COC rbc-jan-10-2011.pdf

RATINGS REVISION | COMMENT
JANUARY 10, 2011
IDACORP, Inc.(NYSE: IDA)
Bumps Before Growth
Underperform
Average Risk (prev: Above Average Risk)
Price:37.28
Shares O/S (MM):47.8
Dividend:1.20
Debt to Cap:50%
Price Target:39.00 ­38.00
Implied All-In Return:8%
Market Cap (MM):1,782
Yield:3.2%
Priced as of market close ET, January 10, 2011.
Assuming coverage of IDA
After 2011, temporary rate support expires and tax settlement impacts go away.
IDA then must face the existing rate deficiency on top of new expenses
associated with the Langley Gulch power plant. Given its recent rate case
struggles and economic weakness in ID, rate case risk may be elevated. Further
out the company has favorable growth from transmission projects, but with the
current low dividend yield, investors are not being paid to wait for this growth to
develop. Accordingly, we expect IDA to underperform the group in the near term.
Main drivers to our thesis include:
Rate Case Struggles Increase Near Term Risk
IDA has been awarded less than half of its rate case requests historically. The
near-term additions to rate base and expected rate request in 2011 accordingly
may pressure the stock.
Improved Treatment of Large Scale Investments
Legislation passed in 2009 in ID paved the way for pre-approval of Langley
Gulch and possible CWIP in rates for capital projects going forward. This should
benefit IDA as it grows going forward.
Transmission Growth Next
IDA has two 300-mile transmission projects in the development queue. If
development proceeds as planned, both projects should be online by 2015. These
projects address existing transmission congestion.
Dividend Yield Near the Industry Bottom
At 3.3%, IDA’s dividend significantly lags the peer group average of 4.3%. It
seems unlikely that the company would raise the dividend before rate relief for
Langley Gulch. This presents a difficult near-term scenario for IDA. Once rate
relief is realized, however, the combination of growth projects and possible
dividend increase may present a compelling story.
Valuation
IDA currently trades at a 5% discount to the group. We believe that the discount
is largely warranted at present as the potential tax settlement approval should be
offset by rate case activity in 2011 and the weak dividend yield. We set our target
price at $39, 13.1x our 2012 estimate of $3.00.
Priced as of prior trading day's market close, EST (unless otherwise noted).
RBC Capital Markets, LLC
Emily Christy (Analyst)
[phone]; [e-mail]
Lasan Johong (Analyst)
[phone]; [e-mail]
Ella Vuernick (Associate)
[phone]; [e-mail]
FY Dec 2009A 2010E 2011E 2012E
Adj EPS - FD 2.64 2.53 2.79 3.00
Prev.2.38 2.91 2.95
P/AEPS 14.1x 14.7x 13.4x 12.4x
Adj EPS - FD Q1 Q2 Q3 Q4
2009 0.40A 0.58A 1.16A 0.49A
2010 0.32A 0.30A 1.39A 0.53E
Prev.0.35A 0.33E
All values in USD unless otherwise noted.
For Required Conflicts Disclosures, see Page 9.
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
2

Regulatory Environment: Selectively Supportive, But Tough Road Ahead
IDA has had below average results in general rate cases and currently operates under a bandaid structure with an ROE floor of 9.5%.
Non-rate case mechanisms provide some support, but the overall picture remains cloudy. Given the rate deficiency from its last
request and the addition of Langley Gulch, the next rate cycle may be challenging. Economic prospects are favorable in ID, but will
likely not materialize prior to IDA’s next rate case filing.
Exhibit 1: Regulatory Matrix
Regulatory Structure Elements
Blended
Rating Our Preferred Model ID ~95%
General Rate Cases
Test Year =Forward-looking Forward-looking
Allowed ROE ->10.5%, banded 9.5% floor
Frequency & Duration -File every 2-3 years Filed as needed
<6 month decision process 9-12+ months
Success rate ->60%45%
(% of request approved)
Other Regulatory Elements
Decoupling =Energy-efficiency-only Almost full decoupling
Other Recovery Mechanisms (non-
rate case)
=The more the better Fuel, Load Growth, Fixed Cost Adjustments
Treatment of Capital Projects ++++Long-term planning process Integrated Resource Plan
Commission Pre-approval Certificate of Public Convenience & Necessity
Recovery of AFUDC Open to CWIP, untested
Cost recovery via rider Included in base rates
Fuel and Purchased Power -100% pass-thru Pass-thru with 95/5 sharing of over/under
Cost recovery via rider (RR)Cost recovery outside of base rates
<= Annual recovery Reconciliation annually
Energy Efficiency =Recovery of program costs Recovery of program costs
Recovery of lost revenues Decoupled for lost revenues
Earnings incentives No earnings incentive
Commission =Appointed Appointed
*For full details on our preferred regulatory structure, please see our accompanying industry note.
