IDA 03.31.13 10Q
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, 2013 | |
| 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, Idaho 83702-5627 | | |
| (208) 388-2200 | | |
| State of Incorporation: Idaho | | |
| 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.
IDACORP, Inc.: Yes X No __ Idaho Power Company: 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).
IDACORP, Inc.: Yes X No ___ Idaho Power Company: Yes X 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).
IDACORP, Inc.: Yes No X Idaho Power Company: Yes No X
Number of shares of common stock outstanding as of April 26, 2013:
IDACORP, Inc.: 50,232,852
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 Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report on Form 10-Q with the reduced disclosure format.
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| | | | |
TABLE OF CONTENTS |
| Page |
Commonly Used Terms | |
Cautionary Note Regarding Forward-Looking Statements | |
| |
Part I. Financial Information | |
| | |
| Item 1. Financial Statements (unaudited) | |
| | IDACORP, Inc.: | |
| | | Condensed Consolidated Statements of Income | |
| | | Condensed Consolidated Statements of Comprehensive Income | |
| | | Condensed Consolidated Balance Sheets | |
| | | Condensed Consolidated Statements of Cash Flows | |
| | | Condensed Consolidated Statements of Equity | |
| | Idaho Power Company: | |
| | | Condensed Consolidated Statements of Income | |
| | | Condensed Consolidated Statements of Comprehensive Income | |
| | | Condensed Consolidated Balance Sheets | |
| | | Condensed Consolidated Statements of Cash Flows | |
| | Notes to the Condensed Consolidated Financial Statements | |
| | Reports of Independent Registered Public Accounting Firm | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. Controls and Procedures | |
| | | | |
Part II. Other Information: | |
| | |
| Item 1. Legal Proceedings | |
| Item 1A. Risk Factors | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 4. Mine Safety Disclosures | |
| Item 5. Other Information | |
| Item 6. Exhibits | |
| | |
Signatures | |
| |
Exhibit Index | |
|
| | |
COMMONLY USED TERMS |
|
The following select abbreviations, terms, or acronyms are commonly used or found in multiple locations in this report: |
| | |
ADITC | - | Accumulated Deferred Investment Tax Credits |
AFUDC | - | Allowance for Funds Used During Construction |
AMI | - | Advanced Metering Infrastructure |
BCC | - | Bridger Coal Company, a joint venture of IERCo |
BLM | - | U.S. Bureau of Land Management |
CAA | - | Clean Air Act |
CO2 | - | Carbon Dioxide |
CSPP | - | Cogeneration and Small Power Production |
CWA | - | Clean Water Act |
EGUs | - | Electric Utility Steam Generating Units |
EIS | - | Environmental Impact Statement |
EPA | - | U.S. Environmental Protection Agency |
FCA | - | Fixed Cost Adjustment |
FERC | - | Federal Energy Regulatory Commission |
FIP | - | Federal Implementation Plan |
GHG | - | Greenhouse Gas |
HAPs | - | Hazardous Air Pollutants |
HCC | - | Hells Canyon Complex |
IDACORP | - | IDACORP, Inc., an Idaho corporation |
Idaho Power | - | Idaho Power Company, an Idaho corporation |
Idaho ROE | - | Idaho-jurisdiction return on year-end equity |
Ida-West | - | Ida-West Energy, a subsidiary of IDACORP, Inc. |
IERCo | - | Idaho Energy Resources Co., a subsidiary of Idaho Power Company |
IESCo | - | IDACORP Energy Services Co., a subsidiary of IDACORP, Inc. |
IFS | - | IDACORP Financial Services, a subsidiary of IDACORP, Inc. |
IPUC | - | Idaho Public Utilities Commission |
IRP | - | Integrated Resource Plan |
kW | - | Kilowatt |
MD&A | - | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
MW | - | Megawatt |
MWh | - | Megawatt-hour |
NOx | - | Nitrous Oxide |
O&M | - | Operations and Maintenance |
OATT | - | Open Access Transmission Tariff |
OPUC | - | Oregon Public Utility Commission |
PCA | - | Power Cost Adjustment |
PURPA | - | Public Utility Regulatory Policies Act of 1978 |
REC | - | Renewable Energy Certificate |
SEC | - | U.S. Securities and Exchange Commission |
SIP | - | State Implementation Plan |
SMSP | - | Senior Management Security Plan I and II |
SO2 | - | Sulfur Dioxide |
SRBA | - | Snake River Basin Adjudication |
Valmy | - | North Valmy Steam Electric Generating Plant |
WPSC | - | Wyoming Public Service Commission |
|
| | |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
In addition to the historical information contained in this report, this report contains (and oral communications made by IDACORP, Inc. and Idaho Power Company may contain) statements that relate to future events and expectations, such as statements regarding projected or future financial performance, cash flows, capital expenditures, dividends, capital structure or ratios, strategic goals, challenges, objectives, and plans for future operations. Such statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, or future events or performance, often, but not always, through the use of words or phrases such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "may result," "may continue," or similar expressions, are not statements of historical facts and may be forward-looking. Forward-looking statements are not guarantees of future performance and involve estimates, assumptions, risks, and uncertainties. Actual results, performance, or outcomes may differ materially from the results discussed in the statements. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in forward-looking statements include those factors set forth in this report, IDACORP's and Idaho Power's Annual Report on Form 10-K for the year ended December 31, 2012, particularly Item 1A - “Risk Factors” and Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations," subsequent reports filed by IDACORP and Idaho Power with the Securities and Exchange Commission, and the following important factors:
| |
• | Idaho Power's rate design and the effect of regulatory decisions by the Idaho and Oregon public utilities commissions, the Federal Energy Regulatory Commission, and other regulators affecting Idaho Power's ability to recover costs and earn a return; |
| |
• | changes in residential, commercial, and industrial growth and demographic patterns within Idaho Power's service area, the loss or change in the business of significant customers, and the availability and use of energy efficiency and conservation programs, and the associated impact on loads and load growth; |
| |
• | the impacts of changes in economic conditions, including the potential for changes in customer demand for electricity, revenue from sales of excess power, financial soundness of counterparties and suppliers, and collections; |
| |
• | unseasonable or severe weather conditions, wildfires, and other natural phenomena, which affect customer demand, hydroelectric generation levels, infrastructure repair costs, and the ability and cost to procure fuel for generation plants or purchased power to serve customers; |
| |
• | advancement of new technologies that reduce loads or render Idaho Power's generation facilities obsolete; |
| |
• | adoption of or changes in, and costs of compliance with, laws, regulations, and policies relating to the environment, natural resources, and endangered species, and the ability to recover those costs through rates; |
| |
• | variable hydrological conditions and over-appropriation of surface and groundwater in the Snake River basin, which can impact the amount of generation from Idaho Power's hydroelectric facilities; |
| |
• | the ability to purchase fuel and power from suppliers on favorable payment terms and prices, particularly in the event of unanticipated power demands, lack of physical availability, transportation constraints, or a credit downgrade; |
| |
• | accidents, fires, explosions, and mechanical breakdowns that may occur while operating and maintaining an electric system, which can cause unplanned outages, reduce generating output, damage the companies’ assets or operations, subject the companies to third-party claims for property damage, personal injury, or loss of life, or result in the imposition of civil, criminal, or regulatory fines or penalties; |
| |
• | the ability to obtain debt and equity financing or refinance existing debt when necessary and on favorable terms, which can be affected by factors such as credit ratings, volatility in the financial markets (including as a result of European sovereign debt issues) and interest rate fluctuations, decisions by the Idaho or Oregon public utility commissions, and the companies' past or projected financial performance; |
| |
• | reductions in credit ratings, which could adversely impact access to capital markets and would require the posting of additional collateral to counterparties pursuant to existing power purchase and credit arrangements; |
| |
• | the ability to buy and sell power, transmission capacity, and fuel in the markets and the availability to enter into financial and physical commodity hedges with creditworthy counterparties, including the impact of federal legislation on counterparties' willingness to transact, market liquidity, and hedging costs, which may affect fuel and power availability and pricing, and the failure of any such risk management and hedging strategies to work as intended; |
| |
• | changes in or implementation of Federal Energy Regulatory Commission and other mandatory reliability, security, and other requirements for system infrastructure, which could result in penalties and increase costs; |
| |
• | disruptions or outages of Idaho Power's generation or transmission systems or the western interconnected transmission system; |
| |
• | the costs and operational challenges of integrating an increasing volume of mandated purchased intermittent wind power or other renewable energy sources into Idaho Power's resource portfolio; |
| |
• | changes in actuarial assumptions, the interest rate environment, and the actual return on plan assets for pension and other post-retirement plans, which can affect future pension and other post-retirement plan funding obligations, costs, and liabilities; |
| |
• | the ability to continue to pay dividends under the terms of the companies' credit arrangements and regulatory limitations, and whether the companies' boards of directors will continue to declare dividends based on the boards of directors’ periodic consideration of factors affecting IDACORP's and Idaho Power's dividend policies; |
| |
• | changes in tax laws or related regulations or new interpretations of applicable laws by federal, state, or local taxing jurisdictions, the availability of tax credits, and the tax rates payable by IDACORP shareholders on common stock dividends; |
| |
• | employee workforce factors, including the operational and financial costs of unionization or the attempt to unionize all or part of the companies' workforce, the impact of an aging workforce, the cost and ability to retain skilled workers, and the ability to adjust the labor cost structure when necessary; |
| |
• | failure to comply with state and federal laws, policies, and regulations, including new interpretations and enforcement initiatives by regulatory and oversight bodies, which may result in penalties and increase the cost of compliance, the nature and extent of investigations and audits, and the cost of remediation; |
| |
• | the inability to obtain or cost of obtaining and complying with required governmental permits and approvals, licenses, rights-of-way, and siting for transmission and generation projects and hydroelectric facilities; |
| |
• | the cost and outcome of litigation, dispute resolution, regulatory proceedings, and penalties, and the ability to recover those costs or the costs of operational changes through insurance or rates, or from third parties; |
| |
• | the failure of information systems or the failure to secure information system data, security breaches, or the direct or indirect effect on the companies' business resulting from cyber attacks, terrorist incidents or the threat of terrorist incidents, and acts of war; |
| |
• | adoption of or changes in accounting policies and principles, including the potential adoption of all or a portion of International Financial Reporting Standards, changes in accounting estimates, and new Securities and Exchange Commission or New York Stock Exchange requirements, or new interpretations of existing requirements; and |
| |
• | unusual or unanticipated changes in normal business operations, including unusual maintenance or repairs, or the failure to successfully implement technology solutions. |
Any forward-looking statement speaks only as of the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. IDACORP and Idaho Power disclaim any obligation to update publicly any forward-looking information, whether in response to new information, future events, or otherwise, except as required by applicable law.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDACORP, Inc.
