Document
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 September 30, 2016 | |
| 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 October 21, 2016:
IDACORP, Inc.: 50,401,768
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 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 3. Defaults Upon Senior Securities | |
| 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 |
BCC | - | Bridger Coal Company, a joint venture of IERCo |
BLM | - | U.S. Bureau of Land Management |
CAA | - | Clean Air Act |
CSPP | - | Cogeneration and Small Power Production |
CWA | - | Clean Water Act |
EIS | - | Environmental Impact Statement |
EPA | - | U.S. Environmental Protection Agency |
FCA | - | Fixed Cost Adjustment |
FERC | - | Federal Energy Regulatory Commission |
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 | - | Nitrogen Oxide |
O&M | - | Operations and Maintenance |
OATT | - | Open Access Transmission Tariff |
OPUC | - | Public Utility Commission of Oregon |
PCA | - | Power Cost Adjustment |
PURPA | - | Public Utility Regulatory Policies Act of 1978 |
REC | - | Renewable Energy Certificate |
SCR | - | Selective Catalytic Reduction |
SEC | - | U.S. Securities and Exchange Commission |
SMSP | - | Security Plan for Senior Management Employees |
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," "continues," "estimates," "expects," "guidance," "intends," "plans," "predicts," "projects," "may result," 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, 2015, particularly Part I, Item 1A - “Risk Factors” and Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations" of that report, subsequent reports filed by IDACORP and Idaho Power with the U.S. Securities and Exchange Commission (SEC), and the following important factors:
| |
• | the effect of decisions by the Idaho and Oregon public utilities commissions, the Federal Energy Regulatory Commission, and other regulators that impact Idaho Power's ability to recover costs and earn a return; |
| |
• | administration of reliability, security, and other requirements for system infrastructure required by the Federal Energy Regulatory Commission and other regulatory authorities, which could result in penalties and increase costs; |
| |
• | changes in residential, commercial, and industrial growth and demographic patterns within Idaho Power's service area and the loss or change in the business of significant customers, and their associated impacts on loads and load growth, and the availability of regulatory mechanisms that allow for timely cost recovery in the event of those changes; |
| |
• | the impacts of 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 the collection of receivables; |
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• | unseasonable or severe weather conditions, wildfires, drought, and other natural phenomena and natural disasters, which affect customer demand, hydroelectric generation levels, repair costs, and the availability and cost of fuel for generation plants or purchased power to serve customers; |
| |
• | advancement of technologies that reduce loads or reduce the need for Idaho Power's generation or sale of electric power; |
| |
• | adoption of, changes in, and costs of compliance with laws, regulations, and policies relating to the environment, natural resources, and threatened and endangered species, and the ability to recover increased costs through rates; |
| |
• | variable hydrological conditions and over-appropriation of surface and groundwater in the Snake River Basin, which may impact the amount of power generated by Idaho Power's hydroelectric facilities; |
| |
• | the ability to acquire fuel, power, and transmission capacity under reasonable terms, particularly in the event of unanticipated power demands, lack of physical availability, transportation constraints, or a credit downgrade; |
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• | accidents, fires (either at or caused by Idaho Power's facilities), explosions, and mechanical breakdowns that may occur while operating and maintaining Idaho Power's assets, which can cause unplanned outages, reduce generating output, damage the companies’ assets, operations, or reputation, subject the companies to third-party claims for property damage, personal injury, or loss of life, or result in the imposition of civil, criminal, and regulatory fines and penalties; |
| |
• | the increased costs and operational challenges associated with purchasing and integrating intermittent renewable energy sources into Idaho Power's resource portfolio; |
| |
• | operational factors affecting Idaho Power's power generating facilities, including disruptions or outages of Idaho Power's generation or transmission systems or of any interconnected transmission system, which may cause Idaho Power to incur repair costs or purchase replacement power at increased costs; |
| |
• | 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, 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 credit and contractual arrangements; |
| |
• | the ability to enter into financial and physical commodity hedges with creditworthy counterparties to manage price and commodity risk, and the failure of any such risk management and hedging strategies to work as intended; |
| |
• | changes in actuarial assumptions, changes in interest rates, and the return on plan assets for pension and other post-retirement plans, which can affect future pension and other postretirement plan funding obligations, costs, and liabilities; |
| |
• | the ability to continue to pay dividends based on financial performance, and in light of contractual covenants and restrictions and regulatory limitations; |
| |
• | 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 and retirements, 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, regulations, and orders, including new interpretations and enforcement initiatives by regulatory and oversight bodies, which may result in penalties and fines 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; |
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• | the cost and outcome of litigation, dispute resolution, and regulatory proceedings, and the ability to recover those costs or the costs of operational changes through insurance or rates, or from third parties; |
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• | the failure of information systems or the failure to secure data, failure to comply with privacy laws, security breaches, or the direct or indirect effect on the companies' business or operations resulting from cyber attacks, terrorist incidents or the threat of terrorist incidents, and acts of war; |
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• | unusual or unanticipated changes in normal business operations, including unusual maintenance or repairs, or the failure to successfully implement new technology solutions; |
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• | adoption of or changes in accounting policies and principles, changes in accounting estimates, and new SEC or New York Stock Exchange requirements, or new interpretations of existing requirements; and |