Source: RBC Capital Markets and Company reports
General Rate Cases: Less Than Ideal Track Record
IDA has been awarded less than 50% of its rate requests on average in recent years. On the bright side, ratemaking is now forward-
looking. Forecasting methodologies remain at odds, but should converge over time as regulators become more comfortable with the
process. IDA has an approved ROE at the industry average of 10.5%, but has yet to realize this ROE. Considering recent history,
IDA rate case proceedings introduce elevated risk relative to peers.
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
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Exhibit 2: IDA Rate Case History
Revenue
Increase
% increase to
customers ROE
% of
Request
Days to
Resolve Notes:
2003 IDA Request $86
Final Outcome $40 10.5% 46.5%
2005 IDA Request $44
Final Outcome $18 10.6% 40.9%
6/1/07 IDA Request $64 11.5% Proposed forward looking rates
2/28/08 Final Outcome $32 10.6% 50.0% 272 Adopted forward looking rates
6/27/08 IDA Request $67 9.9%
11/9/09 Final Outcome $29 4.3% 9.5% 43.3% 500
Average 45.2%
Source: RBC Capital Markets, Company reports
Bandaid mechanism masks rate deficiencies
In its last rate filing, IDA requested an increase of $67M. Parties reached a settlement where IDA essentially received $29M. Funds
were derived from over-collected revenues from the Power Cost Adjustment (PCA) rider. The net impact to customers, after the PCA
true-up, was a decrease of $58M. Additionally, IDA can utilize up to certain levels of tax credits in order to maintain an ROE of at
least 9.5% through 2011. While shareholders benefit from the higher near-term ROE, the mechanism masks an underlying rate
deficiency.
Tax settlements to the rescue
In 2Q10 IDA recorded a net gain of $25M in a tax settlement related to the cumulative effect of a tax accounting method
change for repairs deductions for 1999-2009. In 3Q10 the company reached another tax settlement for a $65M benefit, pending
approval by a Congressional committee. These combined benefits negate the need to use the tax credits provided for by the rate case
settlement. In addition to supporting the ROE, these settlements likely eliminate near-term equity needs for IDA.
Next rate case presents challenges
Based on the last rate case, IDA theoretically starts its next rate case with a $37M deficit. In 2011 its 300MW Langley Gulch power
plant will come online and need to be added into rates for another ~$40M. When you add development costs for transmission lines
and normal O&M increases, the resulting request may be considerable. Although the ID economic recovery outlook is favorable, it is
unlikely to be realized to a significant degree prior to IDA’s next filing.
The tax credits not used in the rate settlement would still be available to mitigate an increase, but hydrology was not as favorable in
2010 and surplus power cost collections are unlikely. Any mitigation, of course, would again send insufficient price signals to
customers and simply magnify the next request.
Non-rate case mechanisms: decoupled, sort of?
IDA uses two mechanisms that combine for a quasi-decoupled structure. The Load Growth Adjustment mechanism (LGAR) refunds
revenues associated with load growth in excess of forecasts. The Fixed Cost Adjustment (FCA) mechanism ensures that revenues
adequately cover fixed costs on a per customer and per MWh basis. These two measures provide support for energy efficiency lost
sales, but fall short of full decoupling. Variable costs impacted by weather, for example, are not covered. These mechanisms seem
unnecessarily complex, but are consistently approved as filed by the Commission.
Favorable changes to treatment of large-scale investments
In 2009 the ID state legislature passed SB1123 which provided for pre-approval of utility large-scale capital projects. In its Certificate
of Public Necessity and Convenience proceeding for Langley Gulch, IDA received this pre-approval for construction costs. Although
CWIP in rates was not granted for Langley, the commission remains open to the idea for future projects. As it stands, the plant will be
added to rates in one fell swoop in the next rate case. This regulatory structure is moving in the right direction and could provide
additional support for IDA’s two large transmission projects under development.