Condensed Consolidated Statements of Income
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars except for per share amounts) |
Operating Revenues: | | | | |
Electric utility: | | | | |
General business | | $ | 232,219 |
| | $ | 197,429 |
|
Off-system sales | | 15,900 |
| | 27,708 |
|
Other revenues | | 16,249 |
| | 15,346 |
|
Total electric utility revenues | | 264,368 |
| | 240,483 |
|
Other | | 560 |
| | 657 |
|
Total operating revenues | | 264,928 |
| | 241,140 |
|
Operating Expenses: | | | | |
Electric utility: | | | | |
Purchased power | | 42,857 |
| | 34,277 |
|
Fuel expense | | 49,166 |
| | 32,751 |
|
Power cost adjustment | | (14,711 | ) | | 9,008 |
|
Other operations and maintenance | | 79,785 |
| | 78,514 |
|
Energy efficiency programs | | 4,470 |
| | 4,477 |
|
Depreciation | | 31,910 |
| | 30,542 |
|
Taxes other than income taxes | | 8,172 |
| | 8,100 |
|
Total electric utility expenses | | 201,649 |
| | 197,669 |
|
Other | | 3,846 |
| | 3,611 |
|
Total operating expenses | | 205,495 |
| | 201,280 |
|
Operating Income | | 59,433 |
| | 39,860 |
|
Allowance for Equity Funds Used During Construction | | 3,615 |
| | 7,616 |
|
Earnings of Unconsolidated Equity-Method Investments | | 107 |
| | 1,419 |
|
Other Income, Net | | 826 |
| | 1,461 |
|
Interest Expense: | | | | |
Interest on long-term debt | | 19,669 |
| | 19,499 |
|
Other interest | | 1,752 |
| | 1,655 |
|
Allowance for borrowed funds used during construction | | (1,931 | ) | | (3,949 | ) |
Total interest expense, net | | 19,490 |
| | 17,205 |
|
Income Before Income Taxes | | 44,491 |
| | 33,151 |
|
Income Tax Expense | | 11,111 |
| | 8,333 |
|
Net Income | | 33,380 |
| | 24,818 |
|
Adjustment for loss attributable to noncontrolling interests | | 153 |
| | 112 |
|
Net Income Attributable to IDACORP, Inc. | | $ | 33,533 |
| | $ | 24,930 |
|
Weighted Average Common Shares Outstanding - Basic (000’s) | | 50,039 |
| | 49,860 |
|
Weighted Average Common Shares Outstanding - Diluted (000’s) | | 50,064 |
| | 49,905 |
|
Earnings Per Share of Common Stock: | | | | |
Earnings Attributable to IDACORP, Inc. - Basic | | $ | 0.67 |
| | $ | 0.50 |
|
Earnings Attributable to IDACORP, Inc. - Diluted | | $ | 0.67 |
| | $ | 0.50 |
|
Dividends Declared Per Share of Common Stock | | $ | 0.38 |
| | $ | 0.33 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars) |
| | | | |
Net Income | | $ | 33,380 |
| | $ | 24,818 |
|
Other Comprehensive Income: | | | | |
Net unrealized holding gains arising during the period, net of tax of $758 and $874 | | 1,181 |
| | 1,362 |
|
Unfunded pension liability adjustment, net of tax of $298 and $170 | | 465 |
| | 265 |
|
Total Comprehensive Income | | 35,026 |
| | 26,445 |
|
Comprehensive loss attributable to noncontrolling interests | | 153 |
| | 112 |
|
Comprehensive Income Attributable to IDACORP, Inc. | | $ | 35,179 |
| | $ | 26,557 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | March 31, 2013 | | December 31, 2012 |
| | (thousands of dollars) |
Assets | | | | |
| | | | |
Current Assets: | | | | |
Cash and cash equivalents | | $ | 24,460 |
| | $ | 26,527 |
|
Receivables: | | | | |
Customer (net of allowance of $1,468 and $1,551, respectively) | | 78,806 |
| | 66,111 |
|
Other (net of allowance of $178 and $322, respectively) | | 24,330 |
| | 23,608 |
|
Income taxes receivable | | 1,848 |
| | 1,753 |
|
Accrued unbilled revenues | | 39,731 |
| | 51,448 |
|
Materials and supplies (at average cost) | | 52,625 |
| | 51,037 |
|
Fuel stock (at average cost) | | 32,565 |
| | 42,388 |
|
Prepayments | | 11,199 |
| | 12,823 |
|
Deferred income taxes | | 31,885 |
| | 56,532 |
|
Current regulatory assets | | 84,263 |
| | 30,078 |
|
Other | | 2,540 |
| | 4,948 |
|
Total current assets | | 384,252 |
| | 367,253 |
|
Investments | | 181,255 |
| | 189,020 |
|
Property, Plant and Equipment: | | | | |
Utility plant in service | | 4,940,837 |
| | 4,915,772 |
|
Accumulated provision for depreciation | | (1,723,796 | ) | | (1,703,159 | ) |
Utility plant in service - net | | 3,217,041 |
| | 3,212,613 |
|
Construction work in progress | | 312,638 |
| | 298,470 |
|
Utility plant held for future use | | 7,101 |
| | 7,101 |
|
Other property, net of accumulated depreciation | | 17,739 |
| | 17,847 |
|
Property, plant and equipment - net | | 3,554,519 |
| | 3,536,031 |
|
Other Assets: | | | | |
American Falls and Milner water rights | | 16,585 |
| | 17,909 |
|
Company-owned life insurance | | 22,774 |
| | 22,646 |
|
Regulatory assets | | 1,103,110 |
| | 1,132,960 |
|
Long-term receivables (net of allowance of $1,260 and $1,260, respectively) | | 4,437 |
| | 4,437 |
|
Other | | 48,912 |
| | 49,260 |
|
Total other assets | | 1,195,818 |
| | 1,227,212 |
|
Total | | $ | 5,315,844 |
| | $ | 5,319,516 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | March 31, 2013 | | December 31, 2012 |
| | (thousands of dollars) |
Liabilities and Equity | | | | |
| | | | |
Current Liabilities: | | | | |
Current maturities of long-term debt | | $ | 1,064 |
| | $ | 71,064 |
|
Notes payable | | 83,750 |
| | 69,700 |
|
Accounts payable | | 65,309 |
| | 90,165 |
|
Income taxes accrued | | 154 |
| | 1,005 |
|
Interest accrued | | 24,157 |
| | 22,311 |
|
Accrued compensation | | 26,741 |
| | 42,343 |
|
Current regulatory liabilities | | 19,406 |
| | 30,277 |
|
Other | | 34,827 |
| | 24,438 |
|
Total current liabilities | | 255,408 |
| | 351,303 |
|
Other Liabilities: | | | | |
Deferred income taxes | | 892,356 |
| | 894,616 |
|
Regulatory liabilities | | 363,424 |
| | 355,362 |
|
Pension and other postretirement benefits | | 430,625 |
| | 423,409 |
|
Other | | 59,003 |
| | 65,228 |
|
Total other liabilities | | 1,745,408 |
| | 1,738,615 |
|
Long-Term Debt | | 1,535,627 |
| | 1,466,632 |
|
Commitments and Contingencies | |
| |
|
Equity: | | | | |
IDACORP, Inc. shareholders’ equity: | | | | |
Common stock, no par value (shares authorized 120,000,000; 50,232,758 and 50,158,486 shares issued, respectively) | | 835,418 |
| | 834,922 |
|
Retained earnings | | 955,409 |
| | 940,968 |
|
Accumulated other comprehensive loss | | (15,470 | ) | | (17,116 | ) |
Treasury stock (941 and 1,817 shares at cost, respectively) | | (16 | ) | | (21 | ) |
Total IDACORP, Inc. shareholders’ equity | | 1,775,341 |
| | 1,758,753 |
|
Noncontrolling interests | | 4,060 |
| | 4,213 |
|
Total equity | | 1,779,401 |
| | 1,762,966 |
|
Total | | $ | 5,315,844 |
| | $ | 5,319,516 |
|
| | | | |
The accompanying notes are an integral part of these statements. |
IDACORP, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars) |
Operating Activities: | | | | |
Net income | | $ | 33,380 |
| | $ | 24,818 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 33,195 |
| | 31,875 |
|
Deferred income taxes and investment tax credits | | 10,478 |
| | 5,008 |
|
Changes in regulatory assets and liabilities | | (13,681 | ) | | 15,586 |
|
Pension and postretirement benefit plan expense | | 7,673 |
| | 7,673 |
|
Contributions to pension and postretirement benefit plans | | (1,322 | ) | | (35,203 | ) |
Earnings of unconsolidated equity-method investments | | (107 | ) | | (1,419 | ) |
Distributions from unconsolidated equity-method investments | | 7,631 |
| | 9,050 |
|
Allowance for equity funds used during construction | | (3,615 | ) | | (7,616 | ) |
Other non-cash adjustments to net income, net | | 419 |
| | 827 |
|
Change in: | | |
| | |
|
Accounts receivable | | (15,158 | ) | | (717 | ) |
Accounts payable and other accrued liabilities | | (32,519 | ) | | (23,215 | ) |
Taxes accrued/receivable | | 7,840 |
| | 10,352 |
|
Other current assets | | 21,577 |
| | (160 | ) |
Other current liabilities | | 4,993 |
| | 4,812 |
|
Other assets | | (1,089 | ) | | 305 |
|
Other liabilities | | (5,716 | ) | | (4,326 | ) |
Net cash provided by operating activities | | 53,979 |
| | 37,650 |
|
Investing Activities: | | |
| | |
|
Additions to property, plant and equipment | | (51,976 | ) | | (48,382 | ) |
Investments in affordable housing | | — |
| | (350 | ) |
Distributions from affordable housing investments | | 1,448 |
| | — |
|
Other | | 1,837 |
| | (249 | ) |
Net cash used in investing activities | | (48,691 | ) | | (48,981 | ) |
Financing Activities: | | |
| | |
|
Retirement of long-term debt | | (1,064 | ) | | (1,064 | ) |
