COC IDA111210.pdf

Please see page 8 for rating definitions, important disclosures
and required analyst certifications
Wells Fargo Securities, LLC does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of the
report and investors should consider this report as only a single factor in
making their investment decision.

November 15, 2010

Equit Research
IDACORP, Inc.
IDA: Upgrading to Outperform -- A Small Cap Gem, In Our View

• Summary. We are upgrading shares of IDA to Outperform from Market
Perform. In addition, we are increasing our 12-18 month valuation range to
$40-41 from $38-39. We think it is increasingly likely that IDA will be able to
negotiate a constructive rate settlement agreement to replace the existing rate
plan when it expires at YE’11. We believe there could be $0.20, or 7%, upside to
our 12E EPS of $3.00. Our 10-12E EPS are $2.85, $3.35 & $3.00 vs. $2.85,
$2.95 & $3.00 previously.
• Thesis. Our positive rating reflects: (1) an increasingly constructive Idaho
regulatory environment, (2) an attractive cash flow outlook aided by tax benefits
that have materially reduced external equity financing needs, (3) recent tax-
related developments that, in our view, make it highly likely that IDA will be able
to negotiate a constructive rate settlement to replace the existing rate plan post
2011 and (4) 7% upside to our 12E EPS of $3.00 should IDA negotiate a rate
construct similar to the existing plan (use of YE equity as a base for annual
earnings power).
• EPS Outlook. We have increased our 11E to $3.35 from $2.95. The materially
higher 11E EPS reflects an assumed tax benefit related to the uniform
capitalization method, which if approved by a congressional committee should
allow Idaho Power Company (IPC) to earn in excess of a 10.5% ROE. Our 12E
remains $3.00 and assumes IPC earns a 9.75% ROE on an average forward
equity rate base of nearly $1.2B (excluding transmission and Oregon). If IPC is
able to essentially extend the existing rate plan, we project 12E EPS could be
$3.20 (assuming a 9.5% earned ROE and YE Idaho-jurisdictional equity of
approximately $1.6B).
• Dividend Policy. IDA’s annual common dividend rate of $1.20/share has
remained unchanged since a 35% cut in 2003. The current dividend represents a
reasonable 42% payout ratio of our 10E EPS of $2.85 vs. the Regulated Electric
median of 61%. While mgmt has not indicated a change in dividend policy, we
believe IDA is in a position to resume dividend growth in the near future. We
assume 5-7% annual dividend growth from 2012-2015.

Valuation Range: $40.00 to $41.00 from $38.00 to $39.00
We value IDA under P/E multiple (apply a 13-13.5X multiple to our 12E EPS of
$3.00) and dividend discount analyses. Risks to our valuation include project
delays/cancellations, negative regulatory developments and consistently below
average hydro conditions.

Investment Thesis:
We rate shares Outperform. We are attracted to IDA's increasingly constructive
regulatory environment, attractive service territory and strong rate base growth
potential.

Outperform

Sector: Regulated Electric Utilities
Market Weight

Rating Change

2009A 2010E 2011E
EPS Curr. Prior Curr. Prior
Q1 (Mar.) $0.40 $0.34 NC NE
Q2 (June) 0.58 0.82 A NC NE
Q3 (Sep.) 1.16 1.39 A NC NE
Q4 (Dec.) 0.49 0.30 NC NE
FY $2.64 $2.85 NC $3.35 2.95
CY $2.64 $2.85 $3.35
FY P/E 13.8x 12.8x 10.9x
Rev.(MM)$1,050 $1,065 $1,098
Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful V = Volatile, = Company is on the Priority Stock List

Ticker IDA
Price (11/12/2010) $36.34
52-Week Range: $28-38
Shares Outstanding: (MM) 48.0
Market Cap.: (MM) $1,744.3
S&P 500: 1,199.21
Avg. Daily Vol.: 281,245
Dividend/Yield: $1.20/3.3%
LT Debt: (MM) $1,288.8
LT Debt/Total Cap.: 44.9%
ROE: 10.0%
3-5 Yr. Est. Growth Rate: 4.0%
CY 2010 Est. P/E-to-Growth: 3.2x
Last Reporting Date: 10/28/2010
Before Open
Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters

Neil Kalton, CFA, Senior Analyst
[phone] / [e-mail]
Sarah Akers, CFA, Associate Analyst
[phone] / [e-mail]
Jonathan Reeder, Associate Analyst
[phone] /
[e-mail]

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

2

Company Description:
IDACORP (IDA) is the holding company for Idaho Power Company (IPC), a regulated electric utility serving
more than 485,000 customers in southern Idaho, including Boise and surrounding areas, and eastern Oregon.
In addition, IDACORP Financial Services (IFS), a non-utility business, invests in affordable housing tax
credits.

