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

Good afternoon, everyone, and welcome to IDACORP's Second Quarter 2026 Earnings 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 website. [Operator Instructions]. I will now turn the call over to Amy Shaw, Vice President of Finance, Compliance, and Risk.

Thank you. Good afternoon, everyone. We appreciate you joining our call. The slides we'll reference during today's call are available on IDACORP's website. As noted on Slide 2, our discussion today includes forward-looking statements, including things like earnings guidance, spending forecast, financing plans, regulatory plans and actions, and estimates and assumptions that reflect our current views on what the future holds. These are all subject to risks and uncertainties. Those 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. We've included our cautionary note on forward-looking statements and various risk factors in more detail for your review in our filings with the Securities and Exchange Commission. As shown on Slide 3, also presenting today, we have Lisa Grow, President and CEO; Brian Buckham, EVP, CFO, and Treasurer; and John Wonderlich, Investor Relations Manager. Slide 4 has a summary of our second quarter financial results. IDACORP's diluted earnings per share were $1.79 compared with $1.76 for last year's second quarter. I want to highlight, we didn't record any additional tax credit amortization under the Idaho regulatory mechanism during the second quarter of this year compared with recording $17.2 million in the second quarter of last year. For the first half of 2026, diluted earnings per share were $3 versus $2.87 in 2025. And those results only include additional tax credit amortization of $6.3 million in the first half of '26 versus $36.5 million in the first half of last year, which showcases the strong performance so far for 2026. Our key operating metrics were raising the lower end of our full year. IDACORP diluted earnings per share guidance range by $0.05 to the new range of $6.30 to $6.45. This increase is driven by our strong operational results in the second quarter. It includes our expectation that Idaho Power will use less than $15 million of additional tax credit amortization for the full year, which is a reduction from the less than $30 million in our prior guidance. These estimates also assume historically normal weather conditions for the rest of the year. Now I'll turn the call over to Lisa.

Thank you, Amy, and thanks to everyone for joining us today. I'll start my remarks with a look at customer growth. As you can see on Slide 5, we've seen a customer count increase of 2.3% since last year's second quarter, with growth across all customer segments. The customer and load growth that we've seen within our service area remains strong, and we're working hard to meet the increased energy demand. As one data point, industrial revenues, which includes large contracts, were up a staggering 17% compared with the second quarter of last year. Thanks to years of thoughtful planning and project execution, we started seeing increased revenues from large contract customers in June with more to come in the second half of 2026. I've been providing updates on Micron's expansion in Meta's new data center during our earnings calls for years, and it's great to see this hard work come to fruition as these projects ramp up. You can see photos of these massive projects on Slide 6, along with pictures of some of our other large contract customers like Chobani and INL. Looking at Slides 7 and 8, we're strong advocates that growth has to be sustainable and responsible so that service to our existing customers remains reliable and affordable. We expect that new agreements with large customers will include appropriate take-or-pay provisions, termination payments, and certain upfront payments, along with strong credit requirements, just as we've done in the most recent energy service agreements. These elements help ensure that growth pays for growth without shifting cost to other customers, and they help derisk large loads for both our customers and our owners. One of the main draws to Idaho Power's service area is affordability and keeping prices as low as possible remains a priority. Our retail prices are well below the national average with our average residential price about 30% below national average. I'll also point out that the revenue growth from the large contract customers is a key driver that's helping us stay out of a 2026 general rate case. We'll continue to take this thoughtful approach with our large customer pipeline, which remains strong at multiple gigawatts as businesses across multiple industries look to operate in our region. Moving to Slide 9. We're full speed ahead, executing on projects to serve our customers and enhance our grid. We recently brought 250 megawatts of new company-owned battery storage online as scheduled, marking our fourth straight year adding batteries to our system. Since 2023, we've added over 550 megawatts of company-owned batteries. We also completed the conversion of Valmy Unit 2 from coal to natural gas last month in time to help us meet peak summer loads. Additionally, a 125-megawatt third-party-owned solar generation project was recently commissioned as part of our Clean Energy Your Way program. These resources support our efforts to add capacity, flexibility, and reliable affordable energy to serve our growing regions. Turning to Slide 10. I'll provide an update on our 3 major transmission projects. We expect all 3 to come online in the next several years, bringing with them critical system flexibility as well as access to diverse markets and transmission wheeling revenues. Starting with Boardman-to-Hemingway, work is progressing nicely. As of today, about 70% of the 1,300 structure pads have been completed. Over 400 towers are built, and we've started stringing wire. It's a huge undertaking, and we're pleased with the progress. We'll continue to expect -- we continue to expect B2H to be in service by late 2027. On the SWIP?North Transmission project, we received our CPCN from the Idaho Commission in December and project construction recently started in Nevada. With such good progress on the project, we expect the line to be completed in 2028. We're also continuing our work with PacifiCorp on the Gateway West transmission project. As we mentioned last quarter, we filed a joint request for a CPCN with the IPUC, and we anticipate a portion of that -- of the segment described in that filing will come online as soon as 2028. As seen on Slide 11, progress continues towards the construction of 3 company-owned natural gas fuel projects that I've mentioned on previous calls. Construction is underway on the first, a 167-megawatt resource next to our existing Bennett Mountain Power Plant. We secured a CPCN and air permit and an EPC contract has a scheduled in-service date of 2028. We've also filed CPCNs for the 222-megawatt South Hills project, which is scheduled for operation in 2029 and the 430-megawatt Peregrine project, which is slated for 2030. We continue to work toward procuring the necessary materials and construction services to build these gas plants. These dispatchable projects will help us meet our near-term capacity deficit. Turning to Slide 12. We're in the process of evaluating bids from our 2032 RFP. All bids have been submitted, including several of our own. At this stage of the process, several of our self-build projects -- self-bid projects remain competitive, and the review team is beginning to narrow the field of contenders. We expect to have a final shortlist in the third quarter and begin contract negotiations soon thereafter. I'll close my remarks with an update on the proposed sale of our Oregon distribution system. Over the last few months, we filed applications with the Oregon Commission, the Idaho Commission, and FERC, requesting approval of our sale agreement with OTEC. These filings are being processed, and we expect the sale to close in the spring of 2022, pending successful regulatory outcomes. So we've been very busy, as you can see. And with that, I'll turn the time over to Brian.