Dividends on common stock | | (19,303 | ) | | (16,800 | ) |
Net change in short-term borrowings | | 14,050 |
| | 8,800 |
|
Issuance of common stock | | 255 |
| | 2,487 |
|
Acquisition of treasury stock | | (2,121 | ) | | (2,062 | ) |
Other | | 828 |
| | 1,014 |
|
Net cash used in financing activities | | (7,355 | ) | | (7,625 | ) |
Net decrease in cash and cash equivalents | | (2,067 | ) | | (18,956 | ) |
Cash and cash equivalents at beginning of the period | | 26,527 |
| | 27,813 |
|
Cash and cash equivalents at end of the period | | $ | 24,460 |
| | $ | 8,857 |
|
Supplemental Disclosure of Cash Flow Information: | | |
| | |
|
Cash paid during the period for: | | |
| | |
Income taxes | | $ | — |
| | $ | 198 |
|
Interest (net of amount capitalized) | | $ | 17,014 |
| | $ | 14,943 |
|
Non-cash investing activities: | | | | |
Additions to property, plant and equipment in accounts payable | | $ | 17,646 |
| | $ | 21,241 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Statements of Equity
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars) |
Common Stock | | | | |
Balance at beginning of period | | $ | 834,922 |
| | $ | 828,389 |
|
Issued | | 255 |
| | 2,487 |
|
Other | | 241 |
| | 420 |
|
Balance at end of period | | 835,418 |
| | 831,296 |
|
Retained Earnings | | | | |
Balance at beginning of period | | 940,968 |
| | 840,916 |
|
Net income attributable to IDACORP, Inc. | | 33,533 |
| | 24,930 |
|
Common stock dividends ($0.38 and $0.33 per share) | | (19,092 | ) | | (16,519 | ) |
Balance at end of period | | 955,409 |
| | 849,327 |
|
Accumulated Other Comprehensive (Loss) Income | | | | |
Balance at beginning of period | | (17,116 | ) | | (11,622 | ) |
Unrealized gain on securities (net of tax) | | 1,181 |
| | 1,362 |
|
Unfunded pension liability adjustment (net of tax) | | 465 |
| | 265 |
|
Balance at end of period | | (15,470 | ) | | (9,995 | ) |
Treasury Stock | | | | |
Balance at beginning of period | | (21 | ) | | (29 | ) |
Issued | | 2,126 |
| | 2,031 |
|
Acquired | | (2,121 | ) | | (2,062 | ) |
Balance at end of period | | (16 | ) | | (60 | ) |
Total IDACORP, Inc. shareholders’ equity at end of period | | 1,775,341 |
| | 1,670,568 |
|
Noncontrolling Interests | | | | |
Balance at beginning of period | | 4,213 |
| | 4,040 |
|
Net loss attributable to noncontrolling interests | | (153 | ) | | (112 | ) |
Balance at end of period | | 4,060 |
| | 3,928 |
|
Total equity at end of period | | $ | 1,779,401 |
| | $ | 1,674,496 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Statements of Income
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars) |
Operating Revenues: | | | | |
General business | | $ | 232,219 |
| | $ | 197,429 |
|
Off-system sales | | 15,900 |
| | 27,708 |
|
Other revenues | | 16,249 |
| | 15,346 |
|
Total operating revenues | | 264,368 |
| | 240,483 |
|
Operating Expenses: | | | | |
Operation: | | | | |
Purchased power | | 42,857 |
| | 34,277 |
|
Fuel expense | | 49,166 |
| | 32,751 |
|
Power cost adjustment | | (14,711 | ) | | 9,008 |
|
Other operations and maintenance | | 79,785 |
| | 78,514 |
|
Energy efficiency programs | | 4,470 |
| | 4,477 |
|
Depreciation | | 31,910 |
| | 30,542 |
|
Taxes other than income taxes | | 8,172 |
| | 8,100 |
|
Total operating expenses | | 201,649 |
| | 197,669 |
|
Income from Operations | | 62,719 |
| | 42,814 |
|
Other Income (Expense): | | | | |
Allowance for equity funds used during construction | | 3,615 |
| | 7,616 |
|
Earnings of unconsolidated equity-method investments | | 2,634 |
| | 4,293 |
|
Other expense, net | | (2,158 | ) | | (1,479 | ) |
Total other income | | 4,091 |
| | 10,430 |
|
Interest Charges: | | | | |
Interest on long-term debt | | 19,669 |
| | 19,499 |
|
Other interest | | 1,648 |
| | 1,560 |
|
Allowance for borrowed funds used during construction | | (1,931 | ) | | (3,949 | ) |
Total interest charges | | 19,386 |
| | 17,110 |
|
Income Before Income Taxes | | 47,424 |
| | 36,134 |
|
Income Tax Expense | | 13,378 |
| | 10,315 |
|
Net Income | | $ | 34,046 |
| | $ | 25,819 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars) |
| | | | |
Net Income | | $ | 34,046 |
| | $ | 25,819 |
|
Other Comprehensive Income: | | | | |
Net unrealized holding gains arising during the period, net of tax of $758 and $874 | | 1,181 |
| | 1,362 |
|
Unfunded pension liability adjustment, net of tax of $298 and $170 | | 465 |
| | 265 |
|
Total Comprehensive Income | | $ | 35,692 |
| | $ | 27,446 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | March 31, 2013 | | December 31, 2012 |
| | (thousands of dollars) |
Assets | | | | |
| | | | |
Electric Plant: | | | | |
In service (at original cost) | | $ | 4,940,837 |
| | $ | 4,915,772 |
|
Accumulated provision for depreciation | | (1,723,796 | ) | | (1,703,159 | ) |
In service - net | | 3,217,041 |
| | 3,212,613 |
|
Construction work in progress | | 312,638 |
| | 298,470 |
|
Held for future use | | 7,101 |
| | 7,101 |
|
Electric plant - net | | 3,536,780 |
| | 3,518,184 |
|
Investments and Other Property | | 124,355 |
| | 128,145 |
|
Current Assets: | | | | |
Cash and cash equivalents | | 16,842 |
| | 17,251 |
|
Receivables: | | | | |
Customer (net of allowance of $1,468 and $1,551, respectively) | | 78,806 |
| | 66,111 |
|
Other (net of allowance of $178 and $322, respectively) | | 24,144 |
| | 20,618 |
|
Income taxes receivable | | — |
| | 2,559 |
|
Accrued unbilled revenues | | 39,731 |
| | 51,448 |
|
Materials and supplies (at average cost) | | 52,625 |
| | 51,037 |
|
Fuel stock (at average cost) | | 32,565 |
| | 42,388 |
|
Prepayments | | 11,031 |
| | 12,688 |
|
Deferred income taxes | | 24,128 |
| | 48,774 |
|
Current regulatory assets | | 84,263 |
| | 30,078 |
|
Other | | 2,541 |
| | 4,950 |
|
Total current assets | | 366,676 |
| | 347,902 |
|
Deferred Debits: | | | | |
American Falls and Milner water rights | | 16,585 |
| | 17,909 |
|
Company-owned life insurance | | 22,774 |
| | 22,646 |
|
Regulatory assets | | 1,103,110 |
| | 1,132,960 |
|
Other | | 47,649 |
| | 47,965 |
|
Total deferred debits | | 1,190,118 |
| | 1,221,480 |
|
Total | | $ | 5,217,929 |
| | $ | 5,215,711 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | March 31, 2013 | | December 31, 2012 |
| | (thousands of dollars) |
Capitalization and Liabilities | | | | |
| | | | |
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 | | 712,258 |
| | 712,258 |
|
Capital stock expense | | (2,097 | ) | | (2,097 | ) |
Retained earnings | | 849,664 |
| | 834,732 |
|
Accumulated other comprehensive loss | | (15,470 | ) | | (17,116 | ) |
Total common stock equity | | 1,642,232 |
| | 1,625,654 |
|
Long-term debt | | 1,535,627 |
| | 1,466,632 |
|
Total capitalization | | 3,177,859 |
| | 3,092,286 |
|
Current Liabilities: | | | | |
Long-term debt due within one year | | 1,064 |
| | 71,064 |
|
Notes payable | | 16,600 |
| | — |
|
Accounts payable | | 64,205 |
| | 89,651 |
|
Accounts payable to affiliates | | 576 |
| | 252 |
|
Income taxes accrued | | 751 |
| | — |
|
Interest accrued | | 24,157 |
| | 22,311 |
|
Accrued compensation | | 26,675 |
| | 42,282 |
|
Current regulatory liabilities | | 19,406 |
| | 30,277 |
|
Other | | 34,423 |
| | 23,813 |
|
Total current liabilities | | 187,857 |
| | 279,650 |
|
Deferred Credits: | | | | |
Deferred income taxes | | 1,000,892 |
| | 1,001,877 |
|
Regulatory liabilities | | 363,424 |
| | 355,362 |
|
Pension and other postretirement benefits | | 430,625 |
| | 423,409 |
|
Other | | 57,272 |
| | 63,127 |
|
Total deferred credits | | 1,852,213 |
| | 1,843,775 |
|
| | | | |
Commitments and Contingencies | |
| |
|
| | | | |
Total | | $ | 5,217,929 |
| | $ | 5,215,711 |
|
| | | | |
The accompanying notes are an integral part of these statements. |
Idaho Power Company
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
| | (thousands of dollars) |
Operating Activities: | | | | |
Net income | | $ | 34,046 |
| | $ | 25,819 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 33,047 |
| | 31,723 |
|
Deferred income taxes and investment tax credits | | 11,753 |
| | 25,114 |
|
Changes in regulatory assets and liabilities | | (13,681 | ) | | 15,586 |
|
Pension and postretirement benefit plan expense | | 7,673 |
| | 7,673 |
|
Contributions to pension and postretirement benefit plans | | (1,322 | ) | | (35,203 | ) |
