Welcome to IDACORP’s Third Quarter 2022 Earnings Conference Call. Today’s call is being recorded, and our webcast is live. A replay will be available later today and for the next 12 months on the IDACORP website. [Operator Instructions] I will now turn the call over to Justin Forsberg, Director of Investor Relations and Treasury..

Thanks, Erica and good afternoon everyone. We appreciate you tuning in for our call this afternoon. This morning, we issued and posted IDACORP’s website, our third quarter 2022 earnings release and Form 10-Q. The slides that accompany today’s call are also available on IDACORP’s website. We will refer to those slides by number throughout the call today.

As noted on Slide 2, our discussion today includes forward-looking statements, including earnings guidance and spending forecasts, which reflect our current views on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions.

This cautionary note is also included in more detail for your review in our filings with the Securities and Exchange Commission. These risks and uncertainties may cause actual results to differ materially from statements made today and we caution against placing undue reliance on any forward-looking statements.

As shown on Slide 3, on today’s call, we have Lisa Grow, IDACORP’s President and Chief Executive Officer and Brian Buckham, IDACORP’s Senior Vice President and Chief Financial Officer. In addition to Lisa and Brian, we have other members of our management team available for a Q&A session following our prepared remarks.

Slide 4 shows our quarterly financial results. IDACORP’s third quarter 2022 earnings per diluted share were $2.10, an increase of $0.17 per share from last year’s third quarter, reflecting the impacts of customer growth, weather, a midyear regulatory order, all partially offset by higher costs.

Year-to-date, earnings per diluted share were $4.28, an increase of $0.08 per share from the first 9 months of last year. Both revenues and earnings through September 2022 reflect IDACORP’s highest first 9 months in the history of the company.

Today, we also raised our previously issued full year 2022 IDACORP earnings guidance estimate by $0.10 to the range of $5.05 to $5.15 per diluted share, which would result in the 15th consecutive year of growth in earnings per share.

We also affirm that we believe Idaho Power will not need to utilize any of the additional tax credits that are available to support earnings and at this time, do not expect to share any excess earnings with Idaho customers under its Idaho regulatory settlement stipulation.

These estimates assume historically normal weather conditions over the balance of the year. I’ll now turn the call over to Lisa..

Thanks, Justin and thank you everyone joining us on the call today. I’d like to begin by highlighting another quarter of strong customer growth, which will be a theme through today’s discussion.

As you can see on Slide 5, Idaho Power’s year-over-year customer growth was 2.5% for the 12 months ending September 30, and we believe our outstanding power reliability, affordable prices and commitment to customer satisfaction continue to help attract customers to Southern Idaho and Eastern Oregon.

As shown on the bottom of Slide 5, the economy in our service area continues to outperform national trends. Moody’s predicts sustained economic growth for Idaho Power Service Area calling for GDP growth of 1.9% in 2022 and 3.4% in 2023.

Unemployment within our service area is at 3%, which is below the 3.5% national average, unemployment in our region has grown 3.2% since Q3 of last year, and we are still seeing now hiring signs at businesses around our area. Our pipeline of future large customer projects remains strong, most notably this quarter as seen on Slide 6.

Micron announced a $15 billion investment to expand its Boise sites that will bring the manufacturing of semiconductor chips back to the United States. Micron’s press release stated that it is co-locating its new 600,000 square foot clean room space near its R&D center at the company’s headquarters.

It’s also worth noting that while the new fab has garnered significant attention, it is equally important that Micron is continuing to invest in its campus, solidifying Boise’s the global corporate headquarters from its humble beginnings in the basement of a local dentist office to becoming a global powerhouse in digital memory.

Micron has publicly announced over 6.5 million square feet in new facilities including a large-scale office building, expanded central utility building, a new clean room based and wastewater treatment facility. Construction for the project has begun with the clean room space coming online in phases starting in 2025, according to the company.

The project is expected to create over 17,000 jobs, including approximately 2,000 direct Micron jobs by the end of the decade. Micron have chosen other areas to locate in significant projects. We are proud that Micron chose Idaho for the expansion in Idaho Power as its service provider and partner.

You will note that we recently published on our website and in today’s Form 10-Q our updated load forecast projections for the Idaho Power’s upcoming 2023 Integrated Resource Plan. We show these updated low growth projections on Slide 7.

We expect the 2023 IRP to include a sizable increase in load growth for customers – for commercial and industrial customers, in particular, resulting from some recent announcements from those customers, including Meta and Micron, among others.

