IDACORP, Inc. (IDA) Earnings Call Transcript & Summary

And thank you for your interest in IDACORP and Idaho Power. I'm just going to give a brief overview of our company and sort of what's going on with our service area and well -- and then Steve will go into the financial performance. So if we're looking at the first slide, you can see that Idaho Power serves Southern Idaho and Eastern Oregon. We are a vertically integrated company, and we have about 24,000 square miles and about 580,000 customers. So it's a very diverse territory. We do have a very urban center around Boise. We have a lot of agriculture, we have desert. We have the river, we have mountains. We have forest. So very -- in some cases, very rugged territory and very wide expanse. It's beautiful. You should come visit. When it's safe to do so. We are proud that we have 12 consecutive years of earnings growth, and we just recently announced a 6% increase in dividends, but Steve will go into a little further conversation about that in a minute. Moving on to the second page, talking about growth. Idaho has been on the -- really on growth trajectory for the past several years, it's really sort of been discovered. And so we are seeing quite a growth spurt. You can see there that we were -- we finished in June of this year at about 2.6% growth for Idaho Power customers with 2.1% overall for just the state in general. So you can see that we are in good company with the other states that are seeing growth. So really, what is driving that growth on the next sheet is our real -- the traditional industries in Idaho are very agricultural based, although we do have a tech base as well. When you think about agriculture, it's not just a farming, although that's -- those are very -- a large segment of our customers. It's really food processing, cold storage, some of the other pipe extrusion, pump manufacturing, those kinds of things that we see a lot of growth in. Although, like I said, we do see some electronics and other manufacturing along the same growth pattern. And then wood products and mining, also national resources in general, does -- is part of our traditional industries. And you can see that our emerging industries, we are seeing some data processing and other advanced manufacturing, such as modular construction is companies see on the next page, prefab logic, and you can see the other names that you would recognize, a lot of dairy. One of the fund projects that's not shown on here is -- part of agriculture is very dependent on bees as part of its process, and there is a cold storage bee facility that stores tens of millions of bees when they're in their off-season, they, I guess, go to sleep when it gets cold. So kind of a fun project. And then Amazon, of course, is one everyone recognizes. They just finished the installation of distribution center here, and they have publicly bragged that it was one of the fastest ones they put up, and they gave us a lot of credit for being really good partners and easy to work with. So we're very proud of that. I guess I didn't mention on the previous slide, we are seeing a slight decline this year associated with the pandemic and the economic slowdown, but you can see that Moody's is projecting that we will bounce back in a pretty good fashion going to 4% next year. So with that -- oh, one other thing I wanted to mention is that I keep forgetting those parts. We are a hydro-based utility. And we -- so that is a fairly unique thing certainly in the northwest, a lot of hydro exists there and utilities are -- there are several of us that are hydro based. But we -- that is a key part of our goals to be carbon-free by 2045. We really sit on a very good base on our hydro to get to that goal. We're rolling out of our coal plants over the next decade. We're already out of our first unit of Valmy. We'll be out of our share of Boardman this year. The next one out of Valmy would be in 2025. And then Bridger, we're working with our partner right now to determine what that trajectory looks like. We're guessing maybe 1 unit in the next 3 years or so, another 1 following the late '20 s, and then the final 2, sometime around 2030 or beyond. So we're -- that's a key part of how we get to carbon-free. And we are really excited about that. And really, it's -- we get to about 85% of the goal by what we're already planning on doing. And so we are waiting -- we will have to wait for technology, whether it's storage, small modular, reactors, hydrogen, something that will be a good baseload, highly dispatchable, reliable resource. And transmission is also a big part of that clean goal. We have 2 major projects, Boardman to Hemingway and Gateway West, that really, we believe, is very strategic into that future for not just us, but for the region. We've got to be able to move around that hydro, the wind in Wyoming and Montana and the solar of the Desert Southwest. It's got to be able to move around and transmission is really key. And there's a lot of good evidence that supports that, that's going to be part of that solution as well. So with that, I will turn it over to Steve.