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
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Growth: Transmission Focus as Langley Winds Down
IDA does not have exposure to the stricter environmental rules expected in 2011/2012. ID does not presently have a Renewable
Portfolio Standard. Despite this lack of compliance spending relative to peers, IDA’s increased level of capital spending due to the
Langley Gulch power plant is unlikely to subside in the near term. As the plant comes online in 2012, spending for IDA’s two
transmission projects will assume its place in the capital forecast. Additionally, the return of load growth in ID should translate into
steady rate base growth in the longer term.
Exhibit 3: IDA Capital Spending 2005-2015
$0M
$50M
$100M
$150M
$200M
$250M
$300M
$350M
$400M
20
0
5
A
20
0
6
A
20
0
7
A
20
0
8
A
20
0
9
A
20
1
0
E
20
1
1
E
20
1
2
E
20
1
3
E
20
1
4
E
20
1
5
E
Maintenance Other Historical
Source: RBC Capital Markets, Company reports
Transmission Project Snapshots:
Boardman to Hemingway (B2H)
• 300-mile line connected OR and ID
• Cost: $600M
• Route selected, draft environmental impact statement under review
• Expected construction start 1/2013
• Expected online 2015
Gateway West (GW)
• 300-mile line connecting WY and ID
• Cost: $350-$500M
• Joint Venture with Pacificorp
• Online in sections 2014-2018
Smart Grid Investments Supported By DOE
IDA plans to spend $94M on its Advanced Metering Initiative over the next few years. A DOE grant of $47M offsets half of the total
cost. The program has been approved by the commission. 475,000 smart meters will be installed. The program likely would have
remained on the backburner without the DOE support. Although not a tremendous boost to rate base, the smart grid should provide
utility cost savings over the longer term.
Dividend Yield Remains Weak, Balance Sheet Solid
The balance sheet is solid and should continue to favorably support IDA’s current operations and growth prospects. IDA’s current
dividend yield of 3.5%, however, lags the group average of 4.5%. It seems unlikely that a dividend increase would occur prior to the
next rate case. Although the growth pipeline remains robust, investors are simply not being paid to wait for this growth to materialize.
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
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Upcoming Catalysts:
• Congressional approval of tax settlement
• Rate case filing in 2011
Down the Road:
• Langley Gulch online in 2012
• Transmission project construction starting in 2013
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
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Valuation
•IDA currently trades at a 5% discount to the group at 12.4x 2012 earnings
•We believe that the discount is largely warranted at present as the potential tax settlement approval should be offset by rate case
activity in 2011 and the weak dividend yield.
•We expect IDA to trade at 13.1x our 2012 estimate of $3.00 over the next 12 months for a target price of $39/share.
•We expect the SMID cap utilities to trade close to the longer term average multiple of 13.5x 2012 earnings.
•We are changing the risk qualifier to Average from Above Average based on the improved balance sheet of the company.
Price Target Impediment
Volatile hydrology, unfavorable regulatory decisions, delays in transmission project development, cost overruns at Langley Gulch, and
weather.
Company Description
IDACORP, Inc. is a holding company for the following subsidiaries: Idaho Power Company, IDACORP Financial, and Ida-West
Energy. Idaho Power Company (IPC) is a regulated utility serving approximately 472,000 customers in Idaho and western Oregon.
Through its regulated operations, IPC generates, purchases, transmits, distributes, and sells electric power. Through its 17
hydroelectric power plants, IPC is one of few utilities with a predominant hydro generating base. The company also owns and operates
coal and natural gas-fired plants to round out its approximately 3,300MW power portfolio. Additionally, IPC has 4,600 miles of
transmission lines and 26,000 miles of distribution lines. IDACORP Financial is an investment company with a focus on affordable
housing and historic preservation projects.
