IDACORP(IDA) - 2019 Q4 - Annual Report

Part I Item 1. Business IDACORP is a holding company whose principal subsidiary, Idaho Power, is a regulated electric utility providing generation, transmission, and distribution services Overview IDACORP is a holding company with Idaho Power as its primary regulated electric utility subsidiary, engaged in generation, transmission, and distribution - IDACORP, Inc. is a holding company whose principal operating subsidiary is Idaho Power Company, a regulated electric utility[21] - Idaho Power is engaged in the generation, transmission, distribution, sale, and purchase of electric energy and is regulated by state commissions in Idaho and Oregon, and by the FERC[22] - As of December 31, 2019, IDACORP had 1,985 full-time employees, with 1,976 employed by Idaho Power[22] Utility Operations Idaho Power serves approximately 572,000 retail customers, with a strategy focused on financial strength, operational efficiency, and a goal for 100% clean energy by 2045 - As of December 31, 2019, Idaho Power served approximately 572,000 retail customers in southern Idaho and eastern Oregon, with residential customers accounting for about 477,000 of the total[25] IDACORP Business Strategy Cornerstones and Initiatives | Cornerstones | Initiatives | | :--- | :--- | | Grow Financial Strength | - Pursue New Investment and Revenue Opportunities
- Promote and Engage in Beneficial Electrification
- Maintain Shareholder Confidence
- Continue Focus on Productive Regulatory Outcomes | | Improve the Core Business | - Evaluate and Control Expenditures and Continue Efficient Operations
- Evaluate and Deploy Transformative Technology Solutions
- Continue Progress on Key Transmission Projects
- Continue Progress on Hydropower Relicensing Projects
- Continue Development of Regional Markets | | Enhance Idaho Power's Brand | - Enhance Idaho Power's Customers' Experience and Interactions
- Communicate Progress Toward Environmental and Community Goals
- Share Idaho Power's Story | | Keep Employees Safe and Engaged | - Continue Idaho Power's Strong Focus on Safety
- Facilitate Progress on Employee Engagement
- Evolve Workforce Development Strategy and Programs | Idaho Power Revenue and Sales Volume (2017-2019) | Category | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | | :--- | :--- | :--- | :--- | | Total Retail Revenues | $1,130,611 | $1,175,152 | $1,205,976 | | Total Electric Utility Operating Revenues | $1,342,940 | $1,366,582 | $1,344,893 | | Total Retail Energy Sales (thousand MWh) | 14,537 | 14,587 | 14,571 | | Total Energy Sales (thousand MWh) | 17,388 | 17,450 | 16,707 | Idaho Power Supply Mix (2017-2019) | Power Source | 2019 (MWh) | 2018 (MWh) | 2017 (MWh) | 2019 (% of Total Gen) | 2018 (% of Total Gen) | 2017 (% of Total Gen) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Hydropower plants | 8,294,000 | 8,682,000 | 8,900,000 | 62% | 65% | 65% | | Coal-fired plants | 3,012,000 | 3,274,000 | 3,284,000 | 22% | 24% | 24% | | Natural gas-fired plants | 2,114,000 | 1,408,000 | 1,504,000 | 16% | 11% | 11% | | Total System Generation | 13,420,000 | 13,364,000 | 13,688,000 | 100% | 100% | 100% | | Total Purchased Power | 5,200,000 | 5,431,000 | 4,242,000 | | | | | Total Power Supply | 18,620,000 | 18,795,000 | 17,930,000 | | | | - Idaho Power announced a goal to provide its customers with 100-percent clean energy by 2045[78] Other Subsidiaries IDACORP's non-utility subsidiaries, IFS and Ida-West Energy, focus on affordable housing investments and small hydropower projects, respectively - IDACORP Financial Services, Inc. (IFS) invests in affordable housing, generating tax credits of $2.9 million in 2019 and reducing IDACORP's income tax expense by $3.2 million[81] - Ida-West Energy Company operates nine small hydropower projects, with Idaho Power purchasing approximately $9 million of power from its four Idaho-based projects in 2019[82] Information about our Executive Officers This section lists IDACORP and Idaho Power executive officers, including Darrel T. Anderson as President and CEO of IDACORP, and Lisa A. Grow as President of Idaho Power - The report provides a list of executive officers for IDACORP and Idaho Power, detailing their positions and recent business experience[83] - Darrel T. Anderson serves as President and CEO of IDACORP, Inc. and CEO of Idaho Power Company[85] - Lisa A. Grow was appointed President of Idaho Power Company in October 2019[85] Item 1A. Risk Factors The company faces significant regulatory, operational, legal, compliance, and financial risks, compounded by its concentration in a single industry and region Utility-Specific Regulatory Risks The company's financial health depends on regulatory decisions, with risks of insufficient rate approvals and potential modification of cost recovery mechanisms - The prices