| |
• | the expense and risks associated with capital expenditures for infrastructure, and the timing and availability of cost recovery for such expenditures. |
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 September 30, | | Nine months ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | (thousands of dollars, except for per share amounts) |
Operating Revenues: | | | | | | | | |
Electric utility: | | | | | | | | |
General business | | $ | 341,825 |
| | $ | 340,796 |
| | $ | 885,486 |
| | $ | 897,943 |
|
Off-system sales | | 6,143 |
| | 6,487 |
| | 16,532 |
| | 23,335 |
|
Other revenues | | 23,506 |
| | 21,234 |
| | 64,433 |
| | 61,334 |
|
Total electric utility revenues | | 371,474 |
| | 368,517 |
| | 966,451 |
| | 982,612 |
|
Other | | 571 |
| | 648 |
| | 1,986 |
| | 2,277 |
|
Total operating revenues | | 372,045 |
| | 369,165 |
| | 968,437 |
| | 984,889 |
|
Operating Expenses: | | | | | | | | |
Electric utility: | | | | | | | | |
Purchased power | | 74,448 |
| | 71,890 |
| | 170,675 |
| | 166,191 |
|
Fuel expense | | 73,925 |
| | 66,385 |
| | 139,657 |
| | 144,262 |
|
Power cost adjustment | | (18,342 | ) | | (11,914 | ) | | 11,914 |
| | 26,372 |
|
Other operations and maintenance | | 87,090 |
| | 83,972 |
| | 259,813 |
| | 255,329 |
|
Energy efficiency programs | | 9,102 |
| | 7,645 |
| | 24,256 |
| | 19,854 |
|
Depreciation | | 36,036 |
| | 34,639 |
| | 107,447 |
| | 102,996 |
|
Taxes other than income taxes | | 8,287 |
| | 8,286 |
| | 25,228 |
| | 24,999 |
|
Total electric utility expenses | | 270,546 |
| | 260,903 |
| | 738,990 |
| | 740,003 |
|
Other | | 3,571 |
| | 3,598 |
| | 10,748 |
| | 11,340 |
|
Total operating expenses | | 274,117 |
| | 264,501 |
| | 749,738 |
| | 751,343 |
|
Operating Income | | 97,928 |
| | 104,664 |
| | 218,699 |
| | 233,546 |
|
Allowance for Equity Funds Used During Construction | | 5,931 |
| | 5,654 |
| | 16,153 |
| | 16,219 |
|
Earnings of Unconsolidated Equity-Method Investments | | 12,324 |
| | 5,527 |
| | 13,650 |
| | 8,636 |
|
Other Income, Net | | 2,681 |
| | 1,222 |
| | 7,074 |
| | 5,054 |
|
Interest Expense: | | | | | | | | |
Interest on long-term debt | | 20,296 |
| | 20,614 |
| | 61,659 |
| | 62,443 |
|
Other interest | | 2,605 |
| | 2,256 |
| | 7,587 |
| | 6,484 |
|
Allowance for borrowed funds used during construction | | (2,589 | ) | | (2,593 | ) | | (7,226 | ) | | (7,550 | ) |
Total interest expense, net | | 20,312 |
| | 20,277 |
| | 62,020 |
| | 61,377 |
|
Income Before Income Taxes | | 98,552 |
| | 96,790 |
| | 193,556 |
| | 202,078 |
|
Income Tax Expense | | 15,535 |
| | 23,523 |
| | 28,622 |
| | 39,276 |
|
Net Income | | 83,017 |
| | 73,267 |
| | 164,934 |
| | 162,802 |
|
Adjustment for loss attributable to noncontrolling interests | | 83 |
| | 69 |
| | 141 |
| | 45 |
|
Net Income Attributable to IDACORP, Inc. | | $ | 83,100 |
| | $ | 73,336 |
| | $ | 165,075 |
| | $ | 162,847 |
|
Weighted Average Common Shares Outstanding - Basic (000’s) | | 50,296 |
| | 50,219 |
| | 50,299 |
| | 50,221 |
|
Weighted Average Common Shares Outstanding - Diluted (000’s) | | 50,393 |
| | 50,324 |
| | 50,361 |
| | 50,282 |
|
Earnings Per Share of Common Stock: | | | | | | | | |
Earnings Attributable to IDACORP, Inc. - Basic | | $ | 1.65 |
| | $ | 1.46 |
| | $ | 3.28 |
| | $ | 3.24 |
|
Earnings Attributable to IDACORP, Inc. - Diluted | | $ | 1.65 |
| | $ | 1.46 |
| | $ | 3.28 |
| | $ | 3.24 |
|
Dividends Declared Per Share of Common Stock | | $ | 0.51 |
| | $ | 0.47 |
| | $ | 1.53 |
| | $ | 1.41 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | (thousands of dollars) | | | | |
| | | | | | | | |
Net Income | | $ | 83,017 |
| | $ | 73,267 |
| | $ | 164,934 |
| | $ | 162,802 |
|
Other Comprehensive Income: | | | | | | | | |
Unfunded pension liability adjustment, net of tax of $362, $428, $1,085 and $1,284 | | 563 |
| | 667 |
| | 1,690 |
| | 2,001 |
|
Total Comprehensive Income | | 83,580 |
| | 73,934 |
| | 166,624 |
| | 164,803 |
|
Comprehensive loss attributable to noncontrolling interests | | 83 |
| | 69 |
| | 141 |
| | 45 |
|
Comprehensive Income Attributable to IDACORP, Inc. | | $ | 83,663 |
| | $ | 74,003 |
| | $ | 166,765 |
| | $ | 164,848 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | September 30, 2016 | | December 31, 2015 |
| | (thousands of dollars) |
Assets | | | | |
| | | | |
Current Assets: | | | | |
Cash and cash equivalents | | $ | 100,796 |
| | $ | 114,802 |
|
Receivables: | | | | |
Customer (net of allowance of $987 and $1,196, respectively) | | 86,215 |
| | 73,505 |
|
Other (net of allowance of $260 and $159, respectively) | | 7,229 |
| | 8,642 |
|
Taxes receivable | | 13,866 |
| | 13,058 |
|
Accrued unbilled revenues | | 59,877 |
| | 65,805 |
|
Materials and supplies (at average cost) | | 58,686 |
| | 56,924 |
|
Fuel stock (at average cost) | | 60,257 |
| | 61,818 |
|
Prepayments | | 15,600 |
| | 17,979 |
|
Current regulatory assets | | 54,366 |
| | 49,215 |
|
Other | | 2,997 |
| | 288 |
|
Total current assets | | 459,889 |
| | 462,036 |
|
Investments | | 131,225 |
| | 140,743 |
|
Property, Plant and Equipment: | | | | |
Utility plant in service | | 5,582,890 |
| | 5,485,464 |
|
Accumulated provision for depreciation | | (1,982,496 | ) | | (1,913,927 | ) |
Utility plant in service - net | | 3,600,394 |
| | 3,571,537 |
|
Construction work in progress | | 471,331 |
| | 396,931 |
|
Utility plant held for future use | | 7,457 |
| | 7,090 |
|
Other property, net of accumulated depreciation | | 16,242 |
| | 16,855 |
|
Property, plant and equipment - net | | 4,095,424 |
| | 3,992,413 |
|
Other Assets: | | | | |
American Falls and Milner water rights | | 9,747 |
| | 11,592 |
|
Company-owned life insurance | | 57,508 |
| | 48,566 |
|
Regulatory assets | | 1,298,519 |
| | 1,305,210 |
|
Long-term receivables (net of allowance of $552) | | 23,242 |
| | 22,538 |
|
Other | | 53,555 |
| | 40,216 |
|
Total other assets | | 1,442,571 |
| | 1,428,122 |
|
Total | | $ | 6,129,109 |
| | $ | 6,023,314 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | September 30, 2016 | | December 31, 2015 |
| | (thousands of dollars) |
Liabilities and Equity | | | | |
| | | | |
Current Liabilities: | | | | |
Current maturities of long-term debt | | $ | 1,064 |
| | $ | 1,064 |
|
Notes payable | | 5,400 |
| | 20,000 |
|
Accounts payable | | 77,895 |
| | 95,526 |
|
Taxes accrued | | 20,260 |
| | 10,762 |
|
Interest accrued | | 21,405 |
| | 22,292 |
|
Accrued compensation | | 39,374 |
| | 42,961 |
|
Current regulatory liabilities | | 3,011 |
| | 2,217 |
|
Advances from customers | | 26,615 |
| | 31,214 |
|
Other | | 10,267 |
| | 16,270 |
|
Total current liabilities | | 205,291 |
| | 242,306 |
|
Other Liabilities: | | | | |
Deferred income taxes | | 1,169,918 |
| | 1,137,375 |
|
Regulatory liabilities | | 434,464 |
| | 416,282 |
|
Pension and other postretirement benefits | | 375,814 |
| | 394,030 |
|
Other | | 45,412 |
| | 45,867 |
|
Total other liabilities | | 2,025,608 |
| | 1,993,554 |
|
Long-Term Debt | | 1,745,548 |