Thank you, Lisa. And I would just -- if you want to see more on that, if you turn back to A 12 and A 13, we have 2 good slides on that, that will walk you through both where we are, which is a great place to start. We're north of 60% already that is noncarbon. And so I think from where we are to get to our goal is very attainable. Others have a lot further to go, I think, to reach what they're aiming for. So we feel great about that. And as Lisa mentioned, this growth that has come to us has given us a real opportunity because the in-migration, the new companies that have started up, those are all new revenues that have been adding to the top line. This next slide that we're showing on 5 is what we've done with that is we've also taken a very focused effort to control our cost side. We were fortunate, like many at the baby boomer just natural aging of our workforce brought us some opportunities that we could look at as people retired that didn't cause any layoffs or anything of our workforce, but we were able to look at each position as it opened up, and through that effort, have really been able to both rightsize our workforce. And in many ways, take cost there. We have used technology and other things that have helped us continue to give great service and continue to have reliable systems, but at a lower cost than what we had before. And you can see that we're going on 10 years of relatively flat cost. And we have no intentions of moving away from that right now. We're committed. We are, in 2020, looking again at a year that we think is going to be relatively flat. It's not like we aim at being exactly there, but we are doing everything we can to be smart about how we spend money. And the combination of those 2 is what really gets us to the next slide, is we've had a nice unprecedented really run of continual earnings growth here as a company. We've had 12 consecutive years. And in many years, you can see the first bar is really the bar that we've opened up in our guidance. And you can see that's the more steady trajectory up. We've had other one-off items that have occasionally helped years, some of that is weather, some of it's tax related. The most recent one was really some benefits. I'd say we got out of tax reform as we gave dollars back to our commission. And really, I think, made them pretty happy. They did it on a historic basis. And so we continue to get a little benefit out of that, and that was better than what we had in the plan in '19. So we look for everything we can to continue this trajectory. And I think the -- it's this steadiness of this growth that has really up until recently had us trading certainly at a premium against all our peers and a premium against even the full energy sector, I would say, we're in a very good spot. The small and mid-caps have been struggling here of late. And we're all hoping that path doesn't people see that really, our story has not changed a bit. And if anything, this growth story for us is probably more solid than it was because the problems in the state around it have not improved. If anything, they've gotten worse. And I think for us, it will -- the bigger challenge it will bring is dealing with all of what it is bringing right now. The growth, if anything, may be stepping up a bit. So this story has been a good one for us. It is a little different. Many of you, when you look at other companies will be thinking of just rate cases. And how much money did you spend, how much you're going to file for? Our last rate case was in 2011 with an adder for a plant that closed right at the end of the year 2012. And we think we can go a bit longer with that because, again, the growth is still coming. The new revenues show up. We control our costs, and we can deliver good earnings growth. You might jump to the next one. That's given us a good return on equity are allowed. Overall, in Idaho is 10%, in Oregon, it's a little lower than that, it's in high 9s. And I would say, in probably doing a little worse than Oregon right now than maybe we are in Idaho. Idaho also has a unique mechanism that they gave us back in the early -- I guess, the 2009 time frame that supports our earnings up to a -- at this time, it's 9.4% ROE, it was supporting to a 95% and that mechanism lives on, and I'll talk a little bit more about it. But it's one of the reasons you've seen this solid delivery on our ROE is we've done everything in our power to preserve that mechanism and make it last. Let's like jump it up there, a couple of slides back, we talk about it. We'll get there in just a moment. So following on, that combination of success has really allowed us to also make our dividend a growth story. We've had continual raises since 2011, pretty steep CAGR over that period of time, 9%. We just -- at least I said, has changed our dividends again in September, so we added a 6% increase then. And we've communicated as we did last year that we expect to do to increases of 5% or more. So you'd be looking for that again next year. But we've really tried to make this a growth story that we deliver on right along with our earnings, and we think the combination and the likelihood of us delivering is something that you don't see with every other company. And I will just pause right there and say, I do think we have a rate base story as well and we've started to talk about it, if we have time, we may get into it. But every rate base story has a question mark because as you spend the money, you hope you're doing the right thing and you're making good investments. But every one of those has to go to a commission and get collected. The difference between our story and that story is as they -- growth shows up, if those people keep coming and we just have growing revenues. This story is really more in our control. We don't have to rely on a decision or a change in interest rates or something like that in order to keep on our path. So we think that is a differentiator. And you might just jump ahead to our guidance. I guess you were on it, sorry, you've already gotten there. This is the mechanism.

Do you want me to move on here?

That's fine. The mechanism that we have just a moment. This is a very unique thing. So we have a $45 million bucket, it relates to deferred taxes associated with some tax credits we got years and years ago that our commission back in 2009 said, if you're willing to take a little smaller rate increase at this moment because it was just not a good time to pass on cost to customers, we would -- they would give us this $45 million support mechanism. And it was meant to sweep over and lift our earnings in the event of a bad year that, at that time, lifted us to 9.5%, which was 95% of our allowed rate of return. And we thought that was a good thing. And so did our investors, it was actually really well received when we brought it out. We've been able to not use it until that amount is still there today. It was extended several times in like 3 year tranches. Just -- it was last year, we extended it -- made it evergreen. And we did take a very small haircut with that as we as the discussions with the commission, they pointed out that some of our peers were getting allowed rates of 9.5%. And for us to have a mechanism that basically guarantees that same allowed level as peers, they thought was maybe a little far. And we accepted a 9.4% level to get this extended evergreen. The mechanism, however, will revert to 95% of any new ROE that we would have in a rate case. So it actually even survives rate case. One other slide nuance is this looks to our actual year-end equity for the Idaho -- the Idaho portion of IDACORP Power. So as we make earnings and our equity grows, this calculation where that 9.4% is actually increases annually. And sets a higher bar that we then have to attain or we'll end up using tax credit to. With that, I think I'll probably be quiet and take questions along those lines or anything you want to ask.