Earnings of unconsolidated equity-method investments | | (2,634 | ) | | (4,293 | ) |
Distributions from unconsolidated equity-method investments | | 6,856 |
| | 9,050 |
|
Allowance for equity funds used during construction | | (3,615 | ) | | (7,616 | ) |
Other non-cash adjustments to net income, net | | (226 | ) | | 559 |
|
Change in: | | |
| | |
|
Accounts receivable | | (17,671 | ) | | (863 | ) |
Accounts payable | | (32,389 | ) | | (22,998 | ) |
Taxes accrued/receivable | | 11,321 |
| | (4,564 | ) |
Other current assets | | 21,610 |
| | (61 | ) |
Other current liabilities | | 4,988 |
| | 4,813 |
|
Other assets | | (1,089 | ) | | 305 |
|
Other liabilities | | (5,346 | ) | | (4,105 | ) |
Net cash provided by operating activities | | 53,321 |
| | 40,939 |
|
Investing Activities: | | |
| | |
|
Additions to utility plant | | (51,976 | ) | | (48,382 | ) |
Other | | 1,837 |
| | (248 | ) |
Net cash used in investing activities | | (50,139 | ) | | (48,630 | ) |
Financing Activities: | | |
| | |
|
Retirement of long-term debt | | (1,064 | ) | | (1,064 | ) |
Dividends on common stock | | (19,113 | ) | | (16,570 | ) |
Net change in short term borrowings | | 16,600 |
| | 1,500 |
|
Capital contribution from parent | | — |
| | 7,500 |
|
Other | | (14 | ) | | — |
|
Net cash used in financing activities | | (3,591 | ) | | (8,634 | ) |
Net decrease in cash and cash equivalents | | (409 | ) | | (16,325 | ) |
Cash and cash equivalents at beginning of the period | | 17,251 |
| | 19,316 |
|
Cash and cash equivalents at end of the period | | $ | 16,842 |
| | $ | 2,991 |
|
Supplemental Disclosure of Cash Flow Information: | | |
| | |
|
Cash (received) paid during the period for: | | |
| | |
|
Income taxes | | $ | (2,491 | ) | | $ | (3,008 | ) |
Interest (net of amount capitalized) | | $ | 16,910 |
| | $ | 14,848 |
|
Non-cash investing activities: | | | | |
Additions to property, plant and equipment in accounts payable | | $ | 17,646 |
| | $ | 21,241 |
|
The accompanying notes are an integral part of these statements.
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, these Notes to 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. Idaho Power is an electric utility with a service territory covering approximately 24,000 square miles in southern Idaho and eastern Oregon. Idaho Power's utility operations are regulated primarily by the Federal Energy Regulatory Commission (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 mines and supplies coal to the Jim Bridger generating plant owned in part by Idaho Power.
IDACORP’s other wholly-owned 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 Services Co. (IESCo), which is the former limited partner of, and current successor by merger to, IDACORP Energy L.P., a marketer of energy commodities that wound down operations in 2003.
Regulation of Utility Operations
IDACORP's and Idaho Power's financial statements reflect the effects of the different ratemaking principles followed by the jurisdictions regulating Idaho Power. The application of accounting principles related to regulated operations sometimes results in Idaho Power recording expenses and revenues in a different period than when an unregulated enterprise would otherwise record expenses and revenues. In these instances, the amounts are deferred as regulatory assets or regulatory liabilities on the balance sheet and recorded on the income statement when recovered or returned in rates. Additionally, regulators can impose regulatory liabilities upon a regulated company for amounts previously collected from customers and for amounts that are expected to be refunded to customers. The effects of applying these regulatory accounting principles to Idaho Power's operations are discussed in more detail in Note 3.
Financial Statements
In the opinion of management of IDACORP and Idaho Power, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly each company's consolidated financial position as of March 31, 2013, consolidated results of operations for the three months ended March 31, 2013 and 2012, and consolidated cash flows for the three months ended March 31, 2013 and 2012. 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, 2012. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. A change in management's estimates or assumptions could have a material impact on IDACORP's or Idaho Power's respective financial condition and results of operations during the period in which such change occurred.
Management Estimates
Management makes estimates and assumptions when preparing financial statements in conformity with generally accepted accounting principles. These estimates and assumptions include those related to rate regulation, retirement benefits, contingencies, litigation, asset impairment, income taxes, unbilled revenues, and bad debt. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are beyond management's control. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts on the IDACORP condensed consolidated statements of income have been reclassified to conform to the current year presentation. In the current year, the allowance for equity funds used during construction has been classified to a separate line item. Previously, such amounts had been classified within the line item captioned "Other Income, Net." In addition, the components of the line item "Other interest, net of AFUDC" have been expanded to present a separate line item for the portion attributable to the allowance for borrowed funds used during construction. Previously reported net income, cash flows, and shareholders' equity were not affected by these reclassifications. Also, prior year amounts related to prepayments and related to proceeds from sales of emission allowances and renewable energy certificates on the IDACORP and Idaho Power condensed consolidated statements of cash flows have been reclassified to conform to the current year presentation.
IDACORP management identified certain operating expenses, primarily consisting of Senior Management Security Plan expense, totaling $2.5 million in the three months ended March 31, 2012, which had been erroneously reported as a reduction to "Other Income, net" in the previously issued IDACORP financial statements rather than as a reduction to "Operating Income." Accordingly, such classification has been corrected in the accompanying condensed consolidated statement of income for the three months ended March 31, 2012, by including these costs within "Other" operating expenses. Such items had no effect on the previously issued condensed consolidated financial statements of Idaho Power and the previously issued condensed consolidated balance sheet, condensed consolidated statement of cash flows, or condensed consolidated statement of equity of IDACORP.
2. INCOME TAXES
In accordance with interim reporting requirements, IDACORP and Idaho Power use an estimated annual effective tax rate for computing their 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 interim period in which they occur. The estimated annual effective tax rate is applied to year-to-date pre-tax income to determine 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.
Income Tax Expense
The following table provides a summary of income tax expense for the three months ended March 31 (in thousands of dollars):
|
| | | | | | | | | | | | | | | | |
| | IDACORP | | Idaho Power |
| | 2013 | | 2012 | | 2013 | | 2012 |
Three months ended March 31, | | | | | | | | |
Income tax at statutory rates (federal and state) | | $ | 17,456 |
| | $ | 13,006 |
| | $ | 18,543 |
| | $ | 14,128 |
|
Additional accumulated deferred investment tax credit amortization | | — |
| | (825 | ) | | — |
| | (825 | ) |
Other (1) | | (6,345 | ) | | (3,848 | ) | | (5,165 | ) | | (2,988 | ) |
Income tax expense | | $ | 11,111 |
| | $ | 8,333 |
| | $ | 13,378 |
| | $ | 10,315 |
|
Effective tax rate | | 24.9 | % | | 25.1 | % | | 28.2 | % | | 28.5 | % |
(1) "Other" is primarily comprised of Idaho Power's regulatory flow-through tax adjustments, which are listed in the rate reconciliation table in Note 2 to the consolidated financial statements included in IDACORP's and Idaho Power's Annual Report on Form 10-K for the year ended December 31, 2012.
