Q1 2021 Idacorp Inc Earnings Call
Thank you.
[music].
Welcome to the other courts first quarter 2021 earnings conference call.
Today's call is being recorded and a webcast of this lies a complete replay will be available for debt later today.
For the next 12 months on the on corporate website. If you need if you stood at any time during the presentation. Please press star zero on your phone I would now on to turn on the call over to Justin Forsberg director of Investor Relations and Treasury.
Thank you for me.
Good afternoon, everyone.
Good morning, we issued and posted on <unk>.
Website, our first quarter 2021 earnings release and form 10-Q.
The slides that accompany today's call are also available on our website, we will refer to those slides by number throughout the call today.
As noted on slide two our discussion includes forward looking statements, including earnings guidance for spending forecast, which reflect our current views on what the future holds but are subject to several risks and uncertainties, including those related to the impact for the ongoing 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 either Kirby, President and Chief Executive Officer, and Steve keen senior.
Senior Vice President and Chief Financial Officer.
We also have other company representatives available for Q&A session after Liza and Steve provide updates.
Slide four shows our quarterly financial results <unk> 2021 first quarter earnings per diluted share were <unk> 89.
An increase of <unk> 15 per share from last year's first quarter today.
Today, we also affirmed our full year 2021 other corp earnings guidance to be in the range of $4 60 to $4 80 per diluted share with our expectation that Idaho power will not need for utilized in 2021 any of the additional tax credits that are available to support earnings in Idaho.
<unk> regulatory settlement stipulation.
These are our estimates as of today and those estimates assume normal weather conditions over the balance of the year and include customer usage, returning closer to pre COVID-19 levels as we progress through the year.
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 or the use of tax credit.
I'll now turn the call over to Lisa.
Thanks, Justin and thank you to everyone joining us on today's call.
We've had a great start for 2021 as.
As our customers and employees move closer to a more normal work environment.
Going forward to reconnecting with many of you in person over the next year when possible.
Our company has begun to resume from normal work operations day carefully planned manner and we are all health plans will continue to allow on working conditions to normalize in the coming months.
For Idaho power as noted on slide five.
First quarter of this year, so on a continuation of the strong customer growth.
In March alone, we saw on annualized customer growth rate for three 5%.
This accelerated growth weighted challenging us to keep up with service connection, but our employees continue to prove that they are up for this year.
Looking ahead, we expect robust growth to continue with Idaho is quality of life and business friendly environment remain attractive.
Other factors such as inquiries for large flow project suggest demand for our energy in our service area remains strong.
On slide six you'll see highlighted a few publicly announced large load expansions and project.
The economy within Idaho, Power's overall service area continues to outperform national trends on it.
Employment moving Idaho power service area is now down to three 7% remaining well below the 6% rate reported at the national level.
And total employment in our service area declined a modest 3% since March of last year.
<unk> has strengthened its predictions for our surface Gary on now projecting robust economic growth going forward, even after our service area experienced a modest GDP decline in 2020 relative to the national average.
The Moody's forecast now calls for growth of 8% in 2020, 181% in 'twenty, two and continued strong growth of six 8% in 2023.
We expect that existing and sustained future customer growth will cause the need for Idaho power to continue to enhance and expand its distribution and transmission system infrastructure, including the Boardman to Hemingway project.
That growth May also result in the need for Idaho power to procure other new sources of energy and capacity to serve growing loads as well as to maintain system reliability.
We are in the process of analyzing options for the potential energy and capacity resource procurement, while at the same time working on our 2021 integrated resource plan.
We are seeing early model results in our 2021, ERP planning process showing declining link in our system in the near term.
A little too early to tell us what to tell what that will mean for the timing of early exit of Jim Bridger coal fired plant unit.
The timing of the exit for the second unit at North <unk>.
Voltage transmission line expansion project and for other general system upgrades.
While there are many factors that can impact sales net result, there is a possibility that the capital expenditures that we shared in February to grow beyond the estimate to meet the required protected energy and capacity needs.
You'll see some of the items I mentioned highlighted on slide seven.
We have many exciting challenges ahead as we work hard to ensure there is sufficient energy and capacity supply for our customers, while balancing the critical need for reliability resilience and affordability with our clean energy goals.
Last quarter, we stated Idaho power does not plan to file a general rate case in Idaho or Oregon in the next 12 months.
That remains true today as we look at the next 12 months.
Customer growth constructive regulatory outcomes major project completion date, such as that we're licensing of films Canyon, the timing of resource acquisition and effective cost management all play significant roles as we look at the need and timing of a future general rate case.