Perhaps not surprisingly, we expect additional resource needs to result from the significantly enhanced loan growth forecast.

Recall that the help meet peak demand in 2023, Idaho Power entered into contract when we purchase, own and operate 120 megawatts of battery storage assets and also entered into a 20-year power purchase agreement for the output of a planned third-party 40-megawatt solar facility.

Beyond those resources to help address the previously identified capacity deficits projected for ‘24 and ‘25, Idaho Power has been pursuing multiple options and has issued requests for proposals. We are still working through those RFPs. We have a short list as of now, and we should have a determination near year-end on our direction for the 2024 RFP.

But I’d like to note that those prior RFPs were intended to address the load growth anticipated in our 2021 IRP. With that forecast, we estimated that we could invest over $400 million in capital expenditures from 2022 through 2025 for resource additions to help meet those projected capacity deficits.

We believe the new energy and capacity requirements from commercial and industrial growth in the next few years could increase our investment substantially. We made a resource acquisition filing with the Oregon Commission recently to address the 2026 capacity deficit. So we’re focusing on that time period as well.

We are still working through the calculus of serving the accelerated rate of growth through the 2023 IRP process. But we may need to upsize the RFPs in advance the time line of some of our major infrastructure projects, such as the federally permitted Gateway West high-voltage transmission line project.

It’s truly an engineered stream to be able to build such historic projects. With these significant infrastructure investments, we believe it is likely that we’ll file a general rate case in Idaho in the next 12 months.

Several factors impact Idaho Power’s timing and need to file general rate cases, including the expected increase in depreciation expense from rate base eligible assets as they are placed into service.

The significant amount of investments we have made in our infrastructure since our last general rate case filed in 2011, the expected financing cost of our CapEx in a higher interest rate environment, and inflationary pressures on O&M that we have discussed previously.

As a reminder, the Idaho Commission requires Idaho Power to file a 60-day notice of its intent to file a general rate case, and we expect the processing of a general rate case in Idaho would stand at least 7 months before new rates would be in effect.

We anticipate that future rate cases will help us deliver the returns our shareholders expect from our company, while recovering the cost to serve our growing customer base. We have successfully managed our cost over the past decade.

And though inflationary pressures and interest rates are driving many costs higher, we believe we have a good track record of prudent spending to bring to the regulators. Balancing the impact on customers continues to be a very important component of our efforts to control costs and make prudent decisions.

However, we will need to continue to make significant investments throughout our system. Our growing customer base will help us structure rate requests that are affordable on a per customer basis. With these objectives in line, our list of ongoing projects is significant.

In addition to the near-term capacity deficits we are working to address, we continue to pursue relicensing efforts for the Health Canyon Complex, our largest Hydro Power Resource.

In September, we reached an important milestone on the Boardman to Hemingway high-voltage transmission line as Oregon Energy Facility Siting Council voted unanimously to approve the site certificate. This permit authorized construction of the line in Oregon. We plan for B2H to go into service as early as 2026 and have begun preconstruction activity.

Our negotiations with [indiscernible] and PacifiCorp to reach a definitive agreement for the ownership structure for the project during and after the construction phase of the line are ongoing. I’ll close my remarks by highlighting the dividend growth IDACORP announced last month.

As noted on Slide 8, our Board of Directors approved a 5.3% increase in the regular quarterly cash dividend on IDACORP’s common stock to $0.79 per share or $3.16 on an annual basis. We have now approved a dividend increase for 12 consecutive years with a cumulative dividend increase of 163% during that time frame.

We are proud that our financial – our strong financial and operational performance has allowed for these increases, while item on power customers continue to benefit from some of the lowest energy prices in the nation.

Management expects to recommend future annual dividend increases of around 5% with the intent to move towards the higher end of our target payout ratio of 60% to 70% of sustainable IDACORP earnings. And with that, I will hand this over to Brian for a financial overview of the third quarter and our expectations for the rest of the year..

Thanks, Lisa. Good afternoon, everyone. Thanks for joining us. I’ll start on Slide 9, where you’ll see a summary of our financial results. As Justin noted earlier, 2022 has had the highest earnings for the first 9 months of any year in our history. This year, we’ve seen continued strong customer growth and in Q3 we had higher weather-related usage.

We also had sustained higher transmission wheeling revenues that resulted in part from the energy market conditions in the West. Also, the rate change in the Jim Bridger order from the Idaho Commission this summer impacted results for the third quarter.

On the other hand, offsetting those benefits on a comparative basis were higher operating and maintenance expenses as well as net power supply expenses that were not deferred for future recovery under our power cost adjustment mechanism.

