IDACORP, Inc. (NYSE:IDA) Q4 2023 Earnings Call Transcript
IDACORP, Inc. (NYSE:IDA) Q4 2023 Earnings Call Transcript February 15, 2024
IDACORP, Inc. beats earnings expectations. Reported EPS is $0.61, expectations were $0.6. IDACORP, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to IDACORP's Fourth Quarter and Year-End 2023 Earnings Conference Call. Today's call is being recorded and our webcast is live. A replay will be available later today and for the next 12 months on the IDACORP Web site. [Operator Instructions] I will now turn the call over to Amy Shaw, Vice President of Finance, Compliance and Risk.
Amy Shaw: Thank you. Good afternoon everyone. We appreciate you joining our call. This morning, we issued and posted to IDACORP's Web site our fourth quarter and year-end 2023 earnings release and our Form 10-K. The slides that accompany today's call are also available on IDACORP's Web site. During the call, we'll refer to the slides by number. As noted on slide two, our discussion today includes forward-looking statements, including earnings guidance, spending forecasts and regulatory plans that reflect our current views on what the future holds, but are subject to risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from statements made today, and we caution against placing undue reliance on any forward-looking statements.
This cautionary note is included in more detail for your review in our filings with the Securities and Exchange Commission. As shown on slide three, Lisa Grow, IDACORP's President and Chief Executive Officer; and Brian Buckham, IDACORP's Senior Vice President, Chief Financial Officer, and Treasurer will be presenting today. In addition to Lisa and Brian, we have other members of our management team available for a Q&A session following our prepared remarks. Slide four shows our full-year financial results. IDACORP's 2023 diluted earnings per share were $5.14 compared with $5.11 last year. Both 2023 revenues and earnings are IDACORP's highest in the history of the company, and 2023 was the 16th consecutive year of growth in earnings per share, which is something to celebrate.
Today, we initiated our full-year 2024 IDACORP earnings guidance estimate in the range of $5.25 to $5.45 diluted earnings per share, which includes our expectation that Idaho Power will utilize approximately $35 million to $60 million of additional tax credits that are available to support earnings at the 9.12% return on equity level in the Idaho jurisdiction under its Idaho general rate case settlement stipulation. These estimates assume historically normal weather conditions throughout the year, and normal power supply expenses. Also, it is important to note that approximately $25 million of our expected usage of additional tax credit relates to amortization of incremental tax credit generated from Idaho Power's investment in 2023 battery storage projects, which you may recall we removed from the revenue requirement as part of our 2023 general rate case proceeding in Idaho.
Now, I'll turn the call over to Lisa.
Lisa Grow: Thank, Amy, and thanks to everyone for joining us on today's call. I want to begin my remarks by highlighting Amy's comment on IDACORP completing our 16th year of earnings growth, as shown on slide five. Idaho Power also didn't use any accumulated deferred investment tax credits in 2023, preserving the full balance of credit in the Idaho regulatory stipulation for future earnings support. I want to thank our entire team for all the efforts that have contributed to this success. As we turn to 2024, we remain focused on keeping our employees safe, building for the future to keep pace with growing customer demand, keeping prices affordable, working toward our clean energy goal, and seeking innovative ways to serve our customers.
Our ability to deliver strong results while meeting the challenges of growth in the ever-shifting energy industry is a testament to our culture and Idaho Power's hardworking employees. Many of the topics I will touch on today will continue to drive our efforts and business strategies throughout 2024, and beyond. Turning to slide six, you'll see that strong growth continues across Idaho Power service area. Our customer base grew 2.4% in 2023. And we now serve more than 630,000 customers. With that growth earlier this year, we also set a new winter peak load of 2,719 megawatts, an increase of over 4% from our prior winter peak in 2022. Moody's most recent GDP calculations for our region remain robust, forecasting growth of 3.6% in 2024, and 3.7% in 2025.
We believe the reliable, affordable energy Idaho Power provides continues to be a drive for growth across our service area. And our local economy continues to outperform national trends. Idaho Power projects annual peak load growth of 3.7% from 2024 to 2028, based on our 2023 Integrated Resource Plan. This growth includes several new and expanding large-load customers, including Meta and Micron. Both of their sites are under construction, and both are participating in our Clean Energy Your Way program, which received commission approval last year, and is garnering interest from other large customers, including the city of Boise. The Micro site helped push Idaho to number five in a recent Site Selector Magazine ranking as states with the highest dollar value mega projects breaking ground across the country.
