Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q

(Mark One)

X

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 

EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2010

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 

EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Exact name of registrants as specified

I.R.S. Employer

Commission File

in their charters, address of principal

Identification

Number

executive offices, zip code and telephone number

Number

1-14465

IDACORP, Inc.

82-0505802

1-3198

Idaho Power Company

82-0130980

 

1221 W. Idaho Street

 

 

Boise, ID  83702-5627

 

 

(208) 388-2200

 

 

State of Incorporation:  Idaho

 

 

Websites:  www.idacorpinc.com,  www.idahopower.com

 

 

None

 

Former name, former address and former fiscal year, if changed since last report.

 

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes   X    No  ___

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).  Yes ___  No  ___

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

IDACORP, Inc.:

 

Large accelerated filer

X

Accelerated filer

 

Non-accelerated  filer

 

Smaller reporting company

 

Idaho Power Company:

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated  filer

X

Smaller reporting company

 

 

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
Yes ___  No    X  

Number of shares of Common Stock outstanding as of March 31, 2010:

IDACORP, Inc.:

48,097,763

Idaho Power Company:

39,150,812, all held by IDACORP, Inc.

 

This combined Form 10-Q represents separate filings by IDACORP, Inc. and Idaho Power Company.  Information contained herein relating to an individual registrant is filed by that registrant on its own behalf.  Idaho Power Company makes no representations as to the information relating to IDACORP, Inc.’s other operations.

Idaho Power Company meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

 

 

 

 

 

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Table of Contents

 

 

COMMONLY USED TERMS

 

ADITC

-

Accumulated Deferred Investment Tax Credits

AFUDC

-

Allowance for Funds Used During Construction

APCU

-

Annual Power Cost Update

BCC

-

Bridger Coal Company, a joint venture of IERCo

Cal ISO

-

California Independent System Operator

CalPX

-

California Power Exchange

CAMP

-

Comprehensive Aquifer Management Plan

CO2

-

Carbon Dioxide

EPS

-

Earnings per share

ESA

-

Endangered Species Act

ESPA

-

Eastern Snake Plain Aquifer

FCA

-

Fixed Cost Adjustment mechanism

FERC

-

Federal Energy Regulatory Commission

Fitch

-

Fitch Ratings

HCC

-

Hells Canyon Complex

Ida-West

-

Ida-West Energy, a subsidiary of IDACORP, Inc.

IE

-

IDACORP Energy, a subsidiary of IDACORP, Inc.

IERCo

-

Idaho Energy Resources Co., a subsidiary of Idaho Power Company

IFS

-

IDACORP Financial Services, a subsidiary of IDACORP, Inc.

IPUC

-

Idaho Public Utilities Commission

IRP

-

Integrated Resource Plan

IWRB

-

Idaho Water Resource Board

kW

-

Kilowatt

MD&A

-

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Moody’s

-

Moody’s Investors Service

MW

-

Megawatt

MWh

-

Megawatt-hour

NOx

-

Nitrogen Oxide

O&M

-

Operations and Maintenance

OATT

-

Open Access Transmission Tariff

OPUC

-

Oregon Public Utility Commission

PCA

-

Power Cost Adjustment

PCAM

-

Power Cost Adjustment Mechanism

PURPA

-

Public Utility Regulatory Policies Act of 1978

REC

-

Renewable Energy Certificate

RH BART

-

Regional Haze - Best Available Retrofit Technology

S&P

-

Standard & Poor’s Ratings Services

SO2

-

Sulfur Dioxide

SRBA

-

Snake River Basin Adjudication

Valmy

-

North Valmy Steam Electric Generating Plant

VIEs

-

Variable Interest Entities

 

 

 

 

 

 

 

 

 

 

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Table of Contents

 

 

TABLE OF CONTENTS

 

Part I.  Financial Information:

 

 

Item 1.  Financial Statements (unaudited)

 

 

 

IDACORP, Inc.:

 

 

 

 

Condensed Consolidated Statements of Income

4

 

 

 

Condensed Consolidated Balance Sheets

5-6

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

Condensed Consolidated Statements of Comprehensive Income

8

 

 

 

Condensed Consolidated Statements of Equity

9

 

 

Idaho Power Company:

 

 

 

 

Condensed Consolidated Statements of Income

10

 

 

 

Condensed Consolidated Balance Sheets

11-12

 

 

 

Condensed Consolidated Statements of Capitalization

13

 

 

 

Condensed Consolidated Statements of Cash Flows

14

 

 

 

Condensed Consolidated Statements of Comprehensive Income

15

 

 

Notes to the Condensed Consolidated Financial Statements

16-32

 

 

Reports of Independent Registered Public Accounting Firm

33-34

 

 

 

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of

 

 

 

 

Operations

35-63

 

 

 

 

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

64

 

 

 

 

 

 

Item 4.  Controls and Procedures

64-65

 

 

 

 

 

Part II.  Other Information:

 

 

 

 

 

Item 1.  Legal Proceedings

65

 

 

 

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

65

 

 

 

 

Item 5.  Other Information

66

 

 

 

Item 6.  Exhibits

66

 

 

 

Signatures

67

 

 

Exhibit Index

68

 

 

 

SAFE HARBOR STATEMENT

 

This Form 10-Q contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements should be read with the cautionary statements and important factors included in this Form 10-Q at Part I, Item 2- “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FORWARD-LOOKING INFORMATION.”  Forward-looking statements are all statements other than statements of historical fact, including without limitation those that are identified by the use of the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “may result,” “may continue,” or similar expressions.


3

 


 


 

 

Table of Contents

 

PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
IDACORP, Inc.
Condensed Consolidated Statements of Income
(unaudited)

 Three months ended

 March 31,

 

2010

2009

 (thousands of dollars except

 for per share amounts)

Operating Revenues:

Electric utility:

General business

 $

203,745 

 $

187,927 

Off-system sales

34,406 

28,530 

Other revenues

14,309 

11,572 

Total electric utility revenues

252,460 

228,029 

Other

503 

545 

Total operating revenues

252,963 

228,574 

Operating Expenses:

Electric utility:

Purchased power

21,174 

33,701 

Fuel expense

37,187 

39,133 

Power cost adjustment

48,324 

15,859 

Other operations and maintenance

72,094 

68,541 

Energy efficiency programs

5,034 

4,057 

Depreciation

28,583 

25,963 

Taxes other than income taxes

5,680 

5,062 

Total electric utility expenses

218,076 

192,316 

Other expense

840 

624 

Total operating expenses

218,916 

192,940 

Operating Income

34,047 

35,634 

Other Income, Net

4,481 

6,921 

(Losses) Earnings of Unconsolidated Equity-Method Investments

(2,378)

402 

Interest Expense:

Interest on long-term debt

19,441 

16,639 

Other interest expense, net of AFUDC

(453)

836 

Total interest expense

18,988 

17,475 

Income Before Income Taxes

17,162 

25,482 

Income Tax Expense

1,305 

6,796 

Net Income

15,857 

18,686 

Adjustment for loss attributable to noncontrolling interests

206 

198 

Net Income Attributable to IDACORP, Inc.

 $

16,063 

 $

18,884 

Weighted Average Common Shares Outstanding - Basic (000’s)

47,773 

46,831 

Weighted Average Common Shares Outstanding - Diluted (000’s)

47,885 

46,876 

Earnings Per Share of Common Stock (basic and diluted):

Earnings Attributable to IDACORP, Inc.

 $

0.34 

 $

0.40 

Dividends Paid Per Share of Common Stock

 $

0.30 

 $

0.30 

 The accompanying notes are an integral part of these statements.

 

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IDACORP, Inc.
Condensed Consolidated Balance Sheets
(unaudited)

 March 31,

 December 31,

 

2010

2009

Assets

 (thousands of dollars)

Current Assets:

Cash and cash equivalents

 $

41,436 

 $

52,987 

Receivables:

Customer (net of allowance of $1,797 and $1,805, respectively)

71,518 

74,987 

Other (net of allowance of $1,400 and $1,073, respectively)

10,903 

11,922 

Accrued unbilled revenues

40,033 

51,272 

Materials and supplies (at average cost)

47,535 

48,054 

Fuel stock (at average cost)

25,006 

25,634 

Prepayments

8,810 

11,111 

Deferred income taxes

31,773 

31,773 

Other

4,413 

2,666 

Total current assets

281,427 

310,406 

 

Investments

200,458 

195,298 

 

Property, Plant and Equipment:

Utility plant in service

4,177,048 

4,160,178 

Accumulated provision for depreciation

(1,565,201)

(1,558,538)

Utility plant in service - net

2,611,847 

2,601,640 

Construction work in progress

323,116 

289,188 

Utility plant held for future use

7,149 

7,151 

Other property, net of accumulated depreciation

18,915 

19,029 

Property, plant and equipment - net

2,961,027 

2,917,008 

 

Other Assets:

American Falls and Milner water rights

22,902 

24,226 

Company-owned life insurance

26,866 

26,654 

Regulatory assets

684,540 

720,401 

Long-term receivables (net of allowance of $1,861 and $2,157, respectively)

4,020 

4,217 

Other

41,192 

40,517 

Total other assets

779,520 

816,015 

Total

 $

4,222,432 

 $

4,238,727 

 

 The accompanying notes are an integral part of these statements.