The Idaho fixed cost adjustment a decoupling mechanism also had a negative impact on comparative results affected by weather-related usage.

In the table of quarter-over-quarter changes, you’ll see that customer growth added $3.6 million to operating income and as Lisa noted, we expect this growth to continue as existing businesses expand their operations and footprint and as people and businesses relocate to our service area.

It’s probably no surprise that rising mortgage interest rates have resulted in some signs of recession-like conditions, like decreasing housing prices and property spending a little more time on the market before selling, but we share the optimism in Moody’s current positive GDP outlook for our service area.

Frankly, a housing price reset will help with affordability in our service area, which in turn helps with high earnings and continue to promote in migration.

However, you define our recession, as I mentioned last quarter I think it’s helpful to remember that Idaho Power service area saw positive customer growth even during the nationwide downturn in the aftermath of the 2008 financial crisis. Having said, customer growth remained strong throughout the third quarter.

And as Lisa mentioned, as we look ahead, our updated load forecast for our 2023 IRP includes significant commercial and industrial growth. We are projecting a 5-year forecasted annual peak demand growth rate increasing from 2.1% in the previous IRP to 4.8% in the 2023 IRP, so a notable increase.

Back to the third quarter’s results, higher temperatures and drier weather in the third quarter drove a 7% increase in usage per residential customer, a 5% increase in commercial for customer usage and a 10% increase in usage per irrigation customer, Industrial for customer usage was also a little higher for the quarter.

These increases are all compared to last year’s third quarter, which just by way of comparison was also relatively cotton dry. And while this summer, we didn’t exceed our all-time record peak load set in June of 2021, we surpassed our previous set peak 12 times between June and August. And we hit all 5 August and September peaks this year.

We actually beat those previous peaks by about 3% and 6% in those 2 months. It turns out 2022 was the year of 132 days in Boise, surpassing the high temperature mark well over the previous record number of days. And these weather conditions combined to cause much of the $12.6 million net usage per customer increased operating income.

For the first 9 months of the year, we saw an increase in volumes across all customer classes other than irrigation, which was a class impacted by low sales volumes in the wet and cool second quarter this year.

The $5.1 million decrease in Idaho Power’s fixed cost adjustment mechanism revenues that you see next on the table partially offset the decreases in residential and small commercial customer usage.

Further down, you’ll see a $10.6 million increase in operating income from the change in net per megawatt hour revenue, the Idaho regulatory order for the Jim Bridger Plant, which increased retail rates on June 1 led to much of that increase.

Another piece relates to the change in customer mix and sales to higher-margin customer classes compared with the same period last year. Next on the table, continued sustained transmission wheeling revenues during Q3 of this year, increased operating income by $1.2 million.

Wheeling customers paid 4% more for transmission wheeling with Idaho Power’s transmission tariff increasing in October of 2021 to reflect higher transmission costs. Also warmer weather throughout the West led to price spreads between energy market up, which increased wheeling activity across idle Power’s transmission system.

And a further slight increase in the transmission tariff rate was effective on October 1 of this year, reflecting higher cost of operating the transmission system. The higher other O&M expenses shown next on the table led to a $12.9 million decrease in operating income this quarter compared with last year’s Q3.

As I mentioned last quarter, we continue to see inflationary pressures on labor-related costs, professional services and supplies and vehicle fuel. Recall those that a sizable portion of our higher O&M costs for live to 2021 relates to plant maintenance that doesn’t recur annually, but instead, it’s scheduled in cycles over a period of years.

Also from a timing and comparative perspective, we recorded about $2 million in higher performance-based compensation accruals during Q3 of this year based on expected full year payout.

The $1.8 million increase in depreciation expense further down the table reflects higher plant in service compared with the same period in 2021 as well as the accelerated depreciation of the coal-related assets at the Jim Bridger plant, which began on June 1 of this year.

Recall that the order of approved the collection of depreciation over an accelerated period along with the return component through the end of the Jim Bridger collection period, which is now 2030.

Looking ahead, we still estimate that the order will benefit after tax net income for the full year 2023 by approximately $10 million, with the benefit declining each year thereafter until the collection period ends.

The increase in net power supply expenses in the third quarter that were not deferred for future recovery in rates to the Idaho Power’s power cost adjustment mechanism in both Idaho and Oregon less of the $4.7 million increase in other changes in operating revenues and expenses next on the table.

Three items that led to higher net power supply expenses in the third quarter were higher and more volatile wholesale energy market prices in the Western U.S., higher energy usage by our customers and below average generation from Idaho Power’s lower cost hydroelectric facilities due to low water conditions.