| | 1,725,410 |
|
Commitments and Contingencies | |
| |
|
Equity: | | | | |
IDACORP, Inc. shareholders’ equity: | | | | |
Common stock, no par value (shares authorized 120,000,000; 50,420,017 and 50,352,051 shares issued, respectively) | | 850,698 |
| | 849,112 |
|
Retained earnings | | 1,317,732 |
| | 1,230,105 |
|
Accumulated other comprehensive loss | | (19,586 | ) | | (21,276 | ) |
Treasury stock (18,249 and 11,221 shares at cost, respectively) | | (201 | ) | | (57 | ) |
Total IDACORP, Inc. shareholders’ equity | | 2,148,643 |
| | 2,057,884 |
|
Noncontrolling interests | | 4,019 |
| | 4,160 |
|
Total equity | | 2,152,662 |
| | 2,062,044 |
|
Total | | $ | 6,129,109 |
| | $ | 6,023,314 |
|
| | | | |
The accompanying notes are an integral part of these statements. |
IDACORP, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
| | | | | | | | |
| | Nine months ended September 30, |
| | 2016 | | 2015 |
| | (thousands of dollars) |
Operating Activities: | | | | |
Net income | | $ | 164,934 |
| | $ | 162,802 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 110,161 |
| | 106,304 |
|
Deferred income taxes and investment tax credits | | 30,077 |
| | 25,265 |
|
Changes in regulatory assets and liabilities | | 13,502 |
| | 25,776 |
|
Pension and postretirement benefit plan expense | | 22,175 |
| | 22,668 |
|
Contributions to pension and postretirement benefit plans | | (43,851 | ) | | (41,660 | ) |
Earnings of unconsolidated equity-method investments | | (13,650 | ) | | (8,636 | ) |
Distributions from unconsolidated equity-method investments | | 17,114 |
| | 9,352 |
|
Allowance for equity funds used during construction | | (16,153 | ) | | (16,219 | ) |
Other non-cash adjustments to net income, net | | 3,876 |
| | 1,444 |
|
Change in: | | |
| | |
|
Accounts receivable | | (12,435 | ) | | (14,704 | ) |
Accounts payable and other accrued liabilities | | (10,033 | ) | | (12,210 | ) |
Taxes accrued/receivable | | 8,490 |
| | 19,845 |
|
Other current assets | | 7,343 |
| | (178 | ) |
Other current liabilities | | (5,451 | ) | | 7,874 |
|
Other assets | | (1,277 | ) | | 2,468 |
|
Other liabilities | | 595 |
| | 629 |
|
Net cash provided by operating activities | | 275,417 |
| | 290,820 |
|
Investing Activities: | | |
| | |
|
Additions to property, plant and equipment | | (199,966 | ) | | (235,890 | ) |
Payments received from transmission project joint funding partners | | 6,853 |
| | — |
|
Proceeds from the sale of emission allowances and renewable energy certificates | | 969 |
| | 1,855 |
|
Purchase of available-for-sale securities | | (9,843 | ) | | (469 | ) |
Proceeds from the sale of available-for-sale securities | | 14,453 |
| | 2,724 |
|
Purchase of life insurance investment | | (10,000 | ) | | — |
|
Other | | (9 | ) | | (1,132 | ) |
Net cash used in investing activities | | (197,543 | ) | | (232,912 | ) |
Financing Activities: | | |
| | |
|
Issuance of long-term debt | | 120,000 |
| | 250,000 |
|
Retirement of long-term debt | | (101,064 | ) | | (121,064 | ) |
Dividends on common stock | | (77,350 | ) | | (71,225 | ) |
Net change in short-term borrowings | | (14,600 | ) | | (27,700 | ) |
Acquisition of treasury stock | | (3,287 | ) | | (3,277 | ) |
Make-whole premium on retirement of long-term debt | | (13,895 | ) | | (17,872 | ) |
Other | | (1,684 | ) | | (2,318 | ) |
Net cash (used in) provided by financing activities | | (91,880 | ) | | 6,544 |
|
Net (decrease) increase in cash and cash equivalents | | (14,006 | ) | | 64,452 |
|
Cash and cash equivalents at beginning of the period | | 114,802 |
| | 56,808 |
|
Cash and cash equivalents at end of the period | | $ | 100,796 |
| | $ | 121,260 |
|
Supplemental Disclosure of Cash Flow Information: | | |
| | |
|
Cash paid during the period for: | | |
| | |
Income taxes | | $ | 2,187 |
| | $ | 4,442 |
|
Interest (net of amount capitalized) | | $ | 60,224 |
| | $ | 57,630 |
|
Non-cash investing activities: | | | | |
Additions to property, plant and equipment in accounts payable | | $ | 21,583 |
| | $ | 12,606 |
|
The accompanying notes are an integral part of these statements.
IDACORP, Inc.
Condensed Consolidated Statements of Equity
(unaudited)
|
| | | | | | | | |
| | Nine months ended September 30, |
| | 2016 | | 2015 |
| | (thousands of dollars) |
Common Stock | | | | |
Balance at beginning of period | | $ | 849,112 |
| | $ | 845,402 |
|
Cumulative effect of change in accounting principle | | 234 |
| | — |
|
Other | | 1,352 |
| | 2,601 |
|
Balance at end of period | | 850,698 |
| | 848,003 |
|
Retained Earnings | | | | |
Balance at beginning of period | | 1,230,105 |
| | 1,132,237 |
|
Cumulative effect of change in accounting principle | | (234 | ) | | — |
|
Net income attributable to IDACORP, Inc. | | 165,075 |
| | 162,847 |
|
Common stock dividends ($1.53 and $1.41 per share) | | (77,214 | ) | | (71,059 | ) |
Balance at end of period | | 1,317,732 |
| | 1,224,025 |
|
Accumulated Other Comprehensive (Loss) Income | | | | |
Balance at beginning of period | | (21,276 | ) | | (24,158 | ) |
Unfunded pension liability adjustment (net of tax) | | 1,690 |
| | 2,001 |
|
Balance at end of period | | (19,586 | ) | | (22,157 | ) |
Treasury Stock | | | | |
Balance at beginning of period | | (57 | ) | | (280 | ) |
Issued | | 3,143 |
| | 3,500 |
|
Acquired | | (3,287 | ) | | (3,277 | ) |
Balance at end of period | | (201 | ) | | (57 | ) |
Total IDACORP, Inc. shareholders’ equity at end of period | | 2,148,643 |
| | 2,049,814 |
|
Noncontrolling Interests | | | | |
Balance at beginning of period | | 4,160 |
| | 4,364 |
|
Net loss attributable to noncontrolling interests | | (141 | ) | | (45 | ) |
Balance at end of period | | 4,019 |
| | 4,319 |
|
Total equity at end of period | | $ | 2,152,662 |
| | $ | 2,054,133 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Statements of Income
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | (thousands of dollars) |
Operating Revenues: | | | | | | | | |
General business | | $ | 341,825 |
| | $ | 340,796 |
| | $ | 885,486 |
| | $ | 897,943 |
|
Off-system sales | | 6,143 |
| | 6,487 |
| | 16,532 |
| | 23,335 |
|
Other revenues | | 23,506 |
| | 21,234 |
| | 64,433 |
| | 61,334 |
|
Total operating revenues | | 371,474 |
| | 368,517 |
| | 966,451 |
| | 982,612 |
|
Operating Expenses: | | | | | | | | |
Operation: | | | | | | | | |
Purchased power | | 74,448 |
| | 71,890 |
| | 170,675 |
| | 166,191 |
|
Fuel expense | | 73,925 |
| | 66,385 |
| | 139,657 |
| | 144,262 |
|
Power cost adjustment | | (18,342 | ) | | (11,914 | ) | | 11,914 |
| | 26,372 |
|
Other operations and maintenance | | 87,090 |
| | 83,972 |
| | 259,813 |
| | 255,329 |
|
Energy efficiency programs | | 9,102 |
| | 7,645 |
| | 24,256 |
| | 19,854 |
|
Depreciation | | 36,036 |
| | 34,639 |
| | 107,447 |
| | 102,996 |
|
Taxes other than income taxes | | 8,287 |
| | 8,286 |
| | 25,228 |
| | 24,999 |
|
Total operating expenses | | 270,546 |
| | 260,903 |
| | 738,990 |
| | 740,003 |
|
Income from Operations | | 100,928 |
| | 107,614 |
| | 227,461 |
| | 242,609 |
|
Other Income (Expense): | | | | | | | | |