Overall, economic development continues at a rapid pace, particularly in the manufacturing space. In 2023, we brought online The Stow Company, in Nampa, and True West Beef, in Jerome. We also continue to have a robust pipeline of potential large commercial and industrial customers, including data centers enquiring about service. With so many finding our service area increasingly attractive, there is likely some upside in our load forecast that we haven't accounted for at this point. And we are considering what additional infrastructure would be needed to serve this potential load. Even with this growth, we continue to provide strong reliability for our customers. In 2023, we had our second best year for reliability with fewer customer outages, which resulted in less O&M costs related to outages.
Turning to slide seven, the Idaho Commission approved the settlement agreement in our Idaho general rate case in December. The settlement, which resulted in new rates effective on January 1 of this year, resulted in an overall rate increase of $54.7 million or an average of 4.25% for Idaho customers. This was a positive outcome for our company and our customers, and underscores our constructive regulatory environment. It helps us recover some of the significant infrastructure investments we've made to serve our growing customer base since our last general rate case in 2011. This outcome also benefits our cash flows as we continue to develop additional infrastructure, and maintain the reliability of our system. As noted on slide eight, Idaho Power filed its Oregon general rate case, in December, 2023.
And that case will be processed throughout much of 2024. We ask for a total annual rate increase of $10.7 million in Oregon. We expect to make additional rate filings as we experience significant growth in our service area. For example, earlier this week, we provided notice to the Idaho Commission of our intent to file a general rate case or a limited issue rate proceeding as soon as June 1 of this year. We're still working to determine what type of case we might file, which will include conversations with Idaho Staff, and other key stakeholders. We continue to plan for and add new resources that will meet our growing demand. Turning to Slide 9, in 2023, Idaho Power installed a total of 131 megawatts of energy storage capacity, the first utility-scale batteries in Idaho.
The table on Slide 9 doesn't account for an additional 11 megawatts of batteries installed at several distribution substations in 2023. These systems are already helping to maintain reliability and affordability during period of high use. 100-megawatt Franklin Solar project, in southern Idaho, is scheduled to come online in 2024, and will include an additional 60 megawatts of company-owned battery storage. These resources will be instrumental as we move away from coal-fired generation, and integrate additional intermittent renewable energy resources. As highlighted on slide 10, we published our 2023 integrated resource plan in September. The plan shows Idaho Power expects to be completely out of coal-fired generation by 2030. We're planning to convert our remaining coal-fired units to natural gas, which will reduce the carbon emissions of those units by about half and help keep our system reliable and affordable.
We expect two of those units to be ready by this summer. Evaluations on RFPs for 2026 and 2027 resource needs are ongoing. You may recall Idaho Power has self-bills included in that process. At this point, the separate evaluation team has a short list of projects and they've initiated contract negotiations with the shortlist bidders. We expect to execute contracts in the coming months. As shown on slide 11, 2023 was a big year for our high voltage transmission project, especially Boardman-to-Hemingway. We obtained certificates of public convenience and necessity for B2H in Oregon and Idaho. We also finalized an agreement with the Bonneville Power Administration and PacifiCorp that transfers BPA share of B2H to Idaho Power. We expect to break ground this year and finish the project no earlier than 2026.
Idaho Power and PacifiCorp are also working together on the 1000 mile Gateway West transmission line, which will help both companies meet rising customer demand and improve reliability. We're currently discussing with PacifiCorp the timing of construction for the segments most important to Idaho Power and the specific ownership allocation of those segments. In addition, we continue to look at other transmission projects that will be key to supplying reliable, affordable, clean energy in the future. As I close my remarks, I want to reiterate my thanks to our employees and the leadership team for all the great work they did to drive our success in 2023. As I reflect on the year, it's incredible how much we accomplished. The challenges of growth, rising costs, and the increasing demand for clean energy, while maintaining safety, reliability, and affordability are real.
But it's clear to me we have the right team in place to thrive in this fast-moving energy landscape. With that, I'll hand the presentation over to Brian for an overview of financial results and outlook. Brian.