A decrease in non-operating expense, which was from higher allowance for funds used during construction from our higher CapEx led to a $2 million increase in pre-tax earnings.

Finally, at IDACORP, an increase in net income of $2.2 million was primarily due to changes in tax basis adjustments between the periods at our subsidiary IDACORP Financial Services, which was a comparative negative in last year’s third quarter.

All these changes in the aggregate resulted in an increased IDACORP net income of $8.5 million or $0.17 per share for the quarter. You might have noted that our CapEx spending on a cash basis so far this year increased by 55% over what we spent during the first 9 months of last year, and that was our expectation.

The bulk of that additional CapEx relative to last year and relative to our historic spending levels as for our large battery storage projects and some natural gas plant upgrades to obtain additional output and efficiency from the units.

Inflation has certainly had an impact on project costs and lithium carbonate prices are a good example of that, but inflation has impacted goods and services across the board in both labor and raw material prices. We see that in our own operations so not just as a pass-through from third parties.

And so we’re continuing our efforts on being thoughtful and disciplined in our spending and our vendor selection and in our negotiation as well as finding areas for efficiency. We plan to provide our updated CapEx 5-year forecast along our normal time line with the fourth quarter’s release.

We expect that forecast will include updated cost assumptions for our major capital projects like the Boardman to Hemingway project and our other energy and capacity resource additions. We also hope to have more visibility on the outcome of our RFPs for resource additions in 2024 and 2025 by then.

You might have noted in our 10-Q today or that we were looking more toward the upper end of our estimated cost range for our Boardman to Hemingway project.

So engineering and design is still being finalized and we will have some more insight when the design is further along sometime later this later this year – next year, sorry, we will be looking at that next year.

At this point, I think it’s fair to say our CapEx will likely increase for the next few years compared to what we forecasted and included in our 10-K at the beginning of this year.

That’s not only from inflationary impacts, but also the cost of filling projected capacity deficits and serving a growing customer base, which are all potential incremental projects for us.

With all of that anticipated spending in mind, I’ll point you to Slide 10, where you’ll see that IDACORP and Idaho Power continue to maintain strong balance sheets and liquidity. Our credit ratings remain solidly investment grade, and we’ve kept the rating agencies informed of our most recent capital financing plans.

Adept’s operating cash flows and liquidity position as of the end of September are also on Slide 10.

Cash flows from operations in the first 9 months of the year were about $34.4 million lower than the same period in 2021, but that decrease was mostly related to changes in income tax accruals and deferrals and fluctuations in working capital payments and receipts.

And as we work to fund our upcoming capital plans, as we’ve discussed on recent earnings calls, our goal is to primarily finance the execution of those projects with debt, at least until the ratio is closer to a more balanced position from a regulatory perspective.

So as you can infer this mix and equity issuance over the next 12 months, fairly unlikely. We continue to search for resourceable was to manage our debt financing given the rising interest rate environment. And so far, we have seen relatively little impact to our income statement related to interest expense pressures.

The medium-term note facility that we entered into last spring has proven to be a beneficial move as the low spread on those notes is ultimately delayed our need to issue on so far this year and kept the incremental borrowing cost lower than it could have been.

We plan to continue to look for other thoughtful ways to finance our capital spending plan to do as well as we can, managing interest expense and recover what will inevitably be higher financing costs as we move forward. Slide 11 shows our increased full year 2022 earnings guidance and updates to our key operating metrics.

With the bulk of 2022 behind us, we now expect IDACORP’s earnings to be in the range of $5.05 to $5.15 per diluted share. This guidance assumes normal weather for the balance of the year.

Our guidance still also assumes Idaho Power will use no additional tax credits in 2022 under the Idaho regulatory stipulation, which, as a reminder, provides earnings support in the Idaho jurisdiction at a 9.4% return on year-end equity.

And at this time, we don’t expect to share any excess earnings above the Idaho jurisdictional 10% ROE with Idaho customers. So long as earnings call is in that updated range.

Our full year O&M expectations now fall in the range of $375 million to $385 million, while businesses like ours tend to have to react to macro inflationary trends as they occur, we’re confident in our team’s commitment to quickly watch our spending going forward.

We’re currently at the end stages of our budgeting cycle for 2023 and as we look at it, based on our work plans and plant maintenance schedule, we don’t currently expect to see a rate of increase in O&M in 2023, like we saw this year.