Allowance for equity funds used during construction | | 5,931 |
| | 5,654 |
| | 16,153 |
| | 16,219 |
|
Earnings of unconsolidated equity-method investments | | 11,121 |
| | 4,334 |
| | 11,528 |
| | 6,992 |
|
Other expense, net | | (328 | ) | | (1,755 | ) | | (1,845 | ) | | (4,216 | ) |
Total other income | | 16,724 |
| | 8,233 |
| | 25,836 |
| | 18,995 |
|
Interest Charges: | | | | | | | | |
Interest on long-term debt | | 20,296 |
| | 20,614 |
| | 61,659 |
| | 62,443 |
|
Other interest | | 2,546 |
| | 2,204 |
| | 7,397 |
| | 6,311 |
|
Allowance for borrowed funds used during construction | | (2,589 | ) | | (2,593 | ) | | (7,226 | ) | | (7,550 | ) |
Total interest charges | | 20,253 |
| | 20,225 |
| | 61,830 |
| | 61,204 |
|
Income Before Income Taxes | | 97,399 |
| | 95,622 |
| | 191,467 |
| | 200,400 |
|
Income Tax Expense | | 17,370 |
| | 23,895 |
| | 31,097 |
| | 40,872 |
|
Net Income | | $ | 80,029 |
| | $ | 71,727 |
| | $ | 160,370 |
| | $ | 159,528 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | (thousands of dollars) |
| | | | | | | | |
Net Income | | $ | 80,029 |
| | $ | 71,727 |
| | $ | 160,370 |
| | $ | 159,528 |
|
Other Comprehensive Income: | | | | | | | | |
Unfunded pension liability adjustment, net of tax of $362, $428, $1,085 and $1,284 | | 563 |
| | 667 |
| | 1,690 |
| | 2,001 |
|
Total Comprehensive Income | | $ | 80,592 |
| | $ | 72,394 |
| | $ | 162,060 |
| | $ | 161,529 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | September 30, 2016 | | December 31, 2015 |
| | (thousands of dollars) |
Assets | | | | |
| | | | |
Electric Plant: | | | | |
In service (at original cost) | | $ | 5,582,890 |
| | $ | 5,485,464 |
|
Accumulated provision for depreciation | | (1,982,496 | ) | | (1,913,927 | ) |
In service - net | | 3,600,394 |
| | 3,571,537 |
|
Construction work in progress | | 471,331 |
| | 396,931 |
|
Held for future use | | 7,457 |
| | 7,090 |
|
Electric plant - net | | 4,079,182 |
| | 3,975,558 |
|
Investments and Other Property | | 111,994 |
| | 121,267 |
|
Current Assets: | | | | |
Cash and cash equivalents | | 88,936 |
| | 110,756 |
|
Receivables: | | | | |
Customer (net of allowance of $987 and $1,196, respectively) | | 86,215 |
| | 73,505 |
|
Other (net of allowance of $260 and $159, respectively) | | 7,122 |
| | 8,520 |
|
Taxes receivable | | 6,776 |
| | 5,432 |
|
Accrued unbilled revenues | | 59,877 |
| | 65,805 |
|
Materials and supplies (at average cost) | | 58,686 |
| | 56,924 |
|
Fuel stock (at average cost) | | 60,257 |
| | 61,818 |
|
Prepayments | | 15,483 |
| | 17,846 |
|
Current regulatory assets | | 54,366 |
| | 49,215 |
|
Other | | 2,997 |
| | 288 |
|
Total current assets | | 440,715 |
| | 450,109 |
|
Deferred Debits: | | | | |
American Falls and Milner water rights | | 9,747 |
| | 11,592 |
|
Company-owned life insurance | | 57,508 |
| | 48,566 |
|
Regulatory assets | | 1,298,519 |
| | 1,305,210 |
|
Other | | 70,693 |
| | 56,533 |
|
Total deferred debits | | 1,436,467 |
| | 1,421,901 |
|
Total | | $ | 6,068,358 |
| | $ | 5,968,835 |
|
The accompanying notes are an integral part of these statements.
Idaho Power Company
Condensed Consolidated Balance Sheets
(unaudited)
|
| | | | | | | | |
| | September 30, 2016 | | December 31, 2015 |
| | (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 | | 1,210,430 |
| | 1,127,426 |
|
Accumulated other comprehensive loss | | (19,586 | ) | | (21,276 | ) |
Total common stock equity | | 1,998,882 |
| | 1,914,188 |
|
Long-term debt | | 1,745,548 |
| | 1,725,410 |
|
Total capitalization | | 3,744,430 |
| | 3,639,598 |
|
Current Liabilities: | | | | |
Current maturities of long-term debt | | 1,064 |
| | 1,064 |
|
Accounts payable | | 77,557 |
| | 94,970 |
|
Accounts payable to affiliates | | 1,189 |
| | 1,059 |
|
Taxes accrued | | 20,261 |
| | 10,745 |
|
Interest accrued | | 21,405 |
| | 22,292 |
|
Accrued compensation | | 39,248 |
| | 42,835 |
|
Current regulatory liabilities | | 3,011 |
| | 2,217 |
|
Advances from customers | | 26,615 |
| | 31,214 |
|
Other | | 9,700 |
| | 15,506 |
|
Total current liabilities | | 200,050 |
| | 221,902 |
|
Deferred Credits: | | | | |
Deferred income taxes | | 1,269,208 |
| | 1,252,371 |
|
Regulatory liabilities | | 434,464 |
| | 416,282 |
|
Pension and other postretirement benefits | | 375,814 |
| | 394,030 |
|
Other | | 44,392 |
| | 44,652 |
|
Total deferred credits | | 2,123,878 |
| | 2,107,335 |
|
| | | | |
Commitments and Contingencies | |
| |
|
| | | | |
Total | | $ | 6,068,358 |
| | $ | 5,968,835 |
|
| | | | |
The accompanying notes are an integral part of these statements. |
Idaho Power Company
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
| | | | | | | | |
| | Nine months ended September 30, |
| | 2016 | | 2015 |
| | (thousands of dollars) |
Operating Activities: | | | | |
Net income | | $ | 160,370 |
| | $ | 159,528 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 109,704 |
| | 105,848 |
|
Deferred income taxes and investment tax credits | | 12,679 |
| | (5,307 | ) |
Changes in regulatory assets and liabilities | | 13,502 |
| | 25,776 |
|
Pension and postretirement benefit plan expense | | 22,191 |
| | 22,646 |
|
Contributions to pension and postretirement benefit plans | | (43,867 | ) | | (41,638 | ) |
Earnings of unconsolidated equity-method investments | | (11,528 | ) | | (6,992 | ) |
Distributions from unconsolidated equity-method investments | | 16,264 |
| | 8,502 |
|
Allowance for equity funds used during construction | | (16,153 | ) | | (16,219 | ) |
Other non-cash adjustments to net income, net | | (571 | ) | | (969 | ) |
Change in: | | |
| | |
|
Accounts receivable | | (12,319 | ) | | (17,363 | ) |
Accounts payable | | (10,016 | ) | | (11,967 | ) |
Taxes accrued/receivable | | 8,172 |
| | 27,942 |
|
Other current assets | | 7,326 |
| | (189 | ) |
Other current liabilities | | (5,451 | ) | | 7,917 |
|
Other assets | | (1,277 | ) | | 2,468 |
|
Other liabilities | | 789 |
| | 800 |
|
Net cash provided by operating activities | | 249,815 |
| | 260,783 |
|
Investing Activities: | | |
| | |
|
Additions to utility plant | | (199,964 | ) | | (235,841 | ) |
Payments received from transmission project joint funding partners | | 6,853 |
| | — |
|
Proceeds from the sale of emission allowances and renewable energy certificates | | 969 |
| | 1,855 |
|
Purchase of available-for-sale securities | | (9,843 | ) | | (469 | ) |
Proceeds from the sale of available-for-sale securities | | 14,453 |
| | 2,724 |
|
Purchase of life insurance investment | | (10,000 | ) | | — |
|
Other | | (108 | ) | | (1,372 | ) |
Net cash used in investing activities | | (197,640 | ) | | (233,103 | ) |
Financing Activities: | | |
| | |
|
Issuance of long-term debt | | 120,000 |
| | 250,000 |
|
Retirement of long-term debt | | (101,064 | ) | | (121,064 | ) |
Dividends on common stock | | (77,365 | ) | | (71,215 | ) |
Make-whole premium on retirement of long-term debt | | (13,895 | ) | | (17,872 | ) |
Other | | (1,671 | ) | | (4,125 | ) |
Net cash (used in) provided by financing activities | | (73,995 | ) | | 35,724 |
|
Net (decrease) increase in cash and cash equivalents | | (21,820 | ) | | 63,404 |
