Q1 2022 Idacorp Inc Earnings Call
Percent since Q1 of last year.
New connection requests continue to come in at a steady pace.
In addition to the 960000 square foot meta data center facility announcements, we mentioned during the Q4 earnings call.
For a large load customers announced project in Idaho power service area during Q1 of this year.
Examples include the Stoke company, which plans to build a 550000 square foot manufacturing plant.
<unk> Plaza and storage solutions business, and then new Red River Logistics Center near Boise, which at 900000 square feet would become the largest industrial spec building in Idaho.
The spec building that has been taking place is to us reflective of the confidence of developers in the continued in migration of businesses to Idaho.
We are also working to formalize a new rate class for large scale cryptocurrency mining customers, which we believe would help mitigate financial risk for the company and our other customers.
The new rate class well established parameters for speculative high density low customers evaluating Idaho power service area for operations.
We currently have not forecasted significant crypto currency mining load in our forecast but.
But given the level of inquiries, we have experienced in the past. It is important for Idaho power to address items like disruptive will service and separate pricing for this class as we are already building our considerable infrastructure to meet the existing load growth.
Okay.
Turning to slide six Idaho power continues to pursue its clean today cleaner tomorrow goal of providing 100% clean energy by 2045.
Our 2021, IOP contemplates, Idaho power ending full operations at the Jim Bridger power plant by the end of 2028, which will be the final coal units in our fleet.
We've made a filing in Idaho requesting recovery beginning June one of this year of.
Of an accelerated depreciation schedule for all coal related investments at Bridger.
In the meantime, we are working with our co owners and regulators to convert Richard units, one and two to cleaner natural gas by.
By 2024 to operate through 2034.
This conversion would help meet regional haze compliance targets and reduce carbon emissions, while continuing to ensure reliable electric service for customers.
We have removed the anticipated gas related assets from our regulatory request.
Is that S. I have mentioned on recent earnings call.
A critical part of our clean future depends on enhanced transmission.
We remain very focused on the ultimate success of the Boardman to Hemingway project for which we noted last earnings call, Idaho power signed a non binding term sheet with <unk>. Other two participants Bonneville power administration, and Symbicort that would transfer BPA share of the project Idaho powers.
We still expect to finalize b to H permitting by the end of this year with the line plan to be in service no earlier than 2026.
We also were awarded a contract for construction consulting services and are working on definitive agreements with the co participants for our purchase of EPA sure.
Idaho power recently announced plans to install a 120 megawatts of battery storage to help maintain reliable service during periods of high demand, while moving us toward our clean energy goal.
The batteries, which would be the first utility scale storage arrays in Idaho were requested in last week certificate of public convenience and necessity filings with the Idaho Commission.
The batteries are scheduled to come online by June 2023, and would help fill Idaho Power's additional 2023 energy capacity resource needs mentioned during previous calls.
The project is the result of the RFP, we issued last June .
To help address the capacity deficits projected and the IOP for 2024, and 2025, Idaho power has been pursuing multiple options and issued an RFP last December .
In March we received more than 50 proposals in response to that RFP, including our own self build option.
And we will be analyzing these submissions over the next several months.
Depending on the RFP results the timing of projects in service date, and the outcome of regulatory proceedings, Idaho power expects it could in fact over $400 million in capital expenditures from 2022 through 2025 for these resource additions to help meet the projected capacity deficit.
Our power resource needs continue to evolve and we hope to have more to share later this summer.
As Brian will discuss in a moment effective cost management remains a key component of sustaining our financial success.
As we've accomplished in the past we are striving to keep our operations and maintenance expenses relatively flat with.
With last year.
I appreciate our employees efforts to control costs and operate within budget as we work to address growth in our service area and the inflationary pressures we are all experiencing.
On our last earnings call, we acknowledged the approaching need for Idaho power to file a general rate case in Idaho and Oregon.
While we have begun planning for our near term general rate case, a variety of factors, including our expected growth in rate base in service dates with major capital investments effective cost management and economic conditions and their influence on customer growth projections, all play significant roles as we evaluate the need and timing of <unk>.
Our general rate cases.
Slide seven shows the recent outlook of precipitation in whether from the national Oceanic and atmospheric administration.
Current weather projections for June through August suggests we will likely see warm dry conditions. This summer.
Drought conditions remain across our service area.
And while some late arriving snow in April and now into May have helped boost our snowpack and reservoir storage numbers projections for the clean low cost hydro generation that has traditionally been our largest single generation resources remain on the low side.