As part of our culture of efficiency, we will be disciplined in our spending against the continued inflationary environment. Our expectation on this year’s CapEx spending is still in the range of $500 million to $520 million.

One update I’ll note is that we expect that we could be closer to the lower end of that capital spending range this year that’s driven not by a lower expectation on overall costs, but instead based on the timing of some year-end progress statements for large capital projects, which could slip into early part of next year.

Finally, given our most updated forecast of hydropower operating conditions, we’ve further refined our expectations on hydropower generation for the year with the reduced hydro out, but this year, we’re lucky to have a diverse portfolio of power by resources we can drop on. Slide 12 shows our recent outlook for precipitation and temperature.

Current weather projections from November through January suggest we will hope we see some continued precipitation at the high elevation regions as we head into the winter to help with water conditions in our area for the next year’s hydro season.

Fortunately, we’ve seen snow amount both last week and this week and not to signal anyone out, but it’s good news for [indiscernible] and hydroelectric dam owners. With that, Lisa and I and others on the call are happy to answer your questions..

[Operator Instructions] Your first question comes from the line of Paul Zimbardo with Bank of America..

Hi, Paul..

Hi, Paul.

Hi, good afternoon. Thank you for the time. Just first to kick it off on the increase in the O&M guidance expectation, it looks like about 5% higher year-over-year.

And I know you discussed some of the kind of more one-time non-recurring elements of this, but – could you just give us some insights as we think about calibrating into 2023 kind of a normal level of cost increases as you’ve done a great job. I think it’s below 1% historical. So I’m just trying to calibrate things that way. Thanks..

Yes, Paul, thanks for the question. So we will give our 2023 O&M guidance in February. We’re actually working on 2023 budgeting right now for O&M. What I did mention earlier is we don’t expect the same size of increase in 2023 that we saw in 2022 as of now. So we’d expect a deceleration in the growth rate of O&M.

Things that I think we’re focused on going into 2023 is cost management. You’ve seen us do it in the past. It’s a cultural element of the way we operate to be lean and efficient in what we do. And you’ve seen that run for quite some time. 2022 just had a pretty significant inflationary aspect to it, particularly on the wage side, third-party services.

We saw pretty significant increases in software, things like that, that really drove prices. But also what you mentioned, the less scheduled plant maintenance next year is an expectation. Labor is a little open, but possibly not as much as we’ve seen in – at least for the run up in 2022 in that with wage inflation.

2023 is also likely to be a capital-intensive year. So you could see labor allocation associated with capital in O&M in 2023. So there is a few things that we’re looking at that could impact 2023 relative to 2022. So we would hope to see some moderation in the increase next year..

Okay. That makes sense. And then just with respect to the 5-year capital plan, I know you’ll roll forward on the fourth quarter call, but I have to ask. So you detailed about $400 million plus of incremental capital needs for resource deficits. And then I know you increased the needs by about 400 megawatts plus.

Is it fair to think about you take the 2.8 layer in 400 and then layer in an incremental for that latest deficit or am I doing some more double counting in there?.

I don’t think that that’s necessarily the math that I would do on the CapEx forecast we at least put out for 2023 back in February was $690 million to $715 million. But as we work through the RFPs, that’s really going to have an impact on what our capital spending plans are.

We’re trying to meet pretty significant customer growth, and we really need to know the outcome of those RFPs before we update too much of our guidance. We’re also still working on the IRP, and that’s going to have an impact on what the resource additions are that are part of that to meet all of the growth that’s showing up.

So we will be out in February with updated numbers that will be as close as we can get in February. So I’ll wait until then before doing too much incremental CapEx math..

Okay.

The $400 million you called in the Q for like the resource deficit or capacity deficit, the latest IRP update that is incremental to that $400 million?.

It will be. So the $400 million number that we gave you was associated with the 2021 IRP. So as we look through the 2023 IRP and the new growth assumptions that are in there, we will update our CapEx forecast based on that new set of generation transmission and other resources that we put in place as a result of that new growth. So incremental. .

Okay. Understood. Thank you for the patience. Appreciate it..

Thanks, Paul..

[Operator Instructions] That concludes the question-and-answer session for today. Ms. Grow, I will turn the conference back to you..

Well, thank you all again for joining us this afternoon and for your continued interest in IDACORP and looking out the window, there is a lot of snow out there. So for us [indiscernible], so I hope you make a plan to come visit us here in Idaho.

I wish you all a good evening, and we very much look forward to connecting with many of you at the EEI Financial Conference in Florida starting next weekend. Thank you..

That concludes today’s conference. Thank you for your participation..