|
Cash and cash equivalents at beginning of the period | | 110,756 |
| | 46,695 |
|
Cash and cash equivalents at end of the period | | $ | 88,936 |
| | $ | 110,099 |
|
Supplemental Disclosure of Cash Flow Information: | | |
| | |
|
Cash paid during the period for: | | |
| | |
|
Income taxes | | $ | 19,796 |
| | $ | 28,336 |
|
Interest (net of amount capitalized) | | $ | 60,034 |
| | $ | 57,457 |
|
Non-cash investing activities: | | | | |
Additions to property, plant and equipment in accounts payable | | $ | 21,583 |
| | $ | 12,606 |
|
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 engaged in the generation, transmission, distribution, sale, and purchase of electric energy and capacity with a service area covering approximately 24,000 square miles in southern Idaho and eastern Oregon. Idaho Power is regulated primarily by the state utility regulatory commissions of Idaho and Oregon and the Federal Energy Regulatory Commission (FERC). 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. (IE), 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 record such 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 through rates. Additionally, regulators can impose regulatory liabilities upon a regulated company for amounts previously collected from customers that are expected to be refunded. 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 September 30, 2016, consolidated results of operations for the three and nine months ended September 30, 2016 and 2015, and consolidated cash flows for the nine months ended September 30, 2016 and 2015. 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, 2015. 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, 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. Accordingly, actual results could differ from those estimates.
Reclassifications
In these consolidated financial statements, certain amounts in prior periods' consolidated financial statements have been reclassified to conform with the current period presentation.
New and Recently Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-09, Compensation--Stock Compensation (Topic 718) - Improvements to Employer Share-Based Payment Accounting, simplifying several aspects of the accounting for stock compensation paid to employees. As allowed, IDACORP and Idaho Power elected to early adopt the provisions of the new standard in the first quarter of 2016 under the modified retrospective method, with the cumulative effect of adoption recorded as an adjustment to 2016 beginning retained earnings. The principal changes under the new accounting standard include the following:
| |
• | Excess or deficit income tax benefits on share-based transactions are recorded as income tax expense rather than in additional-paid-in-capital. |
| |
• | Previously recorded forfeiture estimates of approximately $0.2 million are reported as a decrease to beginning retained earnings. IDACORP made an accounting policy election to account for share-based award forfeitures as they occur, rather than making an estimate of future forfeitures. |
| |
• | In the statement of cash flows, excess tax benefits on share-based payments are presented in operating activities in the same manner as other cash flows related to income taxes. Previously, these cash flows were presented in financing activities. Prior periods were not restated for this change. |
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis, which revises the consolidation model that reporting entities use when determining what entities are to be consolidated. The amendments focus on limited partnerships and similar legal entities. The adoption of ASU 2015-02 in the first quarter of 2016 did not have a material impact on IDACORP's or Idaho Power's financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is intended to enable users of financial statements to better understand and consistently analyze an entity's revenue across industries, transactions, and geographies. Under the ASU, recognition of revenue occurs when a customer obtains control of promised goods or services. In addition, the ASU requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB amended certain aspects of ASU 2014-09 to clarify the implementation guidance, including clarifications related to principal versus agent considerations, licensing and identifying performance obligations, narrow scope improvements, and practical expedients. The guidance in ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods, with early adoption permitted one year earlier. IDACORP and Idaho Power do not plan to early adopt the standard. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard including a cumulative-effect adjustment with disclosure of results under old standards. The companies are assessing the impacts of ASU 2014-09 on their financial statements as well as the transition method the companies will use to adopt the guidance. At this time, the companies do not know, and cannot reasonably estimate, the dollar impact of the adoption. Specifically, the companies are considering whether the new guidance will affect their accounting for contributions in aid of construction, sales of renewable energy credits, and other utility industry-related areas.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), intended to improve financial reporting about leasing transactions. The ASU significantly changes the accounting model used by lessees to account for leases, requiring that all material leases be presented on the balance sheet. Under the current model, some leases are classified as capital leases and recorded on the balance sheet while other leases classified as operating leases are not recognized on the balance sheet. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods, with early adoption permitted. The standard must be adopted using a modified retrospective approach. IDACORP and Idaho Power are evaluating the impact of ASU 2016-02 on their financial statements. At this time, the companies do not know, and cannot reasonably estimate, the dollar impact of the adoption. Specifically, the companies are considering whether the new guidance will affect their accounting for purchase power agreements, easements and rights-of-way, utility pole attachments, and other utility industry-related areas.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which amends ASC 230 to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The FASB issued the ASU with the intent of reducing diversity in practice with respect to eight types of cash flows. The companies expect the ASU to affect the classification of proceeds from the settlement of corporate-owned life insurance policies, which will be classified as investing activities under the new guidance. The guidance in ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017. The standard must be adopted retrospectively to all periods presented, unless impracticable to do so. IDACORP and Idaho Power do not believe the adoption will have a material impact on their financial statements.