The increase in first quarter 2013 income tax expense as compared to the same period in 2012 was primarily due to greater pre-tax earnings at Idaho Power. Net regulatory flow-through tax adjustments at Idaho Power were higher for the three months ended March 31, 2013 as compared to the same period in 2012, primarily due to an increase in the capitalized repairs deduction estimate.
Based on its estimate of 2013 return on year-end equity in the Idaho jurisdiction (Idaho ROE), Idaho Power did not record any additional accumulated deferred investment tax credit (ADITC) amortization in the first quarter of 2013, as compared to $0.8 million for the three months ended March 31, 2012. See Note 3 for a discussion of Idaho Power's regulatory authority for use of additional ADITC amortization.
3. REGULATORY MATTERS
Recent and Pending Regulatory Matters
Included below is a summary of recently concluded or pending regulatory matters and proceedings, including notable proceedings that had an impact on the comparability of rates and revenues during the first quarter of 2013 compared to the first quarter of 2012, and that may continue to have an impact on future results.
Idaho and Oregon General Rate Cases and Base Rate Adjustments
On June 1, 2011, Idaho Power filed a general rate case with the Idaho Public Utilities Commission (IPUC). On December 30, 2011, the IPUC issued an order approving a settlement stipulation in the general rate case that provided for a 7.86 percent authorized rate of return on an Idaho-jurisdiction rate base of approximately $2.36 billion. The approved settlement stipulation resulted in a $34.0 million overall increase in Idaho Power's annual Idaho-jurisdictional base rate revenues, with new rates effective January 1, 2012. Neither the order nor the settlement stipulation specified an authorized rate of return on equity.
On July 29, 2011, Idaho Power filed a general rate case and proposed rate schedules with the Oregon Public Utility Commission (OPUC). Idaho Power, the OPUC Staff, and other interested parties executed and filed a partial settlement stipulation on February 1, 2012, resolving most matters in the general rate case. The settlement stipulation provided for a $1.8 million base rate increase, a return on equity of 9.9 percent, and an overall rate of return of 7.757 percent in the Oregon jurisdiction. On February 23, 2012, the OPUC issued an order adopting the settlement stipulation, with new rates effective March 1, 2012. All open issues in the general rate case have been resolved.
On June 29, 2012, the IPUC issued an order approving a $58.1 million increase in annual Idaho-jurisdiction base rates, effective July 1, 2012, for inclusion of the investment and associated costs of the Langley Gulch natural gas-fired power plant in rates. The order also provided for a $335.9 million increase in Idaho rate base. On September 20, 2012, the OPUC issued an order approving an approximately $3.0 million increase in annual Oregon jurisdiction base rates, effective October 1, 2012, for inclusion of the investment and associated costs of the plant in Oregon rates.
Settlement Stipulation — Investment Tax Credits and Idaho Sharing Mechanism
On December 27, 2011, the IPUC issued an order, separate from the then-pending Idaho general rate case proceeding, approving a settlement stipulation that provides as follows:
| |
• | if Idaho Power's actual Idaho ROE for 2012, 2013, or 2014 is less than 9.5 percent, then Idaho Power may amortize additional ADITC to help achieve a minimum 9.5 percent Idaho ROE in the applicable year. Idaho Power would be permitted to amortize additional ADITC in an aggregate amount up to $45 million over the three-year period, but could use no more than $25 million in 2012; |
| |
• | if Idaho Power's actual Idaho ROE for 2012, 2013, or 2014 exceeds 10.0 percent, the amount of Idaho Power's Idaho-jurisdiction earnings exceeding a 10.0 percent and up to and including a 10.5 percent Idaho ROE for the applicable year would be shared equally between Idaho Power and its Idaho customers in the form of a rate reduction to become effective at the time of the subsequent year's PCA adjustment; and |
| |
• | if Idaho Power's actual Idaho ROE for 2012, 2013, or 2014 exceeds 10.5 percent, the amount of Idaho Power's Idaho-jurisdiction earnings exceeding a 10.5 percent Idaho ROE for the applicable year would be allocated 75 percent to Idaho Power's Idaho customers as a reduction to the pension regulatory asset and 25 percent to Idaho Power. |
The settlement stipulation provides that the Idaho ROE thresholds (9.5 percent, 10.0 percent, and 10.5 percent) will be automatically adjusted prospectively in the event the IPUC approves a change to Idaho Power's authorized return on equity as part of a general rate case proceeding seeking a rate change effective prior to January 1, 2015. The automatic adjustments would be as follows: (a) the 9.5 percent Idaho ROE trigger in the settlement stipulation would be replaced by the percentage equal to 95 percent of the new authorized rate of return on equity; (b) the 10.0 percent Idaho ROE trigger in the settlement stipulation would be re-established at the new authorized rate of return on equity; and (c) the 10.5 percent Idaho ROE trigger in the settlement stipulation would be replaced by the percentage equal to 105 percent of the new authorized rate of return on equity.
Revenue Sharing Under January 2010 and December 2011 Idaho Settlement Agreements
On March 2, 2012, Idaho Power filed an application with the IPUC requesting authority to share revenues with customers based on year-end 2011 financial results, in accordance with the terms of regulatory settlement agreements authorized in January 2010 and December 2011. Idaho Power's revenue-sharing arrangements had two components: (1) a power cost adjustment mechanism component, which reduced net rates by $27.1 million effective June 1, 2012 through May 31, 2013, and (2) a pension balancing account component, which resulted in a $20.3 million net reduction to Idaho Power's pension regulatory asset (reducing Idaho customers' future obligation). Idaho Power recorded the $27.1 million revenue reduction as a regulatory liability, and the $20.3 million pension regulatory asset reduction, in 2011. On May 31, 2012, the IPUC approved Idaho Power's March 2, 2012 application requesting a corresponding adjustment to Idaho-jurisdiction rates, effective for the period from June 1, 2012 to May 31, 2013.
Idaho Power's 2012 Idaho ROE exceeded 10.5 percent, triggering the sharing mechanism of the December 2011 settlement stipulation for 2012. For 2012, Idaho Power recorded a $7.2 million provision against revenues, to be refunded to Idaho customers through the Idaho power cost adjustment (PCA) mechanism during the 2013-2014 PCA collection period, and an additional $14.6 million of pension expense, to benefit Idaho customers by reducing the amount of deferred pension expense that will be collected from customers in the future.
Annual Idaho PCA Mechanism Filing
Idaho Power has PCA mechanisms in its Idaho and Oregon jurisdictions that address the volatility of power supply costs and provide for annual adjustments to the rates charged to retail customers. The PCA tracks Idaho Power’s actual net power supply costs (primarily fuel and purchased power less off-system sales) and compares these amounts to net power supply costs currently being recovered in retail rates. In the Idaho jurisdiction, the annual PCA adjustments are based on (a) a forecast component, based on a forecast of net power supply costs in the coming year as compared to net power supply costs in base rates, and (b) a true-up component, based on the difference between the previous year’s actual net power supply costs and the previous year’s forecast. The latter component also includes a balancing mechanism so that, over time, the actual collection or refund of authorized true-up dollars matches the amounts authorized.
On April 15, 2013, Idaho Power filed an application with the IPUC requesting a $140.4 million increase in Idaho PCA rates, effective for the 2013-2014 PCA collection period from June 1, 2013 to May 31, 2014. However, to lessen the single-year rate impact on customers of the PCA rate increase, Idaho Power's application included a proposal to defer $52.5 million of the PCA rate increase for inclusion in the June 1, 2014 to May 31, 2015 PCA collection period. The existing PCA mechanism includes a 1.0 percent carrying charge on the amount that would be, if approved, deferred to the 2014-2015 PCA collection period. While the PCA mechanism contemplates the ability to spread the recovery of a single year's PCA amount over multiple years, the IPUC has historically approved recovery of PCA amounts in most instances over a single PCA collection period.
Previously, in May 2012, the IPUC issued an order approving Idaho Power's April 2012 application requesting a $43.0 million increase to Idaho PCA rates, effective for the period from June 1, 2012 to May 31, 2013. That PCA rate increase was offset by $27.1 million to be shared with customers pursuant to the revenue sharing orders described above, resulting in a net rate increase of $15.9 million for these orders.
Annual Idaho Fixed Cost Adjustment Filing
The fixed cost adjustment (FCA) is designed to remove Idaho Power’s disincentive to invest in energy efficiency programs by separating (or decoupling) the recovery of fixed costs from the variable kilowatt-hour charge and linking it instead to a set amount per customer. The FCA is adjusted each year to collect, or refund, the difference between the allowed fixed-cost recovery amount and the actual fixed costs recovered by Idaho Power during the year. On March 15, 2013, Idaho Power filed an application with the IPUC requesting a decrease in the FCA rate, from $10.3 million to $8.9 million, effective for the period from June 1, 2013 to May 31, 2014.
Annual Idaho Demand-Side Management Prudence and Cost Recovery Filings
On April 3, 2013, Idaho Power filed an application with the IPUC requesting an order finding Idaho Power's 2012 expenditures of $25.9 million in energy efficiency rider funds, $6.0 million in custom efficiency program incentives in a regulatory asset account, and $14.5 million of demand response program incentives included in the 2013 PCA, as prudently incurred demand-side management program expenses. Separately, on April 15, 2013, Idaho Power filed an application with the IPUC for an accounting order authorizing transfer of the regulatory asset account associated with custom efficiency program expenditures for collection through the energy efficiency rider mechanism, effective June 1, 2013, for expenditures incurred during 2011 and
thereafter, so that it may commence collection of those expenditures through the rider mechanism. As of March 31, 2013, the Idaho-jurisdiction regulatory asset for custom efficiency program expenditures was $14.0 million. A determination and order from the IPUC on each application is pending.