As part of our overall regulatory strategy I'll briefly highlight and update that Idaho power received in a case for the Idaho Public Utilities Commission.
We requested authorization to defer the Idaho portion of O&M expenses, including vegetation management specified insurance costs and depreciation expense for certain capital investments expected to be necessary to implement as recently enhanced wildfire mitigation plan for WMC.
The comments published earlier this month for generally supportive of our efforts to enhance and protect our infrastructure from some on the devastation that has been prevalent in other western states in the past few years.
As a reminder, we expect to spend approximately $47 million in incremental O&M and $35 million in incremental capital expenses for wildfire related infrastructure work over the next five years.
For cases still pending at the ICC.
And we are currently awaiting a commission order.
As you all know weather is an important factor in wildfire risks as well as in other aspects of Idaho Power's overall operation.
We rely on our healthy sales tax to meet our customers' needs reliably and affordably.
This winter our mountains accumulated below average precipitation however.
However, we entered for the upcoming spring and summer seasons with strong reservoir storage.
So we expect a relatively healthy water conditions for irrigation customers, though it is likely that hydro power generation will be lower than our 30 year average.
You will see on slide eight debt. The most recent projections from the national Oceanic and atmospheric administration suggests dry and hot conditions from May through July.
Preparations for summer readiness when our system is most stretch are underway and we expect to be able to balance a reliable system and to meet customer demand.
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.
And with that I will hand things over to Steve for an overview of the first quarter's financial performance.
Thank you Lisa.
Let's now move to slide nine where you'll see our first quarter of 2021 financial results as compared to the same period in 2020.
Overall, we have a strong start to the year with accelerating customer growth and positive impact from transmission revenues.
Altogether.
First quarter 2021, net income was higher by $7 $3 million.
On the people of quarter over quarter changes, you'll see customer growth added $3 $7 million to operating income.
Lower usage per commercial customer down 2%, partly due to COVID-19 impact was largely offset by higher residential usage due to colder weather this year versus less.
The net net result was a relatively modest one $3 million decrease in overall usage per customer.
The next change on the table shows the transmission Wheeling related revenues increased $4 1 million.
This was partly due to a 20% increase in Wheeling volumes as well as a 10% increase in Idaho Power's open access transmission tariff rate October to reflect higher transmission costs.
Colder winter weather in the southwest U S contributed to the increase really volume this quarter.
Next on the payable other operating and maintenance expenses decreased by $4 2 million.
This was primarily due to the timing of cloud seeding activities and cost saving initiatives that are totally on coal plants.
On a portion of the savings also related to Idaho Power's exit from the Boardman plant in 2020, as both O&M costs and corresponding revenues were reduced.
Due to the regulatory mechanism in place that's associated with the shutdown.
We continue to see decreases in employee travel and training costs related to COVID-19, while on allowance for bad debt remains above recent levels will likely take longer to collect.
Our net deferral impact however remained nominal we will continue to monitor the impacts by state to determine whether we ultimately seek recovery for any net increase cost.
Finally on our higher pre tax earnings led to an increase in income tax expense of $1 $5 million this quarter.
The changes collectively resulted in an increase to Idaho Power's net income of seven 6 million.
<unk> and Idaho power continue to maintain strong balance sheets, including investment grade credit ratings and sound liquidity, which enables us to fund ongoing capital expenditures and distribute dividends for shareholders.
At <unk> operating cash flows along with our liquidity positions as of the end of March are included on slide 10 cash.
Cash flows from operations were about $50 million higher than last year's first quarter.
The increase was mostly related to working capital fluctuations the timing of pension contributions and the timing of net collections of regulatory assets and liabilities.
For liquidity available on driving Corp's on Idaho Power's credit facilities is shown on the middle of slide 10.
At this time, we do not anticipate raising any equity capital in 2012 for 2021, while cash flows have been minimally affected by the pandemic, thus far our combined liquidity along with expected regulatory support from our annual adjusted mechanism is a substantial backstop to our expected capital and operating needs.
Slide 11 shows on our affirmed full year 2021 earnings guidance and our current year financial and operating metrics estimates.
We continue to expect <unk> 2021 earnings to be in the range of $4 60 to $4 80 per diluted share as we assume normal weather and operating conditions for the remaining nine months of the year. We also assumed pandemic impacts continue to moderate as the year progresses.
Our guidance still assumes Idaho power, we use no additional tax credits from 2021 of.
Of course, our guidance could be negatively impacted if the economy will depend on which worsened significantly or for other reasons.