Investment Thesis

We are raising our rating on shares of IDACORP to Outperform from Market Perform. In addition, we are
increasing our 12-18 month valuation range to $40-41/share from $38-39/share. We are drawn to IDA’s
attractive service territory, ample rate base growth opportunities, improved regulatory environment and
manageable financing needs including modest new equity requirements. In addition, based on recent tax-
related developments and discussions with management, we think it is increasingly likely that Idaho Power
Company (IPC) will be able to negotiate a constructive rate settlement agreement within the next 6-9 months
to replace the existing rate plan that expires at the end of 2011. In the event the current rate construct is
extended, we believe there is at least 5-10% upside to our 2012-14 EPS estimates.

Based in Boise, IDA’s footprint in southern Idaho and a small portion of eastern Oregon boasts natural beauty,
a temperate climate and a low cost of living, especially when compared with nearby California. Prior to the
Great Recession Idaho consistently ranked in the top 10 states in terms of population growth and, despite a
material slowdown in growth, has remained in the top 15. This growth has helped fuel the need for additional
investment in generation, distribution and transmission. As a result, IDA has significant rate base growth
opportunities over the next decade. Given the company’s short power position and the gradual expiration of
hydro contracts, we do not expect recent economic conditions to materially eat away at the company’s rate base
growth opportunities.

Valuation Comments

Our valuation range of $40-41 is based on combination of P/E multiple and dividend discount analyses:

• Our P/E Multiple Analysis implies a 12-month forward value of $39.00-40.50/share. We
apply a 13.0-13.5X P/E multiple to our 2012 EPS estimate of $3.00. This represents a modest discount to
the median multiple for the Small Cap Regulated peer group of 13.8X 2011 EPS estimates (see Figure 1).
We apply a 2011 multiple to our 2012 EPS estimate due to the forward looking nature of our valuation
range.
• Our Dividend Discount Analysis implies a 12-month forward value of $41/share. Key
assumptions underlying our analysis include an 8% discount rate (risk-free rate of 4.3% and equity risk
premium of 370 basis points) and a long-term growth rate of 4.75% based on a 50% payout ratio and 9.5%
ROE.

Figure 1: Comparative Valuation Table
Price Price/ Div. 10E
11/12/2010 2010E 2011E 2012E 2010E 2011E 2012E Tangible Book ield Payout
IDACORP (IDA) $36.34 $2.85 $3.35 $3.00 12.8x 10.8x 12.1x 1.2 3.3% 42%
Small-Cap Regulated Electric Median 14.4x 13.8x 12.3x 1.4 4.6% 61%
IDA Discount/Premium to Peers -12% -21% -1% -15%
EPS P/E
Source: Wells Fargo Securities, LLC Estimates

Features

• Improving Regulatory Environment. Over the past few years, Idaho’s regulatory environment
has materially improved. Favorable trends include the use of forecasted data in ratemaking and
improvements to the power cost adjustment mechanisms (PCAM), particularly the shift to a 95/5
customer/shareholder sharing for excess power costs versus 90/10 previously. In addition, IPC was
able to reach a constructive 3-year rate plan prior to filing a rate case in 2009, which resulted in
earnings visibility for shareholders and minimal rate increases to customers.

WELLS FARGO SECURITIES, LLC
IDACORP, Inc. EQUITY RESEARCH DEPARTMENT

3

• Attractive Service Territory. IDA’s service territory boasts above-average long-term population
growth trends, which should continue to provide investment opportunities in generation, distribution
and transmission. IPC is currently constructing a 300 MW combined cycle gas plant and expects
transmission investment to ramp up beginning in 2013. We expect these investments will drive rate
base growth and translate into long-term annual EPS growth of 4-5%.

• Financial Position. Due, in part, to cash inflows related to recent and pending tax items, we expect
IDA will be able to finance its capital plans without the need to issue significant amounts of equity. We assume that the company issues $15 million of equity annually over the next 5 years, including
$8-10 million per year from employee-related plans.

