COC newswire.docx

From: PR Newswire Complimentary Monitoring [mailto:[e-mail]]
Subject: [BULK] UPDATE: Fitch Affirms IDACORP and Idaho Power's IDRs at 'BBB'; Outlook Revised to Stable
Courtesy of PR Newswire Complimentary Monitoring
Fitch Affirms IDACORP and Idaho Power's IDRs at 'BBB'; Outlook Revised to Stable
Dow Jones & Company, Inc. -- April 22, 2010
The following is a press release from Fitch Ratings:
Fitch Ratings-New York-22 April 2010: Ratings has affirmed the ratings for IDACORP, Inc. (IDACORP) and Idaho Power Company (Idaho Power) as follows:
IDACORP
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Short-term IDR and commercial paper at 'F2'.
Idaho Power
--Long-term IDR at 'BBB';
--Senior secured debt at 'A-';
--Senior unsecured debt at 'BBB+';
--Short-term IDR and commercial paper at 'F2'.
In addition, Fitch has revised the Rating Outlook for both entities to Stable from Negative.
The rating actions affect more than $1.2 billion of long-term debt.
The Rating Outlook revision to Stable from Negative primarily reflects a more balanced regulatory environment in Idaho, as evidenced by several constructive regulatory actions in the last 15 months that have lowered Idaho Power's operating risk and improved the company's financial performance.
The Idaho Public Utilities Commission (IPUC) issued a final order in Idaho Power's 2008 general rate case (GRC) on Jan. 30, 2009 that, among other things, provided a modest increase in rates and an increase in annual base net power supply costs. In addition, the IPUC order authorized the use of Idaho Power's operation plan power supply cost forecast, which should better match collections with actual net power supply costs. The most constructive part of the order, though, was a change in the Power Cost Adjustment (PCA) mechanism's sharing ratio for deviations in net power supply expenses. Starting on Feb. 1, 2009, the new allocation became 95% to customers and 5% to shareholders, an improvement from 90% and 10%, respectively. Fitch views this change as important in helping to minimize the decline in cash flows associated with periods of low hydroelectric generation output.
Idaho Power's regulatory environment improved further with the IPUC's adoption on Jan. 13, 2010 of the proposed 2009 GRC settlement. Last year's increased hydroelectric generation output and lower purchased power costs resulted in a relatively large PCA reduction, and the settlement provides for sharing of this reduction between customers and shareholders. On April 15, 2010, Idaho Power made its annual PCA filing for a reduction of $146.7 million. Based on the framework authorized in the 2009 GRC settlement and Idaho Power's estimated $
146.7 million PCA reduction, customers would receive a $58 million rate decrease in the June 1, 2010 through May 31, 2011 PCA year, while Idaho Power would receive a $25 million increase in base rates and a $63.7 million increase in annual base net power supply costs.
The increase in annual base net power supply costs is important to Idaho Power's credit quality, because it brings power supply costs reflected in base rates closer to actual net power supply costs. As a result, the magnitude of future PCA adjustments will be reduced. Effectively, Idaho Power receives an $ 88.7 million increase in base rates effective June 1, 2010, albeit with a moratorium on general rate case increases until January 2012. The settlement also permits Idaho Power to accelerate the amortization of its accumulated deferred investment tax credits in 2010 and 2011 if its actual Idaho jurisdictional rate of return remains below 9.5%.
Improvement in financial performance has already occurred and is evident in reported 2009 cash flows as a result of last year's improved hydroelectric conditions and the regulatory changes that took effect in January 2009. IDACORP and Idaho Power saw their FFO interest and EBITDA interest coverage ratios increase to more than 4.0 times (x) in 2009, and their FFO to debt ratios strengthened to more than 18% and 17.5%, respectively.
Idaho Power's latest base rate increase and its PCA mechanism should help mitigate the downside risk to financial performance, which is important given the volatility of hydroelectric generating conditions and its impact on earnings and cash flows. Snow pack this winter was below average, and Fitch is expecting lower hydroelectric generation output this year relative to 2009.
The utility's slew of other regulatory mechanisms - including the Fixed Cost Adjustment mechanism, energy efficiency rider, and trackers for pension funding and the advanced metering infrastructure project - allow for timely recovery of costs. In addition, the IPUC's pre-approval of construction costs related to the Langley Gulch combined cycle natural gas generating facility, which is expected to be in service by mid-2012, provides additional support for continued financial performance and stability commensurate with current ratings. The Langley Gulch plant is estimated to cost $427 million (including AFUDC), with its original estimate of $396.6 million approved for recovery and the balance likely to be approved in a separate rate proceeding.
Fitch expects IDACORP and Idaho Power to have FFO interest and EBITDA interest coverage ratios of around 3.5x-4.0x and an FFO to debt ratio in the mid-teens over the next two years.