 

 

 

 

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Table of Contents

 

IDACORP, Inc.
Condensed Consolidated Balance Sheets
(unaudited)

March 31,

December 31,

 

2010

2009

Liabilities and Equity

 (thousands of dollars)

Current Liabilities:

Current maturities of long-term debt

 $

131,951 

 $

9,340 

Notes payable

26,100 

53,750 

Accounts payable

53,040 

83,818 

Taxes accrued

40,118 

10,184 

Interest accrued

25,682 

20,056 

Other

51,325 

41,081 

Total current liabilities

328,216 

218,229 

 

Other Liabilities:

Deferred income taxes

565,990 

574,450 

Regulatory liabilities

284,408 

287,780 

Other

346,626 

346,994 

Total other liabilities

1,197,024 

1,209,224 

 

Long-Term Debt

1,290,243 

1,409,730 

 

Commitments and Contingencies

Equity:

IDACORP, Inc. shareholders’ equity:

Common stock, no par value (shares authorized 120,000,000;

48,097,763 and 47,925,882 shares issued, respectively)

759,786 

756,475 

Retained earnings

650,834 

649,180 

Accumulated other comprehensive loss

(7,674)

(8,267)

Treasury stock (0 and 29,191 shares at cost, respectively)

(53)

Total IDACORP, Inc. shareholders’ equity

1,402,946 

1,397,335 

Noncontrolling interest

4,003 

4,209 

Total equity

1,406,949 

1,401,544 

Total

 $

4,222,432 

 $

4,238,727 

 The accompanying notes are an integral part of these statements.

 

 

 

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IDACORP, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

 

 

 

 

 

 

Three months ended

 

March 31,

 

2010

2009

 Operating Activities:

(thousands of dollars)

Net income

 $

15,857 

 $

18,686 

Adjustments to reconcile net income to net cash provided by                          

 

 

operating activities:

 

 

Depreciation and amortization

30,435 

28,280 

Deferred income taxes and investment tax credits

(23,118)

14,675 

Changes in regulatory assets and liabilities

52,036 

16,405 

Non-cash pension expense

1,235 

697 

Losses (earnings) of unconsolidated equity-method investments

2,378 

(402)

Distributions from unconsolidated equity-method investments

3,390 

Gain on sale of assets

(40)

(382)

Other non-cash adjustments to net income, net

(3,148)

28 

Change in:

 

 

Accounts receivable and prepayments

4,629 

(8,119)

Accounts payable and other accrued liabilities

(29,144)

(41,655)

Taxes accrued

29,706 

8,553 

Other current assets

12,385 

8,436 

Other current liabilities

13,733 

11,952 

 Other assets

(1,782)

(1,332)

 Other liabilities

(4,712)

(14,859)

Net cash provided by operating activities

100,450 

44,353 

Investing Activities:

 

 

Additions to property, plant and equipment

(69,029)

(49,592)

Proceeds from the sale of non-utility assets

250 

Investments in affordable housing

(2,480)

(850)

Sales of emission allowances and renewable energy certificates

666 

2,341 

Investments in unconsolidated affiliates

(2,200)

Proceeds from the sale of available-for-sale securities

4,845 

Other

2,265 

2,385 

Net cash used in investing activities

(70,778)

(40,621)

Financing Activities:

 

 

Issuance of long-term debt

100,000 

Retirement of long-term debt

(1,064)

(8,735)

Dividends on common stock

(14,475)

(14,353)

Net change in short-term borrowings

(27,650)

(550)

Issuance of common stock

3,130 

2,469 

Acquisition of treasury stock

(829)

(1,408)

Other

(335)

(870)

Net cash (used in) provided by financing activities

(41,223)

76,553 

Net (decrease) increase in cash and cash equivalents

(11,551)

80,285 

Cash and cash equivalents at beginning of the period

52,987 

8,828 

Cash and cash equivalents at end of the period

 $

41,436 

 $

89,113 

Supplemental Disclosure of Cash Flow Information:

 

 

Cash (received) paid during the period for:

 

 

Income taxes

 $

(1,367)

 $

(13,060)

Interest (net of amount capitalized)

 $

13,021 

 $

9,535 

Non-cash investing activities

 

 

Additions to property, plant and equipment in accounts payable

 $

17,882 

 $

4,975 

Investments in affordable housing

 $

4,828 

 $

The accompanying notes are an integral part of these statements.

 

7

 


 


 

 

IDACORP, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)

Three months ended

March 31,

 

2010

2009

(thousands of dollars)

Net Income

 $

15,857 

 $

18,686 

Other Comprehensive Income (Loss):

Net unrealized holding gains (losses) arising during the period,

net of tax of $267 and ($570)

416 

(887)

Unfunded pension liability adjustment, net of tax

 of $114 and $87

177 

136 

Total Comprehensive Income

16,450 

17,935 

Comprehensive loss attributable to noncontrolling interests

206 

198 

Comprehensive Income Attributable to IDACORP, Inc.

 $

16,656 

 $

18,133 

The accompanying notes are an integral part of these statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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IDACORP, Inc.
Condensed Consolidated Statements of Equity
(unaudited)

Three months ended

 March 31,

 

2010

2009

 

(thousands of dollars)

Common Stock

Balance at beginning of period

 $

756,475 

 $

729,576 

Issued

3,130 

2,469 

Other

181 

(289)

Balance at end of period

759,786 

731,756 

 

 

Retained Earnings

Balance at beginning of period

649,180 

581,605 

Net Income Attributable to IDACORP, Inc.

16,063 

18,884 

Common stock dividends ($0.30 per share)

(14,409)

(14,081)

Balance at end of period

650,834 

586,408 

 

 

Accumulated Other Comprehensive Income (Loss)

Balance at beginning of period

(8,267)

(8,707)

Unrealized gain (loss) on securities (net of tax)

416 

(887)

Unfunded pension liability adjustment (net of tax)

177 

136 

Balance at end of period

(7,674)

(9,458)

 

 

Treasury Stock

Balance at beginning of period

(53)

(37)

Issued

882 

1,425 

Acquired

(829)

(1,408)

Balance at end of period

-   

(20)

Total IDACORP, Inc. shareholders’ equity at end of period

1,402,946 

1,308,686 

 

 

Noncontrolling interests

Balance at beginning of period

4,209 

4,434 

Net loss attributed to noncontrolling interest

(206)

(198)

Other

-   

(249)

Balance at end of period

4,003 

3,987 

Total equity at end of period

 $

1,406,949 

 $

1,312,673 

The accompanying notes are an integral part of these statements.

 

 

 

 

 

 

 

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Idaho Power Company
Condensed Consolidated Statements of Income
(unaudited)

Three months ended

 March 31,

 

2010

2009

 (thousands of dollars)

Operating Revenues:

General business

 $

203,745 

 $

187,927 

Off-system sales

34,406 

28,530 

Other revenues

14,309 

11,572 

Total operating revenues

252,460 

228,029 

Operating Expenses:

Operation:

Purchased power

21,174 

33,701 

Fuel expense

37,187 

39,133 

Power cost adjustment

48,324 

15,859 

Other operations and maintenance

72,094 

68,541 

Energy efficiency programs

5,034 

4,057 

Depreciation

28,583 

25,963 

Taxes other than income taxes

5,680 

5,062 

Total operating expenses

218,076 

192,316 

Income from Operations

34,384 

35,713 

Other Income:

Allowance for equity funds used during construction

3,659 

764 

Earnings of unconsolidated equity-method investments

348 

3,302 

Other income, net

239 

6,297 

Total other income

4,246 

10,363 

Interest Charges:

Interest on long-term debt

19,441 

16,567 

Other interest

854 

1,578 

Allowance for borrowed funds used during construction

(2,192)

(1,126)

Total interest charges

18,103 

17,019 

Income Before Income Taxes

20,527 

29,057 

Income Tax Expense

2,306 

9,773 

Net Income

 $

18,221 

 $

19,284 

 The accompanying notes are an integral part of these statements.

 

 

 

 

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Table of Contents

 

Idaho Power Company
Condensed Consolidated Balance Sheets
(unaudited)

March 31,

December 31,

 

2010

2009

Assets

 (thousands of dollars)

Electric Plant:

In service (at original cost)

 $

4,177,048 

 $

4,160,178 

Accumulated provision for depreciation

(1,565,201)

(1,558,538)

In service - net

2,611,847 

2,601,640 

Construction work in progress

323,116 

289,188 

Held for future use

7,149 

7,151 

Electric plant - net

2,942,112 

2,897,979 

 

Investments and Other Property

110,118 

108,299 

 

Current Assets:

Cash and cash equivalents

38,055 

21,625 

Receivables:

Customer (net of allowance of $1,797 and $1,805, respectively)

71,518 

74,987 

Other (net of allowance of $181 and $185, respectively)

9,525 

10,463 

Taxes receivable

3,585 

Accrued unbilled revenues

40,033 

51,272 

Materials and supplies (at average cost)

47,535 

48,054 

Fuel stock (at average cost)

25,006 

25,634 

Prepayments

8,574 

10,960 

Deferred income taxes

7,887 

7,887 

Other

3,855 

2,115 

Total current assets

251,988 

256,582 

Deferred Debits:

American Falls and Milner water rights

22,902 

24,226 

Company-owned life insurance

26,866 

26,654 

Regulatory assets

684,540 

720,401 

Other

39,968 

39,249 

Total deferred debits

774,276 

810,530 

Total

 $

4,078,494 

 $

4,073,390 

 The accompanying notes are an integral part of these statements.

 

 

 

 

 

 

 

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Table of Contents

 

Idaho Power Company
Condensed Consolidated Balance Sheets
(unaudited)

March 31,

December 31,

 

2010

2009

Capitalization and Liabilities

 (thousands of dollars)

Capitalization:

Common stock equity:

Common stock, $2.50 par value (50,000,000 shares

authorized; 39,150,812 shares outstanding)

 $

97,877 

 $

97,877 

Premium on capital stock

638,758 

638,758 

Capital stock expense

(2,097)

(2,097)

Retained earnings

551,539 

547,695 

Accumulated other comprehensive loss

(7,674)

(8,267)

Total common stock equity

1,278,403 

1,273,966 

Long-term debt

1,288,734 

1,409,730 

Total capitalization

2,567,137 

2,683,696 

 

Current Liabilities:

Long-term debt due within one year

121,064 

1,064 

Accounts payable

52,642 

83,128 

Notes and accounts payable to related parties

607 

1,736 

Taxes accrued

27,991 

Interest accrued

25,682 

20,056 

Other

50,286 

40,002 

Total current liabilities

278,272 

145,986 

 

Deferred Credits:

Deferred income taxes

604,200 

611,749 

Regulatory liabilities

284,408 

287,780 

Other

344,477 

344,179 

Total deferred credits

1,233,085 

1,243,708 

 

Commitments and Contingencies

Total

 $

4,078,494 

 $

4,073,390 

 The accompanying notes are an integral part of these statements.

 

 

 

 

 

 

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Idaho Power Company
Condensed Consolidated Statements of Capitalization
(unaudited)

March 31,

December 31,

 

2010

2009

(thousands of dollars)

Common Stock Equity:

Common stock

 $

97,877 

 $

97,877 

Premium on capital stock

638,758 

638,758 

Capital stock expense

(2,097)

(2,097)

Retained earnings

551,539 

547,695 

Accumulated other comprehensive loss

(7,674)

(8,267)

Total common stock equity

1,278,403 

1,273,966 

Long-Term Debt:

First mortgage bonds:

6.60% Series due 2011

120,000 

120,000 

4.75% Series due 2012

100,000 

100,000 

4.25% Series due 2013

70,000 

70,000 

6.025% Series due 2018

120,000 

120,000 

6.15% Series due 2019

100,000 

100,000 

4.50% Series due 2020

130,000 

130,000 

6    % Series due 2032

100,000 

100,000 

5.50% Series due 2033

70,000 

70,000 

5.50% Series due 2034

50,000 

50,000 

5.875% Series due 2034

55,000 

55,000 

5.30% Series due 2035

60,000 

60,000 

6.30% Series due 2037

140,000 

140,000 

6.25% Series due 2037

100,000 

100,000 

Total first mortgage bonds

1,215,000 

1,215,000 

Amount due within one year

(120,000)

Net first mortgage bonds

1,095,000 

1,215,000 

Pollution control revenue bonds:

5.15% Series due 2024

49,800 

49,800 

5.25% Series due 2026

116,300 

116,300 

Variable Rate Series 2000 due 2027

4,360 

4,360 

Total pollution control revenue bonds

170,460 

170,460 

American Falls bond guarantee

19,885 

19,885 

Milner Dam note guarantee

7,446 

8,509 

Note guarantee due within one year

(1,064)

(1,064)

Unamortized premium/discount - net

(2,993)

(3,060)

Total long-term debt

1,288,734 

1,409,730 

Total Capitalization

 $

2,567,137 

 $

2,683,696 

The accompanying notes are an integral part of these statements.

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Idaho Power Company

Condensed Consolidated Statements of Cash Flows
(unaudited)


 

 

 

 

 

Three months ended

 

March 31,

 

2010

2009

 

(thousands of dollars)

Operating Activities:

 

 

Net income

 $

18,221 

 $

19,284 

Adjustments to reconcile net income to net cash provided by

  

 

operating activities:

 

 

Depreciation and amortization

30,278 

28,002 

Deferred income taxes and investment tax credits

(22,207)

8,881 

Changes in regulatory assets and liabilities

52,036 

16,405 

Non-cash pension expense

1,235 

697 

Earnings of unconsolidated equity-method investments

(348)

(3,302)

Distributions from unconsolidated equity-method investments

3,390 

Gain on sale of assets

(40)

(382)

Other non-cash adjustments to net income

(4,709)

(1,088)

Change in:

 

 

Accounts receivables and prepayments

3,549 

(7,550)

Accounts payable

(28,851)

(42,182)

Taxes receivable/accrued

31,368 

28,746 

Other current assets

12,385 

8,436 

Other current liabilities

13,732 

11,862 

Other assets

(1,782)

(1,332)

Other liabilities

(4,067)

(14,809)

Net cash provided by operating activities

100,800 

55,058 

Investing Activities:

 

 

Additions to utility plant

(69,029)

(49,592)

Sales of emission allowances and renewable energy certificates

666 

2,341 

Investments in unconsolidated affiliates

(2,200)

Other

1,736 

(1,761)

Net cash used in investing activities

(68,827)

(49,012)

Financing Activities:

 

 

Issuance of long-term debt

100,000 

Retirement of long-term debt

(1,064)

(1,064)

Dividends on common stock

(14,377)

(14,228)

Net change in short term borrowings

(10,300)

Other

(102)

(646)

Net cash (used in) provided by financing activities

(15,543)

73,762 

Net increase in cash and cash equivalents

16,430 

79,808 

Cash and cash equivalents at beginning of the period

21,625 

3,141 

Cash and cash equivalents at end of the period

 $

38,055 

 $

82,949 

Supplemental Disclosure of Cash Flow Information:

 

 

Cash (received) paid during the period for:

 

 

Income taxes

 $

(2,934)

 $

(24,481)

Interest (net of amount capitalized)

 $

12,136 

 $

9,150 

Non-cash investing activities:

 

 

Additions to property, plant and equipment in accounts payable

 $

17,882 

 $

4,975 

The accompanying notes are an integral part of these statements.

 

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Idaho Power Company
Condensed Consolidated Statements of Comprehensive Income
(unaudited)

Three months ended

March 31,

 

2010

2009

(thousands of dollars)

Net Income

 $

18,221 

 $

19,284 

Other Comprehensive Income (Loss):

Net unrealized holding gains (losses) arising during the period,

net of tax of $267 and ($570)

416 

(887)

Unfunded pension liability adjustment, net of tax

 of $114 and $87

177 

136 

Total Comprehensive Income

 $

18,814 

 $

18,533 

The accompanying notes are an integral part of these statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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IDACORP, INC. AND IDAHO POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

This Quarterly Report on Form 10-Q is a combined report of IDACORP, Inc. (IDACORP) and Idaho Power Company (Idaho Power).  Therefore, the Notes to the condensed consolidated financial statements apply to both IDACORP and Idaho Power.  However, Idaho Power makes no representation as to the information relating to IDACORP’s other operations.

Nature of Business

IDACORP is a holding company formed in 1998 whose principal operating subsidiary is Idaho Power.  IDACORP is subject to the provisions of the Public Utility Holding Company Act of 2005, which provides certain access to books and records to the Federal Energy Regulatory Commission (FERC) and state utility regulatory commissions and imposes certain record retention and reporting requirements on IDACORP.

Idaho Power is an electric utility with a service territory covering approximately 24,000 square miles in southern Idaho and eastern Oregon.  Idaho Power is regulated by the FERC and the state regulatory commissions of Idaho and Oregon.  Idaho Power is the parent of Idaho Energy Resources Co. (IERCo), a joint venturer in Bridger Coal Company (BCC), which supplies coal to the Jim Bridger generating plant owned in part by Idaho Power.

IDACORP’s other subsidiaries include IDACORP Financial Services, Inc. (IFS), an investor in affordable housing and other real estate investments; Ida-West Energy Company (Ida-West), an operator of small hydroelectric generation projects that satisfy the requirements of the Public Utility Regulatory Policies Act of 1978 (PURPA); and IDACORP Energy (IE), a marketer of energy commodities, which wound down operations in 2003.

Principles of Consolidation

IDACORP’s and Idaho Power’s consolidated financial statements include the accounts of each company, the subsidiaries that the companies control, and any variable interest entities (VIEs) for which the companies are the primary beneficiaries.  All significant intercompany balances have been eliminated in consolidation.  Investments in subsidiaries that the companies do not control and investments in VIEs for which the companies are not the primary beneficiaries, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method of accounting.

In January 2010, IDACORP and Idaho Power adopted amendments to prior consolidation guidance.  The amendments affected the overall consolidation analysis of VIEs and required IDACORP and Idaho Power to reconsider their previous conclusions relating to the consolidation of VIEs, including (1) whether an entity is a VIE, (2) whether either IDACORP or Idaho Power are the VIE’s primary beneficiary, and (3) what type of financial statement disclosures are required.  The adoption of this guidance did not change the entities that IDACORP or Idaho Power consolidate.

The entities that IDACORP and Idaho Power consolidate consist primarily of the wholly-owned subsidiaries discussed above.  In addition, IDACORP consolidates one VIE, Marysville Hydro Partners (Marysville), which is a joint venture owned 50 percent by Ida-West and 50 percent by Environmental Energy Company (EEC).  Marysville has approximately $25 million of assets, primarily a hydroelectric plant, and approximately $17 million of intercompany long-term debt, which is eliminated in consolidation.  EEC has borrowed amounts from Ida-West to fund a portion of its required capital contributions to Marysville.  The loans are payable from EEC’s share of distributions and are secured by the stock of EEC and EEC’s interest in Marysville.  Ida-West is the primary beneficiary because the ownership of the intercompany note and the EEC note result in it controlling the entity.  Creditors of Marysville have no recourse to the general credit of IDACORP and there are no other arrangements that could require IDACORP to provide financial support to Marysville or expose IDACORP to losses.

Through IERCo, Idaho Power holds a variable interest in BCC, a VIE for which it is not the primary beneficiary.  IERCo is not the primary beneficiary because the power to direct the activities that most significantly impact the economic performance of BCC is shared with the joint venture partner.  IERCo’s carrying value is $87 million and its maximum exposure to loss at BCC is the carrying value, any additional future contributions to the mine and the $63 million guarantee for reclamation costs at the mine which is discussed further in “Note 8 – Commitments.”

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Through IFS, IDACORP also holds variable interests in VIEs for which it is not the primary beneficiary.  These VIEs are historic rehabilitation and affordable housing developments in which IFS holds limited partnership interests ranging from five to 99 percent.  As a limited partner, IFS does not control these entities and they are not consolidated.  These investments were acquired between 1996 and 2010.  IFS’s maximum exposure to loss in these developments is limited to its net carrying value, which was $82 million at March 31, 2010.

Financial Statements

In the opinion of IDACORP and Idaho Power, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly their consolidated financial positions as of March 31, 2010, and consolidated results of operations for the three months ended March 31, 2010, and 2009, and consolidated cash flows for the three months ended March 31, 2010, and 2009.  These adjustments are of a normal and recurring nature.  These financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters that would be included in full-year financial statements and should be read in conjunction with the audited consolidated financial statements included in IDACORP’s and Idaho Power’s Annual Report on Form 10-K for the year ended December 31, 2009.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities, as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results experienced could differ materially from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.  The reclassifications did not impact IDACORP’s and Idaho Power’s net income or total equity, and include the following:

•         Third-party transmission expense was combined with purchased power in IDACORP and Idaho Power’s condensed consolidated statements of income as the balance of the third party transmission expense alone is immaterial;

•         Gain on sale of emission allowances was combined with other operations and maintenance in IDACORP and Idaho Power’s condensed consolidated statements of income as the balance of gain on sale of emission allowances alone is immaterial;

•         Other operations and maintenance in the operating expenses section of Idaho Power’s condensed consolidated statements of income were combined to be consistent with presentation in IDACORP’s condensed consolidated statements of income;

•         Allowance for uncollectible accounts was offset against associated accounts receivable and presented in a parenthetical notation in IDACORP and Idaho Power’s condensed consolidated balance sheets;

•         Excess tax benefit from share-based payment arrangements was combined with other non-cash adjustments to net income in the operating section and with other in the financing section of IDACORP’s condensed consolidated statements of cash flows; and

•         Amortization of affordable housing was removed from depreciation and amortization and combined with undistributed earnings of unconsolidated subsidiaries, the total of which was then separated into losses (earnings) of unconsolidated equity-method investments and distributions from unconsolidated equity method investments in the operating section of IDACORP’s condensed consolidated statements of cash flows.

 

2.  INCOME TAXES:

 

In accordance with interim reporting requirements, IDACORP and Idaho Power use an estimated annual effective tax rate for computing provisions for income taxes.  An estimate of annual income tax expense (or benefit) is made each interim period using estimates for annual pre-tax income, income tax adjustments and tax credits.  The estimated annual effective tax rates do not include discrete events such as tax law changes, examination settlements or method changes.  Discrete events are recorded in the period in which they occur.

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The estimated annual effective tax rate is applied to year-to-date pre-tax income to achieve income tax expense (or benefit) for the interim period consistent with the annual estimate.  In subsequent interim periods, income tax expense (or benefit) for the period is computed as the difference between the year-to-date amount reported for the previous interim period and the current period’s year-to-date amount.

An analysis of income tax expense for the three months ending March 31 is as follows (in thousands of dollars):

 

IDACORP

Idaho Power

 

2010

2009

2010

2009

Income tax provision

$

4,914 

$

6,796

$

5,915 

$

9,773

ADITC amortization

 

(4,512)

 

-

 

(4,512)

 

-

Medicare Part D subsidy

 

903 

 

-

 

903 

 

-

 

Income tax expense

$

1,305 

$

6,796

$

2,306 

$

9,773

 

 

 

 

 

 

 

 

 

Effective tax rate

 

7.5%

 

26.5%

 

11.2%

 

33.6%

 

The decrease in the 2010 estimated annual effective tax rates from 2009 is primarily due to lower pre-tax earnings at IDACORP and Idaho Power and Idaho Power’s additional amortization of accumulated deferred investment tax credits (ADITC), partially offset by a charge related to the federal health care legislation enacted in the first quarter of 2010.  Regulatory flow-through tax adjustments at Idaho Power and tax credits at IFS were comparable quarter-over-quarter.  For further information regarding ADITC amortization, see “Note 3 – REGULATORY MATTERS - Idaho Settlement Agreement.”

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act were enacted in March 2010.  One provision of this legislation eliminates the deductibility of employer health care costs for retiree prescription drug expenses that are covered by federal subsidy payments equivalent to Medicare Part D.  While this provision is not effective until 2013, relevant income tax accounting guidance requires recognition of the future effects of new law in the period of enactment.  Due to the regulatory treatment of postretirement benefit costs, the increase in certain postretirement costs relating to the legislation is deferred as a regulatory asset.  Accordingly, Idaho Power reduced its deferred tax asset related to future deductible retiree prescription drug expenses by $2.3 million, increased regulatory assets by $2.4 million, increased deferred tax liabilities by $1 million and incurred a charge of $0.9 million for the three months ended March 31, 2010.

Status of Audit Proceedings

In May 2009, IDACORP formally entered the Internal Revenue Service (IRS) Compliance Assurance Process (CAP) program for its 2009 tax year.  The CAP program provides for IRS examination throughout the year.  The 2009 examination is expected to be completed in 2010.  In January 2010, IDACORP was accepted into CAP for its 2010 tax year.  IDACORP and Idaho Power are unable to predict the outcome of these examinations.

Specifically within the 2009 CAP examination, the IRS began its audit of Idaho Power’s current method of uniform capitalization.  In September 2009, the IRS issued Industry Director Directive #5 (IDD), which discusses the IRS’s compliance priorities and audit techniques related to the allocation of mixed service costs in the uniform capitalization methods of electric utilities.  The IRS and Idaho Power are jointly working through the impact the IDD guidance has on Idaho Power’s uniform capitalization method.  Idaho Power expects that the examination will be completed during 2010.  Resolution of this matter would result in a decrease to Idaho Power’s unrecognized tax benefits for its 2009 uniform capitalization deduction by $1.1 million, may reduce Idaho Power’s need to amortize additional ADITC in 2010 and is not expected to have an adverse effect on Idaho Power’s financial position, results of operations, or cash flows.

3.  REGULATORY MATTERS:

 

Idaho Settlement Agreement

On January 13, 2010, the Idaho Public Utilities Commission (IPUC) approved a settlement agreement among Idaho Power, several of Idaho Power’s customers, the IPUC Staff and others.  Significant elements of the settlement agreement include:

•         A general rate moratorium in effect until January 1, 2012.  The moratorium does not apply to other specified revenue requirement proceedings, such as the power cost adjustment (PCA), the fixed cost adjustment (FCA), pension funding, advanced metering infrastructure (AMI), energy efficiency rider, and government imposed fees.

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•         A specified distribution of the expected reduction in 2010 PCA rates that would reduce customer rates, provide some general rate relief to Idaho Power and reset base power supply costs for the PCA.  This provision anticipated a significant reduction in PCA rates for the 2010-2011 PCA year.  The PCA reduction and base rate adjustment is discussed in “2010 PCA filing” below.

•         A provision to share with Idaho customers 50 percent of any Idaho-jurisdictional earnings in excess of a 10.5 percent return on equity in any calendar year from 2009 to 2011.

•         A provision to allow additional amortization of ADITC if Idaho Power’s actual return on equity in its Idaho jurisdiction is below 9.5 percent in any calendar year from 2009 to 2011.  Idaho Power is permitted to amortize additional ADITC in an amount up to $45 million over the three-year period, but could use no more that $15 million in any one year unless there is a carryover.  Carryover amounts are added to the $15 million annual allowance up to a maximum amortization of $25 million in any one year.

 

Because Idaho Power’s 2009 Idaho-jurisdiction return on equity was between 9.5 and 10.5 percent, the sharing and additional amortization provisions were not triggered, and the ADITC available for additional amortization in 2010 is $25 million.  For the three months ended March 31, 2010, Idaho Power recorded additional ADITC amortization of $4.5 million as a result of including an estimated annual amount in its effective tax rate.  The actual amount of additional ADITC recorded in the full year 2010 will depend on Idaho Power’s annual return on year-end equity, and the amounts recorded in each quarter will vary and may ultimately be reversed.

The agreement also included a provision to reestablish the base level for net power supply costs effective with the June 1, 2010, PCA rate change.  On April 13, 2010, the IPUC approved an increase of up to $63.7 million for such base net power supply costs, deferring final calculation to Idaho Power’s 2010 PCA case.  The open issue relates to Idaho Power’s proposed increase of $25 million in coal supply costs for the Jim Bridger plant.  The increase in base net power supply costs is expected to bring Idaho Power’s total base net power supply costs closer to its actual net power supply costs, and therefore reduce the magnitude of Idaho Power’s future annual PCA adjustments.

2010 PCA Filing

On April 15, 2010, Idaho Power made its annual PCA filing with the IPUC, requesting approval of its 2010 PCA and an increase in base rates pursuant to the terms of the settlement agreement.  As filed, these two rate adjustments would be a $146.7 million 2010 PCA reduction and an $88.7 million increase to base rates, both to become effective June 1, 2010.  The base rate increase includes the $63.7 million increase in Idaho Power’s annual base net power supply costs, and a $25 million general increase in Idaho Power’s annual base rates.

Other Idaho 2010 Filings

Rate Filings:  In March 2010, Idaho Power made the following three rate filings with the IPUC, each with a requested effective date of June 1, 2010:

•         Fixed Cost Adjustment: Idaho Power’s FCA filing for the 2009 calendar year proposes to collect $6.3 million for one year, a $3.6 million annual increase over current rates.  The $6.3 million reflects amounts accrued in 2009 under the mechanism.

•         Pension:  Idaho Power filed a request to recover $5.4 million of pension contributions that it expects to make in 2010.  In accordance with IPUC orders, Idaho Power is deferring its Idaho-jurisdiction pension expense to a regulatory asset.  On February 17, 2010, the IPUC approved a recovery methodology that would permit Idaho Power to include in future rate cases a reasonable amortization and recovery of cash contributions.  Deferred pension costs are expected to be amortized to expense to match the revenues received when pension contributions are recovered through rates.

•         AMI: Idaho Power filed for a $2.4 million annual increase in base rates related to AMI.

 

Energy Efficiency Prudency Determination:  On March 15, 2010, Idaho Power filed an application with the IPUC requesting an order designating expenditures of $50.7 million incurred in 2008 and 2009 as prudently incurred expenses.

On April 14, 2010, the IPUC completed its review of energy efficiency rider expenditures that Idaho Power made during the 2002 through 2007 period and found that remaining amounts totaling $14.7 million were prudently incurred and approved for ratemaking purposes.

