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Looking at the universe of stocks we cover at Dividend Channel, on 8/3/16, Idacorp Inc (NYSE: IDA), CMS Energy Corp (NYSE: CMS), and FirstEnergy Corp (NYSE: FE) will all trade ex-dividend for their respective upcoming dividends. Idacorp Inc will...




 
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IDACORP (IDA) Inc.'s largest subsidiary, Idaho Power Company (IPC) served approximately 480,000 customers by the end of 2007, in Idaho and eastern Oregon[1], and owned 3.27 GW of nameplate generation, with 1.71 GW from hydroelectric plants.[2]

As an electric utility whose primary focus is on hydroelectric power, IDACORP is less exposed to the volatility of the natural gas and coal markets. This makes the company more dependent on rainfall and other weather conditions than the nation's average electric generator, with hydroelectric accounting for less than 8% of the nation's generation capacity in 2007.[3] In the northwest, hydroelectric generation can average over 20,000 MW during a year of heavy rainfall to as little as 12,000 MW in a dry year.[4] The lower generation in dry conditions force generators to produce a greater amount of electricity from more expensive coal and natural gas resources, cutting into companies' profit margins. IDACORP’s reliance on hydroelectric generation puts it in position to benefit from stricter federal emission laws but exposes it to other environmental regulations designed to protect fish and wildlife.

The electric utility industry depends more on government regulation than competition, but IDACORP does have a few competitors in the area. These include Avista, PacifiCorp, and Portland General Electric Co.

Business Financials

Annual Revenue and Operating Income for IDACORP
Annual Revenue and Operating Income for IDACORP [5]
Quarterly Revenue Breakdown ending 3Q 2008
Quarterly Revenue Breakdown ending 3Q 2008 [6]

IDACORP was formed in 1998 to let the Idaho Power Company (IPC) take part in both the regulated electric industry and other non-regulated businesses. Other than IPC, the subsidiaries of IDACORP include IDACORP Financial Services, Ida-West Energy Company and IDACORP Energy, the energy trading group that discontinued operations in 2003.[1] The company is based and primarily operates in central and southern Idaho, but owns assets across the country, including the states of Oregon, Wyoming, Nevada and California.

In 2007, IDACORP earned $879.4 million in revenue and $152.1 million in operating income, representing 17.3% of the year’s revenue.[5] All of these decreased from 2006, in which heavy rain resulted in greater hydroelectric generation. In 2006, the company earned $926.3 million in revenue and $169.7 million in operating income.[5] For 2008 IDACORP looks to reach and surpass what the company earned in 2006, and is well on its way to do so. In just the first three quarters of 2008, the company has already earned $741.3 million in revenue and $166.9 million in operating income.[6]

Business Segments

IDACORP was formed in 1998 to let the Idaho Power Company (IPC) take part in both the regulated and non-regulated electric industry, as well as affordable housing investments. IPC has accounted for over 99% of the company’s revenue from 2005-2007 and remains the primary subsidiary of IDACORP, with IDACORP Financial Services and Ida-West Energy providing tax credits and other auxiliary services.

Idaho Power Company (IPC) (99.5% Revenue, 102% of Operating Income in 2007)

Breakdown of Utility Customers for IPC
Breakdown of Utility Customers for IPC [7]
2007 Breakdown of Power Usage by Customer Type
2007 Breakdown of Power Usage by Customer Type [7]
2007 Breakdown of Utility Revenue for IPC
2007 Breakdown of Utility Revenue for IPC [7]


IPC provides energy to businesses and residential consumers in Idaho and the eastern edge of Oregon. IPC gets much of its electricity from hydroelectric power, owning and operating 17 hydroelectric plants. It also owns 2 natural gas plants, a diesel generator and has 33%, 50% and 10% interests in three coal fired plants, located in Wyoming, Nevada and Oregon respectively.[1] IPC also owns one-third of the Bridger Coal Company, who’s Jim Bridger coal mine is used to supply IPC’s Wyoming plant. The company's plants have a total nameplate capacity of 3.27 GW, with 1.71 GW from the hydroelectric plants and 1.56 GW from the coal and gas fired plants.[2] As of the end of 2007, IPC was supplying energy to approximately 482,000 customers.[1] 397,000 of these customers were residential and accounted for $308 million of the company’s revenue.[7] In 2007, sales to its utility customers accounted for $668 million, with an additional $155 million coming from off-system sales.[7] The remainder of the revenue came from IDACORP’s transmission and regulatory operations.[7] IPC earned $154.8 million in operating income in 2007.