authorized by the IPUC, OPUC, and FERC are the most significant factors influencing the company's financial condition, with risks of regulators not allowing timely or sufficient recovery of costs[90] - Power cost and fixed cost adjustment mechanisms, which mitigate volatility, are subject to change or elimination by regulators, potentially harming the company's financial condition and cash flows[94] Operational Risks The company faces operational risks from changing customer usage, severe weather, climate change, cyber-attacks, project delays, hydropower variability, and facility failures - Changes in customer usage, influenced by energy efficiency and customer-owned generation, pose a risk to revenue, with average monthly usage per residential customer declining from 1,039 kWh in 2010 to 936 kWh in 2019[96] - Weather conditions, severe storms, and climate change impacts like droughts and wildfires can damage facilities, increase costs, and affect hydropower generation levels[99][100] - The company's generation, transmission, and grid operations are potential targets for cyber-attacks and terrorism, which could disrupt service and lead to significant costs[105] - Heavy reliance on hydropower (62% of owned generation in 2019) exposes the company to risks from variable water conditions in the Snake River basin, which can increase reliance on more expensive power sources[110] - Operational risks include equipment failures, accidents, and wildfires caused by infrastructure, which could lead to significant liability for personal injury, property damage, and repair costs that may not be fully covered by insurance or recovered in rates[113][114] Legal and Compliance Risks The company is exposed to evolving tax, utility, and environmental legislation, costly hydropower relicensing, and penalties for non-compliance with reliability standards - Changes in federal, state, and local legislation regarding tax reform, utility regulation, and environmental policy could significantly impact the business[117] - Extensive environmental laws related to air/water quality and endangered species can increase operating costs, require substantial investment in pollution controls, and potentially render some generating units uneconomical[120] - The federal relicensing process for hydropower projects, particularly the Hells Canyon Complex, is a major undertaking that may result in large capital expenditures, increased operating costs, and reduced generation[124] - As an owner and operator of a bulk power transmission system, Idaho Power is subject to mandatory reliability and security standards, and violations can result in substantial penalties, potentially exceeding $1.3 million per day per violation[126] Financial and Investment Risks Financial stability is subject to market disruptions, credit rating downgrades, LIBOR transition, commodity hedging effectiveness, and pension funding obligations impacting cash flows - Volatility in financial markets may negatively affect the ability to access capital, draw on credit facilities, or issue debt on favorable terms[129] - A downgrade in credit ratings could limit access to capital markets, increase borrowing costs, and require posting additional collateral with counterparties[132] - The planned replacement of LIBOR by the end of 2021 could increase interest rates on borrowings under the company's credit facilities[133] - The performance of pension plan assets and changes in actuarial assumptions can significantly affect plan costs and funding obligations, impacting cash flows[136][137] - As a holding company, IDACORP relies on cash flows, primarily dividends from Idaho Power, to pay its own dividends and service its debt[140] General Risks The company faces general business risks from a lack of diversification in its industry and region, and the potential loss of specialized skills due to a retiring workforce - The company's operations are concentrated in the electricity industry and a single geographic region, exposing it to risks from a lack of diversification and regional economic conditions[142] - A significant portion of the skilled workforce is nearing retirement, with approximately 22% of Idaho Power employees eligible for retirement at the end of 2019, posing a risk of losing institutional knowledge and specialized skills[143] Item 2. Properties Idaho Power's properties include 17 hydropower plants, three natural gas-fired plants, and interests in three coal-fired plants, totaling 3,542 MW, along with extensive transmission and distribution lines Idaho Power Generating Facilities and Nameplate Capacity | Type | Project/Plant | Total Capacity (kW) | | :--- | :--- | :--- | | Hydropower | 17 Projects (incl. Hells Canyon Complex) | 1,795,645 | | Steam and Other | | | | | Jim Bridger (coal-fired, 1/3 interest) | 770,501 | | | North