Our expected full year O&M expense guidance remains in the ranges.
$345 million to $355 million.
So we're off to a good start it's fair to say that this goal to keep O&M relatively flat for the ninth straight year is being challenged by the level of growth we are experiencing.
We also affirm our capital expenditure forecast for this year, which we increased a bit in February to the range of 320 to 300 million $330 million on.
Our expectation of hydro generation to soften somewhat given the conditions presented earlier and is now expected to be in the range of five 5% to seven 5 million megawatt hours.
With that Lisa and I and others on the call will be happy to answer your questions.
We are now ready to begin the question and answer session.
For your wife asked a question assuming you have down for Q&A line. Please please for by pressing star one on your phone.
I'll remind you to ensure him.
Auction of current off before you ask for question.
We will take as many questions as time for me on a first call basis.
Once again back on Star one on your phone to ask a question now.
And that one first question comes from Ryan Greenwald with Bank of America.
Good afternoon, everyone.
Hey, Brian.
I appreciate the time.
So maybe to start just kind of coming off a strong quarter here seasonality would imply youre comfortably kind of above guidance and you got this accelerating customer growth and things starting to normalize a bit seemingly can you guys. Just kind of talk about the puts and takes the remaining quarters on the decision to keep guidance, where you've tackled this ranch.
Sure Ryan if you look at our historic.
Earnings in the pattern it varies a little bit quarter by quarter, but the pattern has always been that third quarter is our biggest quarter second quarter often.
Leaves intuit a bit until you get better timing so.
While we are happy with a good first quarter from a weather perspective on things that maybe don't control. So much we really need to get into summer before we have a lot of confidence.
But all of that holds together, so it's pretty normal for us too.
It will be waiting on bolt on this that wait until we get into summer.
Got it and then I know, it's a bit early but in terms of.
Central for additional energy procurement against the backdrop of this robust growth.
And you guys kind of dive a bit deeper in terms of how youre thinking about potential timeline of opportunities.
Potential to rate base magnitude of what could come in the years ahead.
Yes.
This is Lisa Adam why don't you take that question.
Sounds good Hey, Ryan.
You mentioned it significant growth is a big part of it.
On other things. We're also seeing is some <unk>.
<unk> mission constraints outside of our borders.
Based on what we know today. It appears these two things will likely cause us to have to need some generation resources.
Hi.
Earlier than we expected in the 2019 IOP, we're still running the models. So this is not a for sure thing, but additional generation sources maybe in that.
For a range it looks like it may occur with.
With the transmission constraints were also continuing to see the need for transmission investments like between <unk> and gateway West. So we're keeping an eye on those right now <unk> is scheduled for 2026 as you know.
And again, we'll just keep an eye on growth in some of these transmission constraints to see if we need if we need to resource earlier.
Yes, Ryan.
Because our last IRB really just got finalized a year ago, you may not be thinking that our new <unk> will be out later this year and I think it's.
Not that far away before we have probably more firm.
Numbers that we can rely on to give you a better estimate.
Great I'll leave it there thanks for the time.
Thank you Ryan.
And our next question comes from Chris Allen Carlson with Siebert Williams.
Hey, guys.
Great.
What what caused sort of for.
Further acceleration in customer growth in March versus the earlier part of the quarter.
Boy I for.
On which we knew I think I think a lot of it.
Ben.
Okay.
I think what the in migration is driven by has been several things some of it is business climate getting away from somewhere.
We estimate on or have been told that center.
Political refugees that are moving on to somewhere coming to Idaho.
On the.
The nicer weather might be people that were sort of waiting to make a move and it's certainly easier not in the middle of winter. So I think there is a combination of things and then of course, just having COVID-19.
The number is going down on schools reopening I think some of that might have influenced the timing of people actually making move.
It's been just an incredible thing to watch, though I don't.
We haven't seen anything like this I can I can think of.
In my time at <unk>.
On <unk>.
Exciting and challenging for sure.
Yes, Chris this is an anecdotal comment that I've talked to a few people who had moved in.
Six eight months ago, and now have relative to their friends, who are coming and I think the cost of living is pretty dramatic from some of those areas and so they find out that can come here.
They can make a nice profit where theyre at come here.
Extra dollars and have maybe a lot nicer place then the net.
Bill.
It does seem to be that.
And this person was really spreading the need.
Okay, Thanks family and friends of what he found to be.
Really nice place to come to us I think it could be a little magnification from word of mouth to share on the process.
Okay happening pre COVID-19 as well so I think yes, I think all of those things combined.
