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IDACORP Inc.
Primary Credit Analyst:
Tony Bettinelli, San Francisco (1) 415-371-5067; [e-mail]
Table Of Contents
Major Rating Factors
Rationale
Outlook
February 24, 2010
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IDACORP Inc.
Major Rating Factors
Strengths:
·A strong power cost adjustment (PCA) mechanism that allows 95% of
uncollected power costs to be deferred for timely collection;
·A low-cost hydro- and coal-based generating fleet;
·An economic environment that has suffered less than regional and national
averages;
·A generally supportive state regulatory regime; and
·The absence of material, unregulated businesses.
Corporate Credit Rating
BBB/Stable/A-2
Weaknesses:
·High exposure to hydroelectric generation volatility on the Snake River, resulting in unpredictable power supplies
and costs, although ultimate recovery is higher due to the company's PCA mechanism;
·Cash flow volatility that periodically pushes credit metrics to the lower end of what is expected at the current
financial risk category; and
·Rising capital expenditures related to generation and transmission needs, coupled with uncertainty of future
growth and recovery.
Rationale
The 'BBB' corporate credit rating on IDACORP Inc. is based on the company's consolidated credit profile, which
consists primarily of Idaho Power Co.'s (IPC) integrated regulated electric utility operations, and reflects an
"excellent" business risk profile and "aggressive" consolidated financial risk profile under our corporate risk profile
matrix. IPC normally provides over 90% of IDACORP's earnings and most of its consolidated cash from
operations. IPC serves retail electric customers in Idaho and Oregon, which account for about 95% and 5% of
regulated assets, respectively.
IPC's "excellent" business profile incorporates both its low-cost hydroelectric generation base and a
credit-supportive regulatory environment in Idaho. Under normal water conditions, hydrological generation
provides about half of total generation needs, although the proportion has lessened as energy demand has grown.
Significant hydroelectric generation results in some of the lowest average retail customer rates in the U.S, but also
exposes the company to substantial replacement power price risk in the event of low water flows. Idaho state
regulators have authorized a robust cost recovery mechanism to assist in collecting such costs and limiting financial
exposure.
IPC's current annual power cost adjustment (PCA) mechanism in Idaho, implemented in 2009, supports credit
quality and reduces the undercollection of power costs, thus reducing the company's exposure to disallowed power
costs. The most significant credit-supportive components of the annually filed PCA mechanism include a sharing
provision that reduces power cost exposure to 5% of undercollected costs, and a forecast cost methodology that
reduces deferrals and collection lag. In exceptionally low water years, deferrals can materially weaken cash flows
and credit metrics, but we view this primarily as a temporary collection delay because 95% of costs above base rates
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are collected with a carrying charge over 12 months. The mechanism also has a long history of support and no
record of significant disallowances.
The economic resilience of IPC's main service markets also supports the credit profile. Unemployment has been
lower than regional and national averages, with low energy rates attracting businesses and jobs from other West
Coast states. Load growth and customer growth are expected to continue.
The "aggressive" financial profile is marked by periodically low cash-flow-based credit metrics and average adjusted
debt leverage, based on Standard & Poor's Ratings Services' indicative financial ratios for corporate issuers.
Indicative ratios reflect adjusted funds from operations (FFO) to debt of 10%-20%. Average credit metrics have
deteriorated and rebounded since the company took steps to stabilize returns and cash flow with updated base rates
and a modified power cost mechanism. Credit ratios improved in 2009, supported by rate increases derived from
general rate proceedings and PCA updates, but are partially offset by lower consumption due to the economy and
mild weather, resulting in cash flow credit metrics that remain weak for the rating. Load loss due to the company's
significant energy efficiency spending is not considered a significant risk at this time due to a fixed-cost adjustment
mechanism in Idaho that decouples certain costs from energy usage on residential and commercial customers.
For 2009, IDACORP's adjusted FFO interest coverage and FFO to total debt were 4.5x and 17.9%, respectively,
boosted above long-term averages by the collection of power costs and increased depreciation. (Credit metrics are
adjusted to include the debt equivalent of leases, purchased power obligations, and postretirement benefit
obligations.) Cash-flow-based coverage ratios have improved significantly from an adjusted FFO to debt of less than
10% in mid-2008. We expect the company to maintain average adjusted FFO to debt of 13%-15% to ensure credit
stability. The company's consolidated adjusted debt to total capitalization was 55.6% as of Dec. 31, 2009. Adjusted
debt leverage remains aggressive, while reported debt leverage trended down to 51% at year-end 2009. Management
appears to be targeting a balanced unadjusted capital structure and has taken steps to maintain it.