With our updated 2022 hydro forecast currently estimating between five and $6 5 million megawatt hours.
With that I will hand seems over to Brian for a financial overview.
Thank you Scott and good afternoon, everyone I'll start my portion on slide eight where you'll see our first quarter 2022 results compared to Q1 of last year.
A solid start to the year, we've seen continued strong customer growth positive weather impacts on sales higher transmission Wheeling revenues and a return to more normal economic activity for commercial and industrial customers.
That was offset by higher operating and maintenance expenses coming off what I would consider an abnormally low first quarter last year, which I'll explain in more detail later.
And as Jonathan mentioned Networks' first quarter earnings. This year were the highest for the first quarter of 21 years.
And the cable a quarter over quarter changes youll see that customer growth added $3 million to operating income. We expect this growth to continue as more people and businesses continue to locate to our service area to live and do business.
Idaho has been marketing, it's business friendly environment and quality of life and from the sustained and migration people and businesses seem to be responding to that.
And next on the table ryzen heating degree days over the first quarter of last year led to 8% higher residential for customer usage, well increased economic activity led to a 4% increase in usage per commercial customer and a 5% increase in usage for industrial customer.
Part of the increased economic activity relates to non pandemic conditions existing for commercial and industrial customers in this years first quarter compared to last year.
Youll note on the table that the combined use of exchanges led to a $9 $3 million increased operating income.
The $5 $9 million decrease in Idaho powers fixed cost adjustment mechanism revenues offset the benefit of increases in residential and small commercial customer usage.
Further down on the table you will see a $1 $6 million decrease in operating income from the change in per megawatt hour revenue, that's net of power supply costs and power cost adjustment impacts year to date, and then decreased mostly relates to the amount of net power supply expenses, including higher fuel costs that were not deferred for later recovery through either powers our cost adjustment back.
Recall that Idaho customers generally better than 95% of power supply cost fluctuations over a base amount.
Two new long term agreements that were executed in April of last year contributed to higher transmission Wheeling related revenues in Q1 of this year.
Which ultimately increased operating income by $2 million those wielding agreements run through March of 2024.
And we only customers also paid 4% more per transmission Wheeling as Idaho Power's transmission tariff rate increase in October of last year to reflect higher transmission costs.
Next on the table other operating and maintenance expenses increased by $6 4 million.
Returning to what I would call a more normal level.
Looking back in the first quarter of 2021, we had reductions in O&M costs.
Joining me on the call glass as well as COVID-19 related savings in areas like employee travel and training.
And the comparative increase this year was also due to a planned maintenance project at the Langley Gulch natural gas plant and inflationary pressures on labor related costs and professional services and supplies.
But for some additional context about returning to a more normal typical level of O&M first quarter 2022, O&M was only two 5% higher than the first quarter of 2020, and only three 6% higher than the first quarter of 2019. So it shows our Q1 2021 was somewhat of an anomaly.
A decrease in non operating expense, which was related to higher allowance for funds used during construction and some investment income in the Rabbi Trust for Idaho, Power's Nonqualified pension plan led to a $2 $7 million increase in <unk>.
Thanks.
And finally as you can see on a favorable income tax expense increased just shy of $1 million this quarter and that's due mostly to greater pretax income.
So all of those changes in the aggregate resulted in an increase in <unk> net income of $1 5 million or <unk> <unk> per share for the quarter.
You'll note that on our first quarter, our first quarter Capex has increased by 33% over what we spent during the first quarter of last year as we expected the bulk of that additional capex relative to last year and relative to our historic spending levels as for our battery storage projects and some natural gas plant upgrades to obtain some additional output and efficiency from.
The units.
As we look at our Capex forecast for this year, we think much of the potential inflationary impact is mitigated based on contracts already having been signed for the batteries and for some of the work, but continued inflation will most likely impact our non contracted product and services going forward seemingly like everyone else.
And with that spending in mind I'll point, you to slide nine for a look at available liquidity and funding capacity.
Either Corp, and Idaho power continue to have strong balance sheets, including investment grade credit ratings and sound liquidity. We expect these factors to enable us to fund our drilling Capex and also deliver on our dividend plans to shareowners.
And of course operating cash flows and liquidity position as of the end of March are also shown on slide nine cash flows from operations in the first quarter were about $9 million higher than the same period in 2021. The increase was mostly related to the timing of the payments included in other current liabilities balances.
The liquidity available under <unk>, and Idaho Power's credit facilities is shown in the middle of slide nine at this time, we still don't anticipate issuing any equity outside of our compensation plans in 2022 and.
And we generally target a 50 50 capital structure at Idaho power.
As we work to fund our upcoming capital plans as we mentioned on the last earnings call. We plan to primarily finance the execution of those projects with that at least until the ratio is closer to target.
Slide 10 shows our full year 2022 earnings guidance, which we affirmed today in our current key financial and operating metric estimates.
As Justin noted earlier, we still expect <unk> 2022 earnings to be in the range of $4 85 to $5 <unk> per diluted share. This guidance assumes normal weather and economic conditions for the balance of the year and our guidance still also things Idaho power will use no additional tax credits in 2022 under the Idaho regulatory stipulation with <unk>.
As a reminder, provided earnings support in the Idaho jurisdiction at a nine 4% return on year end equity.
So we continue to expect our full year O&M expenses to fall in the range of 365 million to $365 million and as we've managed to accomplish in the past we are working to keep O&M relatively flat last year, keeping up with the level of customer and load growth. We're experiencing in our service area along with the continued inflation that I mentioned earlier at least also mentioned.
That makes that more challenging.
But even given the planned maintenance at Langley Gulch, as well as general wage increases.
First quarter O&M, it's only seen just over a 1% average annual growth rate over the past three years and we remain committed to our longstanding efforts to operate efficiently and control our O&M expenses.
Our expectation on 2022, Capex spending continues to be in the range of $480 million to $500 million.
Though at this point I'd say, we're more likely to be at the higher end, if not potentially a little over the top of the range.
And finally as we've already discussed given our most updated forecast the stream flows we lowered our expectations on hydro power generation for the year I'd say, we're fortunate to have a diverse portfolio of power supply resources as we head into the summer months.
That Lisa and I and others on the call are happy to answer your questions.
Okay.
So now ready to begin the question and answer session.
I'd like to ask a question. Please do so by.
By pressing star one on your phone.
Reminder, to India.
Mute function is turned off before you ask a question we will take as many questions as time permits on a first name basis. Once again that is star one on your phone to ask a question now.
Your first question comes from Paul Zimbardo with Bank of America.
Your line is open.
Hey, good afternoon.
Hi, Paul Hi.
Thank you for the time.
I wanted to kick it off.
Mentioned the cryptocurrency just if you could discuss how some of those conversations have evolved with potential off takers.
Do you have that regulatory filing where it didnt appear like there was a lot of initial uptake. So just curious how those conversations have gone.
I'll start and then I'll turn it to Tim to talk about regulatory and Adam to talk about sort of the business development side, certainly and we've had conversations over the years with crypto currency that have interested again, citing in Idaho. However, they generally we don't need to move fast.
Need to win.
Glenn the lowest rates they can find and we really just haven't ever come to an agreement.
Let met everyone needs. So so we wanted to make sure given the amount of inquiries that we were getting that we were just setting it up and mitigate risk. So we the company didn't assume risk and neither did the rest of our customers given that these folks can come in and out of our service area pretty quickly.
So if you wanted to start Adam that would that yes that sounds good yeah. I mean, we continue to see a steady flow inquiries I think after the filings and we've seen a couple of small commercial hookups.
But we haven't seen anything major come on the system.
The inquiries are coming but the actual hookups just haven't even made it there.
Right.
Yeah, Hey, Paul This is Tim Tatum, Vice President of regulatory Affairs.
So the case at this point is fully submitted.
We received favorable comments from the commission staff supporting our filing.
We're just now awaiting a commission order at this point.
And Paul once I got a note on the on the cryptocurrency side is there seems to be quite a bit of price sensitivity associated with that in terms of the inquiries scale based on the price of crypto currencies. So I think a lot of crypto miners have a model in their mind in terms of electric power being one of the primary inputs to their cost structure. So as you see if you see prices go down.
<unk> certainly interest goes down as price accelerates goes up on crypto currencies.
And to see more interest.
Yes, absolutely and I appreciate all that.
And then the other question I had.
Unrelated.
That's on keeping the O&M intact with the new pressures.
Curious, how the new inflationary environment could potentially accelerate that rate case, even a little bit faster than you thought.
Sure.
And just how you think about the subsequent rate case cadence because I know you talked about some of the <unk>.
<unk> service dates and things like that so kind of beyond that <unk>, what the bigger picture strategy that'd be helpful. Thanks.
Do you want to start here I can I can pick up thanks, Paul so on the on the O&M side looking at where we're at now we're holding to our guidance of the $355 million to $365 million. We ended 2021 at 361 inflation is certainly having an impact on that is putting pressure on it and we've seen we've seen labor increases.
Obviously, we're seeing some increases for mark.
<unk>.
From suppliers as well I would say some of the inflation, we're seeing on capital projects as well.
Which I mentioned, we are looking at the range of our capital and we could be a little over the top as I noted.
In terms of how that might impact our rate case.
We're actually looking at factors like the timing of the in service date of some of our resources as being the primary drivers of the timing of rate cases so.
Some of that higher capital expand while we're trying to keep it low obviously to keep customer rates low there is there is a.
A bias towards those capital projects pushing into a rate case and as prices go up theres a potential for accelerating but I would really centered more in the near to near term to the in service dates of some of those larger capital projects like the battery storage project, we have and some of the things like health canon licensing and <unk>.
Boardman to Hemingway as those projects come on.
Okay, great. Thank you all very much appreciate it.
Thank you. Thank you.
Your next question comes from Brian Russo with Sidoti.
Your line is open.
Hi, good afternoon Hello.
Hey.
I noticed the trailing 12 months customer growth was two 6%.
As of March.
Might be getting too granular but.
Recall that 12 months ended December was 2.8.
8%.
The read through there.
Okay.
At this point, it's hard to tell.
One quarter, certainly doesn't make a trend and we're not sure at this point, yes. Some of it is the.
Reflective of the supply chain disruption certainly there is a lot of homes that people can't move into because they don't have garage doors or they don't have ovens and so we're seeing some of those disruptions that certainly as you move through our territory. There's still just a tremendous amount of construction going on.
We'll be watching it carefully but I think at this point in time, we haven't read too much into it.
Understood and the GDP forecasts.
For your service territory are those consistent with the prior forecasts or have they changed.
<unk> to 'twenty three.
I think the forecast of $2 four in 2022 is slightly lower and then the $5. One in 2023, I think is consistent if not slightly higher than prior numbers.
Okay, Great and then.
Yes.
And it looks like.
Below normal above.
Above normal temperatures Annie.
Sure.
Expectation for irrigation.
And which I believe starts soon.
Given the weather dynamic maybe not as extreme as last year.
But soon Joseph.
You might get some greater electricity demand from that customer class.
Yes.
It is true that in April they sort of got their irrigation for free.
And then from the Sky and that does sometimes delay their crop.
And then you've got the commodity prices that may expand some of their planting so we're going to watch that carefully but it does look like it's going to be hot and dry.
Which is generally good for load so we'll stay tuned and sort of see how the season.
Develop.
Okay, and then just lastly.
I think maybe in prior calls you mentioned that there is roughly 40% upside.
To your base Capex, which I think is about $2 8 billion and I'm wondering I noticed you've signed several ppas.
One with Duke energy I believe a couple of weeks ago.
And I'm just curious.
How much of that 40% upside as kind of.
Firmly committed.
We're either to invest or is a lot of this is going to be contingent on.
RFP outcomes and or.
B to H increased ownership.
Yes, Brian So the Duke energy contract with quite a while ago Mountain, we're actually looking to have in service fairly soon I think for 2023 early 2023.
The new one that we signed was part of our RFP process. It was a 40 megawatt.
Facilities solar facility that will be dedicated to a specific customer and then we had the 120 megawatts of batteries that we also purchased so the 120 megawatts are in that capital forecast. Obviously, the ppas are not there is an additional component of our forecast of rate base. If you've seen the chart that we've put out that does have us owning some of.
Additional resources and that is that is subject to the outcome of the regular regulatory process and also.
From the RFP process. So we're still working through that we're in the early stages of reviewing what we're what we received obviously we have a self build in there and some of the stuff that we have received back does include ownership components as well other big pieces of that though are things like the Boardman to Hemingway project. We've got some upgrades that are natural gas plants that are in there.
We have some hydro refurbishments in there so there's a lot of other capex in there beyond just that future generation resource piece.
Okay, great. Thank you very much.
Hey, Brian .
Your next question comes from Chris Allen.
Kurt Williams your.
Your line is open thank you.
Hello, everybody.
Hi, Chris.
Maybe I missed this but did you give a timeline for the RFP shortlist.
Adam do you want to take that yes, we are currently reviewing proposals.
And should be looking at that as short list for the 2020 for RFP.
This summer in terms of the 2025 RFP, we're kind of reviewing our options, they're reviewing the proposals and the shortlist for that will probably be later than the summer date for 2025.
Okay and it looks like April was was pretty cool I assume you factored that into your guidance at this point.
Yeah, we forecast we forecast for normal weather conditions April isn't typically one of our large months anyway, and when we start getting into the hotter summer months, both have a bigger impact.
And we will start looking more on irrigation loads as we get into further into this month and into June as well. So those will be larger drivers than our typical April but as you think April temperatures were below average in our service area.
Okay.
Can you give us a little color back to the irrigation outlook.
Hot and dry is definitely good how do you.
How should we think about water availability and how that factors into just how much water is available for irrigation in the coming quarter.
Well, we certainly worked carefully with the state and those that are responsible to allocate the resources and from let me know now.
We think.
It will be spread around in and people will largely be able to get what they need but certainly there is a prioritization of water rights and sort of who gets wider who has priority over.
Another right, but at this point in time.
We are again watching carefully.
And we will see the weather right now is going to be stormy over the weekend and a more prudent debt.
It's really hard to forecast at the moment.
It is that we are continuing to see precipitation.
Okay.
I know you can't really talk about individual new customers, but.
<unk> got some pretty big new loads can you talk about what's the overall magnitude might look like for your new developing customers.
Sure. Yes. This is data we can see we continue to see I think steady amount of inquiries that are coming in the door everything from food and beverage processing, the dairies to bio digesters to technology.
Manufacturing has really been.
Diversity, and we're starting to see a little bit more load in the area of electric growth and some buses electric buses as well so we seem to be up in pretty much all categories, except for the office space at this point and we've had a lot of loads come in the door that are public of course meta.
Zig Lamb, Westin true West B, Idaho, Cobalt Red River, just a slew of them come in the door and as they start to hook up I think we're going to see some benefits in terms of our loan.
Or are we talking about hundreds of megawatts.
Collectively yes, yes, we project.
Through the IRB.
50, plus megawatts a year and those projections are in the current plan.
Okay. Thank you very much I appreciate it.
Thanks, Chris.
Your next question comes from Anthony <unk>.
Great.
No.
Your line is.
Hey, good morning, Lisa Good morning, Brian .
Hey, how are you.
Just I guess quickly.
No.
Talking about.
How you are financing this additional capital any thought to utilizing actually the balance sheet at Idaho, either core versus Idaho power.
So we actually have we have a lot of cash on <unk> balance sheet currently and as we look at some of the uses for that I mean, it could be some of that could be for dividend purposes. Some of that could be for investment in things like affordable housing like we've done in the past, but we have considered things like using a portion of that as an equity contribution or alone to Idaho power to help.
But some of that Capex.
Pushed some of that potential equity issuance, which again, we see equity issuance quite a ways Alan for this.
We have a lot of that headroom to get to our 50 50 target going into.
Our rate case, so a lot of headroom there on the debt side.
Yeah, and I guess, maybe if I could David state the question different way.
Clearly you do have a lot of debt headroom at the utility, but when I think of the earning sharing mechanism.
That's based off of.
GAAP.
Layer of equity.
I just want to reconcile the thought of.
Why look to work that down.
Yeah, I have to say, we haven't taken any any option off the table at this point. So there is some potential there, but we're a little ways out from that so still trying to put our plans together on how we would do that.
Great and then just.
I don't think there's much impact I think you had also said earlier I think 95% of the power costs in Idaho get passed through to consumers.
Ratepayers, but on I think slide 10, you do talk about dry conditions its expectation of lower hydro I mean are you seeing any type of impact the customers from the lower hydro expected this year.
I mean, certainly when we have more hydro.
Lower cost portfolio.
But remember that last year, we also had a pretty dry year. So still if you're comparing it year to year. They may not be a big difference, but certainly the more high growth and a lower the overall cost of our customers.
Great. Thanks, so much for taking my questions.
Thank you. Thank you.
Okay.
One final opportunity press star one to signal for a question and we will pause from.
That concludes the question and answer session for today Ms Grill, I will turn the conference back to you.
Thank you all for joining this afternoon and for your continued interest in hydrocarbons I would like to invite all of you to participate in the 2022 annual meeting of shareholders, which will be held two weeks from today may 19th at 10, a M Mountain time.
Formal notice has been sent to shareholders with instructions on how to attend the virtual meeting and we issued a press release, a short time ago with instructions on how to listen online via the <unk> website.
Forward to sharing updates from 2021 and listening to and responding to our shareholder question.
I continue to wish you all good health and to all the moms out there very happy mother's day. This weekend and have a wonderful evening. Thank you.
That concludes today's conference. Thank you for your participation.
Right right.
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