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
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Appendix A: Regulated Utilities Comparables
Valuation Regulatory Growth
Rating3
RBC 2011
All-in
Return
1/7/2011
Price
Target
Price
Dividend
Yield4
Current
Multiple
RBC Target
Multiple
Current
Premium/
Discount
RBC
Estimated
Premium/
Discount
RBC 2012
EPS
Estimate
General Rate
Case Success
Forward/
Historical
Ratemaking
Treatment of
Large-Scale
Investments
2009
Realized
ROE
5yr Capex/
Enterprise
Value Key Rating Drivers
RBC Risk
Rating
SMID Caps1
CMS O 15.5%$18.91 $21 4.5%11.9x 13.0x -8.7%-4.0%$1.59 82%Forward Neutral 10.2%57%Neutral Transformational story AVG
NVE O 7.5%$14.37 $16 3.1%11.9x 12.7x -8.6%-6.0%$1.21 72%Hybrid Mixed 5.4%37%NA Rate relief should increase ROE AVG
PNM O 9.8% $13.21 $15 3.8% 11.3x 12.2x -12.7% -10.0% $1.16 69%Forward5 Neutral 4.4% 52% Favorable Regulatory progress = investor confidence AVG
DTE SP 8.4%$46.34 $49 4.8%11.9x 12.4x -8.3%-8.0%$3.88 57%Forward Neutral 8.6%50%Neutral Rate case risk, Energy Trading AVG
TE SP 4.1%$18.09 $19 4.6%12.0x 12.2x -7.4%-10.0%$1.50 61%Forward Mixed 10.9%30%Unfavorable Coal risk AVG
UTL SP 10.8%$22.90 $24 6.0%13.6x 14.0x 4.7%4.0%$1.68 70%Historical NA 7.1%48%NA Rate case risk in new region AVG
IDA U 8.0%$37.22 $39 3.3%12.4x 13.1x -4.6%-3.0%$3.00 43%Hybrid Neutral 8.9%54%NA Rate case risk, weak dividend AVG
SMID Cap Peer Average SMID 4.3%13.0x 13.5x
Large Caps2
SO O 10.0%$38.08 $41 4.9%14.3x 15.2x 12.1%14.0%$2.67 70%Forward Favorable 12.3%48%Favorable Industry-leading fundamentals AVG
DUK SP 12.4%$17.79 $19 5.6%12.9x 13.4x 1.4%1.0%$1.38 64%Historical Mixed 7.3%58%Unfavorable Rate case risk, IN investigation AVG
NEE SP 9.4%$52.22 $55 4.1%11.1x 11.7x -12.6%-12.0%$4.70 8%Forward Mixed 12.7%58%Favorable Regulatory overhang, quiet subs AVG
Large Cap Peer Average 4.3%12.7x 13.3x
RBC EPS Estimates
1Q10 2Q10 3Q10 4Q10E 2010E 2011E 2012E
CMS $0.38 $0.26 $0.52 $0.20 $1.34 $1.43 $1.59
DTE $1.38 $0.39 $0.96 $0.80 $3.64 $3.69 $3.88
DUK $0.36 $0.34 $0.51 $0.23 $1.44 $1.32 $1.38
IDA $0.32 $0.30 $1.39 $0.53 $2.53 $2.79 $3.00
NEE $0.94 $1.11 $1.46 $0.83 $4.32 $4.45 $4.70
NVE -$0.01 $0.16 $0.77 -$0.06 $0.87 $1.01 $1.21
PNM $0.06 $0.21 $0.63 -$0.03 $0.88 $0.82 $1.16
SO $0.60 $0.61 $0.97 $0.20 $2.36 $2.49 $2.67
Unregulated
Subsidiaries
'06 '07 '08 '09 '10
40
50
60
70
80
90
100
110
120
130
140
Source: FactSet Prices
S&P 500 vs. SMID Caps vs. Large Caps Trailing 5 yrs
Indexed Price Performance Price (Indexed to 100)
S&P 500 SMID Caps Large Caps
SO $0.60 $0.61 $0.97 $0.20 $2.36 $2.49 $2.67
TE $0.34 $0.37 $0.41 $0.21 $1.33 $1.37 $1.50
UTL $0.60 -$0.19 -$0.01 $0.61 $1.02 $1.37 $1.68

1) SMID Cap Peer Group includes: AEE, BKH, CNP, CEG, NU, NST, OGE, POM, POR, PNY, PNW, UIL, WR and WEC, in addition to covered names.
2) Large Cap peer group includes: AEP, ED, D, PCG, PGN, SRE and XEL, in addition to covered names.
3) O=Outperform, SP=Sector Perform, U=Underperform
4) Based on RBC 2011 Dividend and EPS estimates and current prices
5) New rule, being implemented for the first time in PNM's rate case
Source: RBC Capital Markets estimates, FactSet
'06 '07 '08 '09 '10
40
50
60
70
80
90
100
110
120
130
140
Source: FactSet Prices
S&P 500 vs. SMID Caps vs. Large Caps Trailing 5 yrs
Indexed Price Performance Price (Indexed to 100)
S&P 500 SMID Caps Large Caps
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
8
Idacorp Inc IDA Emily Christy, RBC Capital Markets, 212-428-6970, [e-mail]
Model Summary Projected
($MM except per share) 1Q09 2Q09 3Q09 4Q09 2009 1Q10 2Q10 3Q10 4Q10E 2010E 2011E 2012E
Revenues $229 $244 $325 $253 $1,050 $253 $242 $309 $255 $1,060 $1,062 $1,073
Operating Costs $166 $166 $214 $182 $729 $189 $176 $191 $161 $717 $635 $655
EBITDA $69 $78 $116 $67 $330 $65 $71 $127 $89 $352 $427 $418
Net Income (Continuing Ops) $19 $27 $54 $24 $124 $15 $14 $67 $26 $122 $135 $145
Shares Outstanding - Diluted 47 47 47 48 47 48 48 48 48 48 48 48
EPS (Continuing Ops) $0.40 $0.58 $1.16 $0.49 $2.64 $0.32 $0.30 $1.39 $0.53 $2.53 $2.79 $3.00
ROE 1.4% 2.1% 3.9% 1.7% 8.9% 1.1% 2.7% 4.4% 1.7% 9.7% 9.5% 8.4%
Dividend per Share $0.30 $0.30 $0.30 $0.30 $1.20 $0.30 $0.30 $0.30 $0.30 $1.20 $1.22 $1.24
Dividend Payout Ratio 46%47% 44% 41%
Current P/E Ratio 14.7x 13.4x 12.4x
Target P/E Ratio 15.5x 14.1x 13.1x
Valuation Inputs and Assumptions
Assumptions:P/E Ratio Analysis Growth Assumptions
First year of Forecast: 2010 Peer Group 2011 P/E 13.5x (%)2010 2011 2012
Last Reported Financials:3Q10 Premium/Discount -3%
Interest Rate earned on cash 1.5% IDA Current P/E 12.4x Rate Base Growth (Electric) 1.00% 0.00% 1.00%
Tax Rate used in model 30.0% IDA Target P/E 13.1x Consumption Growth (Electric) 0.00% 0.00% 0.00%
Current Stock Price $37.22 Non-Utility Growth Rate 0.00% 0.00% 0.00%
Price Target $39 Dividend Growth Rate 0.00% 1.50% 2.00%
Implied Return 5.5% Cost Inflation 1.00% 1.00% 1.25%
2011 Dividend $1.22
Implied Dividend Yield 3.09%
Implied All-in Return 8.64% Capital Expenditures
($ millions)2010 2011 2012
Enterprise Value $3,229
Maintenance $160 $190 $190
AMI (Advanced Metering Infrastructure)$25 $13 $13
Langley Gulch Power Plant $140 $90 $90IDACORP Inc. vs. Peers
Indexed Price Performance Price (Indexed to 100)Langley Gulch Power Plant $140 $90 $90
Other Projects $40 $48 $48
Total $365 $340 $340
Proceeds from Sale
Debt & Equity Schedule
($ millions)2010 2011 2012
Total LT Debt Repayments $0.0 -$120.0 -$100.0
Assumed Debt Issuances $200.0 $120.0 $100.0
Net Change in LT Debt $200.0 $0.0 $0.0
Year-end Balance LT Debt $1,609.5 $1,489.5 $1,389.5
Net Common Stock
Net Preferred Stock
Stock Option Grants (MM)
Debt %49.4% 48.2% 47.4%
Equity %50.6% 51.8% 52.6%
Source; RBC Capital Markets estimates, FactSet
Uncontrolled
Coal
2%
Cleaned Coal
32%
Gas
14%
Hydro/Pumped
Storage
52%
IDA Generation by Fuel Type
'06 '07 '08 '09 '10
50
60
70
80
90
100
110
120
130
140
150
Source: FactSet Prices
IDACORP Inc. vs. Peers
Indexed Price Performance Price (Indexed to 100)
IDACORP Inc.SMID Caps
IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}
9
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Copyright © RBC Capital Markets, LLC 2011 - Member SIPC
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IDACORP, Inc.January 10, 2011
[e-mail] lawrence spencer 01/10/11 09:28:51 PM Idacorp, Inc {Inv. Relations}