IDACORP is a holding company whose principal operating subsidiary and only reportable segment is Idaho Power, which accounts for roughly 95% of consolidated income from continuing operations. IDACORP's other subsidiaries include IDACORP Financial Services, Inc., which invests in affordable housing and other real estate, and Ida-West Energy Company, an operator of small hydroelectric generation projects.
Idaho Power is an integrated electric utility that serves approximately 490, 000 customers in southern Idaho and eastern Oregon. Around 95% of revenue comes from customers in Idaho. More than 52% of Idaho Power's internal nameplate generating capacity is from hydroelectric generating facilities. Idaho Power is the parent of Idaho Energy Resources Co. (IERCo), a joint venturer in Bridger Coal Company (Bridger Coal), which supplies coal to the Jim Bridger generating plant owned in part by Idaho Power.
Applicable criteria available at 'www.fitchratings.com' include:
--'Credit Rating Guidelines for Regulated Utility Companies' (July 31, 2007);
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Regulated Electric Utilities
Neil Kalton, CFA, Senior Analyst [phone]
IDACORP, Inc. (IDA-NYSE)--Market Perform (2)
Price as of 4/15/2010: $35.45
FY 10 EPS: $2.72
FY 11 EPS: $2.95
Shares Out.: 47.7 MM
Market Cap.: $1,690.97 MM
Sector Rating: Regulated Electric Utilities, Market Weight
IDA:  4/15 PCA Filing Implies $25mm Base Rate Relief; We View Positively, on the Margin
IDA's April 15 Power Cost Adjustment (PCA) proposes a $146.7mm 2010 PCA reduction.  Per the previously approved rate settlement agreement, $25mm of the decrease will actually serve as a base rate increase for Idaho Power.  $63.7mm of the reduction will serve to mitigate an increase in net base power supply costs.  While this is lower than the company's request for a $74.8mm increase in net base power supply costs, the company could have an opportunity to recover the majority of the actual difference in future PCA proceedings.  The $11mm discrepancy relates to adjustments made by the Idaho Commission to PURPA power purchase costs and load/costs associated with industrial customer Hoku Materials.  The remaining $58mm of the $146.7mm will be returned to customers.  
The $25mm base rate increase in mid-2010 compares to our assumption of a $20mm increase.  However, we are not adjusting our 2010 or 2011 EPS estimates as we assume the company employs ADITC amortizations to get to a 9.5% ROE provided in the original settlement agreement.  A higher level of base rate relief simply results in a lower level of required ADITC amortizations in our model.  That said, we do view the 4/15 PCA filing and proposed $25mm base rate increase favorably as it results in higher quality earnings.  As designed, the settlement agreement is providing base rate relief and an increase the level of base net power supply costs without requiring Idaho Power to go through a contentious rate case proceeding and without rate increases on customers (customers actually receiving refunds).  We continue to view the settlement and the Idaho regulatory environment favorably.  We reiterate our 10E-13E EPS of $2.72, $2.95, $3.00 and $3.05, respectively, as well as our Market Perform rating.  
Please contact us with any questions.
Neil A. Kalton
Wells Fargo Securities, LLC
Utility Analyst
[phone]
[e-mail]  
Sarah E. Akers
Wells Fargo Securities, LLC
Utility Associate Analyst
[phone]
[e-mail]
I certify that:
1)  All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and
2)  No part of my compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed by me in this research report.
IDA - Rating and Valuation Range Changes
Date   Publication Price   Rating          Valuation Range     Closing Price
04/10/07      NA                  UNDERPERFORM    $31-$33             34.01
05/10/07      NA                  UNDERPERFORM    $30-$33             32.84
06/11/07      NA                  UNDERPERFORM    $30-$32             31.78
08/09/07      NA                  UNDERPERFORM    $32-$34             34.77
08/30/07      32.29               MARKET PERFORM  $32-$34             32.52
11/01/07      34.89               MARKET PERFORM  $33-$35             33.70
11/14/07      33.79               MARKET PERFORM  $34-$35             33.85
02/15/08      32.04               MARKET PERFORM  $31-$33             31.46
12/18/08      29.19               MARKET PERFORM  $30-$32             29.24
02/19/09      24.39               MARKET PERFORM  $26-$27             24.39
08/06/09      27.79               MARKET PERFORM  $27-$29             27.79
09/10/09      28.37               MARKET PERFORM  $29-$30             28.37
11/10/09      29.52               MARKET PERFORM  $30-$31             29.52
12/14/09      31.18               MARKET PERFORM  $32-$33             31.54
02/25/10      33.94               MARKET PERFORM  $35-$36             33.89