Risks

• Rate Plan Expiration. IPC’s current rate plan expires at year-end 2011. The plan, which is
discussed in greater detail below, affords IPC a reasonable opportunity to earn a 9.5% ROE on year-
end Idaho jurisdictional equity. By comparison, IPC’s last few rate outcomes were based on regulated
rate base from a largely historical test year. Our 2012-2014 EPS estimates assume IPC earns ROEs of
9.5-10% on average forward regulatory rate base, which we believe represents a middle ground. We
consider our assumptions to be reasonable and note that Idaho’s regulatory environment has
materially improved over the past few years, including a gradual shift toward a more forward-looking
test year. That said, should Idaho revert back to less constructive regulatory principles, particularly
basing rates on a historical test year, we see $0.15-0.20 downside risk to our 2012 EPS estimate.

• Earnings Variability. While improvements to the PCAM have materially reduced IPC’s bottom
line exposure to power cost fluctuations, shareholders continue to bear some risk due to the 95/5
sharing provision that kicks in when actual power costs deviate from projected costs. As a result,
below average hydro conditions and/or plant outages can have a negative impact on earnings,
resulting in above average earnings volatility versus regulated peers outside of the Northwest. We
estimate that in a given year the PCAM poses a $0.05-0.10 EPS risk.

Comments on Idaho Power’s Rate Plan

IPC’s existing plan, which was implemented in 2009, is premised on a 10.5% ROE based on year-end Idaho
jurisdictional equity. To the extent IPC generates net income above the 10.5% ROE, earnings are shared 50/50
with ratepayers. Conversely, should the company’s earnings fall below a 9.5% ROE, IPC is able to accelerate
the amortization of $45 million of the company’s roughly $70 million accumulated deferred income tax credit
(ADITC) balance to bring earnings back up to the 9.5% floor (IPC can amortize up to $25 million in a given
year). The amortization of ADITCs results in non-cash earnings, and, as they are largely non-recurring in
nature, an over-reliance on the tax credits creates longer-term earnings quality concerns.

To date, IPC has not utilized the ADITCs and we do not expect the company will need to in 2011. In 2009,
IPC’s core earnings power resulted in an earned ROE in excess of 9.5%. Thus far in 2010 the company has
recognized a tax benefit of approximately $33 million related to a method change for repair-related items, net
of a $12 million reserve. Due to the use of flow through regulatory accounting in Idaho, the benefit was
immediately recognized in net income and included in the ROE calculation thereby eliminating the need for
the use of ADITCs in 2010. In addition, a separate method change related to tax deductions for capitalized
overhead costs - uniform capitalization method change (UCAP) - resulted in a $65 million tax benefit ($42
million in cash). IPC established a reserve for the entire amount given realization of the tax benefit remains
somewhat uncertain. While IPC entered into an agreement with the Internal Revenue Service (IRS) on the
UCAP tax benefit, the company is waiting for final approval from the U.S. Congress Joint Committee on
Taxation. We think a decision is likely to occur in 2011. Upon approval, IPC would fully recognize the UCAP
tax benefit in earnings. If this occurs in 2011 it would once again eliminate the need for the use of any of the
ADITC balance.

We believe the repair-related and UCAP tax method changes increase the likelihood that IPC will be able to
construct a similar rate plan post-2011 given a still healthy ADITC balance (assuming the UCAP tax benefit is favorably resolved in 2011 and not 2010). As a result, we believe IPC will be able to offer the Idaho Public
Utilities Commission (PUC) an extension to the existing rate plan with the need for only a modest rate
increase. As discussed in our EPS Outlook, should IPC negotiate a similar rate construct to the existing plan,
we project 7% upside to our 2012 EPS estimate of $3.00.

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

4

EPS Outlook

Our 2010-2014 EPS estimates are $2.85, $3.35, $3.00, $3.15 and $3.25 versus $2.85, $2.95, $3.00, $3.05 and
$3.15, previously.
2011. We are raising our 2011 EPS estimate to $3.35 from $2.95 to reflect an assumed tax benefit related to
the Uniform Capitalization (UCAP) method change. Because inclusion of the tax benefit results in an earned
ROE above 10.5%, our estimate reflects 50/50 sharing with customers for earnings beyond the 10.5% ROE.
Key assumptions underlying our 2011 EPS estimate include an Idaho-jurisdictional year-end equity balance of
$1.48 billion, a pre-sharing ROE of just over 11% and an average share count of 49.5 million.