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, accounting method changes, or adjustments to tax expense or benefits attributable to prior years. Discrete events are recorded in the interim period in which they occur or become known. The estimated annual effective tax rate is applied to year-to-date pretax 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 nine months ended September 30 (in thousands of dollars):
|
| | | | | | | | | | | | | | | | |
| | IDACORP | | Idaho Power |
| | 2016 | | 2015 | | 2016 | | 2015 |
Income tax at statutory rates (federal and state) | | $ | 75,736 |
| | $ | 79,030 |
| | $ | 74,864 |
| | $ | 78,356 |
|
Additional ADITC amortization | | (1,500 | ) | | — |
| | (1,500 | ) | | — |
|
First mortgage bond redemption costs | | (5,583 | ) | | (7,210 | ) | | (5,583 | ) | | (7,210 | ) |
Share-based compensation | | (1,754 | ) | | — |
| | (1,720 | ) | | — |
|
Affordable housing tax credits | | (2,130 | ) | | (2,628 | ) | | — |
| | — |
|
Affordable housing investment distributions, net of statutory rates | | (1,561 | ) | | — |
| | — |
| | — |
|
Affordable housing investment amortization, net of statutory rates | | 1,019 |
| | 1,025 |
| | — |
| | — |
|
Other(1) | | (35,605 | ) | | (30,941 | ) | | (34,964 | ) | | (30,274 | ) |
Income tax expense | | $ | 28,622 |
| | $ | 39,276 |
| | $ | 31,097 |
| | $ | 40,872 |
|
Effective tax rate | | 14.8 | % | | 19.4 | % | | 16.2 | % | | 20.4 | % |
(1) "Other" is primarily comprised of the net tax effect of Idaho Power's regulatory flow-through tax adjustments. These adjustments, which include the capitalized repairs deduction, are each 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, 2015.
The reductions in income tax expense for the nine months ended September 30, 2016, compared with the same period in 2015, were primarily due to lower pre-tax income, tax benefits resulting from share-based compensation related to the adoption of ASU 2016-09 discussed in Note 1, additional accumulated deferred investment tax credit (ADITC) amortization under the regulatory mechanism described in Note 3, and distributions related to fully-amortized affordable housing investments. On a net basis, Idaho Power’s estimate of its annual 2016 regulatory flow-through tax adjustments is comparable to 2015.
3. REGULATORY MATTERS
Included below is a summary of Idaho Power's most recent general rate cases and base rate changes, as well as other recent or pending notable regulatory matters and proceedings.
Idaho and Oregon General Rate Cases and Base Rate Adjustments
Effective January 1, 2012, Idaho Power implemented new Idaho base rates resulting from its receipt of an order from the Idaho Public Utilities Commission (IPUC) approving a settlement stipulation that provided for a 7.86 percent authorized rate of return on an Idaho-jurisdiction rate base of approximately $2.36 billion. The settlement stipulation resulted in a $34.0 million overall
increase in Idaho Power's annual Idaho-jurisdictional base rate revenues. Neither the IPUC's order nor the settlement stipulation specified an authorized rate of return on equity.
Effective March 1, 2012, Idaho Power implemented new Oregon base rates resulting from its receipt of an order from the Public Utility Commission of Oregon (OPUC) approving a settlement stipulation that provided for a $1.8 million base rate revenue increase, a return on equity of 9.9 percent, and an overall rate of return of 7.757 percent in the Oregon jurisdiction.
Idaho and Oregon base rates were subsequently adjusted again in 2012, in connection with Idaho Power's completion of the Langley Gulch power plant. On June 29, 2012, the IPUC issued an order approving a $58.1 million increase in annual Idaho-jurisdiction base rate revenues, effective July 1, 2012, for inclusion of the investment and associated costs of the 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 a $3.0 million increase in annual Oregon jurisdiction base rate revenues, effective October 1, 2012, for inclusion of the investment and associated costs of the plant in Oregon rates.
On March 21, 2014, the IPUC issued an order approving Idaho Power's application requesting an increase of approximately $106 million in the normalized or "base level" net power supply expense on a total-system basis to be used to update base rates and in the determination of the PCA rate that became effective June 1, 2014. Approval of the order removed the Idaho-jurisdictional portion of those expenses (approximately $99 million) from collection via the Idaho PCA mechanism and instead results in collecting that portion through base rates.
Idaho Settlement Stipulation — Investment Tax Credits and Sharing Mechanism
In October 2014, the IPUC issued an order approving an extension, with modifications, of the terms of a December 2011 Idaho settlement stipulation for the period from 2015 through 2019, or until the terms are otherwise modified or terminated by order of the IPUC. The provisions of the October 2014 settlement stipulation are as follows:
| |
• | If Idaho Power's annual return on year-end equity in the Idaho jurisdiction (Idaho ROE) in any year is less than 9.5 percent, then Idaho Power may amortize up to $25 million of additional accumulated deferred investment tax credits (ADITC) to help achieve a 9.5 percent Idaho ROE for that year, and may amortize up to a total of $45 million of additional ADITC over the 2015 through 2019 period. |
| |
• | If Idaho Power's annual Idaho ROE in any year exceeds 10.0 percent, the amount of earnings exceeding a 10.0 percent Idaho ROE and up to and including a 10.5 percent Idaho ROE will be allocated 75 percent to Idaho Power's Idaho customers as a rate reduction to be effective at the time of the subsequent year's power cost adjustment and 25 percent to Idaho Power. |
| |
• | If Idaho Power's annual Idaho ROE in any year exceeds 10.5 percent, the amount of earnings exceeding a 10.5 percent Idaho ROE will be allocated 50 percent to Idaho Power's Idaho customers as a rate reduction to be effective at the time of the subsequent year's power cost adjustment, 25 percent to Idaho Power's Idaho customers in the form of a reduction to the pension regulatory asset balancing account (to reduce the amount to be collected in the future from Idaho customers), and 25 percent to Idaho Power. |
| |
• | If the full $45 million of additional ADITC contemplated by the settlement stipulation has been amortized the sharing provisions would terminate. |
| |
• | In the event the IPUC approves a change to Idaho Power's Idaho-jurisdictional allowed return on equity as part of a general rate case proceeding seeking a rate change effective prior to January 1, 2020, the Idaho ROE thresholds (9.5 percent, 10.0 percent, and 10.5 percent) will be adjusted prospectively, prorated for intra-year rate changes. |
Under the October 2014 settlement stipulation, Idaho Power recorded $1.5 million of additional ADITC amortization during the first nine months of 2016 based on its estimate of Idaho ROE for the full-year 2016, leaving $43.5 million of additional ADITCs estimated to be available under the settlement stipulation.
Idaho Power Cost Adjustment Mechanism
In both its Idaho and Oregon jurisdictions, Idaho Power's power cost adjustment (PCA) mechanisms address the volatility of power supply costs and provide for annual adjustments to the rates charged to its retail customers. The PCA mechanisms compare Idaho Power's actual net power supply costs (primarily fuel and purchased power less off-system sales) against net power supply costs being recovered in Idaho Power's retail rates. Under the PCA mechanisms, certain differences between actual net power supply costs incurred by Idaho Power and costs being recovered in retail rates are recorded as a deferred charge or credit on the balance sheet for future recovery or refund. The power supply costs deferred primarily result from
changes in contracted power purchase prices and volumes, changes in wholesale market prices and transaction volumes, fuel prices, and the levels of Idaho Power's own generation.