Brian Buckham: Thanks, Lisa. Hi, everyone. We appreciate you tuning in for today's call. I'll start on slide 12, which is a reconciliation of our 2023 results compared to 2022. Just as a broad overview before I get into more detail. In 2023, we saw continued strong customer growth, and we benefited from our ongoing commitment to operating efficiently with our O&M expenses coming in basically flat compared to 2022. We also had the benefit of a June 2022 rate change related to Bridger for a full-year and lower income tax expense. Those positives were partially offset by reductions in usage from mild weather and higher depreciation and financing costs from our record level of CapEx. Getting into more granular detail, customer growth of 2.4% increased operating income by $15.7 million.
Our residential customer growth rate remained strong at 2.6% for the year, and this is a continuation of steady growth we've seen, and the trend points to continued strong customer and load growth in our service area, wouldn't be in Idaho Power Earnings call if we didn't talk about the weather. Usage per customer decreased operating income by about $31 million in 2023 compared to the prior year. More moderate temperatures and greater precipitation resulted in irrigation customers using less energy to operate their pumps. And it caused residential and commercial customers to use less energy per customer for cooling and heating during the year. The impact of the decrease in sales volumes per customer was partially offset by a $15 million increase from the fixed cost adjustment decoupling mechanism for our residential and small commercial customers.
Remember, the decoupling mechanism doesn't apply to irrigation customers. So, we saw a negative weather-related impact to irrigation sales without an attendant FCA revenue offset in 2023, just like we saw in 2022. The change in retail revenues per megawatt hour, net of associated power supply costs and power cost adjustment mechanisms increased operating income by $11 million in 2023 compared with 2022. That increase was primarily due to the June 2022 Bridger-related rate increase for our Idaho customers. Other O&M expenses were almost equivalent in the last two years. Inflationary pressures on labor related costs were mostly offset by our continued efforts to operate efficiently, really part of our culture, and from lower expenses from scheduled cyclical plant maintenance projects, and the timing of regulatory deferrals and credits received related to a jointly funded infrastructure project.
Depreciation expense increased $25.3 million, which I'll admit initially sounds significant. However, the magnitude on a year-over-year comparison basis is due partially to an increase in plant and service and partially to the impact of the Bridger Order I mentioned earlier. The latter is actually the larger of the two reasons. Non-operating expense decreased $4.7 million in 2023 compared with 2022. Allowance for funds used during construction increased as the average construction work in balance, and progress balance was higher throughout 2023. Also interest and investment income increased due to higher interest rates and higher average cash and cash equivalence balances. These increases were partially offset by higher interest expense on long-term debt.
Wrapping up the table, the $11 million decrease in income tax expense was primarily due to plant-related tax adjustments. As Lisa mentioned, we ultimately didn't record any additional amortization of accumulated deferred investment tax credits as of the end of 2023, preserving the full-year-end 2023 balance of around $86 million for future years. While we predicted to use additional ADITCs throughout the year, our year-end results ultimately eliminated our need to use them to achieve a 9.4% return on year-end equity in Idaho by a small margin. Beginning in 2024, the ADITC mechanism supports Idaho earnings at a 9.12% level. Our CapEx on a cash basis was over $600 million in 2023, an Idaho Power record, and it was an increase of more than 40% over 2022.
On an accrual basis, it was $734 million. If you look at the projects that entailed, it's our standard system reliability work, plant upgrades, and work on our transmission system and our battery storage projects to meet customer growth. On slide 13, we've included our updated five-year forecast of CapEx. You'll see our current plan for 2024 to 2028 has a 21% increase in CapEx compared to the 2023 to 2027 forecast we had at this time last year, amounting to $700 million of additional CapEx in this updated five-year forecast. We have a healthy mix of capital projects that make up our spending plan. We have no one particular project making up a majority of the expected spend. Our update includes refreshed cost assumptions from our major capital projects, but it's worth pointing out this update still doesn't include any projects related to the pending RFPs for 2026 and 2027 energy and capacity resources, or if we end up with new large loads that are in the pipeline that drive further infrastructure needs.
We are only including what we believe is known and executable as of today, so there is the potential for increases. We hope to have some clarity around the RFPs later in the first quarter, though we're still a ways out on any final decisions in the RFPs. Slide 14 is our estimate of the conversion of our CapEx spent into rate-based eligible assets at the end of each of the next five years as we place the assets into service. Last year at this time our estimated five-year rate-based CAGR was 11.1% based on rate-based eligible assets at the end of 2022 in addition through 2027. So, as we roll forward our CapEx forecast for our next five-year outlook with rate base from our 2023 general rate case as the starting point, our rate base CAGR for 2024 through 2028 is 10.8%, again with about $700 million of higher CapEx in the current five-year forecast compared to our five-year forecast this time last year.
