IDACORP, Inc. (IDA) Q4 2016 Earnings Report, Transcript and Summary

Welcome to IDACORP's Fourth Quarter and Year End 2016 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 Web site at idacorpinc.com. [Operator Instructions] At this time, I will turn the call over to Justin Forsberg, Director of Investor Relations. Please go ahead.

Thanks Steven. Before the markets opened today, we issued and posted to the IDACORP Web site our fourth quarter and year end 2016 earnings release and our Annual Report on Form 10-K. The slides we’ll be using to supplement today's call are also on our Web site and will continue to be available for the next 12 months. We'll refer to these slides as we present today's update. As noted on Slide 2, our presentation today will include forward-looking statements which represents our current judgment or opinion of what the future holds, these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today, some of which are listed on slide 2 and are supplemented by information in our filings with the Securities and Exchange Commission which we encourage you to review. We caution you against placing undue reliance on any forward-looking statements. As shown on Slide 3, on today's call we have Darrel Anderson, our President and Chief Executive Officer; and Steve Keen, Senior Vice President, Chief Financial Officer and Treasurer along with other individuals available to help answer your questions during the question-and-answer period. On Slide 4, we present our quarterly and annual financial results. IDACORP's 2016 fourth quarter earnings per diluted share were $0.66, an increase of $0.03 per share from last year's fourth quarter. For the year ended December 31, 2016, earnings per diluted share were $3.94, $0.074 more than for the same period in 2015. These results mark our ninth consecutive year of earnings growth. I will now turn the presentation over to Steve who will discuss the results in greater detail and we’ll review our 2017 earnings guidance and corresponding key operating metrics.

