IDACORP, Inc. (IDA) Q4 2015 Earnings Report, Transcript and Summary

Welcome to IDACORP's Fourth Quarter 2015 Conference Call. Today's call is being recorded and webcast live. A complete replay will be available from the end of the day for a period of 12 months on the company's website at www.idacorpinc.com. [Operator Instructions] At this time, I would like to turn the call over to Mr. Lawrence Spencer, Director of Investor Relations. Please go ahead, sir.

Thanks, Karen. We issued our earnings release and Form 10-K before the markets opened today and they're both posted to the IDACORP website. The slides we will be using to supplement today's call can be found on our website as well. We'll refer to these slides as we work our way through today's presentation. On today's call we have Darrel Anderson, IDACORP's President and Chief Executive Officer and Steve Keen, Senior Vice President, Chief Financial Officer and Treasurer along with other individuals to help answer your questions during the Q&A period. As noted on Slide 3, our presentation today will include forward-looking statements. While these forward-looking statements represent our current judgment or opinion of what the future holds, these statements are subject to risks and uncertainties that may cause actual results to differ materially from forward-looking statements made today. So we caution you against placing undue reliance on forward-looking statements. Some of the factors and events that could cause future results to differ materially from those included in forward-looking statements are listed on Slide 3 and are included in our filings with the Securities and Exchange Commission, which we encourage, you to review. On Slide 4, we present our quarterly and year-to-date financial results. IDACORP's fourth quarter 2015 earnings per diluted share were $0.63, a decrease of $0.06 per share from last year's fourth quarter. For 2015 earnings per diluted share were $3.87, $0.02 greater than 2014. I'll turn the presentation over to Steve to discuss the results in greater detail and to review our 2016 key operating metrics.

On Slide 5, we present a reconciliation of earnings from 2014 to 2015. Overall net income increased by $1.2 million over the period. The combined positive effect of customer growth effects cost adjustment mechanism and other revenue in 2015 increased operating income by $26 million compared to 2014. Lower usage per customer and higher operating and maintenance expense combined with higher depreciation expense and property taxes to partially offset the increase in operating income by $17.1 million. When combining the above changes with $21.5 million increase in earnings resulting from reduced Idaho sharing, Idaho Power's operating income was $30.4 million in 2015 than in 2014. An additional $7.2 million increased to earnings in 2015 reflects a flow through benefit from a tax deductible make-whole premium from an early redemption of long-term debt. These amounts are reduced by higher income tax expense of $11.1 million primarily due to greater Idaho Power pre-tax earnings and the $24.5 million tax benefit from the 2014 method change that did not recur in 2015. Moving now to Slide 6, we show IDACORP's operating cash flows for 2015 and 2014 along with the liquidity position for December, 31. Cash flow from operations for 2015 was approximately $353.2 million, a decrease of $11.1 million from 2014 primarily resulting from timing and decrease in working capital. IDACORP and Idaho Power currently have in place credit facilities of $100 million and $300 million respectively, to meet short-term liquidity and operating requirements. The liquidity available under the credit facilities is shown on the bottom of Slide 6. Also there are $3 million IDACORP common shares available for issuance under IDACORP's continuous equity program. No shares were issued, during 2015 and we do not expect to issue new equity, during the remainder of 2016. Turning to Slide 7, we're estimating 2016 O&M at between $350 million and $360 million. This is slightly higher than last year's opening guidance by just under 3%. Actual 2015 expense of $342 million came in at the low end of our prior guidance range. Primarily, due to lower than expected thermal operating cost at our coal facilities. In 2015, we recorded approximately $3 million of current revenues to be refunded to Idaho's customers and did not amortize any additional accumulated deferred investment tax credit or ADITC, under our current Idaho regulatory settlement stipulation. For 2016, we forecast using less than $5 million of additional ADITCs to attain a 9.5% return on yearend equity in our Idaho jurisdiction. In projecting this range, we evaluated a number of scenarios including the potential benefits that could result from refinancing, a series of bonds during 2016. We did a similar but larger bond refinancing in 2015 and ahead of favorable impact on impact tax expense. Impending on interest rates and timing, decision to refinance bonds again this year could have an approximate $4 million net tax benefit to earnings. Our estimated capital expenditure range for 2016 is between $300 million and $310 million, which includes between $20 million and $25 million for emission control equipment at the Jim Bridger plant. In the liquidity and capital requirement section of the 10-K we filed today. We have included some examples of other ongoing infrastructure projects. For 2017, the estimated capital expenditure range moves to between $275 million and $285 million. In total over the next five years estimated capital expenditures are between $1.4 billion and $1.5 billion. On the next row of Slide 7, we show that our expected 2016 hydroelectric generation ranges from 6.0 million megawatt to 8.0 million megawatt hours. This figure is lower than our opening guidance in 2015, but reflects improved expectations over our 2015 actual result. As a reminder, the Median annual hydroelectric generation is 8.5 million megawatt hours. Finally, we are initiating our 2016 earnings per share guidance in the range of $3.80 to $3.95 per diluted share, which reflects normal weather conditions and our expectations for continuing cost management. I'll now turn the presentation over to Darrel.

