IDACORP, INC. In Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in this report, the general financial condition and results of operations forIDACORP, Inc. and its subsidiaries (collectively,IDACORP ) andIdaho Power Company and its subsidiary (collectively,Idaho Power ) are discussed. While reading the MD&A, please refer to the accompanying condensed consolidated financial statements ofIDACORP andIdaho Power . Also refer to "Cautionary Note Regarding Forward-Looking Statements" in this report for important information regarding forward-looking statements made in this MD&A and elsewhere in this report. This discussion updates the MD&A included inIDACORP's andIdaho Power's Annual Report on Form 10-K for the year endedDecember 31, 2020 (2020 Annual Report), and should also be read in conjunction with the information in that report. The results of operations for an interim period generally will not be indicative of results for the full year, particularly in light of the seasonality ofIdaho Power's sales volumes, as discussed below.
INTRODUCTION
IDACORP is a holding company formed in 1998 whose principal operating subsidiary isIdaho Power .IDACORP's common stock is listed and trades on theNew York Stock Exchange under the trading symbol "IDA".Idaho Power is an electric utility whose rates and other matters are regulated by theIdaho Public Utilities Commission (IPUC),Public Utility Commission of Oregon (OPUC), andFederal Energy Regulatory Commission (FERC).Idaho Power generates revenues and cash flows primarily from the sale and distribution of electricity to customers in itsIdaho andOregon service areas, as well as from the wholesale sale and transmission of electricity.Idaho Power experiences its highest retail energy sales during the summer irrigation and cooling season, with a lower peak in the winter that generally results from heating demand.Idaho Power is the parent ofIdaho Energy Resources Co. (IERCo), a joint venturer inBridger Coal Company (BCC), which mines and supplies coal to the Jim Bridger generating plant (Jim Bridger plant) owned in part byIdaho Power .IDACORP's other significant subsidiaries includeIDACORP Financial Services, Inc. , an investor in affordable housing and other real estate tax credit investments, andIda-West Energy Company , an operator of small hydropower generation projects that satisfy the requirements of the Public Utility Regulatory Policies Act of 1978 (PURPA).
EXECUTIVE OVERVIEW
Management's Outlook and Company Initiatives
In the 2020 Annual Report,IDACORP's andIdaho Power's management included a brief overview of their business strategies for the companies for 2021 and beyond, under the heading "Executive Overview" in the MD&A. As of the date of this report, management's outlook and strategy remain consistent with that discussion. Most notably: •Idaho Power continues to execute on its four strategic areas and initiatives: growing financial strength, improvingIdaho Power's core business, enhancingIdaho Power's brand, and focusing on safety and employee engagement. •Idaho Power continues to expect positive customer growth in its service area. During the first six months of 2021,Idaho Power's customer count grew by over 8,500 customers, and for the twelve months endedJune 30, 2021 , the customer growth rate was 2.9 percent. OnJune 30, 2021 , a new all-time system peak demand of 3,751 MW was set, exceeding the previous high of 3,422 MW set onJuly 7, 2017 . The previous high fromJuly 2017 was exceeded multiple times during the heat wave inIdaho Power's service area in June and July of 2021. •Idaho Power anticipates substantial capital investments, with expected total capital expenditures of approximately$2.0 billion over the five-year period from 2021 (including the expenditures incurred so far in 2021) through 2025. •Idaho Power continues to focus on timely recovery of costs and earning a reasonable return on investment, including working to evaluate and ensure that its rate design and regulatory mechanisms more closely reflect the cost to provide electric service. •Idaho Power is committed to continuing to provide reliable, affordable, safe service to its customers while furthering its environmental, social, and governance initiatives, including the "Clean Today. Cleaner Tomorrow.®" goal to provideIdaho Power's customers with 100-percent clean energy by 2045, as well as water stewardship and environmental projects, and the company's diversity, equity, and inclusion initiatives.
Coronavirus (COVID-19) Response and Impacts
In response to the COVID-19 pandemic, in 2020Idaho Power implemented its emergency management, business continuity, and enterprise pandemic plans.Idaho Power's internal emergency management team responded in accordance with the plans in an effort to ensureIdaho Power continues to provide reliable service to its customers during the pandemic.Idaho Power's 34 -------------------------------------------------------------------------------- Table of Contents provision of electricity to customers through its power supply, transmission, and distribution operations, as of the date of this report, continues largely uninterrupted. For more information aboutIdaho Power's response to the COVID-19 pandemic and the effects of COVID-19 onIdaho Power , see Part II - Item 7 - "Executive Overview" in the MD&A in the 2020 Annual Report. For a discussion of certain risks toIDACORP andIdaho Power as a result of the pandemic, see Part II - Item 1A - "Risk Factors" in the 2020 Annual Report.