Thanks, Steve, and Lisa, appreciate it. Maybe can you first talk about the trends in residential customer growth. I would imagine -- you've seen very positive in-migration from other states in the Pacific Northwest and due to the high-quality of living, et cetera. Could you just comment and elaborate more what you're seeing now given the events that have transpired in the Pacific Northwest in terms of wildfires?

Well I don't know that we have had enough time frame to have statistical data that backs it up, but it feels like it has definitely stepped up a level from where it has been. We've also got the stay-at-home order impacting a lot of people and others just being safe. So it's a little hard to tell how much of the higher residential load is growth and how much is more of this function of just people working from home and being there a lot more. But clearly, it's up. And I think that will be the question is moving into next year. How long does that stay up? How long do the stay-at-home still impact residential? But we can tell just by the amount of people in town and all the new license plates that something has shifted during this -- during the pandemic that I think it has just brought a lot more people.

Yes. There have been quite a number -- I've told the story that we own a second home north of here a couple of hours. And one of my friends that lived there said that she counted 50 different state license plates in that very small town, and there's been a number of people that came to get away from -- when COVID hit. And there they decided to stay because they can work from anywhere. We're also seeing businesses that are just pulling up stakes and moving. It's a very business-friendly environment, and they're bringing their employees with them. And then there is that sort of climate migration, whether it's the fires or the hurricanes or just the extreme events that are happening on the edges of our country that there is a migration that's associated with that, that we've been the beneficiary of, and there is a lot of forecasting that would suggest that it may continue and may even speed up. So we've, again, seen really good results of -- we've seen growth already from people just discovering us and deciding to come here. And now with these other challenges they're experiencing elsewhere if they're showing up here.

It's having an impact on home prices and that sort of things.

Yes.

There'll be some new challenges for the people that were already here, but the people coming in, they like everything is half off because it's a lot cheaper than where they came from.

Yes. And we have a quick question from the attendees. With the understanding that you do have an accounting order approved in Idaho. Are you seeing any impacts to bad debt despite getting recovery? Are you seeing increasing bad debt in Idaho? And if you could just quickly comment on the pending accounting order in Oregon?

So I might let Ken talk on some of those. I would just open with. We elevated what we expected for the year in our last guidance. And I think we feel like what we did there was appropriate and adequate, if anything, as you know, we all -- many of the utility industries suspended turn off a spend at the late fees and that sort of thing. We were fortunate enough that our commission in Idaho allowed us to begin collections again. We did that in August. And that has actually been very favorable. People appreciated that we did right through most of the hard time. We offered very favorable, probably a lot more favorable. What we typically had done with helping them accommodate how they would get balances paid off. And my impression is, at this point, we feel good about where we are, things are heading the right way and generally looks pretty good.

Yes, I'd echo what Steve said and just reemphasized that the numbers that we shared at the quarter included our best guess on what bad debt would be by the end of the year. And we are expecting it higher than what we had last year due to this. But Steve is correct, in August, we started the collection process and the ability to turn people off. And we are seeing a lot of payments and a lot of activity there in a positive way. Again, we will be higher but we've baked that in. And in fact, we baked it in without assuming that we would even get the recovery that we have an order in Idaho to do so on. So I think we're -- given the situation, I feel like we're in really good shape there. And even when you looked at the numbers that -- of customers, that were behind. It wasn't overwhelming, I would argue. And our -- what we were assuming was, in my opinion, very conservative for the year. So we feel like we're in pretty good shape there. Oregon is a little different story as it usually is compared to Idaho. But I think we've made really good progress. There, it was a kind of a process with all the utilities working together with intervenors to come up with some solutions. And there are -- there is an agreement at this point. There's not an order, but at this point, we've got a nice agreement that next year we would be able to start, in the early part of the year, be able to start, I think it's March or April, I don't have that exact date. We'd be able to start the collection process over there. And they're really -- even though they haven't -- because they're trying to get to the details, they've been really clear that this is totally eligible, any bad debt that comes from this would be eligible for deferral and collection in the future over in Oregon. Even though we don't have an actual order, and that's only because we're trying to work through all the details before that order comes out. And within all those details is the assurances for the utilities, which we feel really good about that.