Thanks Justin. We had nice finished to the year and believe the outlook for IDACORP's utility business remains strong. On Slide 5 you will see a reconciliation of the $3.6 million increase in net income from 2015 to 2016. Addressing the year-over-year changes, customer growth in our service area increased operating income by $11.2 million, or 4%. However, decrease usage per customer largely related to moderate summer weather and irrigation impacts more than offset customer growth and lowered operating income by $14.7 million. As a reminder, our Idaho FCA mechanism moderates the impact of weather but it's not applicable to irrigation large commercial or industrial customers. Other changes to operating income were result of several items. First, other operating and maintenance expenses increased $9.7 million compared to 2015, primarily related to higher variable labor related cost that were mentioned last quarter, as well as scheduled hot gas past maintenance as the line we call para plant. It is also worth noting that in-spite of the increased over last year we finished 2016 with just under $352 million of O&M expense, putting us close to $350 million for the 5th year in a row. We are pleased with the results of our efforts to control spending over the past several years. It benefits both our owners and our customers and it is the continued focus in 2017. The next item impacting operating income is a $5.6 million increase in depreciation expense related to growing plant investment. Also during 2015, Idaho Power recorded $3.2 million provision for sharing with Idaho customers which lowered prior year revenue under the Idaho regulatory settlement stipulation. No such sharing provision was recorded in 2016. While Idaho Power's 2015 return on year end equity in the Idaho jurisdiction was greater than 10%, the company's Idaho return in 2016 was only slightly above the 9.5% tax credit support level or just inside the deadband. Idaho Power's actual combined return on equity for all jurisdictions was 9.47%. Overall, Idaho Power's 2016 operating income decreased $17.1 million year-over-year again showing the impact of relatively moderate summer load. Moving to the tax line. Income tax expense decreased by $11 million from a combination of the accounting treatment for stock compensation variations in existing flow through income tax adjustments at Idaho Power and lower pretax earnings. Also Idaho Corp Energy Services recorded $3.7 million of increased net earnings during the fourth quarter of 2016, a result of settlement relating to the California Energy Market proceedings discussed in note 10 in our Form 10-K filed earlier today. IDACORP also benefited in 2016 from distribution received from fully amortized affordable housing investment at IDACORP financial services as discussed last quarter. Moving now to Slide 6, we show IDACORP's operating cash flow along with our liquidity positions at the end of the year. Cash flow from operations for 2016 was $347.7 million, a decrease of $5.5 million in the same period in 2015. Changes in regulatory assets and liability are accounted for the decrease while the timing of distribution for Bridger Coal Company provided some offsetting positive cash flow increase. IDACORP's 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. Although we do not plan to issue equity during the 2017, outside of normal issuances under compensation plan, we continue to evaluate potential renewal of our continuous equity program which expired last year. Slide 7, shows the updated financial and operating metrics for the full year of 2017. We are initiating earnings guidance in the range of $3.90 to $4.05 per diluted share. Should we obtain the mid point or higher at this earnings guidance range, IDACORP would achieve its 10th consecutive year of earnings growth. The earnings guidance range assumes normal weather conditions and includes an estimate that Idaho Power will utilize less than $10 million of additional accumulated deferred investment tax credit amortization to achieve the 9.5% return on year end equity in the Idaho jurisdiction. As a reminder, the current Idaho stipulation allows for the use of up to $25 million of additional credit in any given year and the full $45 million of credit is currently available for earnings support through 2019. Our efforts remain targeted on managing cost and growing revenues with the goal to continue to preserve credits for future use. The other three metrics listed on this slide are all in line with recent performance. First, we expect 2017 O&M expense to be in the range of $345 million to $355 million, which would again put O&M cost relatively flat each year since 2012. Next we expect capital expenditures to be relatively consistent with 2016 in the range of $290 million to $300 million. Finally, we are optimistic about this winter above normal snow pack of precipitation level in the Snake River Basin and pay at river systems. We anticipate reservoir storage to reach adequate level from their currently expecting hydroelectric generation to be close to normal as well in the range of 7 to 9 million megawatt hours. In closing, we are also keeping an eye on the potential impacts federal tax reforms could bring to our industry and utility customers, including the current limited proposals put forth by the House and the President. However, it's too early in the legislative process to draw definitive conclusion as to what direction tax reform will ultimately take. While many current proposals have positive attributes, a lower corporate tax rate for one, there are other possible headwinds such as the loss of interest deductibility. Given the uncertainties I will focus on two specific tax related items for IDACORP and Idaho Power. First, the holding company has minimal debt and thus currently has no material exposure to changes in interest deductibility. Second, due to Idaho Power's regulatory flow through income tax accounting, its plant related deferred tax liability balance is lower than it would be under full normalization accounting. Therefore, a reduction in the federal corporate income tax rate will create less access deferred income taxes than a full normalization accounting had been employ. An addition note is that of our existing deferred tax balances, the majority are protected by the normalization requirements of the current tax code. In previous modifications for tax law a prescribed methodology for handling such balances was typically included in the final tax package. There are many complications involved in reforming the internal revenue code as tax reform efforts become more certain we'll provide additional clarity on potential impacts to our results. I'll now turn the presentation over to Darrel.