In terms of financing that CapEx, as I've mentioned before, our goal is still to maintain our current credit ratings as well as the capital structure near 50% or 51% equity. To do that, we're still planning to blend that in equity issuances. We don't have any sizable debt maturities to address in the next few years, which helps on the debt side and with our credit ratings. We also haven't drawn down any of the funds from our November 2023 forward equity offering today, though it's intended to satisfy our equity needs in 2024. As a matter of good housekeeping, we could put in place an ATM later this year as we look to satisfy future equity needs, keep that debt equity ratio in a good spot. We're also focused on affordability for customers through this capital cycle.
We start with rates well below the national average, and then combining that with the denominator expanding due to customer growth, a regulatory philosophy where growth pays for growth, and the fact that the average life of the assets we're placing into service is relatively long, and we have the formula to maintain affordability for our customers. I think the relatively small single-digit percentage size of our general rate case I asked in Idaho last year, despite having not filed a general rate case in over a decade, is indicative of our ability to maintain low customer rates while our CapEx and rate-based forecast is elevated. Turning to slide 15, cash flows from operations decreased compared to 2022. As we discussed during the second quarter earnings call last year, we received approval from the Idaho Commission to collect $200 million increase in power supply costs from customers for higher power and gas costs, with collection from June of 2023 through May of 2025.
We expect that rate change along with the increased collection that began in January 1 from the Idaho general rate case settlement to help support cash flows from operations. As Lisa mentioned, in late December, the IPUC issued an order approving the settlement stipulation for Idaho general rate case. We've included a summary of the settlement on slide seven. The settlement provides for an increase to annual retail revenues of about $55 million, effective as of January 1 of this year. That's net of the transfers of cost recovery to base rates, including $168 million from current PCA rates most notably. The settlement increased an ROE of 9.6%, which sets our overall rate of return at 7.247% in Idaho. And last December, we filed a general rate case in Oregon, targeting a rate increase on October 15 of this year.
As outlined on slide eight, the filing requested an annual rate increase of $10.7 million. The filing requested a 10.4% authorized rate of return on equity, and a $189 million Oregon-Jurisdiction retail rate base. Idaho Power proposed capital structure of 49% debt and 51% equity in that case. Slide 16 shows our updated full-year earnings guidance and key operating metrics. We expect IDACORP's diluted earnings per share this year to be in the range of $5.25 to $5.45, with the assumption that Idaho Power will use between $35 million and $60 million of additional investment tax credit amortization to realize the 9.12% return on year-end equity in Idaho. As we contemplated in our Idaho general rate case filing, around $25 million of the additional investment tax credit amortization we expect to use this year relates to covering the revenue requirement for our investment in 2023 battery storage projects.
Other items causing the expected additional investment tax credit amortization usage this year are higher depreciation and interest expense from the CapEx increase, as well as higher book equity expected at year-end 2024, offset by the reduction from a 9.4% to a 9.12% ROE floor. And the guidance assumes normal weather throughout 2024, and normal power supply expenses. We expect full-year O&M expense to be in the range of $440 million to $450 million. While this looks and sounds like a notable increase over our 2023 spending, it's important to note that about $40 million of that expected expense relates to amortization of pension and wildfire mitigation plan regulatory assets, which was approved for recovery in the general rate case settlement.
So, excluding the new amortizations that are now collected through retail rates, our O&M expense in 2024 could be relatively comparable to our O&M expense in 2023. We anticipate spending between $925 million and $975 million of CapEx for 2024. As the five-year forecast showed, we expect to see a continuation of these CapEx numbers in subsequent years as we address growth in our service area. Finally, given our most updated forecast of hydropower operating conditions, we currently expect hydropower generation to be within the range of 5.5 million megawatt-hours to 7.5 million megawatt-hours for the year. Although we have solid carryover from the prior year, snowpack thus far has been below normal, but storms have been rolling through lately, so we're hoping for a benefit from those storms.
With that, we're happy to address questions you might have.
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