Okay.
On the cloud seeding.
Aspect.
O&M reduction for the quarter can we assume that.
That's something that gets picked up in the second quarter, particularly with sort of a dry forecast.
No that only happens in the winter. So we don't we don't speed on unless there is.
Sales profitability for us now.
I think I do think we think it's going to work itself out over the course for the year on that piece.
Yes, there was a piece of that sales.
Savings that I wouldn't attribute is as we're going to hang onto that.
It has to do a little bit with some of the ins and outs of expenses and then we have other paid for some of the cloud seeding and I think it was just a timing issue to some extent about how the inflows match. The outflows. So it's not a major shift in the plan or anything.
Okay. So.
The precipitation in the quarter was actually above normal debt.
Please see you mentioned that the Snowpack was not so how do we think about.
With your reservoir system looking at precipitation and sort of comparing the actual say rainfall that gets captured by your reservoirs versus for snow pack. When we think about sort of where you are in the hydro.
The hydrological.
Situation that you're in.
Yes, another great question so on.
We actually had a really dry for March and April and so that that we didn't get the additional sort of precipitation in the form of brain that we that we often.
And so how the snow comes off.
That's a function of mother nature as well right now it really it got cold and so that's no debt, we had didnt come off as quickly so.
It got dry the irrigation picked up and we saw reductions in inflows because we didn't know is still up on the hill if you will so.
How that's all sort of timing.
It will come off in real time, we're still watching but we do again have that reservoir storage. So we're grateful for that and I think.
We'll see what the relative.
If the period, bringing Alex there's certainly been times when May comes in in a super Latin and a phase of day bucket.
We're not optimistic that's just my expense Michael Im putting it out on the universe.
Hoping for that but right now, we're just really preparing for dry.
And with with lower hydro and making the adjustments that are necessary to how we serve our customers.
Okay, one last.
Average rate.
Yes go ahead.
I know you focused a lot on our irrigation side, but from that perspective them needing to pump the water pull it out of.
The reserves is actually the part that usually gives us some lift in the summer so that setting up right now.
It doesn't appear as though short it would be shortages for them that they wouldn't get water certainly can't say for sure how the rest of the free.
We rolled out but assuming there is plenty there they should be using water.
Hopefully earlier than some years, we've had a couple of kind of disappointing seasons, where they really didn't start irrigating until June and its not looking like that this year.
Okay, Yeah, I was going to ask you about this.
AG prices are quite extraordinary at the moment.
No.
Assumed debt.
Farmers are being aggressive in their planting and with <unk>.
Dry outlook.
Is there any reason we shouldn't expect.
Irrigation can be strong again for the summer.
We certainly think it's shaping up that way.
Yes.
We've been disappointed and occasionally we'll have amazing.
Right from the start for the end and then.
When it falls from the Sky, they don't need to pump our with electricity.
But we will see it doesn't feel like debt right now feels like it.
Kind of back to normal really we've had a couple of kind of a wet spring that slowed us down and I think this feels like it.
But it's a dry spring an awesome springs are beautiful and Idaho.
Feels like summer.
San Diego.
One more thing last year in the first quarter was kind of a week.
Transmission Wheeling quarter any day.
You end up getting some kind of benefit from February.
Okay.
Storminess.
But.
Okay.
To offset a little debt would you call this quarter.
Normal for transmission Wheeling area or do you think it was extraordinary.
Maybe not extraordinary that would probably be too much to say that Adam.
Is it about this yesterday I believe it.
It feels like every year, there's been something so there is another thing this year it was kind of that imbalance that happened.
When Texas had its issues really cold weather down there.
And when it happens is that people see differences in prices in different areas.
The move that power on and Thats, when we get some business out of that we.
Maybe you didn't plan, but it is kind of feeling like theres something most gears I guess.
So maybe we just don't know for sure what this new normal is but at least for the last like.
Like three years, there's been different sorts of interruptions that have caused us to show up somewhere during the year.
Yes, so it's really hard to say, whether it's the fundamental.
Is that driven.
Alright, well thank you Christy.
Chris This is Adam the only thing I might add too is it's difficult to tell what will happen with the volumes, but we have experienced an increase for the last five summers in this area. So it seems to be a trend. That's at least go on the right direction from our perspective, but we will see how it goes moving forward.
Okay. Thanks, Jeff.
But with the other thing I would add is debt.
On a signal as to why we're bullish on transmission in general.
Right. Okay. Thanks, so much.
Thank you thanks, Chris.
And our next question comes from Brian Russo with Sidoti.