Thanks Steve. And it's great to speak with you guys this afternoon. Today, I want to begin by discussing recent addition to our Board of Directors as well as upcoming changes to our management team. First, as shown on slide 8, two weeks ago Annette Elg was appointed to serve as on the Board of Directors of both IDACORP and Idaho Power Company. Besides being an Idaho native, Annette joins our Board with the wealth of business experience and a deep understanding of our service area having recently retired as Vice President and Chief Financial Officer for the J R Simplot Company, one of the largest agro business companies in the country. And Annette will be up for election along with all other Board members at the annual meeting of shareholders this spring. As shown on slide 9, three officer title changes were approved this month to better reflect the scope and level of responsibilities in their areas. Lisa Grow will take on a role of Senior Vice President and Chief Operating Officer and Brian Buckham will become Senior Vice President and General Counsel. In addition, Vern Porter will be named Vice President of Transmission and Distribution Engineering Construction and Chief Safety Officer. This change takes advantage of Bern's nearly 30 years of experience in all areas of operations and provides added emphasis on Idaho Power's continued pursuit of strong safety culture. I am also pleased to announce the promotion of Adam Richins to Vice President of Customer Operations and Business Development. Adam has been with Idaho Power since 2011, most recently serving as General Manager of Customer Operations Engineering Construction. Adam makes business, engineering and legal experiences will serve him well in his new role especially as we put added emphasis on our business development activities. These management changes will be effective March 1 and are part of our ongoing long-term succession planning efforts. I am confident that these leadership additions and changes will help position IDACORP and Idaho Power well for the future. Next, I'll provide an economic and business update for our service area. Slide 10 includes an update on customer growth. In December, the US Census Bureau identified Idaho as the state with the third highest population growth rate with the population increasing more than 1.8% from 2015 and 2016. For 2016, Idaho Power's customer growth rate mirrors the population growth rate at 1.8%. As of December, preliminary labor statistics show unemployment in our service area was 3.6% compared with 4.7% at the national level. During 2016, employment in our service area increased approximately 3.5% now exceeding 480,000 employed that are robust economic data by most standards. We believe that growth is attributable on part to the fact that more people and companies are learning that Idaho Power service area is a great place to live and do business. Another empirical example comes from moving companies [United Banline and Uaho] who both reported Idaho as a top destination for relocation. The movers ranked our state number four and number seven respectively for inbound moves. The [Uaho] ranking is the 14th spot from last year. In addition, Wove magazine recently included Idaho as the only location in the United States on its list of the 10 hottest travel destinations in the world for 2017. We welcome all of you to come and visit our great state. As a final note on the service area economy, as of December 2016 Moody's analytics forecast growth in gross area products in our service area of 4.4% and 4.6% for 2017 and 2018 respectively. These updated gross area product figures reflect a decrease for 2017 and an increase for 2018 relative to the September 2016 estimates of 4.9% and 4.1% for the respective period. We continued to be bullish on growth on our service area and growth continues to provide a lift to load while offsetting what we are seeing a declining use per customer. Moving on to Slide 11, Idaho Power's regulatory strategy consider short term and long term needs and consider several factors that can affect the timing of rate filings. During 2017, we will continue to assess the need to file general rate cases in Idaho and Oregon. As Steve mentioned earlier, a focus for 2017 will be on continuing to optimize our core business to the active management of expenses. At the same time, we will continue our business development efforts to grow revenue. As we focus on these areas in 2017, we are seeking to balance the dual goal of earning a fair return for shareholders while keeping customer rates competitive. I want to highlight a few specific areas of regulatory emphasis for us in 2017. As you know, Idaho Power has been working for many years to renew its long-term federal license for the Hells Canyon Complex, our largest hydroelectric generation source. Idaho and Oregon are currently had an impasse in their respective Clear Water Act section 401 certifications with regard to fish passage and reintroduction conditions, which makes the timing of final resolution and re-licensing uncertain at this point. Though we are steadfastly continuing our efforts to obtain a reasonable resolution. At the end of 2016, Idaho Power filed with the Idaho Public Utilities Commission or IPUC for prudency review of cost spent through December 2015 in the re-licensing effort. Idaho Power is not currently seeking a change in rates with this request. As of today, the IPUC already authorizes Idaho Power to include in its Idaho jurisdictional rate approximately $10.7 million annually of AFUDC relating to the Hells Canyon re-licensing project. Collecting these amounts now reduces the amount we will need to collect in the future once we licensing cost or approved for recovery in base rates. In regards to other generation resources, we continue to evaluate the most economic operating live for the North Valmy coal-fired power plant and technically feasible closer dates. In fall 2016, we filed applications with both the Idaho and Oregon commissions requesting accelerated depreciation of the facility that would allow the plant to be fully depreciated by the end of 2025. The North Valmy cases along with the overall system depreciation cases filed last fall continue to move through the regulatory process. On January 31, the IPUC approved our request for the deferral of costs related to Idaho Power's planned involvement in the Western Energy inbounds market. We believe this approval to defer Idaho Power's cost is the right step towards matching cost of participation with the anticipated power supply related benefits customer will receive. We are still on track for 2018 go live date. Also in regards to resource planning, Idaho Power is in the midst to preparing its 2017 Integrated Resource Plan or IRP. Monthly meeting of our IRP advisory committee will continue through this coming spring and we expect to file the document at the end of June. As part of the IRP, we will be evaluating additional selective catalytic reduction equipment of SCR at the Jim Bridger coal-fired plant. As you know, Idaho Power and the plant co-owners have installed SCR equipment on units three and four to reduce nitrogen oxide emissions at the plant. In order to comply with the regional haze rules. In light of the uncertainty surrounding environmental regulation, the economics of running the plant and a substantial estimated cost of the SCR installation, Idaho Power is assessing with its co-owner whether to move forward with the installation of SCR equipment on units one and two at the Jim Bridger plant. On the 500 kV transmission project front, the Bureau of Land Management or BLM release its record of decision for the remaining two gateway west transmission line segments 89 last month. It had released its final Supplemental Environmental Impact statement or EIS for these portions last October. Additionally, the BLM issued a final EIS for the Boardman-to-Hemingway line in November. We expect a record of decision for this transmission line in 2017. I believe it's important to mention that successful resolution of a long standing legal proceeding which had a favorable impact on our 2016 results. We reached and the federal energy regulatory commission has approved a settlement relating to California Energy Market proceedings which have been ongoing for well over a decade. The settlement resulted in the IDACORP Energy Services earnings Steve discussed earlier. This outcome has been a long time coming and we are pleased to see the end of our participation in the case. Finally, turning to weather conditions. Slide 12 shows the projected March to May weather outlook for the National Oceanic Atmospheric Administration. Current projections suggest that there is 33% to 40% chance of above normal precipitation in Idaho Power service area and equal chance of normal temperature. The one thing I can say for certain about the weather is that the water here has been off to an excellent start with the currents no back of above Brownlee reservoir in excess of 130% of normal. While there still time left in our snow accumulation period, we are optimistic about an improved water year. And now Steve and I, as well as other on the call will be happy to answer your questions.

[Operator Instructions] And the first question comes from Chris Ellinghaus with Williams Capital. Please go ahead.

Hey, good afternoon. Steve, your guidance, I am talking about ADITC recognition potential for the year is bigger than last year. Does that indicate to us that you are expecting some headwinds? And can you give us any color on what you see for headwind this year?

Chris, I would put it in -- it's more -- that the mechanism itself forces to you higher earnings because as we talked in other setting it somewhat math how you determine where that 9.5% support line moves to and it will move higher next year. And if you look back just two years ago we had a pretty significant amount of sharing, last year we had a very small amount of sharing. This year you find us with no sharing and close to the demarcation of -- where we could have used credit as that income pushes higher, you have to find a way to do it. And we are not doing it through rate change right now. We have done lot of cost control. We have some improvement in our in customers that are coming to the state and then usage but it's really the fact that the income moved higher and we are solving with it really the same rate structure that we have. That says we may use few more credits than we did last year. I don't think if you go back and look at the progression over about the last three to four years; it's pretty obvious that we would move to a little higher number. I know one of the analysts actually had higher projection for credit in 2017 before the call. So it is -- I think it is more of a natural progression. And we know that that's what coming.

Chris, this is Darrel. I'd just add a couple of things to that. And things to think about is things that will move that net debt less than $10 million number are going to be -- if our expenses more or less than what we are planning, if growth is more or less than what we have currently forecasted for 2017, all those things will go into the whole notion of whether we renew that credit number either goes -- it goes down or goes up. So I think based on what we see as the plan that's why we kind of came out with the less $10 million but growth can take care of that number, or optimizing our business can impact that number. And we are focused on trying to get that number to zero but as we stand today we are coming out with the less than $10 million. But just like we did last year when we said less than five, our goal is to use none to preserve credits going into the future.

Chris, one other item to consider is while it doesn't show up in the reconciliation because to some extent it was in 2016 and 2015, as we have the ability to do a boundary financing each of those years that helped us roughly $5 million that those opportunities are gone. So we have to solve with different tools this year.

Right. Okay, the guidance is for normal weather but you had pretty good start to the year. Is that included in your guidance at this point?

No. We don't rolled that in, Chris. And we do have -- I think it is important. I mentioned in my script but our mechanisms decoupling provision that we have particular in Idaho helped a lot with weather. We believe there are still some benefits shows up in years that we have beneficial weather and some it goes way and particularly in the summer when irrigation is high or low that has an impact on us but I think your observation is correct. It was pretty cold here as we enter 2017. And certainly the snow looks better than we've seen for a quite while. So those are all positives but we don't put those in guidance yet.

Okay. And do you have any thoughts sort of the outlook for irrigation in 2017 at this point?

Well, the good news is there should be water. As we had some on and off years, one of the struggles that you worry about going into summer is there isn't enough water that they -- even if the conditions are right that they enough to irrigate the whole season. That shouldn't be an issue this year. But to try to predict it now is hard because we could get water late into the spring and that could dampen what irrigators do. You could also have a more normal summer and a really as part of water and it really hot summer that takes the sky high. So the good news this year is we don't have-- it doesn’t look like if there is any limitation in regard to how much water would be available.

Chris, and one other thing the ag community in house is in the process of deciding what is it they are going to be planting and so those I mean they sort of way don't know how much water they are going to have so if they are going to have water later that means the more water intensive crops, they are more likely to plant. So we are just in the process of gathering that information ourselves so and trying to ascertain what they have decided to plant with our ag reps that are out in the community so we'll be gathering that information too because so we don't have a really good sense today but as Steve said the likelihood of water been available longer is on the positive side today.

Yes. That was kind of what I was getting at, I was curious we have service of feeling prophecy.

Yes. And you also have to look at what's going on with market prices for crops something like that because they also look at that. And the one thing I would tell you, this winter did have an impact on our onion community, onion growing community because actually lot of onions were lost because of the some of the storage shades were crushed by snow. And so there has been a significant impact on the available onion so that may have an impact too which is not actually bad thing because that's a water intensive crop itself so that may have a bearing too. But that has big damages in the storage side this winter.

The next question comes from Paul Ridzon with KeyBanc Capital Markets. Please go ahead.

Good afternoon. Darrel, is it too late to buy onion sutures?

I have not venturing into the Ag business today at that part of it.

I actually was distracted and I missed your commentary about potential rate case timing. Could you just review that?

Sure. So what I actually didn't say, I didn't - I say we are evaluating in 2017 where we are going to but just to add maybe a little bit of color, it's unlikely that we would be planning a general rate case in 2017. The more likely scenario is and lot is going to be depended on how growth continues to go for us but more likely scenario is we might would likely file in 2018, for a 2019 sort of deal but that still again work in progress. We'll finalize those plans as we go throughout the year but right now we are not anticipating a 2017 general rate case.

Great. And usage seems like that the lost to lower usage per customer seemed to getting higher. What's the dynamic there?

Paul, this last year I do blame a little bit of it on weather. As Chris was asking about the water situation, last year remember we weren't sure that there would be enough water. It was had not been an awesome winter and going into the summer we weren't sure how much it was going to be. What happened is we got a lot of rain late went all through the spring and that impacted irrigators use. They got basically free water so they didn't have to pump anything to take care of it. That had an impact on us and it was still an okay irrigation year. But relatively to 2015 it look not so great. 2015 was a really strong year. It was very, very hot summer and it was good for us. So I'd say that it's difficult to separate those impacts from the other things to go on. There is no question there is a continued impact every year from the co-changes and conservation but weather creeps into that as well and impact what we put together and call use for customer.

And Paul just as if you look at last year in particular 2015 against 2016 in particular on in the residential side when you are looking at cooling degree days, we were down I think 22% from 2015 numbers on cooling degree days so Steve mentioned in his note, the weather was a factor in especially in the residential sector. And the other part of that is because of our tiered rate, if you have that reduction use per customer in weather related and people don't move into those upper tiers, and that has an impact. So I think as we look at 2016 overall it's a moderate weather year which did drive that down but I'd also say on the bigger macro level on use per customer we are no different than the other utility companies where people are putting in more efficient appliances, whether it's your air-condition, whether it's your TV, whatever it is, they are more efficient today and they are using less. So our challenge is to continue to grow customers and which is why we are re-emphasizing business development side of things recognizing that just going to be a natural attrition on use per customer because of the what happening with plying to some heavy, so you take that combined with the moderate weather which what had an impact on 2016.

What are the implications if you don't put SCR on Bridger? Can you guess?

Well, I think the question would be what would we able to negotiate with respect to the extension of a life on that plant beyond the current period. And that's what we would want to look to do if we were to somehow negotiate no SCR then get little longer extension on the life. I'll ask Lisa Grow, she is here with us today. I'll ask Lisa to go ahead and comment on it. [Technical Difficulty] Lisa?

Good afternoon. This is we are looking at a possibility for Jim Bridger Power Plant is something similar to what we did with Boardman Power Plant. And you may recall that plant we are a 10% owner and we negotiated cut the certain for shutdown so that we didn't have to put the pollution controls on. So we are looking at possibility of doing something similar. As it is one of the scenarios that we are evaluating currently with the Jim Bridger Power Plant.

Okay. And then if you are -- if you can accelerate the Valmy what would the financial impact of that be? From an earnings standpoint.

In the filing that is out there right now, Ken you might help me out but it's really pretty modest in terms of what it adds additionally earnings wise there is a modest amount of help, I think partly what's driving our filing there is that as they did the depreciation study and those are done every five years, we saw that we were not in align with where the plant was going to be depreciated by the partner and it's trying to -- it was initiated by the fact that the study really said maybe we should align, we are now taking a look with the help of those parties in Idaho that will be working on the case to decide what really is the best timing and really the lowest cost to customers and that's really what we are looking at. Now, as you determine their approach to that, those decisions on what time credit you spread it over as well and all of those things are going to factor into what it ultimately brings us to but do you have any other color on earnings side.

And what you have baked in to guidance as far as decision there?

Basically we don't have any earnings lift in guidance. We just assume flat and depreciation cases often end up like that and you may hope you gain a little bit but really in the end what we are hoping is that we don't get harmed by a change in depreciation. And we'll see how they play out. But we don’t want to perhaps run more depreciation through and not have a way to cover that cost.

The next question comes from Brian Russo with Ladenburg Thalmann. Please go ahead.

Hi, good afternoon. Hey, quick me small but over the past several years under the current rate structure of year end shareholder equity 9.5%, it seems like your earnings year-over-year from your initial guidance would increase roughly $0.10 to $0.15 each year. But this year it looks like the mid point of your 2017 guidance is $3.97 and when you compared that to $3.89 initial guidance for 2016, it only implies $0.08 of growth. I am just wondering if that's accurate and if you could comment on it?

It's fairly accurate. I think we had the mid point at $3.875 so the way I kind of get there Brian is if you take this year's earnings at the $3.94 and you look at what was outside of Idaho Power because the things inside Idaho Power really is normal, for the large part just offset what we might have otherwise used credit for this year. But outside we did have the legal settlement. And we also had some benefits that came out of some gains some distributions that came through IDACORP financials. But really we are not typical things and I think we have plans going forward. Some of those too are around $5 million. So roughly $0.10 and if you were to take that off of our final earnings you would be down to a number that I'd say is a little bit more off an ongoing type look. And that number as you -- is the little bit below even where we guided. And you have to look to that to say when we set those guidance numbers, number one it's a range $0.15. We weren't necessarily at the mid point when we started the range. And number two, that is based on a copy past and that's really got a lot of rate making it better than it. It looks at our jurisdictional separation between Idaho and Oregon and that is determined by how revenue flow in a given year and as you look at 2016 there was anomaly, there was different weather to some extent in Oregon and Idaho, impacts of irrigation and other things and it moves around a little bit. So while it generally is closed it is probably within a penny or two, it's not perfect. So it isn't a number that you could look ahead and say with absolute certainty where you are going to land. Those are things contributing to us not been exactly right. I think if you take this year and work it back to what you would say is sustainable, more sustainable type number and then do the same calculate, we've always done added to that $3.84, I think you would be pretty close to where or will set right in the middle of range and be reasonable.

Plus Brian I can back to the comment I made earlier on the weather side. I think you can't lose sight of where weather was for 2016. Even though we do have some mechanism to moderate that but it's same time if that still has some impact on kind of where we ended up and it was more moderate on average though.

Got it. Okay. And what's 2017 effective tax rate?

Well, Jean tells me that we are going to back around to 20% range or at least approaching it. Jeff can you help on that? [Multiple Speakers]

Okay. And you mentioned the possibility or the evaluation of filing a rate case in 2018 is there a scenario in which you can reach a settlement like you have done in prior years to just extend the current rate structure?

Brian, I think as we speak here today everything is on the table. We would look at all different options that we have out there today and if we had credit that were available to us going forward definitely something we would love to consider as part of that because the mechanism has served the company well. It has served the customer well. So we would assume that would be on the table again depending on if -- it would be great if we have $45 million of credit going into whatever year we were gone into with the next rate proceeding that would be great. But just kind of depends on where we at that time but that are one of the things that would be on the table for sure.

Okay. And then lastly, the hydro investments that you seek prudency for, if I recall correctly it are a quite large number.

$220 million

$220 million

Right.

And how would that be recovered? Spreads over --

Well, eventually we would be asking for recovery of that through either one off or a general rate proceeding.

The next question comes from Ashar Khan with Visium Fund Management. Please go ahead.

Hi, good afternoon. My question had been answered. Hey, nice to hear from you guys. My questions I guess got answered from the previous question.

Okay. It was good to hear from you.

Thanks, Ashar.

The next question comes from Paul Patterson with Glenrock Associates. Please go ahead.

Good afternoon. Just on the rate case that you are contemplating in 2018. Would that be a 2017 test year?

Again that something that still work in progress. We would kind of take a look at the number of different options that might be in place. Whether it's a 2017 with non measurable or our forecast to test year, those are all things that we would continue to look at.

Okay. How should we think about the --

Paul, I just going to point out we talk a lot about this in the sense of really our major jurisdiction but we do have -- we have two and it's possible that they would be filed at a different time at least it's not impossible. And it's possible that they may have different methodologies when it comes to something like this because Oregon is typically like to forecast test year. And that plays into it so it's hard to just give a definitive single answer.

Sure. Just sort of when we think about on a regulated basis what's your regulated ROE, or earned ROE is in your jurisdictions, I mean or just in general I guess. I know you haven't -- you are not filing the rate case just yet but just in general how should we think about where you are earning currently? On a regulated basis.

Well, what our actual earnings where that last year was just under 9.5% for Idaho Power looking at both jurisdictions. For Idaho you have to say we got at least two 9.5% because we didn't use tax credits. So it was probably a little stronger than whatever else was there. And but certainly neither -- we've had some better years we near up around 10%, we certainly weren't there this year. Our allowed rate, trying to recall what the Oregon exact number, 9.9% in Oregon and the unstated in Idaho is kind of roughly 10%. You have to solve back to it but that what was used and so I would say that for us to achieve numbers that are near those, if you look back over our long history been within 50 basis points to that, is it bad and that's what we have to assess is the items that we would be taking into a case versus what you think you would get in terms of settlement.

Fair enough. And then just in terms of tax reform, is the assumption that basically if they were to lower the tax rate 15% or 20% that all these tax benefits are mostly tax benefits would go away that you currently are in the rate there is whatever that you currently have right now we think that rather lengthy list of tax that will pretty much go away or how should we think about that?

That is the devils in the detail. And that's what it is impossible to determine today. And it will all depend on how they structured the various items that have been thrown on the table. You could end up with the lower tax rate and have every single one of those, still be there. It depends on the approach that they take. And I would say if they take a approach as they have in the past were any accelerated deductions or more like additional depreciation and then just an accelerated timing. That doesn't affect those deductions at all. If it some entirely new approach, you could see a change and I guess for us and the final answer is whatever tax you pay is really what goes into the regulatory model so would depend whether we are ultimately paying less or more than we are today, whether it changes things very much.

Okay. And then just the slide on succession planning, could you elaborate a little bit more in terms of what should we be thinking about in terms of potential leadership? I wasn't clear that title, what that title really indicates? I mean obviously you got some professional development what have you I gather that but I didn't -- is there any moves that we should be thinking about in terms of in the future that this is a succession plan is about, if you follow what I am saying.

So we haven't -- This is Darrel. We have an active succession planning process and so we continue to look at the future and so over the last couple of year we had a fair number of retirements at the senior level. And so what we really been doing right now is continuing to look at that. We don't have any pending retirements coming up but you never can project those. So but we just people we kind of move some people in different spot as we look to the future next three four years down the road sort of thing. So that's kind of why we made some of the changes and a couple of those changes really to reflect what people are already doing. Probably the biggest change was when we promoted Adam Richins to his new role. And then add for important kind of change in his responsibility. Those are probably the biggest changes when you look at that. And it's really relates we continue to plan forward in future and making sure we continue to have seamless transitions. We have seven officers retired in the last three plus years. And so we think we've done a fairly seamlessly. And so we just continue to work hard at that side of things. So, yes, there is nothing other than just a sort of normal course of business things and there is nothing eminent that's coming up on any other changes that we are looking at today. Actually, I am looking for some stability for a while actually; it's kind of nice to know with no unnecessary pending retirements coming up. We had a couple last year and right now we don't have any but what I know today nothing pending so.

The next question comes from Bill [Apisily] with Maxis. Please go ahead.

Hi, guys. I just want to follow up on Paul's question. Steve, the numbers you quoted, was there the return on the allowed equity in rate base or was those returns sort of on the GAAP basis?

Can't remember which ones I gave you. Actual return for the year was based on looking at our GAAP at our year end earnings. If you just take out Idaho Power we earned it's like 9.47 and but we do have in the Idaho jurisdiction the regulatory stipulation that we are working under support Idaho jurisdictional earnings up to 9.5%. And it looks to year end equity; it's not a pure regulatory computation. So it does look it whatever your year end GAAP equity is.

Okay. So if you -- when you go in for a rate case they will be looking at that equity balance and not sort of the equity allowed on a capital structure based on a rate base?

It's a great question because what will happen is the rates will get set traditionally, they will be looking at rate base, they will be looking at your cost that you are flowing through, the capital you got invested in and they will come up with a very typical regulated return that you will develop a rate from. Then if that decision happens prior to the end of 2019, whatever time there is between then and the end of the 2019 reverse back to the settlement mechanism, and it would look to year end equity and apply whatever the adjusted return might be to that year end equity number. Now post 2019, that would all be up in the air. And you would either refer back to what we've always had historically or would be looking at whether there is any way to negotiate and extension of this credit spot.

[Operator Instructions] And that concludes the question-and-answer session for today. Mr. Anderson, I'll turn the conference back to you.

I want to thank you all for participating on our call this afternoon. And for your continued interest in IDACORP and Idaho Power. And yes we hope you all of have a great rest of your day. Thanks for participating.

That concludes today's conference. Thank you for your participation. You may now disconnect your line.