On May 27, 2016, the IPUC issued an order approving a $17.3 million net increase in Idaho PCA rates, effective for the 2016-2017 PCA collection period from June 1, 2016 to May 31, 2017. The requested net increase in Idaho PCA rates included the application of (a) a customer rate credit of $3.2 million for sharing with customers for the year 2015 pursuant to the terms of the October 2014 settlement stipulation described above and (b) a $4.0 million reduction due to the transfer of Idaho energy efficiency rider funds. Previously, on May 28, 2015, the IPUC issued an order approving an $11.6 million net decrease in Idaho PCA rates, effective for the 2015-2016 PCA collection period from June 1, 2015, to May 31, 2016. The net decrease in Idaho PCA rates included the application of (a) a customer rate credit of $8.0 million for sharing with customers for the year 2014 pursuant to the terms of the December 2011 settlement stipulation, (b) a $1.5 million customer benefit relating to a change to the sales-based adjustment component of the PCA methodology, and (c) a $4.0 million reduction due to the transfer of Idaho energy efficiency rider funds.
Idaho Fixed Cost Adjustment Mechanism
The Idaho jurisdiction fixed cost adjustment (FCA) mechanism is designed to remove Idaho Power’s financial disincentive to invest in energy efficiency programs by separating (or decoupling) the recovery of fixed costs from the variable kilowatt-hour charge and instead linking it to a set amount per customer. The FCA mechanism is adjusted each year to collect, or refund, the difference between the authorized fixed-cost recovery amount and the actual fixed costs recovered by Idaho Power during the year. On May 27, 2016, the IPUC issued an order approving Idaho Power's application requesting an increase of $11.2 million in the FCA from $16.9 million to $28.1 million, with new rates effective for the period from June 1, 2016, through May 31, 2017. Previously, on May 19, 2015, the IPUC issued an order approving an increase of $2.0 million in the FCA from $14.9 million to $16.9 million, with new rates effective for the period from June 1, 2015, through May 31, 2016.
4. LONG-TERM DEBT
On March 10, 2016, Idaho Power issued $120 million in principal amount of 4.05 percent first mortgage bonds, secured medium-term notes, Series J, maturing on March 1, 2046. On April 11, 2016, Idaho Power redeemed, prior to maturity, $100 million in principal amount of 6.15 percent first mortgage bonds, medium-term notes, Series H due April 2019. In accordance with the redemption provisions of the notes, the redemption included Idaho Power's payment of a make-whole premium to the holders of the redeemed notes in the aggregate amount of $14 million. Idaho Power used a portion of the net proceeds from the March 2016 issuance of first mortgage bonds, medium-term notes to effect the redemption.
In April and May 2016, Idaho Power received orders from the IPUC, OPUC, and Wyoming Public Service Commission (WPSC) authorizing the company to issue and sell from time to time up to $500 million in aggregate principal amount of debt securities and first mortgage bonds. The order from the IPUC approved the issuance of the securities through May 31, 2019, subject to extension upon request to the IPUC. The OPUC’s and WPSC’s orders do not impose a time limitation for issuances, but the OPUC order does impose a number of other conditions, including a requirement that the interest rates for the debt securities or first mortgage bonds fall within either (a) designated spreads over comparable U.S. Treasury rates or (b) a maximum all-in interest rate of 7.00 percent.
On May 20, 2016, IDACORP and Idaho Power filed a joint shelf registration statement with the SEC, which became effective upon filing, for the offer and sale of, in the case of IDACORP, an unspecified amount of shares of common stock and unspecified principal amount of debt securities, and in the case of Idaho Power, an unspecified principal amount of its first mortgage bonds and debt securities.
On September 27, 2016, Idaho Power entered into a selling agency agreement with seven 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, secured medium term notes, Series K (Series K Notes), under Idaho Power’s Indenture of Mortgage and Deed of Trust, dated as of October 1, 1937, as amended and supplemented (Indenture). Also on September 27, 2016, Idaho Power entered into the Forty-eighth Supplemental Indenture, dated effective as of September 1, 2016, to the Indenture (Forty-eighth Supplemental Indenture). The Forty-eighth Supplemental Indenture provides for, among other items (a) the issuance of up to $500 million in aggregate principal amount of Series K Notes pursuant to the Indenture and (b) the increase of the maximum amount of obligations to be secured by the Indenture to $2.5 billion (which maximum amount may be further increased or decreased by Idaho Power without consent of the holders of first mortgage bonds). As of the date of this report, Idaho Power had not sold any first mortgage bonds, including Series K Notes, or debt securities under the selling agency agreement.
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. The terms and conditions of those credit facilities are as described in IDACORP's and Idaho Power's Annual Report on Form 10-K for the year ended December 31, 2015.
At September 30, 2016, no loans were outstanding under either IDACORP's or Idaho Power's facilities. At September 30, 2016, 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 September 30, 2016, and December 31, 2015: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2016 | | December 31, 2015 |
| | Idaho Power | | IDACORP | | Total | | Idaho Power | | IDACORP | | Total |
Commercial paper outstanding | | $ | — |
| | $ | 5,400 |
| | $ | 5,400 |
| | $ | — |
| | $ | 20,000 |
| | $ | 20,000 |
|
Weighted-average annual interest rate | | — | % | | 0.86 | % | | 0.86 | % | | — | % | | 0.88 | % | | 0.88 | % |
6. COMMON STOCK
IDACORP Common Stock
During the nine months ended September 30, 2016, IDACORP issued 67,966 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.
Restrictions on Dividends
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 Policy and Code of Conduct. 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. At September 30, 2016, the leverage ratios for IDACORP and Idaho Power were 45 percent and 47 percent, respectively. Based on these restrictions, IDACORP’s and Idaho Power’s dividends were limited to $1.2 billion and $1.1 billion, respectively, at September 30, 2016. There are additional facility covenants, subject to exceptions, that prohibit or restrict the sale or disposition of property without consent and any agreements restricting dividend payments to the applicable company from any material subsidiary. At September 30, 2016, IDACORP and Idaho Power were in compliance with the financial 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 September 30, 2016, Idaho Power's common equity capital was 53 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 account" is undefined in the Federal Power Act or its regulations, but Idaho Power does not believe the restriction would limit Idaho Power's ability to pay dividends out of current year earnings or retained earnings.
7. EARNINGS PER SHARE
The table below presents the computation of IDACORP’s basic and diluted earnings per share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except for per share amounts).
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
Numerator: | | |
| | |
| | |
| | |
|
Net income attributable to IDACORP, Inc. | | $ | 83,100 |
| | $ | 73,336 |
| | $ | 165,075 |
| | $ | 162,847 |
|
Denominator: | | |
| | |
| | | | |
Weighted-average common shares outstanding - basic | | 50,296 |
| | 50,219 |
| | 50,299 |
| | 50,221 |
|
Effect of dilutive securities | | 97 |
| | 105 |
| | 62 |
| | 61 |
|
Weighted-average common shares outstanding - diluted | | 50,393 |
| | 50,324 |
| | 50,361 |
| | 50,282 |
|
Basic earnings per share | | $ | 1.65 |
| | $ | 1.46 |
| | $ | 3.28 |
| | $ | 3.24 |
|
Diluted earnings per share | | $ | 1.65 |
| | $ | 1.46 |
| | $ | 3.28 |
| | $ | 3.24 |
|
8. COMMITMENTS
Purchase Obligations
IDACORP's and Idaho Power's purchase obligations did not change materially, outside of the ordinary course of business, during the nine months ended September 30, 2016, except that ten power purchase agreements with solar energy developers were terminated due to either an uncured breach or voluntary termination by the counterparties. Termination of the agreements reduced Idaho Power's contractual payment obligations by approximately $267 million over the 20-year lives of the terminated contracts.