Per a settlement with the IRS in the third quarter of 2010, the UCAP benefit totals $65 million. However, IDA
booked an unrecognized tax benefit (reserve) of $65 million, thereby offsetting the earnings impact. While the
company is confident in its position, it is electing not to reflect the change in its financial reporting until the
method receives approval from the U.S. Congress Joint Committee on Taxation, which could occur in 2010 but
is more likely a 2011 event. As there is some uncertainty related to the timing and approval of the tax benefit,
we apply a 75% probability weighting to the $65 million benefit in 2011. We are electing to include the tax
benefit in our EPS estimate due to the nature of IPC’s rate plan, which allows the company to use levers,
through the amortization of accumulated deferred income taxes (ADITCs) or other tax benefits, in order to
earn a minimum ROE of 9.5%, in lieu of additional traditional rate relief. That said, as this benefit is
materially larger than the annual ADITC provision ($25 million) and results in an estimated earned ROE well
above the 9.5% minimum, there is a non-recurring component in 2011.

2012. Our 2012 estimate remains $3.00. The 10% decline from our 2011 estimate reflects (1) the absence of
the UCAP tax benefit and (2) the reversion to a more traditional rate plan including the use of average rate
base rather than year-end equity. We assume a base rate increase in 2012 premised on a forward test year and
that IPC is able to earn an ROE of 9.75%. See Figure 2 for key assumptions underlying our 2012-2014 EPS estimates.

We believe there is upside to our 2012 estimate should IPC reach a rate agreement similar to the current rate
plan. As IPC has not had to dip into the $45 million ADITC balance included in the 2009-2011 rate agreement,
we believe there is a reasonable chance that the current rate constructs are extended, including the use of year-
end equity to compute the company’s earned ROE. We estimate that the extension of the current plan would
result in EPS power of approximately $3.20 in 2012. As the ability to accelerate the amortization of ADITCs
provides a non-cash benefit, we expect IPC would also seek some traditional rate relief in the next rate plan.
The company is also considering a single item rate filing for recovery of the Langley Gulch plant, which is
expected to go in-service in 2012.

Beyond 2012. We assume EPS growth resumes in 2013 and beyond driven by rate base growth and
reasonable regulatory treatment. We are increasing our 2013 and 2014 estimates by $0.10 each to $3.15 and
$3.25 due, in large part, to a lower assumed share count in light of IDA’s improving cash position (discussed
below). Our estimates reflect earned ROEs of 9.5-10% in Idaho (see Figure 2). As with 2012, we see upside to
these estimates in the event IPC reaches a settlement agreement based on year-end equity and the ability to
accelerate the amortization of ADITCs to reach a minimum ROE of 9.5%.

WELLS FARGO SECURITIES, LLC
IDACORP, Inc. EQUITY RESEARCH DEPARTMENT

5

Figure 2: Key Assumptions Underlying our 2012E-2014E EPS

2012E 2013E 2014E
Idaho Jurisdictional
Rate Base avera e $ millions 2,377 2,861 2,911
E uit Ratio 50% 50% 50%
Earned ROE 9.8% 9.7% 9.7%
Earnin s $ millions 115.9 139.2 140.5
EPS $2.32 $2.77 $2.78
AFUDC Earnin s
Base $ millions 2.5 2.5 2.5
Lan le Gulch $ millions 17.7 0.0 0.0
Transmission Pro ects $ millions 2.5 4.3 9.3
Total AFUDC Earnin s $ millions 22.7 6.8 11.8
EPS $0.46 $0.14 $0.23
Transmission
Rate Base avera e $ millions 80 82 84
E uit Ratio 50% 50% 50%
Earned ROE 11.0% 11.0% 11.0%
Earnin s $ millions 4.4 4.5 4.6
EPS $0.09 $0.09 $0.09
Ore on Jurisdictional
Rate Base avera e $ millions 120 145 147
E uit Ratio 50% 50% 50%
Earned ROE 9.5% 9.5% 9.5%
Earnin s $ millions 5.7 6.9 7.0
EPS $0.12 $0.14 $0.14
Unre ulated, Parent and Other $0.02 $0.02 $0.01
Total EPS $3.00 $3.15 $3.25
Source: Wells Fargo Securities, LLC Estimates

Cash Flow Outlook

IDACORP’s cash flow outlook has been improving due, in part, to roughly $75 million of cash inflows related to
tax benefits. Nearly $60 million of the cash is expected to be received by the end of 2010, including $24
million in the fourth quarter.