Valmy Unit 2 (coal-fired, 50% interest) | 145,000 | | | Boardman (coal-fired, 10% interest) | 64,200 | | | Danskin (gas-fired) | 270,900 | | | Langley Gulch (gas-fired) | 318,452 | | | Bennett Mountain (gas-fired) | 172,800 | | | Salmon (diesel) | 5,000 | | Total Steam and Other | | 1,746,853 | | Total Generation | | 3,542,498 | - As of December 31, 2019, Idaho Power's system includes approximately 4,830 pole-miles of high-voltage transmission lines and 27,968 pole-miles of distribution lines[150] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities IDACORP's common stock trades on the NYSE under 'IDA', with 8,583 holders of record, and has outperformed the S&P 500 and EEI Electric Utilities Index over five years - IDACORP's common stock is traded on the NYSE under the symbol 'IDA'[167] - As of February 14, 2020, there were 8,583 holders of record[167] Five-Year Cumulative Total Shareholder Return Comparison | Index | 2014 ($) | 2015 ($) | 2016 ($) | 2017 ($) | 2018 ($) | 2019 ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | IDACORP | $100.00 | $105.85 | $128.94 | $150.12 | $156.97 | $184.73 | | S&P 500 | $100.00 | $101.37 | $113.49 | $138.25 | $132.18 | $173.79 | | EEI Electric Utilities Index | $100.00 | $96.10 | $112.86 | $126.08 | $130.71 | $164.42 | Item 6. Selected Financial Data This section provides a five-year summary of IDACORP's key financial data, highlighting consistent growth in net income and diluted earnings per share, with total assets exceeding $6.6 billion by 2019 IDACORP, Inc. Summary of Operations (2015-2019) | (in thousands, except per share amounts) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | 2015 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $1,346,383 | $1,370,752 | $1,349,486 | $1,262,020 | $1,270,289 | | Operating income | $298,326 | $296,922 | $315,545 | $283,582 | $297,048 | | Net income attributable to IDACORP, Inc. | $232,854 | $226,801 | $212,419 | $198,288 | $194,679 | | Diluted earnings per share | $4.61 | $4.49 | $4.21 | $3.94 | $3.87 | | Dividends declared per share | $2.56 | $2.40 | $2.24 | $2.08 | $1.92 | | Total assets | $6,641,201 | $6,382,754 | $6,045,405 | $6,289,897 | $6,023,314 | | Long-term debt (including current portion) | $1,836,659 | $1,834,788 | $1,746,123 | $1,745,678 | $1,726,474 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) IDACORP's 2019 net income increased to $232.9 million, driven by customer growth and lower O&M, with significant capital investments planned and ongoing regulatory and environmental challenges Executive Overview IDACORP's net income rose to $232.9 million in 2019, driven by customer growth, partially offset by lower per-customer usage, alongside achievements in safety and clean energy goals IDACORP Financial Results Summary (2017-2019) | (in thousands, except per share) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | | :--- | :--- | :--- | :--- | | Idaho Power net income | $224,437 | $222,334 | $206,347 | | Net income attributable to IDACORP, Inc. | $232,854 | $226,801 | $212,419 | | IDACORP, Inc. earnings per diluted share | $4.61 | $4.49 | $4.21 | - The increase in 2019 net income was primarily driven by customer growth of 2.5%, which was partially offset by lower usage per retail customer, especially from irrigation customers due to weather conditions[183][184] - Key 2019 achievements include a 13% cumulative annual total shareholder return over three years, a dividend increase, the planned exit from North Valmy unit 1, and a new goal for 100% clean energy by 2045[182] Results of Operations In 2019, retail revenues decreased due to lower per-customer usage and rate changes, while wholesale energy revenue increased due to higher market prices, and fuel expense rose from increased natural gas generation - Retail revenues decreased by $44.5 million in 2019, driven by lower per-customer usage (down $30.9 million) and rate changes (down $3.8 million), partially offset by customer growth (up $27.0 million)[210] - Wholesale energy revenue increased 35% to $71.2 million in 2019, as a 39% increase in the average sales price per MWh more than offset a 3% decrease in sales volume[211] - Purchased power expense decreased by $8.5 million (3%) in 2019 due to lower volumes of non-PURPA power purchases[217] - Fuel expense increased by $23.7 million (18%) in 2019, primarily due to a 50% increase in natural gas generation volume and higher average costs per MWh for natural gas[221] Liquidity and Capital Resources The company maintains strong liquidity to fund over $1.6 billion in capital expenditures through 2024, supported by operating cash flow, debt, and equity, while targeting a 60% to 70% dividend payout ratio - Operating cash flow for IDACORP decreased by $125 million in 2019 to $367 million, primarily due to changes in regulatory assets and liabilities