4. LONG-TERM DEBT
As of March 31, 2013, IDACORP had approximately $539 million remaining on a shelf registration statement filed with the U.S. Securities and Exchange Commission (SEC) that can be used for the issuance of debt securities or IDACORP common stock.
In May 2010, Idaho Power filed a registration statement with the SEC for the offer and sale of up to $500 million of first mortgage bonds and debt securities. On June 17, 2010, Idaho Power entered into a selling agency agreement with ten banks named in the agreement in connection with the potential issuance and sale from time to time of up to $500 million aggregate principal amount of first mortgage bonds. Idaho Power has concluded the following issuances under the selling agency agreement, utilizing the full available amount registered for offer and sale under the registration statement:
| |
• | On August 30, 2010, Idaho Power issued $100 million of 3.40% first mortgage bonds, medium-term notes, Series I, maturing on November 1, 2020, and $100 million of 4.85% first mortgage bonds, medium-term notes, Series I, maturing on August 15, 2040. |
| |
• | On April 13, 2012, Idaho Power issued $75 million of 2.95% first mortgage bonds, medium-term notes, Series I, maturing on April 1, 2022, and $75 million of 4.30% first mortgage bonds, medium-term notes, Series I, maturing on April 1, 2042. |
| |
• | On April 8, 2013, Idaho Power issued $75 million of 2.50% first mortgage bonds, medium-term notes, Series I, maturing on April 1, 2023, and $75 million of 4.00% first mortgage bonds, medium-term notes, Series I, maturing on April 1, 2043. |
Idaho Power intends to use a portion of the net proceeds of the April 2013 sale of first mortgage bonds to satisfy its obligations upon maturity of $70 million in principal amount of 4.25% first mortgage bonds due in October 2013. As a result, the $70 million in principal amount of 4.25% first mortgage bonds due in October 2013 are reported as long-term debt in the condensed consolidated balance sheets, instead of as current maturities of long-term debt.
5. NOTES PAYABLE
Credit Facilities
IDACORP and Idaho Power have in place credit facilities that may be used for general corporate purposes and commercial paper backup. IDACORP's credit facility consists of a revolving line of credit not to exceed the aggregate principal amount at any one time outstanding of $125 million, including swingline loans in an aggregate principal amount at any time outstanding not to exceed $15 million, and letters of credit in an aggregate principal amount at any time outstanding not to exceed $50 million. Idaho Power's credit facility consists of a revolving line of credit, through the issuance of loans and standby letters of credit, not to exceed the aggregate principal amount at any one time outstanding of $300 million, including swingline loans in an aggregate principal amount at any time outstanding not to exceed $30 million. IDACORP and Idaho Power have the right to request an increase in the aggregate principal amount of the facilities to $150 million and $450 million, respectively, in each case subject to certain conditions.
The IDACORP and Idaho Power credit facilities have similar terms and conditions. The interest rates for any borrowings under the facilities are based on either (1) a floating rate that is equal to the highest of the prime rate, federal funds rate plus 0.5 percent, or LIBOR rate plus 1.0 percent, or (2) the LIBOR rate, plus, in each case, an applicable margin. The margin is based on IDACORP's or Idaho Power's, as applicable, senior unsecured long-term indebtedness credit rating by Moody's Investors Service, Inc., Standard and Poor's Ratings Services, and Fitch Rating Services, Inc., as set forth on a schedule to the credit agreements. Under their respective credit facilities, the companies pay a facility fee on the commitment based on the respective company's credit rating for senior unsecured long-term debt securities. While the credit facilities provide for an original maturity date of October 26, 2016, the credit agreements grant IDACORP and Idaho Power the right to request up to two one-year extensions, in each case subject to certain conditions. On October 12, 2012, IDACORP and Idaho Power executed First Extension Agreements with each of the lenders, extending the maturity dates under both credit facilities to October 26, 2017. No other terms of the credit facilities, including the amount of permitted borrowings under the credit agreements, were affected by the extension.
At March 31, 2013, no loans were outstanding under either IDACORP's or Idaho Power's facilities. At March 31, 2013, Idaho Power had regulatory authority to incur up to $450 million in principal amount of short-term indebtedness at any one time outstanding. Balances (in thousands of dollars) and interest rates of IDACORP’s and Idaho Power's short-term borrowings were as follows at March 31, 2013 and December 31, 2012: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2013 | | December 31, 2012 |
| | Idaho Power | | IDACORP | | Total | | Idaho Power | | IDACORP | | Total |
Commercial paper outstanding | | $ | 16,600 |
| | $ | 67,150 |
| | $ | 83,750 |
| | $ | — |
| | $ | 69,700 |
| | $ | 69,700 |
|
Weighted-average annual interest rate | | 0.44 | % | | 0.43 | % | | 0.43 | % | | — | % | | 0.50 | % | | 0.50 | % |
6. COMMON STOCK
IDACORP Common Stock
During the three months ended March 31, 2013, IDACORP issued an aggregate of 74,272 shares of common stock pursuant to the IDACORP, Inc. 2000 Long-Term Incentive and Compensation Plan. Effective July 1, 2012, IDACORP instructed the plan administrators of the IDACORP, Inc. Dividend Reinvestment and Stock Purchase Plan and Idaho Power Company Employee Savings Plan to use market purchases of IDACORP common stock, as opposed to original issuance of common stock from IDACORP, to acquire shares of IDACORP common stock for the plans. However, IDACORP may determine at any time to resume original issuances of common stock under those plans.
IDACORP enters into sales agency agreements as a means of selling its common stock from time to time pursuant to a continuous equity program. IDACORP's current sales agency agreement is with BNY Mellon Capital Markets, LLC. As of March 31, 2013, there were 3 million shares remaining available to be sold under the current sales agency agreement. No shares were issued under the sales agency agreement during the three months ended March 31, 2013.
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 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, 2013, the leverage ratios for IDACORP and Idaho Power were 48 percent and 49 percent, respectively. Based on these restrictions, IDACORP’s and Idaho Power’s dividends were limited to $902 million and $805 million, respectively, at March 31, 2013. There are additional facility covenants, subject to exceptions, that prohibit or restrict specified investments or acquisitions, mergers, or the sale or disposition of property without consent; the creation of specified forms of liens; and any agreements restricting dividend payments to the company from any material subsidiary. At March 31, 2013, IDACORP and Idaho Power were in compliance with all facility covenants.
Idaho Power’s Revised Policy and Code of Conduct relating to transactions between and among Idaho Power, IDACORP, and other affiliates, which was approved by the IPUC in April 2008, provides 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. At March 31, 2013, Idaho Power's common equity capital was 52 percent of its total adjusted capital. Further, 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.
Idaho Power’s articles of incorporation contain restrictions on the payment of dividends on its common stock if preferred stock dividends are in arrears. As of the date of this report, Idaho Power has no preferred stock outstanding.
In addition to contractual restrictions on the amount and payment of dividends, the Federal Power Act prohibits the payment of dividends from "capital accounts." The term "capital accounts" is undefined in the Federal Power Act but could be interpreted to limit the payment of dividends by Idaho Power to the amount of Idaho Power's retained earnings.
7. EARNINGS PER SHARE
The table below presents the computation of IDACORP’s basic and diluted earnings per share for the three months ended March 31, 2013 and 2012 (in thousands, except for per share amounts).
|
| | | | | | | | |
| | Three months ended March 31, |
| | 2013 | | 2012 |
Numerator: | | |
| | |
|
Net income attributable to IDACORP, Inc. | | $ | 33,533 |
| | $ | 24,930 |
|
Denominator: | | |
| | |
|
Weighted-average common shares outstanding - basic | | 50,039 |
| | 49,860 |
|
Effect of dilutive securities: | | |
| | |
Options | | 4 |
| | 5 |
|
Restricted Stock | | 21 |
| | 40 |
|
Weighted-average common shares outstanding - diluted | | 50,064 |
| | 49,905 |
|
Basic earnings per share | | $ | 0.67 |
| | $ | 0.50 |
|
Diluted earnings per share | | $ | 0.67 |
| | $ | 0.50 |
|
8. COMMITMENTS
Purchase Obligations
IDACORP's and Idaho Power's purchase obligations outside of the ordinary course of business did not change materially during the three months ended March 31, 2013, except for the impact of the termination of four power purchase agreements resulting from either uncured breach by the respective counterparties or pursuant to IPUC-approved settlement arrangements between the parties. Termination of the contracts reduced Idaho Power's contractual payment obligations by approximately $322 million over the 15-year to 20-year lives of the contracts.
Guarantees
Idaho Power has agreed to guarantee a portion of the performance of reclamation activities and obligations at BCC, of which IERCo owns a one-third interest. This guarantee, which is renewed annually, was $74 million at March 31, 2013, representing IERCo's one-third share of BCC's total reclamation obligation. BCC has a reclamation trust fund set aside specifically for the purpose of paying these reclamation costs. At March 31, 2013, the value of the reclamation trust fund was $69 million. During the three months ended March 31, 2013, the reclamation trust fund distributed approximately $9 million for reclamation activity costs associated with the BCC surface mine. BCC periodically 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, all of which are made to the Jim Bridger plant. Starting 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.