IDACORP Financial Services (IFS) (<1% of 2007 Revenue, -5% Operating Income, 18% of Net Income[8])

IFS is used by IDACORP to generate returns, not in the form of typical revenue, but instead through federal and state tax credits.[1] The segment invests in affordable housing developments, as well as historic rehabilitation projects, such as the Empire Building in Boise, Idaho. IFS did not make any new investments in 2007. [9] The investments include over 700 individual properties located across the country, including 49 states, Puerto Rico and the US Virgin Islands.[1] IFS investments have accounted for $15 million, $19 million and $20 million in tax credits for 2007, 2006 and 2005 respectively. [9] These tax credits have accounted for 18% of the company’s net income for both 2007 and 2006, and over 31% of its net income in 2005.[5]

Ida-West Energy Company (<1% of 2007 Revenue, 3% Operating Income[8])

Ida-West Energy Company operates and owns 50% of nine hydroelectric plants generating a total of 45 megawatts.[1] Four of the hydroelectric plants are located in Idaho and five are in northern California. IPC has historically purchased all of the power generated by Ida-West's hydroelectric plants in Idaho at a total cost of $8 million in 2007 and 2006 and $7 million in 2007.[9] Ida-West contributed $2 million to IDACORP's net income in 2007.[8]

Trends and Forces

IJWTS wow! Why can't I think of thgins like that?

New Emission Regulations Benefit IDACORP

Put forth in February of 2007, the Western Climate Initiative combined the efforts of seven western states in the US and three Canadian provinces to reduce greenhouse gas emissions. They have collectively proposed a plan that would institute a cap and trade system on carbon dioxide emissions in the area.[10] Each type of plant or company would be assigned a specific emission allowance, portions of which can be bought or sold to meet the needs of the company. This trading scheme provides financial incentives for companies, like IDACORP, to produce clean energy.

Another regulatory system, which is designed more to bolster the renewable energy sector, does so through the use of Renewable Energy Credits(RECs). For every megawatt-hour of energy from a renewable source the company receives a specified number of RECs. After the RECs are distributed, the companies are then free to sell and purchase RECs on the open market to reach the mandated number. Companies like IDACORP, that make a substantial amount of energy from renewable hydroelectric resources, are in position to benefit from the sale of these credits to electric generators that focus more on natural gas and coal. The mandates are often set as part of a Renewable Portfolio Standard (RPS). As of December 2008, 28 state governments had an RPS, with each mandating that a specific percentage of energy used in the state is to come from renewable resources by a specified year.[11] As of the end of 2008, Idaho still lacked a Renewable Portfolio Standard, but with Oregon, Washington, Nevada and Montana all having their own RPS, the program will affect aspects of IDACORP's operations.

IDACORP is Insulated from High Gas Prices

In the period between 2002 and 2008, the price of natural gas in the United States has risen more than 170%.[12] The rising price of natural gas has cut substantially into utility companies' bottom lines, as natural gas accounted for nearly 20% of all electricity production in 2006.[13] From 2005 through 2007, only 50% of the energy produced by IPC was from natural gas or coal plants, with the remaining 50% coming from hydroelectric resources.[7] Of the fossil fuel fired plants owned by IPC, natural gas accounts for a nameplate capacity of 435 MW and coal plants account for 1,118 MW of nameplate capacity. Although the cost of coal has also increased from 2002-2008, the price of coal has risen only 41% in this time period.[14] The dependence on hydroelectric, and not natural gas or coal, shelters IPC from the price volatility of these commodities.

IDACORP’s Revenue depends on Weather and Water requirements

IDACORP benefits from heavy rainfall, as the company is able to make a greater amount of energy from its hydroelectric plants, reducing its need to purchase energy or run its more expensive fossil fuel plants. In periods of drought, the opposite is true. According to the Northwest Power and Conservation Council, hydroelectric generation in the northwest can average anywhere from over 20,000 MW during a year of heavy rainfall to as little as 12,000 MW in a dry year.[4] The importance of rainfall for IDACORP can be seen when comparing the company's operating income as a percentage of revenue to rainfall in 2005 and 2007. In 2005, Idaho's capital city, Boise, recieved 13.6 inches of rainfall, and IPC's operating income represented 18.35% of the year's revenue.[7] The 2006 fiscal year was similar, in which operating income dropped slightly to 18.32% of revenue with 12.1 inches of rainfall.[7] Then in 2007, a year in which Boise received only 8.1 inches of rainfall, operating income dropped $17.6 million, to 17.3% of company revenue.[7] To add to the increased cost of providing electricity, periods of drought require greater energy use for irrigation, increasing demand and revenue, but further decreasing profit margins. This occurs because IDACORP is forced to generate or purchase the additional energy at an even higher cost per MWh. Although 2008 was also relatively dry, Idaho received more rain than it had in 2007, signaling the end of drought conditions for the region.[15]

Although rainfall and temperatures do substantially impact IDACORP's revenue and operating income, it does not feel the full impact of the increased cost of generation. This is due to the regulated aspects of the industry, as every year the company expects to recover approximately 90 percent of its increased power supply costs through regulated rate increases above the company's base rates.[16] The recovery of these funds are dependent upon forecasts and deferrals that are reliant upon state and Federal Energy Regulatory Commission (FERC) regulatory processes and are thus subject to change.[16]

Rate Base Regulation Significantly Affects IDACORP's Profits

The Idaho Public Utilities Commission (IPUC) controls the allowed rate of return on IDACORP's rate base. The rate base is predetermined percentage that a utility is allowed to earn on the sale of its electricity to consumers. The rate of return is typically based on operating costs and capital expenditures. The rate system and regulatory system are in place to ensure that utilities charge fair prices. Due to the high cost of installing transmission lines most customers have only one choice for their electric provider, giving utilities a local monopoly.