Thanks, Steve and welcome to all of you joining us on the call this afternoon. And at first, I just would like to thank all of you on the phone for your support throughout the year, we appreciate that very much. I will update you on a few items related to our business and then we'll look forward to your questions. Turning to Slide 8. As we began 2016, we reached an existing company milestone. Idaho Power's centennial. For 100 years, we have provided reliable, responsible, fair pricing energy services to our customers, while continuing to provide a solid investment option to our owners. As we look back at the strong foundation that lead to the success and longevity of the company. We also look forward to the challenges and opportunities that the next century provides, as we continue on as an independent integrated electric utility. Our focus remains on our core business. 2015 marks IDACORP's eighth consecutive year earnings per share growth, which has been positive for both our shareholders and our customers. As Steve noted in 2015, Idaho Power recorded no additional ADITC amortization leaving $45 million of additional ADITC available for future use. Our earnings for the year resulted in sharing approximately $3 million with customers. This continued the trend of several years of sharing with customers amounting to more than $120 million. There have been major changes in our industry over the last 100 years. But much has remained consistent. We keep our owners, customers and employees top of mind, along with an emphasis on revenue growth and optimization in all areas of the company. In addition, we focus on a purposeful succession plan for our leadership positions. Last week, we announced that our Vice President of Regulatory Affairs, Greg Said will be retiring after over 35 years with the company. Because of our purposeful efforts around building our bench, we will see a seamless transition in this key role with the appointment of Tim Tatum to succeed Greg effective March 1. Tim has been integral to our regulatory efforts over the years and will bring with him, 20 years of experience from customer service to regulatory activities, with our company. We thank Greg for his many years of service and wish him the best in the next chapter of his life. Moving to Slide 9, Idaho Power service area experienced strong customer growth in 2015 registering 1.8% increase from 2014 to 2015. Idaho Department of Labor data shows that the number of people employed in Idaho Power service area increased by over 22,000 from December, 2014 to December 2015, an increase of 4.9%. Also in December 2015, the unemployment rate in Idaho Power service area was a low of 3.9% which compares favorably to the US rate of 5%. Another indicator of growth in our state, is United Van Lines Annual Movers Study that was released at the beginning of this year. Idaho Power, Idaho has moved up from the 10th position in 2014 to the 4th spot in 2014. The survey tracks customer state-to-state mitigation patterns over the past year and further supports our belief in the attractiveness of the state of Idaho and our service area. As we move into 2016, a few key items that you should watch for include the following; based on what we know today, we do not expect to file a general rate case in 2016. But we will continue to evaluate the timing of a general rate case. We do expect our PTA and STA to be filed on their normally scheduled timeframes. We expect the Bureau of Land Management to issue a final environmental impact statement during 2016 and a record of decision in late 2016 or early 2017 on the Boardman to Hemingway Transmission mine project. While this does not complete the required permitting process, these are key milestones for the project. We continue to expect this project to become in service in 2022 or beyond. We also anticipate making a final decision on our participation in the Western Energy and imbalance market during 2016. We expect that participation in the imbalance market will provide benefits that should reduce net power supply cost and customers that modest benefits back to owners. Switching gears, we are proud to announce that a few days ago, we launched a new IDACORP website. You can see part of this new homepage on Slide 10. Today, the site is available for you and anybody else looking for information about the company. I think you'll find it cleaner, clearer and easier to use. When you have a moment, please visit idacorpinc.com and check it out. And if you have suggestions for improvement or information that you would like us to consider adding, please let us know. I'd like to thank Larry Spencer and Justin Forsberg for help spearheading this effort along with our corporate communications, information technology team and making this happen to help enhance the investor experience. Finally, let us move to Slide 11, for a look at what Mother Nature may have in store in the spring, precipitation and temperature forecast. According to the National Oceanic Atmospheric Administration in March through May, we are looking at about 33% to 40% chance of above normal precipitation in the southern portion of our service area and normal precipitation level in the northern portion. The spring outlook also shows a 33% to 50% chance of above normal temperatures. Idaho Power stands ready to meet the expected energy needs of our customers, no matter how the weather develops. Also remember, that in annual power cost and fixed cost adjustment mechanisms allow us to share most of both of those risk and rewards of water and weather-related conditions with our customers. Now Steve and I and other on the call today, will be happy to answer, any questions you have.

[Operator Instructions] Paul Ridzon from Keybanc.

I had a question, to Steve. Does the FCA capture variations in usage patterns or is that just designed to capture weather variances? Underlying the usage per customer kind of conservation.

Yes, the FCA is really designed to be a somewhat of a proxy for the use of customers, and so as use declines. It does recover some of that cost. The term that slipped in my mind right this moment that it's, it's a decoupling mechanism that we put in place and it helps us, I get the account for that because you made an assumption during the rate case, that isn't exactly playing out, as you had declining usage per customer. So that's.

Weather or conversation gets captured.

Well it does now, previously there had less of a weather components that with the change that they put in the spring last year, is now really adjust to actual so it's picking up more than just component to use.

And can you give us sense of, what do you expect the effective tax rate to be as somewhat little bit higher this year given that last year, you had the deduction for the debt premium?

The guidance that Gene [ph] and I talked about was, it's still in low 20s. And I think that's, it is a little more variable but, I think that's still a reasonable number to assume, going into it. And I wanted to just follow up, Paul on your first question. That FCA is focused to residential and small commercial customers only.

And then lastly I saw in your Form 10-K, you painted it looks like a $30 million premium for corporate life insurances, is that a new program or can you just give us some background there?

Well, that's simply an investment vehicle. It is, a Rabbi trust that is there, that we've funded over the years and those funds were just in different investments that's simply a life insurance product that is means of investing. That's all it was and the funds really were there previously. So it was really a transfer from one investment to another.

Thank you, very much, everyone.

[Operator Instructions] I do have a question from the line of Brian Russo from Ladenburg Thalmann.

Could you maybe talk about the timing that you are considering some refinancing this year?

I guess, we haven't set our timing at this point. But we basically, get through year end and then we start watching the market and looking based on needs. One thing we have to expect now is, just how much do we need, which we're watching that. We had a little more defined need, I think coming into last year. But we always approach that somewhat from opportunistic standpoint.

And is the refinancing captured in the guidance?

You're talking about, if we were to do - you're talking about calling early bonds.

Yes, exactly, that is a positive tax bracket [ph].

Those are, it's really kind of two separate things. You can call bonds and you can financing, they don't have to be connected. But, what we have that in my script. I mentioned that we included that in the scenarios we looked at and even with that. There is possibility, that you could use some credit. There are things that move up and things that move down and it depends on what combination it shows up, where we ultimately in. We opted to say zero to $5 million as the place we felt, most comfortable coming out with guidance.

Right. Okay. And what's driving the O&M higher? Because you've been pretty disciplined over the last couple of years with kind of flattish O&M, just curious what's driving it higher in 2016.

Again, if you look at that's why I put a little bit of comment in there. Partly, we had really good success this past year and some of the O&M we had planned on went down. So we look a little less successful against that low number. Year-over-year if you look at, taken the midpoints of the ranges and compare them, it's sub-3% and I would argue that you can't hold flat forever, we do have pressures and wages and government entities and other things, that raise our cost, that we don't really have a choice but to deal with. That doesn't mean we won't attempt to make further savings and to do better, as we go forward. As you saw, last year we actually came in at the low end of the range. So we'll do everything we can, as we move through the year to manage that O&M cost.

Brain, it's Darrel. One thing, I just add on the O&M side is, we have had again we run our gas lines pretty hard until we do have a periodic maintenance expense coming in at Langley Gulch that will be happening in 2016, that wasn't necessarily there in 2015, doesn't happen every year. It all depends on the amount of usage and since we ran that pretty hard in 2015, we got there may be more closer than we thought. So we do have a periodic enhancement and the expenses there. That relates the Langley results.

Okay. Then lastly, when do you expect the Jim Bridger upgrade to be completed?

So this is Darrel, I'll start and Steve maybe finishes. That we did finish, unit three in 2015 and unit four is scheduled in this year.

Right. I'm curious as to the timing in 2016.

That's mid-year.

I think it's in and around mid-year, end of second or early third quarter.

Great, thank you.

Thank you and that concludes the question-and-answer session for today. Mr. Anderson. I'll turn the conference back to you.

Again, for all of you on the call. Thank you very much for your interest in IDACORP and Idaho Power. We wish you the best for the rest of your day. Thanks a lot.

And that concludes today's conference. Thank you for your participation.