related to power supply cost recovery[237] Estimated Capital Expenditures (2020-2024, excluding AFUDC) | (in millions of dollars) | 2020 (million $) | 2021 (million $) | 2022-2024 (million $) | | :--- | :--- | :--- | :--- | | Expected capital expenditures | $300 - $310 | $305 - $315 | $1,000 - $1,050 | - The Boardman-to-Hemingway transmission project is a major capital initiative with an estimated total cost of $1.0 to $1.2 billion and an expected in-service date of 2026 or later[268][272] - The company has a dividend policy targeting a long-term payout ratio of 60% to 70% of sustainable earnings, with the quarterly dividend increased to $0.67 per share in September 2019[292][293] Regulatory Matters Idaho Power's operations are heavily influenced by IPUC, OPUC, and FERC actions, including the 2018 Idaho Tax Reform Settlement, an earnings sharing mechanism, and approvals for coal plant exit and Hells Canyon relicensing - The May 2018 Idaho Tax Reform Settlement Stipulation provided an annual $18.7 million reduction to Idaho customer base rates and extended an earnings support and sharing mechanism indefinitely[311][312] - The earnings sharing mechanism, effective Jan 1, 2020, allows for additional ADITC amortization if Idaho ROE is below 9.4% and requires sharing of earnings above 10.0% ROE with customers[507] - The company received regulatory approval in Idaho and Oregon for settlement stipulations allowing for accelerated depreciation and cost recovery related to the planned exit from the North Valmy coal-fired power plant[316][317] - In April 2019, a settlement was reached with Idaho and Oregon regarding the Clean Water Act Section 401 certification for the Hells Canyon Complex relicensing, resolving a conflict over fish passage requirements[328] Environmental Matters The company is subject to extensive environmental regulations, including the Endangered Species Act impacting projects, climate change rules affecting fossil fuel generation, and Clean Air Act compliance driving coal plant exits - The listing of species under the Endangered Species Act, such as sage grouse and slickspot peppergrass, can adversely impact the construction and permitting of major transmission projects like Boardman-to-Hemingway and Gateway West[344][348][352] - Federal and state regulations on greenhouse gas (GHG) emissions, such as the EPA's ACE rule, create uncertainty for fossil fuel generation and have contributed to the decision to retire coal-fired plants[356][360] - Compliance with Clean Air Act rules, including MATS and Regional Haze, has required investments in emission controls and was a factor in the decisions to cease coal-fired operations at the Boardman and North Valmy plants[366][370] Critical Accounting Policies and Estimates The company's financial statements rely on critical accounting policies and estimates, including rate regulation, income taxes, and pension/postretirement benefits, which require significant management judgment and actuarial assumptions - Accounting for Rate Regulation is a critical policy, allowing the deferral of costs and revenues; at year-end 2019, Idaho Power had approximately $1.4 billion in regulatory assets and $0.8 billion in regulatory liabilities[378][379] - Pension and postretirement benefit costs are highly sensitive to actuarial assumptions; for 2020, the pension discount rate decreased from 4.55% to 3.60%, and the long-term rate of return on assets decreased from 7.5% to 7.4%[386][388] - A 0.5% decrease in the pension plans' discount rate would have increased the combined benefit obligation by $110.0 million as of December 31, 2019[390] Item 7A. Quantitative and Qualitative Disclosures About Market Risk IDACORP and Idaho Power are exposed to interest rate, commodity price, credit, and equity price risks, managed through debt mix, regulatory mechanisms, hedging, credit limits, and collateral requirements - The company is exposed to interest rate risk; as of December 31, 2019, a one-percentage-point decline in market interest rates would increase the fair value of the company's $1.8 billion in fixed-rate debt by approximately $262.2 million[399] - Commodity price risk from electricity and fuel is largely mitigated by Idaho and Oregon power cost adjustment mechanisms and a formal risk management program[400][402] - The company faces credit risk with market counterparties; if Idaho Power's credit rating were downgraded to below investment grade, it could be required to post approximately $10.3 million in additional collateral as of December 31, 2019[406] Item 8. Financial Statements and Supplementary Data This section presents consolidated financial statements for IDACORP and Idaho Power, including income statements, balance sheets, cash flows, and equity, along with detailed notes and independent auditor reports IDACORP, Inc. Financial