 

 

 

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Oregon 2009 General Rate Case Settlement

On February 24, 2010, the Oregon Public Utility Commission (OPUC) approved a $5 million, or 15.4 percent, increase in base rates.  The new rates were effective March 1, 2010 and are based on a return on equity of 10.175 percent and an overall rate of return of 8.061 percent.  This increase results from a joint stipulation filed by Idaho Power that settled the revenue requirement issues surrounding a general rate case filed by Idaho Power on July 31, 2009.

Oregon Power Cost Recovery Mechanisms

Idaho Power’s power cost recovery mechanism in Oregon went into effect in 2008.  It has two components: the annual power cost update (APCU) and the power cost adjustment mechanism (PCAM).  The combination of the APCU and the PCAM allows Idaho Power to recover excess net power supply costs in a more timely fashion than through the previously existing deferral process.

PCAM:  On February 26, 2010, Idaho Power filed its PCAM application for the 2009 year with the OPUC.  The filing stated that actual net power supply costs were within the deadband, which is the range of deviations within which Idaho Power absorbs cost increases or decreases, resulting in no request for a deferral.

APCU:  On April 15, 2010, Idaho Power filed a stipulation combining the March forecast and October update with the OPUC.  Approval of the stipulation would result in a $5.5 million annual increase in Oregon rates, effective June 1, 2010.  The target date for an OPUC order is May 28, 2010.

Deferred Net Power Supply Costs

Changes in deferred power supply costs during the quarter were as follows (in thousands of dollars):

 

 

Idaho

 

Oregon(1)

 

Total

Balance at December 31, 2009

$

71,412 

$

13,221 

$

84,633 

Impact of current period net power supply costs

 

(19,839)

 

(44)

 

(19,883)

Prior costs expensed and recovered through rates

 

(27,996)

 

(445)

 

(28,441)

SO2 allowances and REC sales credited to account

 

(600)

 

(28)

 

(628)

Interest and other

 

271 

 

220 

 

491 

Balance at March 31, 2010

$

23,248 

$

12,924 

$

36,172 

(1)  Oregon power supply cost deferrals are subject to a statute that specifically limits rate amortizations of deferred costs to six percent of gross Oregon revenue per year (approximately $2 million).  Deferrals are amortized sequentially.

 

4.  LONG-TERM DEBT:

 

As of March 31, 2010, IDACORP had approximately $574 million remaining on a shelf registration statement that can be used for the issuance of debt securities or common stock.

In April 2010, Idaho Power received approval from the IPUC, the OPUC and the Public Service Commission of Wyoming for the issuance of up to $500 million in aggregate principal amount of one or more series of first mortgage bonds and unsecured debt securities.  The order from the IPUC approved the issuance of the securities over a two-year period, beginning on April 19, 2010, subject to extension upon request to the IPUC.

5.  NOTES PAYABLE:

 

Credit Facilities

IDACORP has a $100 million credit facility and Idaho Power has a $300 million credit facility, both of which expire on April 25, 2012.  Commercial paper may be issued up to the amounts supported by the credit facilities.  Under these facilities the companies pay a facility fee on the commitment, quarterly in arrears, based on its rating for senior unsecured long-term debt securities without third-party credit enhancement as provided by Moody’s Investors Service and Standard & Poor’s Ratings Services.

At March 31, 2010, no loans were outstanding on either IDACORP’s facility or Idaho Power’s facility.  At March 31, 2010, Idaho Power had regulatory authority to incur up to $450 million of short-term indebtedness.

 

 

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Balances and interest rates of short-term borrowings were as follows at March 31, 2010, and December 31, 2009 (in thousands of dollars):

 

 

March 31, 2010

December 31, 2009

 

 

Idaho

Idaho

 

 

IDACORP

Power

Total

IDACORP

Power

Total

Commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

 

outstanding

$

26,100

$

-

$

26,100

$

53,750

$

-

$

53,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average

 

 

 

 

 

 

 

 

 

 

 

 

 

interest rate

 

0.35%

 

-

 

0.35%

 

0.41%

 

-

 

0.41%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.  COMMON STOCK:

The following table summarizes shares of IDACORP stock issued during the three months ended March 31, 2010:

 

Shares issued

Balance at December 31, 2009

47,925,882

Dividend reinvestment and stock purchase plan

37,829

Employee savings plan

30,211

Long-term incentive and compensation plan (LTICP) (1)

90,548

Restricted stock plan

13,293

Balance at March 31, 2010

48,097,763

 

 

(1)  Included in the LTICP activity are 15,800 shares that were issued pursuant to the exercise of stock options on December 30, 2009, and settled on January 4, 2010.

 

IDACORP enters into sales agency agreements as a means of selling its common stock from time to time.  As of March 31, 2010, there were 2.1 million shares remaining available to be sold on the current sales agency agreement.

Restrictions on Dividends

A covenant under IDACORP’s credit facility and Idaho Power’s credit facility requires IDACORP and Idaho Power to maintain leverage ratios of consolidated indebtedness to consolidated total capitalization, as defined therein, of no more than 65 percent at the end of each fiscal quarter.

Idaho Power’s Revised Code of Conduct approved by the IPUC on April 21, 2008, states that Idaho Power will not pay any dividends to IDACORP that will reduce Idaho Power’s common equity capital below 35 percent of its total adjusted capital without IPUC approval.

Idaho Power’s ability to pay dividends on its common stock held by IDACORP and IDACORP’s ability to pay dividends on its common stock are limited to the extent payment of such dividends would violate the covenants in their respective credit facilities or Idaho Power’s Revised Code of Conduct.  At March 31, 2010, the leverage ratios for IDACORP and Idaho Power were 51 percent and 52 percent, respectively.  Based on these restrictions, IDACORP’s and Idaho Power’s dividends were limited to $562 million and $519 million, respectively, at March 31, 2010.  There are additional covenants, subject to exceptions, that prohibit or restrict: certain investments or acquisitions, mergers or sale or disposition of property without consent; the creation of certain liens; and any agreements restricting dividend payments to the company from any material subsidiary.  At March 31, 2010, IDACORP and Idaho Power were in compliance with all facility covenants.

Idaho Power’s articles of incorporation contain restrictions on the payment of dividends on its common stock if preferred stock dividends are in arrears.  Idaho Power has no preferred stock outstanding.

 

 

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Idaho Power must obtain approval of the OPUC before it could directly or indirectly loan funds or issue notes or give credit on its books to IDACORP.

7.  EARNINGS PER SHARE:

 

The following table presents the computation of IDACORP’s basic and diluted earnings per share (EPS) for the three months ended March 31, 2010 and 2009 (in thousands, except for per share amounts):

 

Three months ended

 

March 31,

 

2010

2009

Numerator:

 

 

 

 

 

Net income attributable to IDACORP, Inc.

$

16,063

$

18,884

Denominator:

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

47,773

 

46,831

 

Effect of dilutive securities:

 

 

 

 

 

 

Options

 

41

 

13

 

 

Restricted Stock

 

71

 

32

 

 

 

Weighted-average common shares outstanding – diluted

 

47,885

 

46,876

Basic and diluted earnings per share

$

0.34

$

0.40

 

 

 

 

 

 

The diluted EPS computation excluded 346,000 options for the three months ended March 31, 2010, because the options’ exercise prices were greater than the average market price of the common stock during that period.  For the same period in 2009, there were 687,485 options excluded from the diluted EPS computation for the same reason.  In total, 585,662 options were outstanding at March 31, 2010, with expiration dates between 2010 and 2015.

8.  COMMITMENTS:

 

Purchase Obligations

The following item is the only material change to purchase obligations made outside of the ordinary course of business during the first quarter of 2010:

•         Idaho Power entered into a purchase power agreement with USG Oregon, LLC for the purchase of energy from the Neal Hot Springs Unit #1 geothermal electric generation facility.  The project will be located near Vale, Oregon and the expected output will be approximately 22 MW, with an estimated on-line date of late 2012.  Idaho Power’s purchases under the contract are expected to total $569 million from 2011-2037.  The agreement is pending approval from the IPUC.

 

Guarantees
Idaho Power has agreed to guarantee the performance of reclamation activities and obligations at BCC, of which IERCo owns a one-third interest.  This guarantee, which is renewed each December, was $63 million at March 31, 2010.  BCC has a reclamation trust fund set aside specifically for the purpose of paying these reclamation costs.  BCC continually assesses the adequacy of the reclamation trust fund and its estimate of future reclamation costs.  To ensure that the reclamation trust fund maintains adequate reserves, BCC has the ability to add a per-ton surcharge to coal sales.  In 2010, BCC began applying a nominal surcharge to coal sales in order to maintain adequate reserves in the reclamation trust fund.  Because of the existence of the fund and the ability to apply a per-ton surcharge, the estimated fair value of this guarantee is minimal.

9.  CONTINGENCIES:

 

Western Energy Proceedings at the FERC

In this report, the term “western energy situation” is used to refer to the California energy crisis that occurred during 2000 and 2001, and the energy shortages, high prices and blackouts in the western United States.  High prices for electricity in California and in western wholesale markets during 2000 and 2001 caused numerous purchasers of electricity in those markets to initiate proceedings seeking refunds or other forms of relief and FERC to initiate its own investigations.  Some of these proceedings (the western energy proceedings) remain pending before the FERC or on appeal to the United States Court of Appeals for the Ninth Circuit (Ninth Circuit).

 

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There are pending in the Ninth Circuit approximately 200 petitions for review of numerous FERC orders regarding the western energy situation.  Decisions in these appeals may have implications with respect to other pending cases, including those to which Idaho Power or IE are parties.  Idaho Power and IE intend to vigorously defend their positions in these proceedings, but are unable to predict the outcome of these matters.  Except as to the matters described below under “Pacific Northwest Refund,” Idaho Power and IE believe that settlement releases they have obtained that are described below under “California Refund” and “Market Manipulation” will restrict potential claims that might result from the disposition of the pending Ninth Circuit review petitions and that these matters will not have a material adverse effect on their consolidated financial positions, results of operations or cash flows.

California Refund:  This proceeding originated with an effort by agencies of the State of California and investor-owned utilities in California to obtain refunds for a portion of the spot market sales from sellers of electricity into California markets from October 2, 2000, through June 20, 2001.  The FERC has issued numerous orders establishing price mitigation plans for sales in the California wholesale electricity market, including the methodology for determining refunds.  IE and numerous other parties have petitioned the Ninth Circuit for review of the FERC’s orders on California refunds.  As additional FERC orders have been issued, further petitions for review have been filed before the Ninth Circuit, which from time to time has identified discrete cases that can proceed to briefing and decision while it stayed action on the other consolidated cases.

On May 22, 2006, the FERC approved an Offer of Settlement between and among IE and Idaho Power, the California Parties (Pacific Gas & Electric Company, San Diego Gas & Electric Company, Southern California Edison Company, the California Public Utilities Commission, the California Electricity Oversight Board, the California Department of Water Resources (CDWR) and the California Attorney General) and additional parties that elected to be bound by the settlement.  The settlement disposed of matters encompassed by the California refund proceeding, as well as market manipulation claims and investigations relating to the western energy situation among and between the parties agreeing to be bound by it.  Although many market participants agreed to be bound by the settlement, other market participants, representing a small minority of potential refund claims, initially elected not to be bound by the settlement.  From time to time, as the California Parties have reached settlements with those other market participants, they have elected to opt into the IE-Idaho Power-California Parties’ settlement.  The settlement provided for approximately $23.7 million of IE’s and Idaho Power’s estimated $36 million rights to accounts receivable from the California Independent System Operator (Cal ISO) and the California Power Exchange (CalPX) to be assigned to an escrow account for refunds and for an additional $1.5 million of accounts receivable to be retained by the CalPX until the conclusion of the litigation.  The additional $1.5 million of accounts receivable retained by the CalPX is available to fund the claims of non-settling parties if they prevail in the remaining litigation of these California market matters.  Any additional amounts owed to non-settling parties would be funded by other amounts owed to IE and Idaho Power by the Cal ISO and CalPX, or directly by IE and Idaho Power, and any excess funds remaining at the end of the case would be returned to IE and Idaho Power.  The remaining IE and Idaho Power receivables were paid to IE and Idaho Power under the settlement.

In an August 2006 decision, the Ninth Circuit ruled that all transactions that occurred within the CalPX and the Cal ISO markets were proper subjects of the refund proceeding.  In that decision the Ninth Circuit refused to expand the proceedings into the bilateral market, approved the refund effective date as October 2, 2000, required the FERC to consider claims that some market participants had violated governing tariff obligations at an earlier date than the refund effective date, and expanded the scope of the refund proceeding to include transactions within the CalPX and Cal ISO markets outside the limited 24-hour spot market and energy exchange transactions.  Parts of the decision exposed sellers to increased claims for potential refunds.  The Ninth Circuit issued its mandate on April 15, 2009, thereby officially returning the cases to the FERC for further action consistent with the court’s decision.

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On November 19, 2009, the FERC issued an order to implement the Ninth Circuit’s remand.  The remand order established a trial-type hearing in which participants will be permitted to submit information regarding (i) specified tariff violations committed by any public utility seller from January 1, 2000 - October 2, 2000 resulting in a transaction that set a market clearing price for the trading period when the violation occurred, and (ii) claims for refunds for multi-day transactions and energy exchange transactions entered into during the refund period (October 2, 2000 – June 20, 2001).  Numerous parties, including IE and Idaho Power, filed motions to clarify the FERC’s order.  Although IE and Idaho Power are unable to predict when or how FERC will rule on these motions, the effect of the remand order for IE and Idaho Power is confined to the minority of market participants that are not bound by the IE-Idaho Power-California Parties’ settlement described above.  Accordingly, IE and Idaho Power believe the remanded proceedings will not have a material adverse effect on their consolidated financial positions, results of operations or cash flows.

In 2005, the FERC established a framework for sellers wanting to demonstrate that the generally applicable FERC refund methodology interfered with the recovery of costs.  IE and Idaho Power made such a cost filing, which was rejected by the FERC.  On June 18, 2009, FERC issued an order stating that it was not ruling on IE’s and Idaho Power’s request for rehearing of the cost filing rejection because their request had been withdrawn in connection with the IE-Idaho Power-California Parties’ settlement.  On July 8, 2009, IE and Idaho Power sought further rehearing at the FERC because their withdrawal pertained only to the parties with whom IE and Idaho Power had settled.  On June 18, 2009, in a separate order, the FERC ruled that only net refund recipients were responsible for the costs associated with cost filings.  While most net refund recipients are bound by the settlement, until the Cal ISO completes its refund calculations, it is uncertain whether there are any net refund recipients who are not bound by the settlement.  If there are no such parties, then IE’s and Idaho Power’s request for rehearing will be moot.  FERC has not yet ruled on the request for rehearing.  IE and Idaho Power are unable to predict how or when the FERC might rule, but the effect of any such ruling is confined to obligations of IE and Idaho Power to the small minority of claims of market participants that are not bound by the settlement.  Accordingly, IE and Idaho Power believe this matter will not have a material adverse effect on their consolidated financial positions, results of operations or cash flows.

Market Manipulation:  On June 25, 2003, the FERC ordered approximately 50 entities that participated in the western wholesale power markets between January 1, 2000, and June 20, 2001, including Idaho Power, to show cause why certain trading practices did not constitute gaming or other forms of proscribed market behavior in concert with another party (partnership) in violation of the Cal ISO and CalPX Tariffs.  In 2004, the FERC dismissed the partnership show cause proceeding against Idaho Power.  Later in 2004, the FERC approved a settlement of the gaming proceeding without finding of wrongdoing by Idaho Power.

The orders establishing the scope of the show cause proceedings are presently the subject of review petitions in the Ninth Circuit.  On March 29, 2010, IE and Idaho Power filed a motion with the Ninth Circuit to dismiss 11 of the 12 petitions for review of FERC’s orders establishing the scope of the show cause proceedings as they relate to IE and Idaho Power.  Although IE and Idaho Power had obtained the consent to the motion from the 11 petitioners in those proceedings, the Ninth Circuit misconstrued the motion and instead granted on April 1, 2010, a motion to withdraw IE and Idaho Power interventions in the review proceedings.  On April 9, 2010, with the consent of the same 11 petitioners, IE and Idaho Power filed a motion for reconsideration with the Ninth Circuit, again requesting dismissal of the 11 petitions as they pertain to IE and Idaho Power.  Although IE and Idaho Power are unable to predict how or when the Ninth Circuit will act on the motion for reconsideration or the review petitions, in light of the settlement described above, IE and Idaho Power believe this matter will not have a material adverse effect on their consolidated financial positions, results of operations or cash flows.

On June 25, 2003, the FERC also issued an order instituting an investigation of anomalous bidding behavior and practices in the western wholesale markets for the time period May 1, 2000, through October 1, 2000, but the FERC terminated its investigations as to Idaho Power on May 12, 2004.  California government agencies and California investor-owned utilities have appealed the FERC’s termination of this investigation as to Idaho Power and more than 30 other market participants.  IE and Idaho Power are unable to predict the outcome of these petitions for review proceedings, but believe that the settlement releases govern any potential claims that might arise and that this matter will not have a material adverse effect on their consolidated financial positions, results of operations or cash flows.

Pacific Northwest Refund:  On July 25, 2001, the FERC issued an order establishing a proceeding separate from the California refund proceeding to determine whether there may have been unjust and unreasonable charges for spot market sales in the Pacific Northwest during the period December 25, 2000, through June 20, 2001, because the spot market in the Pacific Northwest was affected by the dysfunction in the California market.  In 2003, the FERC terminated the proceeding and declined to order refunds, but in 2007 the Ninth Circuit issued an opinion, in Port of Seattle, Washington v. FERC, remanding to the FERC the orders that declined to require refunds.  The Ninth Circuit’s opinion instructed the FERC to consider whether evidence of market manipulation would have altered the agency’s conclusions about refunds and directed the FERC to include sales originating in the Pacific Northwest to the CDWR in the scope of proceeding.  The Ninth Circuit officially returned the case to the FERC on April 16, 2009.  On September 4, 2009, IE and Idaho Power joined with a number of other parties in a joint petition for a writ of certiorari to the U.S. Supreme Court, which was denied on January 11, 2010.

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In separate filings, the California Parties, which no longer include the California Electricity Oversight Board, and the City of Tacoma, Washington (Tacoma) and the Port of Seattle, Washington (Port of Seattle) asked the FERC to reorganize and restructure the case to enable them to pursue claims that all spot market sales in the Cal ISO and CalPX markets and in the Pacific Northwest from January 1, 2000 through June 20, 2001 should be subject to refund and repriced, because market manipulation and tariff violations affected spot market prices.  Their requests would expand the scope of the refund period in the Pacific Northwest proceeding from the December 25, 2000 through June 20, 2001 period previously considered by the FERC.  On May 22, 2009, the California Parties filed a motion with the FERC to sever claims regarding sales originating in the Pacific Northwest to CDWR from the remainder of the Pacific Northwest proceedings and to consolidate their claims regarding these sales with ongoing proceedings in cases that IE and Idaho Power have settled, as well as with a new complaint filed on May 22, 2009 by the California Attorney General against parties with whom the California Parties have not settled (Brown Complaint).  IE and Idaho Power, along with a number of other parties, filed their opposition to the motion of the California Parties.  Many other parties also filed responses to the motion of the California Parties.  Tacoma and the Port of Seattle jointly filed a motion on August 4, 2009 with the FERC in connection with the California refund proceeding, the Lockyer remand pending before the FERC (involving claims of failure to file quarterly transaction reports with the FERC, from which IE and Idaho Power previously were dismissed), the Brown Complaint and the Pacific Northwest refund remand proceeding.  The Tacoma and the Port of Seattle motion asks the FERC to require refunds from all sellers in the Pacific Northwest spot markets for the expanded period (January 1, 2000 through June 20, 2001).  IE and Idaho Power joined with a number of other sellers in the Pacific Northwest markets during 2000 and 2001 in opposing the motion of Tacoma and the Port of Seattle.  On April 19, 2010, the California Parties filed a motion with the FERC renewing the requests contained in their May 22, 2009, motion and on May 3, 2010, IE and Idaho Power joined with a number of other parties opposing the renewal request.  FERC has not acted on the Ninth Circuit remand or the motions.  IE and Idaho Power intend to vigorously defend their positions in these proceedings, but are unable to predict the outcome of these matters or estimate the impact these matters may have on their consolidated financial positions, results of operations or cash flows.

Sierra Club Lawsuit – Bridger

In February 2007, the Sierra Club and the Wyoming Outdoor Council filed a complaint against PacifiCorp in the U.S. District Court for the District of Wyoming alleging thousands of violations by PacifiCorp of air quality opacity standards at the Jim Bridger coal-fired plant in Sweetwater County, Wyoming.  Opacity is an indication of the amount of light obscured by the flue gas of a power plant.  The complaint sought a declaration that PacifiCorp had violated opacity limits, a permanent injunction ordering PacifiCorp to comply with such limits, civil penalties of up to $32,500 per day per violation, and reimbursement of plaintiffs’ costs of litigation, including reasonable attorneys’ fees.  Idaho Power is not a party to this proceeding but has a one-third ownership interest in the plant.  PacifiCorp owns a two-thirds interest and is the operator of the plant.  On April 15, 2010, the parties jointly filed a proposed consent decree resolving the pending litigation.  The consent decree must be reviewed by the Environmental Protection Agency and approved by the court.  Idaho Power is fully reserved for the contingency and, if approved, the entry of the consent decree will not have a material adverse effect on Idaho Power’s consolidated financial position, results of operations or cash flows.

Sierra Club Lawsuit – Boardman

In September 2008, the Sierra Club and four other non-profit corporations filed a complaint against Portland General Electric Company (PGE) in the U.S. District Court for the District of Oregon alleging opacity permit limit violations at the Boardman coal-fired plant located in Morrow County, Oregon.  The complaint also alleged violations of the Clean Air Act, related federal regulations and the Oregon State Implementation Plan relating to PGE’s construction and operation of the plant.  The complaint sought a declaration that PGE had violated opacity limits, a permanent injunction ordering PGE to comply with such limits, injunctive relief requiring PGE to remediate alleged environmental damage and ongoing impacts, civil penalties of up to $32,500 per day per violation, and reimbursement of plaintiffs’ costs of litigation, including reasonable attorneys’ fees.  Idaho Power is not a party to this proceeding but has a 10 percent ownership interest in the Boardman plant.  PGE owns 65 percent and is the operator of the plant.  On December 5, 2008, PGE filed a motion to dismiss nine of the twelve claims asserted by the plaintiffs in their complaint, and on September 30, 2009, the court denied most of PGE’s motion to dismiss.  Idaho Power continues to monitor the status of this matter but is unable to predict its outcome or what effect this matter may have on its consolidated financial position, results of operations or cash flows.

 

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Snake River Basin Adjudication

 

Idaho Power is engaged in the Snake River Basin Adjudication (SRBA), a general stream adjudication commenced in 1987, to define the nature and extent of water rights in the Snake River Basin in Idaho, including the water rights of Idaho Power.
On March 25, 2009, Idaho Power and the State of Idaho (State) entered into a settlement agreement with respect to the 1984 Swan Falls Agreement and Idaho Power’s water rights under the Swan Falls Agreement, which settlement agreement is subject to certain conditions discussed below.  The settlement agreement will also resolve litigation between Idaho Power and the State relating to the Swan Falls Agreement that was filed by Idaho Power on May 10, 2007, with the Idaho District Court for the Fifth Judicial Circuit, which has jurisdiction over SRBA matters, including the Swan Falls case.

The settlement agreement resolves the pending litigation by clarifying that Idaho Power’s water rights in excess of minimum flows at its hydroelectric facilities between Milner Dam and Swan Falls Dam are subordinate to future upstream beneficial uses, including aquifer recharge.  The agreement commits the State and Idaho Power to further discussions on important water management issues concerning the Swan Falls Agreement and the management of water in the Snake River Basin.  It also recognizes that water management measures that enhance aquifer levels, springs and river flows, such as aquifer recharge projects, benefit both agricultural development and hydropower generation and deserve study to determine their economic potential, their impact on the environment and their impact on hydropower generation.  These will be a part of the Comprehensive Aquifer Management Plan (CAMP) approved by the Idaho Water Resource Board for the Eastern Snake Plain Aquifer (ESPA), which includes limits on the amount of aquifer recharge.  Idaho Power is a member of the ESPA CAMP advisory committee and implementation committee.

On April 24, 2009, the Governor of Idaho signed into law legislation approving provisions contained in the settlement agreement.  On May 6, 2009, as part of the settlement, Idaho Power, the Governor of Idaho and the Idaho Water Resource Board executed a memorandum of agreement relating to future aquifer recharge efforts and further assurances as to limitations on the amount of aquifer recharge.  Idaho Power and the State also filed a joint motion to the SRBA court to dismiss the Swan Falls case and enter the stipulated water right decrees set forth in the settlement agreement.  Parties representing groundwater users in the Eastern Snake Plain Aquifer objected to some of the language proposed by Idaho Power and the State relating to water rights in the decrees to be entered by the SRBA court as contemplated by the Settlement Agreement.  Specifically, the concerns relate to the language describing the subordination of the rights and its interplay with the original Swan Falls settlement document and implementing legislation.  On January 4, 2010, the court issued an order approving the overall settlement subject to certain modifications to the draft water right decrees proposed by the company and the state.  Idaho Power continues to work with the State and the parties to reach agreement consistent with the court’s order regarding the language of the decrees.

U.S. Bureau of Reclamation

Idaho Power filed a complaint on October 15, 2007, and an amended complaint on September 30, 2008, in the U.S. District Court of Federal Claims in Washington, D.C. against the U.S. Bureau of Reclamation.  The complaint relates to a 1923 contract right for delivery of water to Idaho Power’s hydropower projects on the Snake River, to recover damages from the U.S. for the lost generation resulting from reduced flows and for a prospective declaration of contractual rights and obligations of the parties.  Over the past several months, Idaho Power has been working with the U.S. and Idaho interests (including the State of Idaho and upstream water users) in an effort to resolve certain state water right issues pending in the SRBA that are common to both the SRBA and the pending federal case.  In an effort to promote efficiency, the parties have agreed to present certain legal issues associated with the 1923 contract to the court in the SRBA case that are expected to resolve issues in the pending federal case.  The SRBA court has scheduled the presentation of these issues to the court by the fall of 2010.  Idaho Power and the U.S. have agreed to stay further proceedings in the federal case pending the resolution of these issues in the SRBA case.  Idaho Power is unable to predict the outcome of this matter.

Oregon Trail Heights Fire

On August 25, 2008, a fire ignited beneath an Idaho Power distribution line in Boise, Idaho.  It was fanned by high winds and spread rapidly, resulting in one death, the destruction of 10 homes and damage or alleged fire-related losses to approximately 30 others.  Following the investigation, the Boise Fire Department determined that the fire was linked to a piece of line hardware on one of Idaho Power’s distribution poles and that high winds contributed to the fire and its resultant damage.  Idaho Power has received notice of claims from a number of the homeowners and their insurers and while it has continued investigation of these claims, Idaho Power has reached settlements with a number of the individuals or their insurers who have alleged damages resulting from the fire.  Idaho Power is insured up to policy limits against liability for claims in excess of its self-insured retention.  Idaho Power has accrued a reserve for any loss that is probable and reasonably estimable, including insurance deductibles, and believes this matter will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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Other Legal Proceedings

IDACORP, Idaho Power and/or IE are parties to legal claims, actions and proceedings in addition to those discussed above.  Resolution of any of these matters will take time and the companies cannot predict the outcome of any of these proceedings.  The companies believe that their reserves are adequate for these matters and that resolution of these matters, taking into account existing reserves, will not have a material adverse effect on IDACORP’s or Idaho Power’s consolidated financial positions, results of operations or cash flows.

10.  BENEFIT PLANS:

 

Idaho Power has a noncontributory defined benefit pension plan covering most employees.  The benefits under the plan are based on years of service and the employee’s final average earnings.  In addition, Idaho Power has a nonqualified, deferred compensation plan for certain senior management employees and directors called the Senior Management Security Plan (SMSP).  Idaho Power also maintains a defined benefit postretirement plan (consisting of health care and death benefits) that covers all employees who were enrolled in the active group plan at the time of retirement as well as their spouses and qualifying dependents.  Idaho Power also has an Employee Savings Plan that complies with Section 401(k) of the Internal Revenue Code and covers substantially all employees.  Idaho Power matches specified percentages of employee contributions to the plan.

The following table shows the components of net periodic benefit costs for the pension, SMSP, and Postretirement Benefits Plans for the three months ended March 31 (in thousands of dollars):

 

 

Senior Management

Postretirement

 

Pension Plan

Security Plan

Benefits

 

2010

2009

2010

2009

2010

2009

Service cost

$

4,559 

$

4,205 

$

385

$

402

$

340 

$

332 

Interest cost

 

7,331 

 

6,947 

 

751

 

714

 

898 

 

882 

Expected return on plan assets

 

(6,300)

 

(6,088)

 

-

 

-

 

(640)

 

(528)

Amortization of transition obligation

 

 

 

-

 

-

 

510 

 

510 

Amortization of prior service cost

 

163 

 

163 

 

58

 

58

 

(134)

 

(134)

Amortization of net loss

 

1,925 

 

2,120 

 

233

 

165

 

143 

 

190 

 

Net periodic benefit cost

 

7,678 

 

7,347 

 

1,427

 

1,339

 

1,117 

 

1,252 

Costs not recognized due to the

 

 

 

 

 

 

 

 

 

 

 

 

 

effects of regulation (1)

 

(7,427)

 

(7,347)

 

-

 

-

 

 

 

Net periodic benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recognized for financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reporting (2)

$

251 

$

$

1,427

$

1,339

$

1,117 

$

1,252 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Under IPUC order, income statement recognition of pension costs has been deferred until cash contributions are made and costs are recovered through rates.  See Note 3 – “Regulatory Matters”, for information on Idaho Power’s 2010 pension rate filing.

(2)   Net periodic benefit costs are recognized for the Oregon jurisdiction and non-regulated subsidiaries.

 

IDACORP and Idaho Power’s minimum required contributions to the pension plan will be approximately $6 million in the third quarter of 2010, and $44 million, $47 million, $39 million, and $40 million in 2011, 2012, 2013, and 2014, respectively.  IDACORP and Idaho Power may elect to make contributions earlier than the required dates.

See Note 2 – “Income Taxes” for a summary of the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act which were enacted in March 2010.

11.  INVESTMENTS IN DEBT AND EQUITY SECURITIES:

 

Investments in debt and equity securities classified as available-for-sale securities are reported at fair value, using either specific identification or average cost to determine the cost for computing gains or losses.  Any unrealized gains or losses on available-for-sale securities are included in other comprehensive income.

Investments classified as held-to-maturity securities are reported at amortized cost.  Held-to-maturity securities are investments in debt securities for which the companies have the positive intent and ability to hold the securities until maturity.

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The following table summarizes investments in debt and equity securities as of March 31, 2010 and December 31, 2009 (in thousands of dollars):

 

March 31, 2010

December 31, 2009

 

Gross

Gross

 

Gross

Gross

 

 

Unrealized

Unrealized

Fair

Unrealized

Unrealized

Fair

 

Gain

Loss

Value

Gain

Loss

Value

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

securities (Idaho Power)

$

3,671

$

-

$

19,047

$

2,989

$

-

$

18,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At the end of each reporting period, IDACORP and Idaho Power analyze securities in loss positions to determine whether they have experienced a decline in market value that is considered other-than-temporary.  At March 31, 2010 and December 31, 2009, no securities were in an unrealized loss position.

The following table summarizes sales of available-for-sale securities for the three months ended March 31, 2010 and 2009 (in thousands of dollars):

 

Three months ended March 31,

 

2010

 

2009

 

 

 

 

 

 

 

 

Proceeds from sales

$

-

 

$

3,817

 

Gross realized gains from sales

 

-

 

 

12

 

Gross realized losses from sales

 

-

 

 

5

 

 

 

 

 

 

 

 

 

12.  DERIVATIVE FINANCIAL INSTRUMENTS:

 

Commodity Price Risk

Idaho Power is exposed to certain risks relating to its ongoing business operations.  The primary risk managed by using derivative instruments is commodity price risk related to Idaho Power’s ongoing utility operations providing electricity to meet the demand of its retail customers.  Physical and financial forward contracts for both electricity and fuel used to produce electricity are entered into to manage the price risk associated with meeting forecasted loads.  The objective of Idaho Power’s energy purchase and sale activity is to meet the demand of retail electric customers, maintain appropriate physical reserves to ensure reliability and make economic use of temporary surpluses that may develop.

All derivative instruments are recognized as either assets or liabilities at fair value on the balance sheet.  Idaho Power’s physical forward contracts, including green tags, qualify for the normal purchases and normal sales exception to derivative accounting requirements with the exception of forward contracts for the purchase of natural gas for use at Idaho Power’s natural gas generation facilities.  Because of Idaho Power’s power cost mechanisms, Idaho Power records the changes in fair value of derivative instruments related to power supply as regulatory assets or liabilities.

Idaho Power had the following derivative commodity forward contracts, entered into for the purpose of economically hedging forecasted purchases and sales, outstanding at March 31, 2010 and 2009:

 

March 31,

Commodity

Units

2010

2009

Electricity purchases

MWh

746,650

591,175

Electricity sales

MWh

370,825

272,400

Natural gas purchases

MMBtu

1,898,750

82,500

Diesel purchases

Gallons

645,640

615,423

 

 

 

 

 

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The following tables present the fair values of derivatives not designated as hedging instruments recorded in the balance sheet at March 31, 2010 and December 31, 2009 (in thousands of dollars):

March 31, 2010

Asset Derivatives

Liability Derivatives

 

 

Balance Sheet

Fair

Balance Sheet

Fair

Commodity derivatives

Location

Value

Location

Value

Current:

 

 

 

 

 

 

 

Financial swaps

Other current assets

$

16

Other current assets

$

10

 

Financial swaps

Other current liabilities

 

2,905

Other current liabilities

 

5,256

 

Forward contracts

Other current liabilities

 

-

Other current liabilities

 

381

Long-term:

 

 

 

 

 

 

 

Financial swaps

Other assets

 

245

Other assets

 

156

 

Financial swaps

Other liabilities

 

-

Other liabilities

 

2,286

 

 

Total

 

$

3,166

 

$

8,089

 

 

 

 

 

 

 

 

 

December 31, 2009

Asset Derivatives

Liability Derivatives

 

 

Balance Sheet

Fair

Balance Sheet

Fair

Commodity derivatives

Location

Value

Location

Value

Current:

 

 

 

 

 

 

 

Financial swaps

Other current assets

$

2,931

Other current assets

$

2,087

 

Financial swaps

Other current liabilities

 

9

Other current liabilities

 

610

 

Forward contracts

Other current assets

 

354

Other current assets

 

-

Long-term:

 

 

 

 

 

 

 

Financial swaps

Other assets

 

442

Other assets

 

229

 

 

Total

 

$

3,736

 

$

2,926

 

 

 

 

 

 

 

 

 

The following table presents the effect on income of derivatives not designated as hedging instruments for the quarters ended March 31, 2010 and 2009 (in thousands of dollars):

 

Location of Gain/(Loss)

Amount of Gain/(Loss)

 

Recognized in Income on

Recognized in Income on

Commodity derivatives

Derivative

Derivative(1)

Quarter ended March 31, 2010:

 

 

 

 

Financial swaps

Off-system sales

$

456 

 

Financial swaps

Purchased power

 

(162)

Quarter ended March 31, 2009:

 

 

Financial swaps

Purchased power

 

(756)

(1)Excludes changes in fair value of derivatives, which are recorded on the balance sheet as regulatory assets or regulatory liabilities.

 

 

Idaho Power records changes in fair value of its derivative contracts as either regulatory assets or regulatory liabilities.  Settlement gains and losses on electricity swap contracts are recorded on the income statement in off-system sales or purchased power depending on the forecasted position being economically hedged by the derivative contract.  Settlement gains and losses on both financial and physical contracts for natural gas are reflected in fuel expense.  Settlement gains and losses on diesel derivatives were immaterial for the quarter ended March 31, 2010.

 

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Credit Risk

 

At March 31, 2010, Idaho Power does not have material credit exposure from financial instruments, including derivatives.  Idaho Power monitors credit risk exposure through reviews of counterparty credit quality, corporate-wide counterparty credit exposure, and corporate-wide counterparty concentration levels.  Idaho Power manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and requiring contractual guarantees, cash deposits or letters of credit from counterparties or their affiliates, as deemed necessary.  The majority of Idaho Power’s contracts are under the Western Systems Power Pool agreement that provides for adequate assurances if a counterparty has debt that is downgraded to below investment grade by at least one rating agency.  Idaho Power also requires North American Energy Standards Board contracts as necessary for physical gas transactions, and International Swaps and Derivatives Association, Inc. contracts as needed for financial transactions.

Credit-Contingent Features

Certain of Idaho Power’s derivative instruments contain provisions that require Idaho Power’s unsecured debt to maintain an investment grade credit rating from each of the major credit rating agencies.  If Idaho Power’s unsecured debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions.  The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on March 31, 2010, was $8 million.  Idaho Power has posted $4 million of collateral related to this amount.  If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2010, Idaho Power could have been required to post $3 million of additional cash collateral to its counterparties.

13.  FAIR VALUE MEASUREMENTS:

 

IDACORP and Idaho Power have categorized their financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded on the condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1:  Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that IDACORP and Idaho Power has the ability to access.

Level 2:  Financial assets and liabilities whose values are based on the following:

a)       Quoted prices for similar assets or liabilities in active markets;

b)       Quoted prices for identical or similar assets or liabilities in non-active markets;

c)       Pricing models whose inputs are observable for substantially the full term of the asset or liability; and

d)       Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

IDACORP and Idaho Power Level 2 inputs are based on quoted market prices adjusted for location using corroborated, observable market data.

Level 3:  Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Idaho Power’s derivatives are contracts entered into as part of its management of loads and resources.  Electricity swaps are valued on the Intercontinental Exchange with quoted prices in an active market.  Natural gas and diesel derivative valuations are performed using New York Mercantile Exchange (NYMEX) pricing, adjusted for basis location, which are also quoted under NYMEX.  Trading securities consists of employee-directed investments held in a Rabbi Trust and are related to an executive deferred compensation plan.  Available-for-sale securities are related to the SMSP and are held in a Rabbi Trust and are actively traded money market and equity funds with quoted prices in active markets.

 

 

 

 

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The following table presents information about IDACORP’s and Idaho Power’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2010, and December 31, 2009 (in thousands of dollars).  IDACORP’s and Idaho Power’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy.

 

Quoted Prices in

Significant

Significant

 

 

 

Active Markets

Other

Unobservable

 

 

 

for Identical

Observable

Inputs

 

 

 

Assets (Level 1)

Inputs (Level 2)

(Level 3)

Total

 

March 31, 2010

 

 

 

 

 

 

 

 

 

IDACORP

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives

$

95 

$

$

-

$

95 

 

 

Money market funds

 

19,126 

 

 

-

 

19,126 

 

 

Trading securities:  Equity securities

 

4,890 

 

 

-

 

4,890 

 

 

Available-for-sale securities:  Equity securities