Capital expenditures in 2009 were about $250 million, and are expected rise in 2010 and 2011 for reasons related
to the proposed Langley Gulch power plant, which was preapproved by a commission decision after legislation
enacted in 2009 granted preapproval authority. The size of IPC's planned capital expenditures and expected internal
cash funding ability should allow the company to manage a balanced capital structure with periodic debt and
occasional external equity issuance. The need for external equity, assuming the capital structure is maintained,
would be heightened if transmission proposals in the northwest move forward.
Short-term credit factors
The 'A-2' short-term rating on IDACORP reflects its adequate liquidity. Liquidity is provided by a $100 million,
five-year credit agreement at IDACORP and a $300 million, five-year credit facility at IPC, primarily used for
deferred power costs. At Dec. 31, 2009, no commercial paper (CP) or other draws were outstanding on IPC's credit
facility and $53.7 million of CP backed by IDACORP's credit facility was outstanding. Both facilities terminate on
April 25, 2012. Cash flows are volatile and highly dependent on hydrological conditions, and ample capacity must
remain available for higher-than-expected power costs and events. Cash flows from operations for 2009 totaled
$284 million, versus only $136.5 million as of year-end 2008 and $80.6 million in 2007, due to the timing of power
cost collections. Cash and cash equivalents as of Dec. 31, 2009, were $53 million.
Recovery analysis
We rate IPC's first mortgage bonds 'A-', two notches higher than the corporate credit rating, with a recovery rating
of '1+', reflecting our highest expectation for full recovery of principal in a payment default scenario. Under
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IDACORP Inc.
Standard & Poor's criteria, first mortgage bonds with a '1+' recovery rating issued by companies in the 'BBB' rating
category are rated two notches above the corporate credit rating.
Outlook
The stable outlook reflects what we consider a requisite level of regulatory support and expected long-term financial
metrics that are adequate for the ratings -- above current levels. We could lower the rating if the company does not
carefully manage costs and investments to ensure full recovery and the maintenance of credit metrics, especially in
light of a weakening economy. We could raise the rating if the company were able to consistently achieve
significantly stronger financial metrics, in addition to solid regulatory support, although higher ratings are unlikely
in the near term.
Table 1.
IDACORP Inc. -- Peer Comparison*
IDACORP Inc.
Puget Energy
Inc.Avista Corp.
Portland General
Electric Co.
NorthWestern
Corp.
Rating as of Feb. 11, 2010 BBB/Stable/A-2 BB+/Stable/--BBB-/Positive/A-3 BBB/Stable/A-2 BBB/Stable/--
--Average of fiscals 2006-2008--
(Mil. $)
Revenues 922.0 3,161.2 1,533.6 1,669.3 1,190.8
Net income from cont. oper.93.6 168.9 61.7 101.0 52.8
Funds from operations (FFO)162.9 543.9 208.1 310.7 206.8
Capital expenditures 250.4 832.2 195.9 402.5 113.7
Cash and short-term
investments
8.9 37.4 20.1 31.7 13.5
Debt 1,549.8 3,689.2 1,331.3 1,620.3 949.0
Preferred stock 0.0 91.5 37.8 0.0 0.0
Equity 1,211.3 2,395.2 980.4 1,298.0 776.4
Debt and equity 2,761.1 6,084.4 2,311.6 2,918.3 1,725.5
Adjusted ratios
EBIT interest coverage (x)2.3 2.0 2.0 2.3 2.3
FFO int. cov. (x)2.9 3.4 3.2 3.7 3.7
FFO/debt (%)10.5 14.7 15.6 19.2 21.8
Discretionary cash flow/debt
(%)
(10.1)(12.2)(2.1)(15.2)4.8
Net cash flow/capex (%)44.0 51.1 88.7 65.1 140.5
Total debt/debt plus equity (%)56.1 60.6 57.6 55.5 55.0
Return on common equity (%)7.1 6.7 6.0 6.2 6.6
Common dividend payout ratio
(unadj.) (%)
56.5 67.6 52.1 48.5 89.2
*Fully adjusted (including postretirement obligations).
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IDACORP Inc.
Table 2.