Due, in part, to the tax-related cash benefits, we expect internally generated cash will fund 50-60% of IDA’s
capital expenditures through 2012 and 60-70% beyond 2012. We project equity needs of roughly $15 million
per year, which can be accomplished via employee-related plans and the company’s continuous equity
program. Our capital expenditure assumptions are outlined in Figure 3.

Figure 3: Capital Expenditure Assumptions, 2010E-2014E

($ millions)2010E 2011E 2012E 2013E 2014E
Ongoing Capital Expenditures $194 $188 $190 $203 $205
Langley Gulch 139 110 70 0 0
Boardman-Hemingway Line 0 25 25 40 75
Gateway West Line 0 15 20 25 50
Advanced Metering Infrustructure 24 24 0 0 0
Total CapEx $356 $362 $305 $268 $330
IDA Guidance $355-365 NA NA $640-680 ('11-'12)
Source: Wells Fargo Securities, LLC Estimates and company guidance
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

6

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IDACORP, Inc. EQUITY RESEARCH DEPARTMENT

7

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WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

8

Required Disclosures

$18.00
$20.00
$22.00
$24.00
$26.00
$28.00
$30.00
$32.00
$34.00
$36.00
$38.00
$40.00
$42.00
11
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IDACORP, Inc. (IDA) 3-yr. Price PerformanceIDACORP, Inc. (IDA) 3-yr. Price Performance
Date
Date Publication Price ($) Rating Code Val. Rng. Low Val. Rng. High Close Price ($) 11/13/2007 Brothwell
11/13/2007 NA 2 33.00 35.00 33.65
„ 11/14/2007 Kalton
z 11/14/2007 33.79 2 34.00 35.00 33.85
z 2/15/2008 32.04 2 31.00 33.00 31.46
z 12/18/2008 29.19 2 30.00 32.00 29.24
z 2/19/2009 24.39 2 26.00 27.00 24.39
z 8/6/2009 27.79 2 27.00 29.00 27.79
z 9/10/2009 28.37 2 29.00 30.00 28.37
z 11/10/2009 29.52 2 30.00 31.00 29.52
z 12/14/2009 31.18 2 32.00 33.00 31.54
z 2/25/2010 33.94 2 35.00 36.00 33.89
z 8/6/2010 35.75 2 36.00 37.00 36.05
z 10/29/2010 37.00 2 38.00 39.00 36.80
Source: Wells Fargo Securities, LLC estimates and Reuters data Symbol Key Rating Code Key
d Rating Downgrade ‹ Initiation, Resumption, Drop or Suspend 1 Outperform/Buy SR Suspended
c Rating Upgrade „ Analyst Change 2 Market Perform/Hold NR Not Rated
z Valuation Range Change ˆ Split Adjustment 3 Underperform/Sell NE No Estimate
Additional Information Available Upon Request

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 the specific recommendations or views expressed
by me in this research report.

ƒ Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for IDACORP, Inc. within the
past 12 months.
ƒ Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in
the next three months from IDACORP, Inc.
ƒ Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from IDACORP, Inc. in the
WELLS FARGO SECURITIES, LLC
IDACORP, Inc. EQUITY RESEARCH DEPARTMENT

9

past 12 months.
ƒ IDACORP, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client
of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to IDACORP, Inc.
ƒ IDACORP, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client
of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services to
IDACORP, Inc.
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IDACORP, Inc. in the past 12 months.
ƒ Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in IDACORP, Inc.

IDA: Risks to our valuation include project delays/cancellations, negative regulatory developments and consistently below average
hydro conditions.

Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability
and revenue of the firm, which includes, but is not limited to investment banking revenue.

STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the
next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12
months. SELL
SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the
analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.

As of: November 15, 2010
45% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking
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companies.
53% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Market Perform.
Wells Fargo Securities, LLC has provided investment banking
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3% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Underperform.
Wells Fargo Securities, LLC has provided investment banking
services for 47% of its Equity Research Underperform-rated
companies.

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WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

10

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SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE