Idaho Remains the fastest growing state in the nation and Idaho Power's customer base grew 2.5% in 2019, including a 2.7% growth rate for a residential customer segment.
Idaho Power now has more than $570,000 customers and we view the reliable affordable clean energy that our company provides as a key driver for continuing to attract new cut-off. The economy is thriving with in Idaho Power service area and Moody's GDP forecast forecast calls for sustained economic growth in 2019, Idaho Power experienced sales growth sales growth and it's commercial and Industrial sectors through a balanced mix of new business and expanded in expansion projects across food processing manufacturing distribution and Technology sectors.
Moody's current
Forecast of GDP in Idaho Power service area predict growth of 4.4% in 2020 and another 4.4% in twenty Twenty-One. Meanwhile employment increased 3.2% and the unemployment rate was 2.8% at the end of 2019 compared with 3.5% nationally.
Turning to slide 8 Idaho power's most recent integrated resource plan calls for continued work toward a unit by unit early exit from the Jim Bridger plant located in Long by Twenty Thirty in 2019. The company ended its participation in unit. One of the North Palm e plant in Nevada, which was a significant milestone in our path away from Colby. We also have an agreement to exit unit to buy twenty twenty-five The Courtland plant in Oregon is also scheduled to cease operations this year in both cases. I direct power has State Public Utility Commission supports for a cost-recovery framework to be applied through the end of their useful life.
To provide a blueprint for a similar approach for Bridger We are continuing to explore options with pacificorp the co-owner of Bridger as we plan to the end of life for the entire Jim Bridger plant specific course, I R P as published last fall shows early shut down dates for to Bridger units as well.
Which we believe?
10% of our total energy mix today that number is around 16% are pass away from coal, which is driven by the economics of the plant aligns with our clean Carfax clean or tomorrow plan to provide a hundred percent clean energy by 2045 another key project in our cleaner. Tomorrow plan is the Boardman to Hemmingway transmission project or bhi to H, which made Solid progress in 2019. The Oregon Department of energy recommended approval of the 300-mile line. The department is expected to release a proposed order which is the next step in the permitting process authorizing the transmission line this year if the permitting process remains on track we expect the Oregon energy facility siting Council to issue a final order in sight certificate in 2021.
Following pre-construction activities construction is expected to begin as early as 2023 with the line expected to be in service in 2026 or sometime thereafter off the IRP. We amended in filed at the end of last month also plans for us to include 120 megawatts of solar from the jackpot solar power purchase agreement Home, Idaho Power evaluated purchasing the project and elected not to pursue it.
Do not expect Idaho Power to file a general rate case in Idaho or Oregon in the next 12 months the influx of new customers constructive regulatory outcomes and effectiveness of cost management all play significant roles in this decision with that. I will turn the time to Steve who will go through the 2019 Financial results.
Thanks, Lisa and good afternoon everyone. We had excellent 2019 results.
Weather challenges through the year were more than offset by a very good final quarter a walk you through the driver's year-over-year on slide 9.
Strong net customer growth of 2.5% added 18.8 million to operating income in 2019.
A decline in usage per customer mostly related to lower irrigation sales decreased operating income by twenty one point four million dollars.
Greater precipitation and more moderate spring and summer temperatures led to 11% less used for customer for those in agricultural irrigation class this year.
Further down the table net retail revenues per megawatt-hour decreased operating income by 2.8 million dollars as anticipated the settlement stipulations associated with income tax reform reduced revenues more significantly in 2019, Idaho power's Open Access transmission tariff rates declined by 10% in October of 2018, and again by 13% in October of 2019 lowering transmission Wheeling related revenues by 5.3 million dollars these rates reset each year to align revenues with the exhaust of the transmission system to a lesser extent lower transmission volumes. Also contributed to an overall reduced Wheeling Revenue this year.
Next on the table other operating and maintenance expenses decreased eight point seven million dollars, as our teams continued focus on cost management resulted in lower expenses across area contributing to this decrease was lower bad debt expense of one point 1 million dollars to a strong economy and the non recurrence of a 2018 o&m expensive or four million dollars for a non-cash amortization of regulatory deferrals related to tax reform.
I don't Powers 2019 return on your end equity in Idaho landed between the 9.5% tax credit support level and the 10% customer sharing line underneath the Idaho regulatory settlement stipulation. So we did not record any additional tax credit amortization or provision against revenues for sharing with Idaho customers this year than last year. We recorded a five million dollar provision against revenues for sharing which did not recur Idaho Power has the full $45 million dollars of approved credit available to support earning wage future years as a reminder. The tax credit support line will be at 9.4% for 2020.