Guarantees
Through a self-bonding mechanism, Idaho Power guarantees its portion of reclamation activities and obligations at BCC, of which IERCo owns a one-third interest. This guarantee, which is renewed annually with the Wyoming Department of Environmental Quality, was $71 million at September 30, 2016, 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 September 30, 2016, the current value of the reclamation trust fund was $79 million. During the nine months ended September 30, 2016, the reclamation trust fund made distributions of $1.2 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 September 30, 2016, 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, 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. 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 the western wholesale markets during 2000 and 2001 caused numerous purchasers of electricity in those markets to initiate proceedings to consider requiring refunds and other forms of disgorgement from energy sellers. Some of these proceedings remain pending before the FERC or are on appeal to the United States Court of Appeals for the Ninth Circuit, and thus there remains some uncertainty about the ultimate outcome of the proceedings. Idaho Power and IESCo (as successor to IDACORP Energy L.P.) believe that the current state of the FERC's orders, if maintained, and the settlement releases they have obtained, will restrict potential claims that might result from the pending proceedings. As a result, IDACORP and Idaho Power predict that these matters will not have a material adverse effect on their respective results of operations or financial condition. However, if unanticipated orders are issued by the FERC or by the Ninth Circuit Court of Appeals or other courts, exposure to indirect claims in the proceedings could exist. These indirect claims would consist of so-called "ripple claims," which involve potential claims for refunds in the Pacific Northwest markets 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. Given the speculative nature of ripple claims and in light of Idaho Power's and IESCo's participation in the market as both buyers and sellers of energy, Idaho Power and IESCo are unable to estimate the possible loss or range of loss that could result from the proceedings and have no amount accrued 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.
Hoku Corporation Bankruptcy Claims
On June 26, 2015, the trustee in the Hoku Corporation chapter 7 bankruptcy case (In Re: Hoku Corporation, United States Bankruptcy Court, District of Idaho, Case No. 13-40838 JDP) filed a complaint against Idaho Power, alleging that specified payments made by Hoku Corporation to Idaho Power in the six years prior to Hoku Corporation's bankruptcy filing in July 2013 should be recoverable by the trustee as constructive fraudulent transfers. Hoku Corporation was the parent entity of Hoku Materials, Inc., with which Idaho Power had an electric service agreement approved by the IPUC in March 2009. Under the electric service agreement, Idaho Power agreed to provide electric service to a polysilicon production facility under construction by Hoku Materials in the state of Idaho. Idaho Power also had agreements with Hoku Materials pertaining to the design and construction of apparatus for the provision of electric service to the polysilicon plant. The trustee's complaint against Idaho Power included alternative causes of action for constructive fraudulent transfer under the federal bankruptcy code, Idaho law, and federal law, with requests for recovery from Idaho Power in amounts up to approximately $36 million. The complaint alleged that the payments made by Hoku Corporation to Idaho Power are subject to recovery by the trustee on the basis that Hoku Corporation was insolvent at the time of the payments and did not have any legal or equitable title in the polysilicon plant or liability for Hoku Materials' debts, and thus did not receive reasonably equivalent value for the payments it made for or on behalf of Hoku Materials. In September 2016, the bankruptcy court issued an oral decision substantively consolidating the Hoku Materials, Inc. and Hoku Corporation cases into a single case. As of the date of this report, Idaho Power believes that any potential liability is remote in light of the consolidation of the cases.
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, record 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 pending 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. However, Idaho Power does believe that future capital investment for infrastructure and modifications to its electric generating facilities could be significant to comply with these regulations.
10. BENEFIT PLANS
Idaho Power has the following pension plans - a noncontributory defined benefit pension plan (pension plan) and two nonqualified defined benefit plans for certain senior management employees called the Security Plan for Senior Management Employees I and Security Plan for Senior Management Employees II (collectively, SMSP). Idaho Power also has a nonqualified defined benefit pension plan for directors that was frozen in 2002. Remaining vested benefits from that plan are included with the SMSP in the disclosures below. The benefits under the pension plan are based on years of service and the employee’s final average earnings. Idaho Power also maintains a defined benefit postretirement benefit plan (consisting of health care and death benefits) that covers all employees who were enrolled in the active-employee group plan at the time of retirement as well as their spouses and qualifying dependents. The following table shows the components of net periodic benefit costs for the pension, SMSP, and postretirement benefits plans for the three months ended September 30, 2016 and 2015 (in thousands of dollars).
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Pension Plan |
| SMSP |
| Postretirement Benefits |
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| 2016 |
| 2015 |
Service cost |
| $ | 8,004 |
|
| $ | 8,291 |
|
| $ | 307 |
|
| $ | 422 |
|
| $ | 279 |
|
| $ | 308 |
|
Interest cost |
| 9,453 |
|
| 8,792 |
|
| 1,069 |
|
| 967 |
|
| 692 |
|
| 670 |
|
Expected return on plan assets |
| (10,519 | ) |
| (10,994 | ) |
| — |
|
| — |
|
| (619 | ) |
| (669 | ) |
Amortization of prior service cost |
| 15 |
|
| 56 |
|
| 42 |
|
| 47 |
|
| 7 |
|
| 3 |
|
Amortization of net loss |
| 3,332 |
|
| 3,482 |
|
| 883 |
|
| 1,048 |
|
| — |
|
| — |
|
Net periodic benefit cost |
| 10,285 |
|
| 9,627 |
|
| 2,301 |
|
| 2,484 |
|
| 359 |
|
| 312 |
|
Adjustments due to the effects of regulation(1) |
| (5,538 | ) |
| (4,902 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
Net periodic benefit cost recognized for financial reporting(1) |
| $ | 4,747 |
|
| $ | 4,725 |
|
| $ | 2,301 |
|
| $ | 2,484 |
|
| $ | 359 |
|
| $ | 312 |
|
(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.
The table below shows the components of net periodic benefit costs for the pension, SMSP, and postretirement benefits plans for the nine months ended September 30, 2016 and 2015 (in thousands of dollars).
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plan | | SMSP | | Postretirement Benefits |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
Service cost | | $ | 24,014 |
| | $ | 24,873 |
| | $ | 921 |
| | $ | 1,267 |
| | $ | 837 |
| | $ | 926 |
|
Interest cost | | 28,360 |
| | 26,378 |
| | 3,206 |
| | 2,901 |
| | 2,075 |
| | 2,009 |
|
Expected return on plan assets | | (31,560 | ) | | (31,733 | ) | | — |
| | — |
| | (1,856 | ) | | (2,010 | ) |
Amortization of prior service cost | | 44 |
| | 166 |
| | 126 |
| | 139 |
| | 20 |
| | 11 |
|
Amortization of net loss | | 9,998 |
| | 10,446 |
| | 2,649 |
| | 3,146 |
| | — |
| | — |
|
Net periodic benefit cost | | 30,856 |
| | 30,130 |
| | 6,902 |
| | 7,453 |
| | 1,076 |
| | 936 |
|
Adjustments due to the effects of regulation(1) | | |