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Home My WebLink AboutCOC IDA 2Q09 Earnings Summary.pdfIDACORP, Inc. Broker Reaction: 2Q’09 Earnings Results 08/6/09 Closing Price: $27.79, down $0.01 or 0.04%, on volume of 236,371 shares. (267,558 shares 30-DAV) 0 10,000 20,000 30,000 40,000 50,000 60,000 9:30 10:1 5 11:0 0 11:4 5 12:30 1:15 2:002:45 3:30 9:45 10:30 11:15 12:0 0 12:4 5 1:302:153:00 3:45 Volume $27.40 $27.50 $27.60 $27.70 $27.80 $27.90 $28.00 Price Volume Price Wednesday, August 5 Thursday, August 6 IDA 2Q'09 Earnings Release BMO-ET 2Q’09 Earnings Release – Highlights of Sell-Side Analyst Comments • Lasan Johong of RBC Capital Markets stated “IDA recorded a net ~$0.10 positive impact from the deferral of OR excess net power costs from May 1 – December 31, 2007. Backing these out, the quarter was slightly above 2Q08 at $0.37 vs. $0.35. The recent rate case and favorable hydrology largely offset weaker demand for the quarter.” IDACORP, Inc. reported second quarter 2009 net income attributable to IDACORP, Inc. of $27.5 million or $0.58 per diluted share compared to $17.5 million or $0.39 per diluted share in the second quarter of 2008. Idaho Power Company, IDACORP’s principal subsidiary, reported second quarter net income of $26.3 million compared to $17.7 million in 2008. - Corporate Website Wells Fargo Securities, LLC “IDA: Tax Benefits, Hydro And Oregon Power Cost Deferral Help 09 Rate Relief Key In 2010” No PT, Kept at Neutral (Neil Kalton) We Are Maintaining Our 09E EPS of $2.45. Going into second quarter results we were concerned that our 09E EPS of $2.45 was too high based on weaker than expected Q1 results and the fact that the majority of the non-fuel related rate increase approved earlier in the year was cash recovery of AFUDC rather than an actual base rate increase. However, based on (1) IDA’s expectations that the effective consolidated tax rate will be 19-24% versus 24- 28% previously, (2) the narrowing of hydro generation output guidance to the upper end of the range and (3) a $6.4mm pre-tax (roughly $0.08 per share aftertax) benefit in Q2 related to the deferral of previously incurred power costs in Oregon, we are maintaining our estimate of $2.45. What About 2010? By our calculations, 2010 EPS faces a roughly $0.23 per share headwind based on an assumed return to a more normalized tax rate ($0.15) and the absence of the Oregon power cost deferral benefit ($0.08). While EPS growth could be challenging in 10, we are maintaining our $2.50 estimate based on the following positive drivers: (1) continued rate recognition of IDA’s AMI investment, (2) higher AFUDC earnings related to the Langley Gulch plant, (3) mid-year rate relief in Oregon and (4) mid-year rate relief in Idaho. Notably, IDA is still in the process of evaluating the need for rate relief in 2010 in Idaho. Other swing variables 2010 will be sales growth, cost controls and hydro conditions. Project Update. IDA is currently awaiting Commission approval of the $427mm Langley Gulch combined cycle plant, which is expected in 3Q. The company also continues to pursue two major transmission projects, Gateway West and Boardman-Hemingway, although mgmt warned that planning, siting and constructing hundreds of miles of transmission lines it is a “stop and go process.” Estimated in-service dates for the projects are 2014 and 2015, respectively. Reiterate Market Perform Rating. IDA has made significant progress on the regulatory front over the past 12-months, particularly relating to its power cost adjustment mechanism (PCAM). Those efforts appear to be bearing fruit as Idaho Power’s trailing twelve month ROE rose to 8.3% vs. 7.9% in calendar year 08 and 7.1% in 07. A 29% increase in hydro generation in 1H09 also contributed to the improvement. Other positive features include rate base growth opportunities and limited external equity needs through 2010 (even with Langley Gulch CapEx). Our Market Perform rating reflects a below average regulatory environment and valuation considerations. RBC Capital Markets “IDA reported 2Q09 adjusted EPS of $0.58 vs. our estimate of $0.32 and consensus of $0.45” PT $33.00, Kept at Sector Perform (Lasan Johong) Favorable hydrology, the pilot decoupling program and the recent rate case have kept IDA performing in line with its peers. While the Langley Gulch project could provide growth in the near term, other significant growth projects remain on the drawing board. We look for more clarity on the longer term picture for IDA with its upcoming IRP filing. Year-over-year, IDA realized a ~$0.11 positive impact due to the timing of PCA cost recovery allocation. As in 1Q09 while notable for the quarter, this timing issue should not affect annual results. Additionally, IDA recorded a net ~$0.10 positive impact from the deferral of OR excess net power costs from May 1 – December 31, 2007. Backing these out, the quarter was slightly above 2Q08 at $0.37 vs. $0.35. The recent rate case and favorable hydrology largely offset weaker demand for the quarter. The 330MW proposed CCGT plant is expected to cost $427MM and could be in service by 2012. IDA will only proceed with the project if the Certificate of Public Convenience and Necessity is granted and provides assurances of construction cost recovery. Without these assurances it is doubtful that IDA could obtain financing for the plant with acceptable terms. Approval of this plant would provide a reasonable growth profile in the near term while the 2 large-scale transmission projects continue to face permitting challenges. IDA requested a 22.6% rate increase totaling $7.3MM annually. The rate case uses a 2009 test year, included $110.8MM in rate base and requested an 11.25% ROE. Rates would be effective starting in May 2010. After successful implementation of a power cost adjustment for the OR territory, this rate case represents the next step in IDA's regulatory improvement efforts. The company actually earned a (-4%) ROE in OR last year, thus reinforcing the desperate need for a rate increase. D.A. Davidson “First Glance 2Q’09 Report: Regulatory Changes Boost Quarter.” PT $25.50, Kept at Neutral (James L. Bellessa, Jr.) Strong utility results aided by regulatory decisions. Idaho Power Company (IPC) contributed earnings of $0.56 per share versus $0.39 a year ago. The benefits of rate relief since the year-ago period and improved hydro conditions were largely offset by decreased demand due to mild weather and recessionary pressures. IPC retail volumes were down 8% due primarily to weather conditions, including a very moist spring, as well as economic conditions. Quarterly precipitation levels were more than double what they were in the year ago period, resulting in a 19% decrease in demand from irrigation customers. Power cost deferrals give significant boost. One boost to utility earnings (+$0.08 per share) that we did not anticipate was the deferral of $6.4 million (pretax) of excess power supply costs (this adjustment was allowed as part of a stipulation approved by the Oregon Public Utility Commission in May 2009). Nonrecurring items lower tax rate. IDACORP’s tax rate declined to 15.8% in 2Q’09 from 28.3% a year ago, due to the settlement of a 2006 IRS examination, bonus depreciation provisions under the American Recovery and Reinvestment Act of 2009, and other regulatory flow-through tax adjustments at IPC. Ladenburg Thalman “Lowering to Neutral from Buy based on Valuation.” PT $28.00, Lowered to Neutral (Brian Russo) While we continue to view IDA as a fundamentally sound small-cap utility with meaningful potential rate base growth and long- term earnings power, as well as, solid cash flow and credit profile, IDA shares are now trading just below our price target objective and we now rate IDA shares NEUTRAL. The company revised certain components of its 2009 operating/financial assumptions. Revisions include: IPC hydroelectric generation 7.5m-8.5m MWh (previously 6.5m-8.5m) due to above normal precipitation in June and above normal storage levels at Brownlee, and Idaho Power and IDACORP effective tax rates of 26%-31% (previously 31%-35%) and 19%- 24% (previously 24%-28%), respectively. IDA recently filed for Oregon rate relief (+$7.3m) and may file for Idaho rate relief by the end of this month.