Hi. Thanks, Lisa. Hi, everybody. Thanks for joining us today. It's exciting to see all the projects going on right now. Recent project execution has been particularly important because it helps serve an 8% quarter-over-quarter increase in industrial loads, and we'll do that going forward. That load increase helped drive the 17% increase in industrial revenues that Lisa mentioned. Financial success is linked with operational success, and I think the financial side is just as exciting with strong results for the quarter and the year-to-date. Benefits from the January 1 rate change and customer growth were certainly evident during the quarter. I'll also mention that irrigation sales were up for the quarter, which is impressive given that Q2 of last year also had favorable weather conditions for irrigation sales. This year's relatively heavy April rain didn't dampen quarterly irrigation sales because we later experienced the dry May and June. Aside from the amount, the timing of precipitation can also notably impact irrigation sales volumes. Before I get into details, I want to point out that we added a new line to our quarterly reconciliation table. It shows the financial impact from large contract customers, which I think will be helpful going forward as we see the growing impact of these customer contracts. So when I quote changes from rates or customer growth generally, these exclude large contract customers because those will land on their own new line. All right. So getting more into the details, let's go to the recon on Slide 13. And from that, you can see that the biggest movement was from higher retail revenues from the January rate increase and from customer growth. Combined, those were a $32 million benefit for the quarter. And year-to-date, it was over $52 million. Per customer usage was essentially flat for the quarter, and residential usage declined due to milder temperatures, but higher irrigation usage mostly offset that decline. The fixed cost adjustment mechanism also benefited retail revenues, which resulted from the lower sales for the residential and small commercial customer classes. On our new line, revenues from our large contract customers increased operating income by $6.5 million for the quarter. As expected, we're now seeing with greater predominance the revenue and load ramp-up from some of our large contract customers taking shape, and we expect to see more of that benefit in the second half of the year. As we expected, O&M expense was almost $12 million higher in the second quarter. Primary drivers were the amortization of previously deferred costs associated with the Jim Bridger plant and our wildfire mitigation plan. A large portion of those items we recover at customer rates, those are also reflected in revenues. Depreciation and amortization expense increased around $5 million for the quarter. No surprise there, given our ongoing infrastructure investment. Other changes in operating revenues and expenses increased operating income by a net $6.3 million. Similar to the impact in the first quarter, this benefit resulted primarily from a decrease in net power supply expenses not accrued through the power cost adjustment mechanism. And that was due to updates to the PTA mechanism based in last year's rate case. Our non-operating expense increased only marginally with higher AFUDC mostly offsetting higher interest expense. Fairly significant, important from my perspective, Idaho Power didn't record any additional tax credits under the Idaho earnings support mechanism in the second quarter. That was about $17 million less than what we recorded in the same quarter last year. From a year-to-date perspective, the roughly $6 million we've recorded for 2026 is compared to over $36 million we've recorded at the same time last year. And that lower credit usage, even with higher expected book equity this year, is really indicative of our financial strength and performance this year. Our next slide, Slide 14, reiterates what we discussed about CapEx on the fourth quarter call. So it's just for reference. What you see in that forecast is admittedly already a large amount of capital. But as a reminder, it doesn't include any assumed resources from the 2032 RFP. And relatedly, it also doesn't include resources to serve projects like the Micron Fab 2 facility. And it doesn't include updates from our annual long-term capital budgeting work. So I'll just reiterate, there could be some upside to what's shown. We expect to have more intel for you as we work through the RFP, the low forecast update, and our annual capital budgeting process, all 3 of which are currently in progress. Moving to Slide 15. In the second quarter, we executed around $260 million of additional forward sale agreements through our current ATM program. We're showing on there around $2 billion of equity content that we need to fund our business for the next 5 years under the current plan. We've either issued or we've sold on forward about $1 billion already. So we've solved for roughly half of our current plan's equity needs. We have the equity we need into 2027, and we think the remaining amount in the current plan is within ATM ranges. I'll reiterate that any additional CapEx would require some additional debt and equity. We still plan to blend debt and equity on a roughly equal basis for incremental CapEx with the goal of keeping our balance sheet strong. Slide 16, it helps to summarize the forward sale agreements that we have available and the forwards that we've settled to-date. As you can see, we have a balance of about $715 million of forwards available for settlement. I don't have a slide on it, but I think operating cash flow warrants to mention given the deviation from this time last year. It looks low this year on a comparative basis, but it's important to note that much of the deviation is due to timing, including balances of items like accounts receivable and payable, prepayments, and the PCA mechanism. One last note for me, the Idaho Commission recently issued an order in our request for a prudence determination related to our Hells Canyon relicensing effort. The commission in that case determined that our project expenditures from the start of 2016 through year-end 2025 were prudently incurred, rendering them eligible for inclusion in retail rates in the future regulatory proceeding. We're pleased with the outcome of that case in part because, as many of you know, we pride ourselves on being prudent spenders as a company. I'm going to wrap up there. I'm going to hand it over to everyone's favorite IR celebrity, John Wonderlich.

Thanks, Brian. Turning to Slide 17. You can see our 2026 full year earnings guidance and key operating metrics. We've had some solid improvement in our earnings and ADITC guidance. As usual, we assume normal weather for the remainder of 2026 for our guidance. With strong operating performance in the first half of the year, we now expect IDACORP's diluted earnings per share this year to be in the range of $6.30 to $6.45. We lifted the bottom end of the range. We also see solid improvement in our ADITC expectation, so we're cutting our guidance in half. We now expect that Idaho Power will use less than $15 million of additional investment tax credit amortization in 2026, which is much less than the $40 million we amortized for the full year 2025, especially when considering the significant increase in year-end book equity, as Brian noted. We continue to expect full year O&M expense to be in the range of $525 million to $535 million. And we still anticipate spending between $1.3 billion and $1.5 billion on CapEx in 2026, though at this point, it's fair to say we're trending to the high end of that range. Finally, given our current forecast of hydropower operating conditions, we expect hydropower generation to be within the range of 5.5 million to 6.5 million megawatt hours for the year. We trimmed 0.5 million megawatt hours off the top end of our guidance as dry conditions returned in May and June. With that, we're happy to address questions you might have.

[Operator Instructions] Your first question comes from the line of Shahriar Pourreza with Wells Fargo Securities.

This is Whitney Mutalemwa on for Shahr. On resources, you've got 250 megawatts of batteries now in service. You have a number of applications in front of the commission. Is that pace, roughly a project every few months, sustainable? Or does it get harder to keep up as the queue grows? And a follow-up would be with all the battery storage going in for Micron, Meta, and the rest of the pipeline, is gas plus batteries the long-term answer? Or are you also looking at things like SMRs further out?

Yes. So great question. So I'll start and I'll have Adam give some more detail. Certainly, when we're looking at what we are going to need to serve our load, we go through exercise of the IRP, the integrated resource plan. So we're really looking for the least cost, least risk answer. So we have a total of 550 megawatts of batteries, but no, that's not the answer to everything. That fits kind of -- it's great energy that will sort of fill in when the solar energy starts to diminish as the sunset. So it's a great resource for the summer, but it's not a great source for the winter and -- just because of shorter days and so we don't get a chance to refill the battery before we need them again and they last for 4 hours. So some of the operating characteristics just make it, so it's a great energy resource, but it doesn't -- we don't really consider it a real capacity resource more than those 4 -- first 4 hours. So we in absolute sprint to keep up with this growing load and getting the resources online and in time. And so we've mentioned our pipeline before. That continues to be evaluated as we go on beyond what we've shown here. So I think, Adam, do you want to...

Yes. Thanks for the question, Whitney. Happy to walk you through kind of year-by-year how we're looking. In 2027, it's largely batteries and solar. We have a fair amount of that, probably 400-ish, 500 megawatts of solar, another 100 megawatts of batteries. From that point, it does go turn a little more on the gas side. 2028, we talked about it, Lisa in her comments, we have Bennett 2, 2029, we have South Hills, which is also a gas project. 222 megawatts. In 2030, we have a project called Peregrine 1, which is also gas, 430 megawatts. And then Idaho Power's origination team for 2031 and 2032, we bid in 8 projects, 6 of them were gas projects, 2 of them were storage projects. So that should help give you at least a little bit of a mix of where we're at in terms of gas versus storage versus solar in the next several years. In terms of SMRs, we've spent a fair amount of time learning about these new technologies. I'm on the customer advisory committee for one of the key technologies and companies. We spent a fair amount of time with INL. And we've met, I would say, with most of the key developers in that space. Our summary is that we like the SMR technology. At this time, we don't love the pricing, which, as you probably know, is likely over $150 a megawatt hour at this point. So we -- again, we like SMRs, but it -- we're probably not going to be the first, and we're probably not going to be the last to look at them, and we'll continue to keep an eye and evaluate those technologies over the next several years.

And the timing also, when they would be available.

And of course, in addition to the CapEx and the generation projects, I mentioned, Lisa in her comments, also mentioned B2H, we're making great progress there. Southwest Intertie Project broke ground recently, which is just a great milestone there. And of course, Gateway West 2, which we're looking to work on and construct over the next several years. So it's always good to point out, I think, that transmission is a big part of our plan as well, kind of the generation mix with transmission is what makes it all work out together.

Okay. That sounds good. And then just if I could squeeze in a tiny question. On wildfire mitigation, obviously, not trying to get ahead of the Mountain Home investigation since it's early, but you've just gotten the 2026 wildfire mitigation plan approved, right, before this happened. Does an incident like this change anything about how you're implementing it? Or is it too soon to say? How are you seeing the plan to put into practice?

Yes. So you're right, we do have a mitigation plan, and we do have -- it is now the Standard of Care Act here in Idaho, applies to that mitigation plan. So certainly, the wildfire was impactful to that community, and we worked really hard to make sure that we are there for that community, to help them get back on their feet and repair, replace, what was lost. But it was a relatively small fire. And when it's all said and done, it will not be a material impact to our company, but we are taking it very seriously. So I wouldn't say that we are changing anything about our plan. We certainly continue to implement it. That is the key focus, that it's one thing to write a plan. It's quite another to make sure that we are following it. And in this case, it actually was followed. I mean, we feel really good about the implementation of that plan. So I think that's probably about all I would have to say about that.

Your next question comes from the line of Michael Lonegan with Barclays.

So on Micron Fab 2, just wondering if you could share the status of negotiations and when you expect to sign an ESA. And then anything you could share regarding the size of that investment that could be added to your plan? And could this be a Q3 update, when you update your load forecast?

Well, those are often confidential. So we have to rely on our customer as to whether or not they want to make that public. I will say that the negotiations are very active. Adam, do you have any details?

Yes, we're progressing well. Just in terms of the site, a ton of work is going on. It's amazing to see what a $50 billion site looks like, and they have started ground preparations on Fab 2. We are in ESA discussions. But as Lisa mentioned, those are confidential, so we can't really speak to those. In terms of the CapEx side, and Brian can speak to this, but Fab 2 is not in the 8.3% IRP CAGR that we've shown. So it's outside of that as well in terms of spend.

Yes. Just to add on to what Adam said, most of our CapEx that you see in the slides was premised on the 2015 IRP load growth rate, the 8.3% that we mentioned.

2025.

For 2025, yes. Thank you. So it excludes customers like Fab 2, along with several other promising loads, as we call them, that we're working with right now. And those incremental loads all generate additional capacity and energy needs with some of our related spending for the infrastructure -- power infrastructure related to that occurring pretty urgently, I'd say, in our 5-year window, not all but on the outside of that window. So while the 2025 IRP is a data point, we're tasked with serving load as it materializes. So the in-process transmission lines and the outcomes of the 2032 RFP will all be part of how we solve for that load growth that materializes. That will end up getting reflected in our CapEx refresh and also a load growth update that we'll do for the 2027 IRP.

And then regarding your next rate case, I know you've indicated that June 2027 was a possibility. How are you thinking about that now? And should we expect this to be a modest request given all the large load coming in? And I know you often get asked about a depreciation and interest tracker. Could that be in there as well?

At this point, we're not really looking at a depreciation or interest tracker, and it is because the revenues of these large loads are helping to cover those costs. And so we continue to look at a possible June 2027 filing, but we obviously do the analysis. So we sort of wait and see if that is what is needed. But if things go as we are sort of forecasting, that's, I would say, a high probability, but we wait to see what the data actually indicates.

Yes. And Michael, this is Brian. I think from the financial side, what we look at is that you've got large float revenues on one side that certainly are helpful. The other side of the equation, though, is plant that goes into service, right? So in 2026 and in 2027, we expect quite a bit of our QIP to convert to plant in service. If you look at the balance sheet now, over $1.8 billion of QIP. So there's a lot that sits there as of today. When that converts plant in service, obviously, depreciation starts and AFUDC stops. So we get into a situation where we do the evaluation of -- keeping in mind things like cash flow, affordability for customers, all of those attributes, whether or not we file a rate case. So we'll have to do that math pretty early in 2027 as we look as to whether or not we'll file a rate case. As Lisa mentioned, it's looking relatively probable at this point. But again, we're in somewhat of a what I call an envious position compared to prior years where we have to do the math on that every year. That's beneficial. We did it this year and decided we didn't have to file a rate case in large part because of those large customer revenues that are coming in for the company. The other thing I'll mention is just on the tracker component, if you file relatively frequent general rate cases because you have so much plant converting, the tracker doesn't have as much value. You also have to be careful that a tracker wouldn't be shifting costs to customers that aren't driving the expense. And so the tracker would have to be structured in a way that -- to the extent it applies to residential customers, it would be for the projects that are benefiting the residential customers, not the large load growth customers. So we're very cognizant of that when we think about the types of mechanisms that we use on the regulatory side.

And then obviously, you're using less of the ADITC. So presumably, your earned ROEs are higher than you expected. With all the large load coming in, how do you see the earned ROEs trending over the forecast period? Is the chance you earn above your allowed? Or any -- obviously, you don't give long-term EPS growth guidance, but anything you could share on earned ROEs?

Sure. I mean, it's a projection that we do all the time in our forecasting. There is a possibility that, that occurs. But I think the thing to look at is the amount of depreciation and interest expense that we have to overcome in any given year, given a historic or hybrid test year that we have in Idaho. So while it's possible those revenues could be large enough to over-earn in some years, I'd say in the near term, that's less likely just given the construction cycle that we're in. That said, you've seen us reduce our ADITC expectations for the year already this year, and they're significantly lower than last year. So things like weather conditions or outperformance on large load expectations compared to what we have in our forecast, certainly drive us more towards over-earning certainly the base levels for the ADITC mechanism and then potentially even up from there.

Your next question comes from the line of Chris Ellinghaus with Siebert Williams Shank.

Brian, thanks for that new line. That's helpful. In terms of the large customer load ramp, can we just think about that similarly to retail in its seasonality based on your temperatures?

I wouldn't look at it that way, Chris, because while residential and some of the small commercial can be pretty sensitive to weather conditions, the industrial loads themselves are not. They tend to be driven more by what sort of equipment is installed and turned on at any given point. You can see Micron's load ramp in their special contract. You can see that there's step-ups. They're certainly not linear, but there are take-or-pay obligations in that, that don't reflect seasonality necessarily. And then if you look at things like data centers, their ramp-ups can be premised on what server acts are installed and when they're turned on. So I wouldn't look at it that way. One thing I would note is if you think about that line that we added, really, you only have 1 month of Micron revenues in there for Fab 1. And then you do see some of the Meta ramp-up reflected in there. But a lot of that is early stages, and we'd expect to see that more of a steady ramp-up over the second half of this year.