These items collectively resulted in a year-over-year increase to Idaho Power is operating income of 2.3 million dollars.
Not operating income and expenses needed to a nine point nine million dollar Improvement to pre-tax earnings due to several items.
Two point two million dollar charge in 2018 related to Idaho power's post-retirement plan did not recur. This was anticipated and reflected in our prior earnings guidance range.
Next door allowance for Equity Funds used during construction increased two point seven million dollars as the average construction work in progress balance was higher throughout 2019 Dodge a stronger asset returns this year led to two point 1 million dollars of higher investment income from the rabbi trust associated with Idaho power's non-qualified defined benefit pension plans month on the next line. You will see income taxes where Higher by 10.1 million dollars. Remember the 2018 included 5.7 million dollars of benefits from remeasurement for taxes that Idaho Power due to income tax reform as well as 1.3 million dollars of tax deductible Bond Redemption cost incurred last year.
There was no such.
measurement for Bond redemption in 2019
amortization of newly funded vintage investment tax credits help lower tax expense in the current year while higher pre-tax income primarily contributed to the remainder of the increases.
Financial Services distributions from the sale of low-income housing properties led to approximately 3 million dollars higher net income at that subsidiary while the nature of timing and amount of the underlying property sales that ifs are difficult to predict and are controlled by Third parties. We do not expect them to be as significant in 2028 overall. Idaho power's a night. Of course net income were 2.1 million and 6.1 million dollars higher than last year respectively.
Idacorp when Idaho Power continue to maintain strong balance sheets, including investment-grade credit ratings and sound liquidity which enable us to fund ongoing Capital expenditures and dividend payments rejecting dividends. You'll note that in addition to the latest dividend increase of 6.3% announced by the board of directors last September the board also increased idacorp Target dividend payout ratio to six months 70% of sustainable learning just reflect several years of our steady upward trajectory trajectory of dividend increases we expect to recommend an annual dividend increase 5% or more to the board of directors in the coming year.
Flight ten we show idacorp operating cash flows along with our liquidity positions as of the end of 2019 cash flows from operations were a hundred and twenty five million dollars lower wage 2018 these remotely related to changes in regulatory assets and liabilities like those resulting from the power cost adjustment mechanism and the timing of working capital received two payments liquidity available and dried a corpse in Idaho power's credit facilities is shown on the bottom of slide ten at this time. We do not anticipate issuing additional equity in 2012-13 other than relatively nominal amounts under the compensation plans.
Flight eleven shows our first look at full year 2020 earnings guidance and our key financial and operating metrics estimate.
We are initiating either 2020 earnings guidance in the range of $4.45 to $4.65 per diluted share which is up roughly 4% over offer you guidance range and assumes no use of additional tax credits under normal weather conditions.
A record twelve years of earnings growth is something that sets us apart from our peers.
We expect o&m expenses to be in the range of three hundred fifty to three hundred sixty million dollars, which would keep bowing am relatively fat flat for the ninth straight year.
We expect Capital expenditures will lift somewhat to the range of $300 to $310. You'll note that are updated five-year forecasts of capital expenditures is also higher than our previous month and now forecasted to rain from 1.6 to one point seven billion dollars over that time this forecast still does not include the majority of cost to build the major infrastructure projects such as portmanteau Hemingway or increase compliance costs associated with a new health Canyon license due to the uncertainty in the exact timing of that span.
Finally our current Reservoir storage and Stream flow forecast suggests that hydropower generation should be in the range of 6.5 to 8.5 million megawatt-hours with that off the time back to Darrell and thank you Steve. There is much to be proud of as we look back on the outstanding results of 2019. I want to thank our investors for their continued support and our employees for their school work and dedication throughout another record-setting year while the energy industry is rapidly evolving. I had a court continues to meet challenges and opportunities while delivering unparalleled results for customers and sisters are like from eating Financial targets to striving for a cleaner energy future. We believe that our employees and our ongoing business strategy will help sustain our success into the future.
I will close with a look at.
Weather on slide 12 the latest projections from the National Oceanic and Atmospheric Administration suggests an equal chance of above or below normal precipitation levels and a forty to fifty percent chance of above-normal temperatures from March to may we have seen a lot of snow and rain in recent weeks the welcome precipitation along with snopac currently showing slightly above normal levels and strong Reservoir storage in the system should continue to provide favorable conditions for generating low-cost clean dispatchable hydropower throughout 2020.
As a reminder our power cost adjustment mechanisms in Idaho and Oregon significant reduce earnings volatility related to changes in our resource mix and Associated power supply, a second fluctuate greatly due to weather with that steel lease and I and others here today. We'll be happy to answer questions you may have
We are now ready to begin the question-and-answer session. If you would like to ask a question, assuming you have dialed in the Q&A line. Please do so by pressing star one on your phone. We remind you to ensure that your mute function is turned off before you ask your question. We will take as many questions as time permits on a first-come basis. Once again that home star one on your phone to ask a question now.
The first question is from Cristela house with Seibert Williams, please go ahead everybody. How are you? Hey Chris, how are you?
If I think you had mentioned that some of the Vintage tax credits that benefited the fourth quarter help to offset that that ten million net change in axes. What was that number for the the tax credit benefit know? Let me just point you to the spot in the K and I think it'll be the best way to get you there you go to note to offer you happen to have that with you, but under note to there's a line item for investment tax credits.
Okay, you didn't you didn't know much about and what you'll see there is about a $3 difference Chris Chris around ninety-two if you had it, in fact, yeah. Yeah, and that's just an item that you it's not that you won't see that change from time to time, but we wouldn't expect that same level of change to occur certainly in this next year. We're looking at that was a little larger than normal kind of came out after we got our tax return done and saw the amount of tax credits. We actually consumed and what name could then be able to have the parent purchase from auto power? Okay. You guys didn't address Business Development very much. If you got any color on what you're seeing for months, you know sizable new cni customers, it's Chris. This is Daryl. We we actually have a still have a significant amount of activity that is taking place across our service territory dead.
I mean if you were to drive across you would
She probably more cranes in the sky lines than than I've seen in a in a in a lot of times. So to say that there are some big announcements. We don't have some of those going on right now, but there is a lot of activity just as Lisa had shared, you know, we continue to be fastest growing state in the country and it doesn't seem to be slowing down much as as we look across you talked to anybody who's driving around these days. They are always having to detour because of construction here and there and everywhere. So just from 8 from that perspective. There's a lot and then our as we look at what's coming back online over the next couple of years is still pretty pretty healthy level of activity, but it's in the good news is it's not necessary driven by anyone large entity right now, which is which is a nice thing to see and I don't know Adam richman's is here with us. I don't know if you want I would just add Chris that it's it's very diverse and what we're seeing, so we're seeing manufacturing food processing. We're seeing technology.
the dairies mining
So one of the things I think it's nice to see out there is not only the growth but it's diverse growth in our service territory.
Okay, see if you you talked about the the 4% EPS growth that sort of implied by the guidance range. Can we assume, correct me if I'm wrong. I'm I'm making this assumption out of the gate here is that that sort of slightly below trend is a function of the step down in the stipulation are we took sort of a one-time slow down in the growth for this year? You know Chris. It's only modest. If anything that it's down I looked back going back to 2016 month. We had one year for this year at for 1 year was under 3% was about two point six and then we had a couple that were up closer to 5. So it's it's a fairly strong March up and because the guidance range is don't move by pennies. They we tend to move on Nichols that it it's not a perfect science, but in that 15 to $0.20 range is what it off.
most years
And as we sit here today, this is a $0.20 move granted off of a larger number than it was a couple of years ago. So the percentage is is probably coming down slightly, but we do view that as really the positive trend continuing for our company. You can look at actuals against actuals and get even a little better number cuz we have tended to overperform sometimes and Thursday is gives us a little as we come out of the gate with the number that we beat the prior-year that trend of of the earnings projections. Maybe doesn't look as good against that phone number but it's interesting our actual to actual is up even a little bit more of those ranges have been above seven a few times and
The two low gears one was just under three and one was over five. So so they're both moving along together a little ebb and flow and in How We Do against plan whether we beat it by off the lot or a little bit Lisa you talked about the solar decision. Can you elaborate a little bit about what what got you to the conclusion on that on that asset or that p p a that that led you to where you are.
Hi.
Would say just generally it was it was the risk and and the economics of the of the plan just didn't didn't really fit with our with our investments.
Okay. All right. Well, thanks for the color guys. I appreciate it. Thanks, Chris. Thanks, Chris.
The next question is from Brian. Russo was Saudi, please go ahead.
I good afternoon. All right, Brian, Brian.