IDACORP and Idaho Power enter into financial agreements and power purchase and sale agreements that include indemnification provisions relating to various forms of claims or liabilities that may arise from the transactions contemplated by these agreements. Generally, a maximum obligation is not explicitly stated in the indemnification provisions and, therefore, the overall maximum amount of the obligation under such indemnification provisions cannot be reasonably estimated. IDACORP and Idaho Power periodically evaluate the likelihood of incurring costs under such indemnities based on their historical experience and the evaluation of the specific indemnities. As of March 31, 2013, management believes the likelihood is remote that IDACORP or Idaho Power would be required to perform under such indemnification provisions or otherwise incur any significant losses with respect to such indemnification obligations. Neither IDACORP nor Idaho Power has recorded any liability on their respective condensed consolidated balance sheets with respect to these indemnification obligations.
9. CONTINGENCIES
IDACORP and Idaho Power have in the past and expect in the future to become involved in various claims, controversies, disputes, and other contingent matters, including the items described in this Note 9. Some of these claims, controversies, disputes, and other contingent matters involve litigation and regulatory or other contested proceedings. The ultimate resolution and outcome of litigation and regulatory proceedings is inherently difficult to determine, particularly where (a) the remedies or penalties sought are indeterminate, (b) the proceedings are in the early stages or the substantive issues have not been well developed, or (c) the matters involve complex or novel legal theories or a large number of parties. In accordance with applicable accounting guidance, IDACORP and Idaho Power, as applicable, establish an accrual for legal proceedings when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. IDACORP and Idaho Power monitor those matters for developments that could affect the likelihood of a loss and the accrued amount, if any, thereof, and adjust the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimable, IDACORP and Idaho Power do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. As of the date of this report, IDACORP's and Idaho Power's accruals for loss contingencies are not material to their financial statements as a whole; however, future accruals could be material in a given period. IDACORP's and Idaho Power's determination is based on currently available information, and estimates presented in financial statements and other financial disclosures involve significant judgment and may be subject to significant uncertainty. As available information changes, the matters for which IDACORP and Idaho Power are able to estimate the loss may change, and the estimates themselves may change. For matters that affect Idaho Power’s operations, Idaho Power intends to seek, to the extent permissible and appropriate, recovery through the ratemaking process of costs incurred.
Western Energy Proceedings
High prices for electricity, energy shortages, and blackouts 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 the FERC to initiate its own investigations. Some of these proceedings remain pending before the FERC or are on appeal to the United States Court of Appeals for the Ninth Circuit. Idaho Power and IESCo (as successor to IDACORP Energy L.P.) believe that settlement releases they have obtained will restrict potential claims that might result from the disposition of pending proceedings and predict that these matters will not have a material adverse effect on IDACORP's or Idaho Power's results of operations or financial condition. However, the settlements and associated FERC orders have not fully eliminated the potential for so-called "ripple claims" which involve potential claims for refunds from an upstream seller of power based on a finding that its downstream buyer was liable for refunds as a seller of power during the relevant period. The FERC characterized these ripple claims as "speculative." However, the FERC refused to dismiss Idaho Power and IESCo from the proceedings in the Pacific Northwest and refused to approve a settlement that provided for waivers of all claims in those proceedings, despite only limited objections from two market participants. Idaho Power and IESCo have petitioned for review of the FERC's decision in the D.C. Circuit. Based on its evaluation of the merits of such claims and the inability to estimate any potential exposure should the claims ultimately have merit, Idaho Power and IESCo have no remaining amount accrued for financial statement purposes relating to the proceedings. To the extent the availability of any ripple claims materializes, Idaho Power and IESCo will continue to vigorously defend their positions in the proceedings.
Water Rights - Snake River Basin Adjudication
Idaho Power holds water rights, acquired under applicable state law, for its hydroelectric projects. In addition, Idaho Power holds water rights for domestic, irrigation, commercial, and other necessary purposes related to project lands and other holdings within the states of Idaho and Oregon. Idaho Power's water rights for power generation are, to varying degrees, subordinated to future upstream appropriations for irrigation and other authorized consumptive uses. Over time, increased irrigation development and other consumptive uses within the Snake River watershed led to a reduction in flows of the Snake River. In the late 1970s and early 1980s these reduced flows resulted in a conflict between the exercise of Idaho Power's water rights at certain hydroelectric projects on the Snake River and upstream consumptive diversions. The Swan Falls Agreement, signed by Idaho Power and the State of Idaho on October 25, 1984, resolved the conflict and provided a level of protection for Idaho Power's hydropower water rights at specified projects on the Snake River through the establishment of minimum stream flows and an administrative process governing future development of water rights that may affect those minimum stream flows. In 1987, Congress enacted legislation directing the FERC to issue an order approving the Swan Falls settlement together with a finding that the agreement was neither inconsistent with the terms and conditions of Idaho Power's project licenses nor the Federal Power Act. The FERC entered an order implementing the legislation in March 1988.
The Swan Falls Agreement provided that the resolution and recognition of Idaho Power's water rights together with the State Water Plan provided a sound comprehensive plan for management of the Snake River watershed. The Swan Falls Agreement
also recognized, however, that in order to effectively manage the waters of the Snake River basin, a general adjudication to determine the nature, extent, and priority of the rights of all water uses in the basin was necessary. Consistent with that recognition, in 1987 the State of Idaho initiated the Snake River Basin Adjudication (SRBA), and pursuant to the commencement order issued by the SRBA court that same year, all claimants to water rights within the basin were required to file water rights claims in the SRBA. Idaho Power has filed claims to its water rights and has been actively participating in the SRBA since its commencement. Questions concerning the effect of the Swan Falls Agreement on Idaho Power's water rights claims, including the nature and extent of the subordination of Idaho Power's rights to upstream uses, resulted in the filing of litigation in the SRBA in 2007 between Idaho Power and the State of Idaho. This litigation was resolved by the Framework Reaffirming the Swan Falls Settlement (Framework) signed by Idaho Power and the State of Idaho on March 25, 2009. In that Framework, the parties acknowledged that the effective management of Idaho's water resources remains critical to the public interest of the State of Idaho by sustaining economic growth, maintaining reasonable electric rates, protecting and preserving existing water rights, and protecting water quality and environmental values. The Framework further provided that the State of Idaho and Idaho Power would cooperate in exploring approaches to resolve issues of mutual concern relating to the management of Idaho's water resources. Idaho Power continues to work with the State of Idaho and other interested parties on these issues.
One such issue involves the management of the Eastern Snake Plain Aquifer (ESPA), a large underground aquifer in southeastern Idaho that is hydrologically connected to the Snake River. House Concurrent Resolution No. 28, adopted by the Idaho Legislature in 2007, directed the Idaho Water Resource Board to pursue the development of a comprehensive management plan for the ESPA, to include measures that would enhance aquifer levels, springs, and river flows on the eastern Snake River plain to the benefit of both agricultural development and hydropower generation. In May of 2007, the Idaho Water Resource Board appointed an advisory committee, charged with the responsibility of developing a management plan for the ESPA. Idaho Power was a member of that committee. In January 2009, the Idaho Water Resource Board, based on the committee's recommendations, adopted a Comprehensive Aquifer Management Plan (CAMP) for the ESPA. The Idaho Legislature approved the CAMP that same year. Idaho Power is a member of the CAMP Implementation Committee and continues to work with the Idaho Water Resource Board, other stakeholders, and the Idaho Legislature in exploring opportunities for implementation of the CAMP management plan.
Idaho Power also continues its active participation in the SRBA in seeking to ensure that its water rights are protected and that the operation of its hydroelectric projects is not adversely impacted. While Idaho Power cannot predict the outcome, as of the date of this report Idaho Power does not anticipate any material modification of its water rights as a result of the SRBA process.
Other Proceedings
IDACORP and Idaho Power are parties to legal claims and legal and regulatory actions and proceedings in the ordinary course of business that are in addition to those discussed above and, as noted above, records an accrual for associated loss contingencies when they are probable and reasonably estimable. As of the date of this report the companies believe that resolution of those matters will not have a material adverse effect on their respective consolidated financial statements. Idaho Power is also actively monitoring various environmental regulations that may have a significant impact on its future operations. Given uncertainties regarding the outcome, timing, and compliance plans for these environmental matters, Idaho Power is unable to estimate the financial impact of these regulations but does believe that future capital investment for infrastructure and modifications to its electric generating facilities to comply with these regulations could be significant.
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 nonqualified defined benefit plans for certain senior management employees called the Senior Management Security Plan I and II (SMSP). Idaho Power also maintains a defined benefit postretirement plan (consisting of health care and death benefits) that is available to 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 Employee Savings Plan.
The table below shows the components of net periodic benefit costs for the pension, SMSP, and postretirement benefits plans for the three months ended March 31, 2013 and 2012 (in thousands of dollars).
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plan | | SMSP | | Postretirement Benefits |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Service cost | | $ | 7,812 |
| | $ | 6,441 |
| | $ | 545 |
| | $ | 538 |
| | $ | 413 |
| | $ | 351 |
|
Interest cost | | 7,936 |
| | 7,892 |
| | 814 |
| | 805 |
| | 743 |
| | 818 |
|
Expected return on plan assets | | (8,698 | ) | | (7,712 | ) | | — |
| | — |
| | (595 | ) | | (604 | ) |
Amortization of transition obligation | | — |
| | — |
| | — |
| | — |
| | — |
| | 510 |
|
Amortization of prior service cost | | 87 |
| | 87 |
| | 53 |
| | 53 |
| | (25 | ) | | (105 | ) |
Amortization of net loss | | 4,252 |
| | 3,463 |
| | 710 |
| | 382 |
| | 169 |
| | 143 |
|
Net periodic benefit cost | | 11,389 |
| | 10,171 |
| | 2,122 |
| | 1,778 |
| | 705 |
| | 1,113 |
|
Costs not recognized due to the effects of regulation (1) | | (6,543 | ) | | (5,389 | ) | | — |
| | — |
| | — |
| | — |
|
Net periodic benefit cost recognized for financial reporting (1) | | $ | 4,846 |
| | $ | 4,782 |
| | $ | 2,122 |
| | $ | 1,778 |
| | $ | 705 |
| | $ | 1,113 |
|
(1) Net periodic benefit costs for the pension plan are recognized for financial reporting based upon the authorization of each regulatory jurisdiction in which Idaho Power operates. Under IPUC order, income statement recognition of pension plan costs is deferred until costs are recovered through rates.