Hi, Brian Hi, Brian Alright, Hey, guys, Hey, so.
Back on the.
Potentially for free.
Energy resource.
Is it too early to discuss.
The size of our resource.
You might need.
Andrew Boardman to Hemingway.
It pushed out.
Okay.
Need.
And Sky's growth.
Sure.
I think I will have Adam.
This one as well.
Is that absolutely, yes, how are you doing Brian.
It feels a little bit early like I said, we're still running through the 2021 ERP.
But.
At this point.
It feels like the need is there the determination of the size might depend on a couple of different things. One is again, we're seeing a significant load growth. So does that continue I think the other thing is.
One other things we tend to do is we rely on imports during the summer to help meet our peak in what we're seeing in the transmission market is that those.
The transmission lines and the ability to import energy into our borders is decreasing because of scarcity. So we're going to test the market.
See what transmission is available and then based on that we will have a good understanding of what size.
Need moving forward, if <unk> were to move out that would increase our need.
And the generation resource.
Okay, Great and then just back on the transfusion.
Question, you mentioned that the dynamics, obviously higher tariff rate for volumes.
We only power to the southwest.
Is there a scenario with.
Dry.
Hot conditions, West and California debt.
You can set up the same sort of dynamic this summer.
For transport.
Sure Wes.
And volume.
Kenny and did that happened last summer.
I'm happy to answer that yes go ahead.
That did happen last time are from our perspective, you had the heat wave kind of in the August timeframe on when you have those high market prices and a spread between the southern market, which is the Palo Verde day market in the mid sea.
People tend to use our transmission to sell between those markets. So if you saw some extreme heat again this summer for dry conditions. It feels like again, our transmission system would be pretty valuable for people to trade between the two markets.
Okay, Great and then lastly, just on the guidance again with accelerating load growth.
Firms are O&M.
Hence guidance.
It looks like at least a forecast for dry and hot zone.
Variable.
Thats for the back right now.
From from adjusted <unk> guidance just weather.
Yes.
Brian I was probably the biggest one I would say I mean, when you think about third quarter being typically is half of our earnings. So it all of them in that one quarter is a crucial quarter.
Some of it the irrigation some of it is just below granted I think.
We may sit here and thank all of this in migration could could show up in a good way there because theres more people if it happens to be hot and warm.
That will have.
A positive impact if they are in higher appears because the air conditioning a lot.
But it is it is such as dramatic.
Impact that if it goes the other way and they can wish we could predict the rest of the group.
It hasnt been that great at it over time.
Net net as a reason for.
This quarter.
If you go back and probably just look at the sizing of the quarters.
And one for usually or not.
Pushing the the answer for us so we're usually not jump.
Jumping out at just on a.
Positive first quarter. So that's that is the main reason.
If you can throw independently this year or two in that right.
It looks good right now and things are kind of improving and opening up all of that feels really good but we didn't see the first change coming and who knows so I think it is.
We've got a good one under our belt, we're going to hopefully three more so and it's in our nature to try to be concerned exactly.
Okay understood and then just lastly, you mentioned you were bullish on transmission earlier, Jeff Visa H.
Cash and development Gateway West.
Obviously longer term.
Is it long shot to ask is there anything in pending infrastructure bill that could potentially accelerate the development for.
Do you for permitting on Boardman to Hemingway <unk>.
Hey, Wes.
Potentially and certainly having itc's make it interesting I don't know.
On.
With the permitting will necessarily change although there is some discussion that maybe it could.
But on one part where we're getting to the end of that process anyway. So we can make a significant change to the timing based on permitting so so.
Clear.
I like the fact that so many policy makers are now waking up to the pack the transmission is going to absolutely be needed.
To get to the clean futures that everybody desires and certainly this administration desires and so I think that part is really good.
Im hopeful that it will facilitate.
Some of these.
Projects that we have a permitted are nearly permitted and then whether or not theres other projects debt.
We would take a look at.
We don't have those indicated in the AARP at the moment.
On.
For now.
Great. Thank you very much.
Yes.
And a final opportunity for star one for signal for a question and welcome.
For just a moment.
And that concludes our question and answer session for today.
I will turn the conference back over to you.
Great. Thank you well we thank all of you for the interest continued interest in <unk> and Idaho power and I wish you all on my very best we're certainly enjoying a beautiful spring day hearing which means it will snow tomorrow.
Yes.
I hope you are enjoying whatever season Youre, having operating you are so thank you very much.
And that concludes today's conference call. Thank you for your participation.
Good day.
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