Statements For 2019, IDACORP, Inc. reported total operating revenues of $1.35 billion and net income of $232.9 million ($4.61 per diluted share), with total assets of $6.64 billion and shareholders' equity of $2.46 billion IDACORP, Inc. Consolidated Statement of Income Highlights (2019 vs 2018) | (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Total operating revenues | $1,346,383 | $1,370,752 | | Operating Income | $298,326 | $296,922 | | Net Income Attributable to IDACORP, Inc. | $232,854 | $226,801 | IDACORP, Inc. Consolidated Balance Sheet Highlights (As of Dec 31) | (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Total current assets | $565,146 | $597,640 | | Property, plant and equipment - net | $4,531,454 | $4,395,735 | | Total assets | $6,641,201 | $6,382,754 | | Total current liabilities | $374,859 | $258,592 | | Long-Term Debt | $1,736,659 | $1,834,788 | | Total IDACORP, Inc. shareholders' equity | $2,464,628 | $2,370,360 | | Total liabilities and equity | $6,641,201 | $6,382,754 | Idaho Power Company Financial Statements For 2019, Idaho Power Company reported operating revenues of $1.34 billion and net income of $224.4 million, with total assets of $6.49 billion and common stock equity of $2.28 billion Idaho Power Company Consolidated Statement of Income Highlights (2019 vs 2018) | (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Operating Revenues | $1,342,940 | $1,366,582 | | Income from Operations | $299,603 | $297,323 | | Net Income | $224,437 | $222,334 | Idaho Power Company Consolidated Balance Sheet Highlights (As of Dec 31) | (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Electric plant - net | $4,514,155 | $4,378,085 | | Total assets | $6,494,159 | $6,254,400 | | Total common stock equity | $2,275,559 | $2,194,439 | | Long-term debt | $1,736,659 | $1,834,788 | | Total capitalization and liabilities | $6,494,159 | $6,254,400 | Notes to Consolidated Financial Statements The notes detail accounting policies, regulatory matters, debt, commitments, contingencies, and benefit plans, including the application of specialized rules for cost-based rate regulation and new revenue/lease accounting standards - The financial statements are prepared applying specialized rules for cost-based rate regulation, which results in the recording of regulatory assets (probable future revenue) and regulatory liabilities (probable future refunds or credits)[452] - The company adopted the new revenue recognition standard (Topic 606) on January 1, 2018, which did not materially change the timing or amount of revenue recognized[460] - The company adopted the new lease accounting standard (Topic 842) on January 1, 2019, which did not have a material impact on the financial statements[473] Item 9A. Controls and Procedures Management of both IDACORP and Idaho Power concluded that their disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with unqualified audit opinions - Management of both IDACORP and Idaho Power concluded that their respective disclosure controls and procedures were effective as of December 31, 2019[671][685] - Based on an assessment using the COSO framework, management of both IDACORP and Idaho Power concluded that their internal control over financial reporting was effective as of December 31, 2019[674][688] - No changes in internal control over financial reporting occurred during the fourth quarter of 2019 that materially affected, or are reasonably likely to materially affect, internal controls[698] Part III Items 10-14 Information for Items 10-14, covering directors, executive compensation, security ownership, and accountant fees, is largely incorporated by reference from IDACORP's 2020 proxy statement - Information regarding directors, executive compensation, and corporate governance is incorporated by reference from the company's definitive proxy statement[702][704][710] Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 232,550 | $ — | 613,394 | | Equity compensation plans not approved by shareholders | — | $ — | — | | Total | 232,550 | $ — | 613,394 | Idaho Power Principal Accountant Fees | Fee Type | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Audit fees | $1,515,701 | $1,437,100 | | Audit-related fees | $3,927 | $29,550 | | Tax fees | $3,993 | $26,125 | | All other fees | $1,895 | $1,895 | | Total | $1,525,516 | $1,494,670 | Part IV Item 15. Exhibits and Financial Statement Schedules This section provides a comprehensive index of all exhibits filed with the Form 10-K, including governing documents, material contracts, debt instruments, compensation plans, and various certifications - This section provides a comprehensive index of all exhibits filed with the Form 10-K, including articles of incorporation, bylaws, debt indentures, credit agreements, and executive compensation plans[723][725][727]