On January 30 2009, IPUC approved rate increases that averaged 3.1% and an annual revenue requirement increase of $20.87 million, far below IDACORP's July 2008 proposal for an average 9.89% increase with a $66.6 million change in the company's annual revenue requirement.[17] The annual revenue requirement is the amount of money each year the utility is allowed to earn through the base rate charged to its customers. IPUC said the marginal increases were a result of the economic changes that occurred between IDACORP's filing and the commission's response.[17] The approved increases represent a 1.6 percent increase for residential customers as part of a three tiered rate system in which the summer month base rates are set at 5.78 cents for the first 800kWh, 6.59 cents for each kWh between 800 and 2000, and 8.17 cents per kWh for usage beyond 2000kWh.[17] The rates are lower for non-summer months. This pricing scheme is designed to encourage energy efficiency among the residential consumers. Small commercial customers saw a modest increase of 0.42 %, with the largest increases being spread among large commercial, industrial and irrigation customers, which had rate increases of 3.35 %, 5.62 %, and 6 %, respectively.[17] As part of the decision, the commission approved an 8.18 % rate of return and a 10.5 % return on common equity, up from 10.25%.[17]

IDACORP's revenue and operating income depend largely on the allowed rate of return, and the future regulatory climate in the state will dictate the company's future earnings.

Wildlife and Environmental Concerns Threaten IDACORP’s Dams

IDACORP relies heavily on hydroelectric plants for the energy it sells to its customers. Although this protects the company from the volatility of the commodity markets, it makes IDACORP reliant on rainfall and limited by water requirements. Hydroelectric plants must follow strict regulation due to their ability to drastically change flow rates and prevent access to water. River flow rates and water levels are carefully watched by environmental groups and need to be maintained within specified guidelines to ensure that their actions do not substantially alter the environment. Failure to follow the regulations result in hefty fines for the dam owners.

Despite following regulations, many dams have still come under attack from environmentalists for disrupting fish migration and breeding habits. This pressure has shut down several dams in the northwest and threatens to do the same to the facilities owned by IDACORP.[18] As an attempt to counter this, dam owners have added special lifts to raise the migrating fish past large dams, allowing the fish to swim or be carried past.[19] As of the end of 2008, no decision has been reached as to whether the dam bypasses are enough to restore the salmon population.[18]

Competition

Due to the high initial costs required to enter the electric industry, and the heavily regulated nature, there is limited competition among utility companies; however, since the early 1990's there has been a push by some for deregulation in an attempt to increase competition. As a way to control prices, competition can only go so far, as a result to the high cost of generating facilities, transmission lines and the interconnected nature of the electric grid, which requires oversight to ensure reliability, as well as fair pricing.

Avista - Avista is an electric and natural gas utility that is headquartered in Spokane, Washington and operates in Washington, Idaho, and Oregon.[20] Avista serves 633,000 customers, about half of which are natural gas and half are electric customers.[21]

PacifiCorp, part of MidAmerican Energy Holdings Company is a an electric utility that serves over 1.6 million customers in six different states in the western U.S. and owns over 10,400 MW of net electrical generation.[22]

Portland General Electric Co is an electric utility in Oregon and a natural gas supplier in the northwest. It served approximately 804,000 customers in 2007, and earned $1,743 million in revenue and $269 million in operating income in 2007.[23]




References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 IDACORP Reuter’s January 5, 2009
  2. 2.0 2.1 IDACORP 10-k 2007 Page 14
  3. Electric Power Annual Department of Energy
  4. 4.0 4.1 Electricity Generation for the Pacific Northwest June 2006
  5. 5.0 5.1 5.2 5.3 IDACORP 10-k 2007 Page 67
  6. 6.0 6.1 Google Finance IDACORP
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 IDACORP 10-k 2007 Page 32
  8. 8.0 8.1 8.2 IDACORP 10-k 2007 Page 36
  9. 9.0 9.1 9.2 IDACORP 10-k 2007 Page 9
  10. Western Climate Initiative Homepage
  11. DSIRE Renewable Portfolio Standard Map
  12. | Energy Information Administration: U.S. Natural Gas Electric Power Price
  13. | Energy Information Administration: Net Generation by Energy Source
  14. | U.S. Energy Information Administration, "Annual Energy Review: Coal," pp. 217
  15. National Climatic Data Center
  16. 16.0 16.1 IDACORP 10k 2007 Page26
  17. 17.0 17.1 17.2 17.3 17.4 IPUC Case # IPC-E-08-10 January 30th 2009
  18. 18.0 18.1 US plan to balance Northwest salmon and dam is challenged
  19. Weak Salmon Run Shuts the Northwest’s Fisheries. The New York Times. May 11, 2005.
  20. Avista Website - Questions
  21. Avista Website - Service Territories
  22. PacifiCorp Company Facts
  23. Google Finance POR
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