During the three months ended March 31, 2013, Idaho Power did not make any contributions to its defined benefit pension plan. Idaho Power's minimum required contributions to the pension plan are estimated to be zero in 2013, although Idaho Power may elect to make discretionary contributions above the minimum funding requirements or at times earlier than the required dates.
11. INVESTMENTS IN EQUITY SECURITIES
Investments in 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. The table below summarizes investments in equity securities by IDACORP and Idaho Power as of March 31, 2013 and December 31, 2012 (in thousands of dollars).
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2013 | | December 31, 2012 |
| | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value |
Available-for-sale securities | | $ | 8,731 |
| | $ | — |
| | $ | 33,322 |
| | $ | 6,792 |
| | $ | — |
| | $ | 31,913 |
|
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, 2013 and at December 31, 2012, no securities were in an unrealized loss position.
There were no sales of available-for-sale securities during the three months ended March 31, 2013 or 2012.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Commodity Price Risk
Idaho Power is exposed to market risk relating to electricity, natural gas, and other fuel commodity prices, all of which are heavily influenced by supply and demand. Market risk may be influenced by market participants’ nonperformance of their contractual obligations and commitments, which affects the supply of or demand for the commodity. Idaho Power uses derivative instruments, such as physical and financial forward contracts, for both electricity and fuel to manage the risks relating to these commodity price exposures. 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 commodity-related derivative instruments not meeting the normal purchases and normal sales exception to derivative accounting are recorded at fair value on the balance sheet. Because of Idaho Power's PCA mechanisms, unrealized gains and losses associated with the changes in fair value of these derivative instruments are recorded as regulatory assets or liabilities.
With the exception of forward contracts for the purchase of natural gas for use at Idaho Power’s natural gas power generation facilities, Idaho Power’s physical forward contracts qualify for the normal purchases and normal sales exception.
All of Idaho Power's derivative instruments have been entered into for the purpose of economically hedging forecasted purchases and sales, though none of these instruments have been designated as cash flow hedges under derivative accounting guidance. Idaho Power offsets fair value amounts recognized on its balance sheet and applies collateral related to derivative instruments executed with the same counterparty under the same master netting agreement. Idaho Power does not offset a counterparty's current derivative contracts with the counterparty's long-term derivative contracts, although Idaho Power's master netting arrangements would allow current and long-term positions to be offset in the event of default. Also, in the event of a default, Idaho Power's master netting arrangements would allow for the offsetting of all transactions executed under the master netting arrangement. These types of transactions may include non-derivative instruments, derivatives qualifying for scope exceptions, receivables and payables arising from settled positions, and other forms of non-cash collateral (such as letters of credit). These types of transactions are excluded from the offsetting presented in the derivative fair value and offsetting table below.
Derivative Instrument Summary
The table below presents the fair values and locations of derivative instruments not designated as hedging instruments recorded on the balance sheets and reconciles the gross amounts of derivatives recognized as assets and as liabilities to the net amounts presented in the balance sheets at March 31, 2013 and December 31, 2012 (in thousands of dollars).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Asset Derivatives | | Liability Derivatives |
| | Balance Sheet Location | | Gross Fair Value | | Amounts Offset | | Net Assets | | Gross Fair Value | | Amounts Offset | | Net Liabilities |
| | | |
March 31, 2013 | | | | | | | | | | | | | | |
Current: | | | | |
| | | | | | | | | | |
|
Financial swaps | | Other current assets | | $ | 2,449 |
| | $ | (804 | ) | | $ | 1,645 |
| | $ | 804 |
| | $ | (804 | ) | | $ | — |
|
Financial swaps | | Other current liabilities | | 349 |
| | (349 | ) | | — |
| | 1,245 |
| | (1,064 | ) | (1) | 181 |
|
Forward contracts | | Other current assets | | 91 |
| | — |
| | 91 |
| | — |
| | — |
| | — |
|
Long-term: | | | | |
| | | | | | | | | | |
Forward contracts | | Other assets | | 189 |
| | — |
| | 189 |
| | — |
| | — |
| | — |
|
Total | | | | $ | 3,078 |
| | $ | (1,153 | ) | | $ | 1,925 |
| | $ | 2,049 |
| | $ | (1,868 | ) | | $ | 181 |
|
December 31, 2012 | | | | | | | | | | | | | | |
Current: | | | | | | | | | | |
| | | | |
Financial swaps | | Other current assets | | $ | 5,122 |
| | $ | (1,683 | ) | (1) | $ | 3,439 |
| | $ | 978 |
| | $ | (978 | ) | | $ | — |
|
Financial swaps | | Other current liabilities | | 320 |
| | (320 | ) | | — |
| | 1,372 |
| | (319 | ) | | 1,053 |
|
Forward contracts | | Other current assets | | 155 |
| | (4 | ) | | 151 |
| | 4 |
| | (4 | ) | | — |
|
Forward contracts | | Other current liabilities | | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Long-term: | | | | |
| | | | | | |
| | | | |
Financial swaps | | Other assets | | 96 |
| | — |
| | 96 |
| | — |
| | — |
| | — |
|
Forward contracts | | Other assets | | 189 |
| | — |
| | 189 |
| | — |
| | — |
| | — |
|
Total | | | | $ | 5,882 |
| | $ | (2,007 | ) | | $ | 3,875 |
| | $ | 2,356 |
| | $ | (1,301 | ) | | $ | 1,055 |
|
(1) Current liability derivatives and current asset derivatives amounts offset include $715 thousand of collateral receivable and $705 thousand of collateral payable for the periods ending March 31, 2013 and December 31, 2012, respectively.
The table below presents the gains and losses on derivatives not designated as hedging instruments for the three months ended March 31, 2013 and 2012 (in thousands of dollars).
|
| | | | | | | | | | |
| | Location of Realized Gain/(Loss) on Derivatives Recognized in Income | | Gain/(Loss) on Derivatives Recognized in Income (1) |
| | |
| | | 2013 | | 2012 |
Financial swaps | | Off-system sales | | $ | 1,472 |
| | $ | 4,439 |
|
Financial swaps | | Purchased power | | (14 | ) | | (993 | ) |
Financial swaps | | Fuel expense | | 1,116 |
| | (84 | ) |
Financial swaps | | Other operations and maintenance | | 11 |
| | (45 | ) |
Forward contracts | | Fuel expense | | 68 |
| | — |
|
(1) Excludes unrealized gains or losses on derivatives, which are recorded on the balance sheet as 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 are recorded in other operations and maintenance expense. See Note 13 for additional information concerning the determination of fair value for Idaho Power’s assets and liabilities from price risk management activities.
The table below presents the volumes of derivative commodity forward contracts and swaps outstanding at March 31, 2013 and 2012.
|
| | | | | | | |
| | | | March 31, |
Commodity | | Units | | 2013 | | 2012 |
Electricity purchases | | MWh | | 95,040 | | 256,200 |
|
Electricity sales | | MWh | | 785,400 | | 1,417,270 |
|
Natural gas purchases | | MMBtu | | 10,215,641 | | 10,082,392 |
|
Natural gas sales | | MMBtu | | 424,870 | | 913,379 |
|
Diesel purchases | | Gallons | | 625,798 | | 807,978 |
|
Credit Risk
At March 31, 2013, Idaho Power did not have material credit risk 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. Idaho Power’s physical power contracts are commonly under Western Systems Power Pool agreements, physical gas contracts are usually under North American Energy Standards Board contracts, and financial transactions are usually under International Swaps and Derivatives Association, Inc. contracts. These contracts contain adequate assurance clauses requiring collateralization if a counterparty has debt that is downgraded below investment grade by at least one rating agency.
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 Moody's Investors Service and Standard & Poor's Ratings Services. 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 were in a liability position at March 31, 2013, was $2.1 million. Idaho Power posted $1.5 million of cash collateral related to this amount. If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2013, Idaho Power would have been required to post $2.3 million of additional cash collateral to its counterparties.
13. FAIR VALUE MEASUREMENTS
IDACORP and Idaho Power have categorized their financial instruments into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. 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.
An item recorded at fair value is reclassified between levels when changes in the nature of valuation inputs cause the item to no longer meet the criteria for the level in which it was previously categorized.
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 location basis, which are also quoted under NYMEX. Trading securities consist 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. Notes receivable are related to Ida-West and are valued based on unobservable inputs, including discounted cash flows, which are partially based on forecasted hydroelectric conditions. Long-term debt is not traded on an exchange and is valued using quoted rates for similar debt in active markets. There were no material changes in valuation techniques or inputs during the three months ended March 31, 2013 or the year ended December 31, 2012.
The table below presents information about IDACORP’s and Idaho Power’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 (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. There were no material transfers between levels for the periods presented.