IDACORP Inc. -- Financial Summary*
--Fiscal year ended Dec. 31--
2009 2008 2007 2006 2005
Rating history BBB/Stable/A-2 BBB/Stable/A-2 BBB+/Negative/A-2 BBB+/Negative/A-2 BBB+/Stable/A-2
(Mil. $)
Revenues 1,049.8 960.4 879.4 926.3 842.9
Net income from continuing operations 124.4 98.4 82.3 100.1 85.7
Funds from operations (FFO)314.3 180.0 119.2 189.5 168.9
Capital expenditures 247.2 245.6 279.8 225.8 192.9
Cash and short-term investments 53.0 8.8 8.0 9.9 52.4
Debt 1,757.4 1,748.0 1,545.8 1,355.5 1,347.0
Preferred stock 0.0 0.0 0.0 0.0 0.0
Equity 1,401.5 1,302.4 1,207.3 1,124.2 967.5
Debt and equity 3,159.0 3,050.4 2,753.1 2,479.7 2,314.5
Adjusted ratios
EBIT interest coverage (x)2.6 2.2 2.1 2.5 2.4
FFO int. cov. (x)4.5 2.9 2.4 3.5 3.3
FFO/debt (%)17.9 10.3 7.7 14.0 12.5
Discretionary cash flow/debt (%)(1.5)(8.7)(14.7)(6.6)(4.9)
Net Cash Flow/Capex (%)104.1 51.2 23.7 61.2 61.2
Debt/debt and equity (%)55.6 57.3 56.1 54.7 58.2
Return on common equity (%)8.7 7.0 5.9 8.4 7.6
Common dividend payout ratio (unadj.) (%)45.3 55.1 64.4 51.2 59.1
*Fully adjusted (including postretirement obligations).
Table 3.
Reconciliation Of IDACORP Inc. Reported Amounts With Standard & Poor's Adjusted Amounts (Mil. $)*
--Fiscal year ended Dec. 31, 2008--
IDACORP Inc. reported amounts
Debt
Operating
income
(before D&A)
Operating
income
(before D&A)
Operating
income
(after D&A)
Interest
expense
Cash flow
from
operations
Cash flow
from
operations
Capital
expenditures
Reported 1,421.2 292.2 292.2 190.2 73.1 136.5 136.5 243.5
Standard & Poor's adjustments
Operating leases 22.4 3.1 1.1 1.1 1.1 2.0 2.0 9.1
Postretirement
benefit obligations
163.7 (1.6)(1.6)(1.6)--(5.7)(5.7)--
Accrued interest not
included in reported
debt
16.7 --------------
Capitalized interest --------7.0 (7.0)(7.0)(7.0)
Share-based
compensation
expense
----3.9 ----------
Power purchase
agreements
115.9 10.4 10.4 6.7 6.7 3.7 3.7 --
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IDACORP Inc.
Table 3.
Reconciliation Of IDACORP Inc. Reported Amounts With Standard & Poor's Adjusted Amounts (Mil. $)* (cont.)
Asset retirement
obligations
8.1 0.7 0.7 0.7 0.7 (0.3)(0.3)--
Reclassification of
nonoperating income
(expenses)
------0.5 --------
Reclassification of
working-capital cash
flow changes
------------32.1 --
Other ----------18.7 18.7 --
Total adjustments 326.8 12.6 14.5 7.4 15.5 11.4 43.5 2.1
Standard & Poor's adjusted amounts
Debt
Operating
income
(before D&A)EBITDA EBIT
Interest
expense
Cash flow
from
operations
Funds from
operations
Capital
expenditures
Adjusted 1,748.0 304.8 306.7 197.5 88.5 147.9 180.0 245.6
*IDACORP Inc. reported amounts shown are taken from the company’s financial statements but might include adjustments made by data providers or reclassifications
made by Standard & Poor's analysts. Please note that two reported amounts (operating income before D&A and cash flow from operations) are used to derive more than
one Standard & Poor's-adjusted amount (operating income before D&A and EBITDA, and cash flow from operations and funds from operations, respectively).
Consequently, the first section in some tables may feature duplicate descriptions and amounts.
Ratings Detail (As Of February 24, 2010)*
IDACORP Inc.
Corporate Credit Rating BBB/Stable/A-2
Commercial Paper
Local Currency A-2
Corporate Credit Ratings History
31-Jan-2008 BBB/Stable/A-2
27-Mar-2006 BBB+/Negative/A-2
29-Nov-2004 BBB+/Stable/A-2
Business Risk Profile Excellent
Financial Risk Profile Aggressive
Related Entities
Idaho Power Co.
Issuer Credit Rating BBB/Stable/A-2
Commercial Paper
Local Currency A-2
Senior Secured (16 Issues) A-
Senior Secured (1 Issue) A/Developing
Senior Unsecured (1 Issue) BBB
Senior Unsecured (2 Issues) BBB/A-2
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard
& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
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IDACORP Inc.
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