Q3 2020 Idacorp Inc Earnings Call
Good afternoon, and welcome to the articles that 2020 <unk> earnings release Conference call.
Participants will be in a listen I need my age.
Should you need assistance, please signal a conference specialist.
From a stocky Felipe I see it right.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
She would show your question. Please press Star then too.
Please note this event is being recorded.
I would now like to turn the conference I'd like to Mr., Justin Ward said director of Investor Relations and Treasury. Please.
Go ahead.
Thank you and good afternoon, everyone.
This morning, we issued and posted IDACORP website, our third quarter 2020 earnings release and form 10-Q. This.
The slides that accompany today's call are also available on our website well refer to those slides by number throughout the call today.
As noted on slide two our discussion includes forward looking statements, including earnings guidance, which reflect our current views on what the future holds there but are subject to several risks and uncertainties, including those related to the COVID-19 pandemic.
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 Lisa grow IDACORP, President and Chief Executive Officer, and Steve Keen Idacorps Senior Vice President and Chief Financial Officer.
We also have other company representatives available to help answer any questions. You may have after Lisa and Steve provide updates.
Slide four shows our quarterly financial results.
Hi, the carbs 2023rd quarter earnings per diluted share were two hours and two cents an increase of 24 cents per share from last year's third quarter.
IDACORP earnings per diluted share for the first nine months of 2024 $3.95 an increase of 27 cents per diluted share for the same period last year.
Today, we also tightened our full year 2020, IDACORP earnings guidance estimate upward by 10 cents to be in the range of four doors and 55 cents to $4.65 per diluted share with our expectation that Idaho power will not need to utilize any of the tax credits and 2020, there that are available to supply.
<unk> earnings in Idaho under its regulatory settlement stipulation, nor do we anticipate any revenue sharing as Idaho power is expected to earn a return on year end equity between 9.4, and 10% and its Idaho jurisdiction.
These are estimates as of today as we have seen a relatively modest net financial impact from the COVID-19 pandemic today.
However, as you would expect it is difficult to predict the full impact of evolving economic conditions in Idaho, Power's customers and suppliers and how that could affect the upper end of the earnings guidance range wouldn't use of tax credits if the pandemic worsened significantly this quarter.
I'll now turn the call over to Lisa.
Thank you Justin.
And thanks, everyone for joining us on today's call.
Given the ongoing impact of <unk>. This pandemic it seems appropriate to start I once again acknowledging the outstanding job our employees have done managing in responding to this crisis.
Their focus on safety, taking care of our customers and managing expenses has been incredible.
Idaho power continues to provide reliable energy to our customers and I am so grateful to have such a talented adaptable and dedicated workforce.
This situation is ever changing and.
So our response to it remains nimble.
Most of our office employees have now been working remotely for more than seven months.
While our line and field crews continue to take extra precaution to ensure the safety of our employees and the public.
I commend our workers for their continued vigilance, which has allowed our operations to carry on.
In turn we've been able to continue our essential work of providing the energy that is critical to the daily lives of the customers' businesses and communities we serve.
Cost control has long been an important ingredient of our success and it is magnified in these uncertain times.
Our company's operating and maintenance expenses are lower over the first nine months of 2020 compared with the first nine months of 2019.
There are several <unk> contributing factors, which Steve will walk us through in a minute but.
But prudent financial management continues to be a focus for our employees and company.
Despite.
Oh did 19 Idacorps remains on track to deliver on its 2020 strategy and financial targets.
Customer growth as noted on slide five higher.
Hi, your irrigation sales increase transmission Wheeling related revenue and lower aluminum costs have more than offset any decreased commercial customer usage, resulting from the pandemic into.
In fact on August 18th of this year, Idaho power experienced a near record peak of 3408 megawatt despite irrigation having begun to taper off by that date due to the normal harvesting cycle.
We remain cautiously optimistic by both our near term business goals and the long term resiliency of the economy, and our Idaho and eastern Oregon surface area.
While uncertainty lingers from the virus and its impacts our service area remains one of the fastest growing in the nation.
Total housing market incoming businesses and the continued availability of reliable affordable clean energy point toward future sustained growth.
Idaho Power service area continues to lead the nation for not only in migration up new residents, but also in new business opportunity notable.
Notable examples of business development activity in the past quarter include the groundbreaking on Bridgetex, New 280000 square foot cold storage facility you.
The announcement of true West These 200 million dollar processing plant and the relocation of two new customers formally based in California and.
See finishing system and fiber care about.
The new Amazon fulfillment center, we talked about last quarter officially came online in September and Amazon has indicated they will be ready for the holiday shopping season.
It's also worth noting that September was a record month for new large load inquiries at Idaho power.
With several projects over one megawatt in active discussions with us to potentially expand or relocate in our service area.
This includes manufacturers distribution centers dairy and other food processors are.
Other projects continues to be in the build phase from additional food processing health care facility expansion and manufacturing addition.
As of the end of September unemployment in our service area with 6.6% compared with 2.8% in September of 2019.
The current 7.9% nationally.
The number of impute a people employed in our service area was relatively flat compared with the same period last year.
Moody's forecasted GDP now calls for decline in output of negative 3.8%.
With a projected rebound.
Of 5% in 2021.
These numbers compare favorably with the projections for the entire U.S. economy.
Economic data in our service area have of course been impacted by 219, and we continue to monitor them.
GDP forecasts have incorporated the most current expected impacts.
In September the board of directors approved an increase in regular quarterly cash dividend on IDACORP common stock.
6% or 71 cents per share as shown on slide six.
At the new rate the indicated dividend is $2.84 per share on an annual basis.
Our board has now approved an annual dividend increase every year since 2012, representing an overall increase of 137% in idacorps quarterly dividend over that period.
Our customer and earnings growth has allowed us to increase the dividend to shareholders, all while Idaho power customers continue to benefit from some of the low energy prices in the nation.
We currently expect to recommend future annual increases in the dividend of 5% or more.
With the intent of keeping the company within our current target payout ratio of between 60, and 70% of sustainable IDACORP, earning.
Last quarter, I mentioned, Idaho power and its partners in the Boardman to Hemingway 300 mile high voltage transmission line projects.
Project, we're exploring several service arrangements aimed at maximizing the value for each partners customers want.
One potential change could include Idaho power acquiring Bonneville power administration ownership share and didn't churn providing transmission service to be PA and in southeast Idaho customers.
Under this scenario, Idaho power could own up to 45% of the transmission line and we would expect the structure, we would expect to structure an arrangement, where our investors earn a normal return on the capital investment.
At the same time, our retail customers would not bear the cost of that portion of the project as funds would come from the transmission service provided two bps.
Our discussions are ongoing on this front.
I have two updates related to Idaho Power's path away from coal a key component of our goal to provide 100% clean energy by 2045.
And seen on slide seven.
First the Boardman plant located in Oregon ceased operations earlier this month, bringing an end to coal fired generation in the state of Oregon.
Idaho power owns 10% of Boardman with the remaining 90% owned by Portland, Portland General Electric.
Transmission projects like Boardman to Hemingway will be key to replacing the lost generation capacity from Idaho power ultimately see thing its coal operations and facilitating our clean energy goal.
Secondly, Idaho powers recent filed.
Recently filed second amended integration resource plan or IR P.
Shows the company potentially ending participation in unit to the north Balmy coal plants as early as 2022 as opposed to 2025.
2019, I R. P is pending with the public utility commissions in Idaho, and Oregon. However, further analysis will be needed to decide where in that range of date makes the most sense from a customer financial and system reliability perspective.
Last quarter I stated, Idaho power did not plan to file a general rate case in Idaho, Oregon in the next 12 months.
That remains true today, but given the ongoing impacts of the COVID-19 crisis and its potential impact on the economy and the communities. We serve we will continue to monitor that situation closely.
Steady customer growth constructive regulatory outcomes and effective cost management all played significant roles as we look at the need and timing of the future general rate case.
Now I'd like to acknowledge our newest board member Audette, Blondo, who was appointed in September.
That is president and CEO of CNL finds his health system, where she provides executive leadership and strategic and operational oversight for a five hospital system across the Idaho and Oregon.
That is a tremendously respected business and community leader, whose commitment to the communities. We serve make her a perfect fit for our board of directors.
And you can see our full board make up on slide eight.
Finally on slide nine.
It shows a recent outlook of precipitation and whether from the national Oceanic and atmospheric administration.
Whether projections for the remainder of fall and early winter suggest a 33% to 50% chance for above normal temperatures in a range of normal to 40% chance of above normal precipitation in Idaho power service area.
As always weather and precipitation play an important role in Idaho, Power's operations and reservoir storage levels, we're generating reliable affordable clean hydro power.
And with that.
Steve will now walk us through the quarters financial results.
Thank you Lisa.
Let's now move to slide 10, where you'll see our third quarter financial results as compared to the same quarter last year.
Despite the continued impact of the pandemic on our large commercial customer sales overall, we had solid results, which we believe positions us well as we head into the final months of 2020.
On the table to year over year changes you will see that continued strong customer growth, 2.6% added $3.9 million to operating income.
Higher usage for residential irrigation customer helped offset the negative impacts of the pandemic, which decreased our commercial sales volumes by about 3% during the quarter.
Residential customer usage was 3% higher than last year, partly related to weather variations, but many customers also spent more time at home due to the public health crisis.
The net result was a relatively modest point 3 million dollar increase in overall usage per customer.
Next on the table you will see that the increase in residential sales was offset by a $1.6 million decrease the fixed cost adjustment revenue.
Moving further down the table transmission Wheeling related revenues increased $4.4 million due to heightened market activity in the southwest U.S. in California. This.
This increase in volumes was partly offset by Idaho Power's open access tariff rate, which declined by 13% back in October of 2019.
Going forward beginning with October one of 2020, the tariff rate increased by 9.6%.
Next on the table other operating and maintenance expenses decreased by $4.4 million a portion of this decrease was expected due to ideal powers exit from unit one of the North Wall Me plant last year. The decrease also resulted from lower labor related cost from reduced variable compensation accruals when comps.
Paired with the same period last year.
Aside from those savings and all of them in July the Idaho Commission issued an order granting utilities the authority to differ unanticipated emergency related expenses due to cope with 19 net of any associated cost savings for possible recovery through future rate.
To date, Idaho power recorded a modest point $7 million regulatory asset for its current estimate of those costs, including higher bad debt expense net.
Net of estimated cold related savings such as vehicle fuel and employee travel and training.
Finally, the tax deduction for bond redemption costs incurred in this year's third quarter. Another plant related income tax adjustments, partially offset by statutory taxes on greater income led to a decrease in income tax expense of $2.4 million this quarter.
The changes collectively resulted in an increase to Idaho Power's Tonight, a corpse net income of $12.4 million and $12.1 million respectively.
While net income for the first nine months of 2020 was $14.2 million higher than the same period last year at IDACORP.
IDACORP and 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.
I'd ports operating cash flows along with our liquidity positions as of the end of the third quarter are included on slide 11.
Cash flows from operations were similar to the first nine months of 2093.
3 million dollar decrease was mostly related to the timing of net collections of regulatory assets and liabilities and working capital fluctuations.
The liquidity available under IDACORP, and Idaho Power's credit facilities is shown on the middle of the slide 11 at.
At this time, we don't anticipate issuing any additional equity this year other than nominal amounts under a compensation plan.
While cash flows have been minimally affected by the pandemic. Thus far are compliant combined liquidity along with expected regulatory support from our annual adjustment mechanisms is a substantial backstop to our expected cap on operating.
As planned Idaho power contributed $40 million to its pension plan. During the first nine months of this year and has no further required additional contributions nor further plans to contribute to the plan this year.
Slide 12 shows our full year 2012 earnings guidance, which Justin mentioned had been tightened upward and our key financial and operating metrics estimate.
We now expect IDACORP 2020 earnings to be in the range of $4.55 to $4.65 per diluted share.
It's continues to assume no use of additional tax credits no revenue sharing and normal weather conditions for the remaining month of the year.
Of course, our guidance could also be impacted if the pandemic worsened significantly.
Our strong consistent financial results and sustained cost management efforts during the past decade have proved reserved the full $45 million of tax credits available to support our current minimum Idaho jurisdictional return on equity of 9.4%.
We're continuing our efforts to preserve them going forward.
Current year deferrals of plant maintenance at the thermal plants that I noted last quarter are now expected to be completed in 2021 as the timing of maintenance is discretionary. These deferrals account for most of the decrease to the range of our full year on M. expense guidance now in the range of 345 to 355 million.
In dollars.
Our capex guidance remains in line with where we started the year and we refined our expectation of hydro power generation to the range of 6.5 to 7 million megawatt hours.
I'll end with a brief comment on expectations for the fourth quarter of 2020.
Recall that during Q4 of 2019, we benefited from distributions from affordable housing investments as well as heightened amortization village tax credits not expected to recur this year.
No significant items boosted earnings to the highest fourth quarter in the history of the company and those results were 42% higher than the average of the five years' fourth quarters prior to that time.
If weather continues as normal and if we perform similarly to an average fourth quarter, we would expect to finish 2020 within the current guidance range.
With that Lisa and I and others on the call are happy to answer your questions.
Thank you.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the case.
She withdraw your question. Please press Star then too.
At this time, we'll now pause briefly.
Your first question today comes from a private investor Please.
Got you.
Go ahead.
Hi, Brian to NIM.
Hey, how are you.
Hi, Ryan.
Hey, just a just curious.
Wholesale transmission revenues and the incremental Wheeling's, just an interesting dynamic.
Hoping you could.
Maybe share some some more insight is it.
Entities to the east of you utilizing your transmission system to move power Wes.
When there were.
Shortages of power during that August time period.
Brian It's a great question. This is Lisa really when you look at the west as a whole and just what happened. This summer it got really hot we had some more.
Market disruptions and so really.
It was not generally one direction so yes.
It was wherever the price arbitrage opportunity occurred so whether it was east west or north to south and we sit in the middle of of the interconnection. So as markets have those kinds of opportunities you'll see transactions flowing in many directions across our system.
Okay got it and then maybe a related question.
Just as in <unk> does the dynamics unfolding in the Pacific Northwest does that enhance the value of Boardman to Hemingway.
And then even gateway west transmission projects that you are currently working on.
I'm going to have a Adam Richmond's, our chief operating officer answer that.
Hey, Brian its a great question, Yeah, I think as you see.
Carbonization become more popular and you see the need to move around some of these intermittent renewable resources, you're absolutely going to see a huge benefit from transmission in fact during the heat wave.
We experienced kind of in California, and the whole western United States or many Hemingway would've been absolutely critical to move energy through our system. There were large price spreads between the Palo Verde and the mid C market and having additional transmission up to the northwest.
Would have been key because if you look at the region a lot of transmission with capacity constraint. So I think you're hitting on a key point I think it's absolutely going to be critical in the future and and that's why we're so bullish on form and Hemingway and gateway west for that matter.
Okay, great and just some.
Some details on what the devaluation was four.
Great.
Last month for the month before.
It seems as if you've got a lot of liquidity.
Several hundred million dollars of cash on hand.
The balance sheet, just curious why not more than 6%.
Yes.
Oh, Brian you cut out there a minute were you asking about the dividends.
Yes, the 6% dividend increase given your liquidity and strengthen the balance sheet why not increase of more than 6%.
Okay. Thank you.
Steve you want to take that one sure that's crazy exist.
Brian I would say that.
It's a reasonable question and I'd say, if you looked at where we sit at this moment.
Not surprised at all you ask if you've seen the large amount of capital that we projected down the road and I guess, we're keeping an eye on that and we're sticking with the plan that we wanted to provide meaningful and continual changes to our dividend.
The slope kind of like we started back in 11.
And we really haven't moved away from that I think when you look at that current liquidity you have to factor in some of that was a response to the COVID-19 issued.
We.
We certainly looked at some of the short term options like others did we would have preferred if it wasn't the inside of the year and it turns out that the options. We were really seeking were just gone not just for us but for everybody in the industry.
And we took advantage of some of our long term debt, which we know we need in the near term probably next year the year after and secured some amazing rates. So we're a little bit ahead, and I apologize Im hearing an echo on the.
The line if everybody else is getting half sorry.
I hope that answers your question.
More of a sticking to our plan on the defense side.
Yes. It does thank you very much.
Thanks, Brian Thank you.
But once again, if you wish to ask a question. Please press Star then one.
Your next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
That's really everyone. This is.
This is Ryan Greenwald actually on for Julian.
Hi, Ryan.
Thanks for taking our questions.
So maybe you get back to the updated guidance I appreciate the color there and the nuances kind of into Fourq. You here can you kind of just talk about load trends, you're seeing as cold spike in across the nation again any early reads there.
Yeah. This is Lee says that that one is it sort of obviously hard to predict we continue to see increases in residential for good reason.
Interesting that we have seen are our commercial our large commercial loads coming back to more historic levels, a more normal levels. If you will we had a great irrigation season, we believe that with a lot a weather related small commercial country.
When used to be off a little but but that's sort of coming back to his people are are trying to get back to some sort of of normalcy. So really I think the wild card will be what happens with the virus and if we have to go back into some sort of economic.
Shut down we don't foresee it I don't know theres political appetite for it but you know, we're certainly trying to be ready for whatever happens, but the growth is the other side of that story that it just keeps coming it never stops and so that's both in residential and businesses. So.
So where we're very excited and again every every report that comes out is is showing Idaho, it's as really the fastest growing place in the nation and and we see that we believe it will be going that way for some time and Adam is there anything that you would add.
No I think you you hit it perfectly I you know in terms of sectors in the large majority of the sectors. We've seen we've seen some pretty steady movement in the industrial everything from data centers to health care food processing, our dairies are doing pretty well you know there is a few sector that aren't aren't necessarily there and that's you know lodging.
In education, and maybe on the office building side, but I.
I think we've been pleasantly surprised by the fact that our industrials continue to do well under these conditions.
Got it that's helpful and can you guys talk a bit about how wildfire seasons going in your service territory suppression suppression efforts and regulatory treatment in the jurisdiction.
Yeah, I, Yeah, I'll start this and then I'll hand, it off to to Adam or one of his vice President we haven't been I almost hate to say it because.
We're not really through the season, yet, but it it has not impacted us nearly as badly as to our neighbors to the west.
It's been we've had one fairly large fire that is now out and to our west and beyond that there's just been a few smaller ones here and there. So we're certainly watching carefully we are we've put together a mitigation plan that looks at those high risk areas.
We are looking at vegetation management.
Monitoring equipment and other equipment that that does not it.
Throw off Sparks when when they operate things like that so we're really making sure that we are doing everything we can to both prevent and then mitigate fires and so.
So far so good and as far as regulatory treatment goes I will let Adam do you want to take that one given update on where we are with that.
Yes, you mentioned Lisa in your comments that were finalizing a comprehensive wildlife manager Wildfire management plan and I think that what we're going to do there is at some point, we do plan to file with the Idaho, and Oregon Commission or some of our neighbors have done it and it essentially walks through our approach.
As it relates to wildfires utilizes a risk based approach that considers you know probability in consequence, very similar to what you've seen in California, and with our neighboring utilities and so that's kind of the approach will take their as Lisa mentioned, you know, it's been a pretty normal fire year knock on wood.
To replace several distribution Poles and have responded to you know some small outages caused by fires, but again nothing wildly different from what we have had to respond to year in and year out.
Got it and then maybe just lastly, there's obviously been a bunch of M&A developments and strategic kind of tenants, we've seen across the space and large valuation discrepancy is just kind of curious how you guys are framing any thoughts about potential strategic action.
Well we.
Our our our history has been that we really don't comment on M&A. So I think that would be our comment.
Fair enough I appreciate all the time.
Thank you.
Okay cool thanks.
Thanks Ryan.
This concludes our question and answer session I would like to turn the conference back over to gross for any closing remarks.
Thank you.
Thank you all for participating on our call today. We appreciate your continued interest in IDACORP and we look forward to seeing and speaking with many of you during the E. <unk> virtual financial conference on November 9th and 10th.
It certainly is not not nearly as one is seeing you all in Florida, but I guess, we'll we'll do what we have to do in these circumstances I wish you all good health and I Hope you have a really great evening. Thank you again.
This conference has now concluded.
Thank you for attending today's presentation.
Disconnect your line.
[music].
[music].
[music].