Summary of Financial Results
The following is a summary ofIdaho Power's net income, net income attributable toIDACORP , andIDACORP's earnings per diluted share for the three and six months endedJune 30, 2021 and 2020 (in thousands, except earnings per share amounts): Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Idaho Power net income$ 68,822 $ 58,923 $ 113,191 $ 95,700 Net income attributable to IDACORP, Inc.$ 70,023 $ 60,389 $ 114,854 $ 97,879 Weighted average outstanding shares - diluted 50,622 50,567 50,601 50,547 IDACORP, Inc. earnings per diluted share$ 1.38
The table below provides a reconciliation of net income attributable toIDACORP for the three and six months endedJune 30, 2021 , from the same period in 2020 (items are in millions and are before related income tax impact unless otherwise noted). Three months ended Six months ended
Net income attributable to
$ 60.4 $ 97.9
Increase (decrease) in
3.9 7.6
Usage per retail customer, net of associated power supply costs and power cost adjustment mechanisms
22.9 20.5
Idaho fixed cost adjustment (FCA) revenues (5.1) (5.0)
Retail revenues per megawatt-hour (MWh), net of
associated power supply costs and power cost
adjustment mechanisms (6.8) (6.1)
Transmission wheeling-related revenues 3.9 8.0
Other operations and maintenance (O&M) expenses (5.3) (1.2)
Other changes in operating revenues and expenses, net (0.4) (1.2)
Increase in Idaho Power operating income 13.1 22.6
Non-operating income and expenses 1.0 0.6
Income tax expense (4.2) (5.7)
Total increase in Idaho Power net income 9.9 17.5
Other IDACORP changes (net of tax) (0.3) (0.5)
Net income attributable to IDACORP, Inc. - June 30,
2021 $ 70.0 $ 114.9
Net Income - Second Quarter 2021
IDACORP's net income increased $9.6 million for the second quarter of 2021
compared with the second quarter of 2020, primarily due to higher net income at
Idaho Power . Customer growth increased operating income by $3.9 million in the
second quarter of 2021 compared with the second quarter of 2020, as the number
of Idaho Power customers grew by over 16,900, or 2.9 percent, during the twelve
months ended June 30, 2021 . Higher sales volumes on a per-customer basis in all
customer classes increased operating income by $22.9 million as warmer and drier
weather caused customers to use more energy for cooling or irrigation in the
second quarter of 2021 compared with the second quarter of 2020. Increases in
usage per commercial and industrial customers were partially due to a return to
more normal economic activity in the second quarter of 2021 compared with the
second quarter of 2020, which was affected by negative COVID-19-related business
conditions. The increase in sales volumes per customer was partially offset by
the FCA mechanism (applicable to residential and small general service
customers), which decreased revenues in the second quarter of 2021 by $5.1
million compared with the second quarter of 2020.
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The net decrease in retail revenues per MWh, net of associated power supply
costs and power cost adjustment mechanisms, decreased operating income by $6.8
million during the second quarter of 2021 compared with the second quarter of
2020. In the second quarter of 2021, higher wholesale energy market prices due
to a heat wave in the western United States and higher energy usage by Idaho
Power customers increased Idaho Power's net power supply expenses. The increase
in the amount of net power supply expenses that were not deferred through Idaho
Power's power cost adjustment mechanisms was the primary cause of the negative
variance in net retail revenues per MWh between the comparison periods.
Transmission wheeling-related revenues increased $3.9 million during the second
quarter of 2021 compared with the second quarter of 2020 as the warmer, drier
weather in the western United States increased wheeling volumes. Also, Idaho
Power's open access transmission tariff (OATT) rates were approximately 10
percent higher in the second quarter of 2021 compared with the second quarter of
2020.
Other O&M expenses were $5.3 million higher in the second quarter of 2021
compared with the second quarter of 2020, primarily due to the timing of
performing certain maintenance projects at Idaho Power's jointly-owned thermal
generation plants in 2021 instead of in 2020. Also, other O&M expenses increased
in the second quarter of 2021 compared with the second quarter of 2020, as a
result of an increase in labor-related costs from higher performance-based
variable compensation accruals.
The increase in income tax expense for the second quarter of 2021 compared with
the second quarter of 2020 was primarily due to greater 2021 pre-tax income.
Net Income - Year-to-Date 2021
IDACORP's net income increased $17.0 million for the first half of 2021 compared
with the first half of 2020, primarily due to higher net income at Idaho Power .
Customer growth increased operating income by $7.6 million in the first half of
2021 compared with the first half of 2020. An increase in sales volumes on a
per-customer basis increased operating income by $20.5 million due primarily to
warmer and drier weather that caused customers to use more energy for cooling or
irrigation in the first half of 2021 compared with 2020. To a lesser extent, a
return to more normal economic conditions for commercial and industrial
customers in the first half of 2021 compared with 2020, also increased sales
volumes on a per-customer basis, as the first half of 2020 was affected by
negative COVID-19-related business conditions. The increase in sales volumes per
customer was partially offset by the FCA mechanism (applicable to residential
and small general service customers), which decreased revenues by $5.0 million .
The net decrease in retail revenues per MWh in the first half of 2021 compared
to the first half of 2020, decreased operating income by $6.1 million primarily
due to higher power supply costs. In the second quarter of 2021, higher
wholesale energy market prices due to a heat wave in the western United States
and higher energy usage by Idaho Power customers increased Idaho Power's net
power supply expenses. The increase in the amount of net power supply expenses
that were not deferred through Idaho Power's power cost adjustment mechanisms
was the primary cause of the negative variance in net retail revenues per MWh
between the comparison periods.
During the first half of 2021, transmission wheeling-related revenues increased
$8.0 million compared with the first half of 2020, as the warmer and drier
weather in the western United States caused customers in the region to use more
energy for cooling or irrigation, as applicable, which increased wheeling
volumes. Colder winter weather in the southwest United States during the first
quarter of 2021 also contributed to increased wheeling volumes in the first six
months of 2021 compared with the first six months of 2020. In addition, Idaho
Power's OATT rates were approximately 10 percent higher in the first six months
of 2021 compared with the first six months of 2020.
The increase in income tax expense for the first half of 2021 compared with the first half of 2020 was primarily due to greater 2021 pre-tax income.
Based on its estimate of full-year 2021 return on year-end equity in theIdaho jurisdiction (Idaho ROE), in the first half of 2021Idaho Power recorded no additional accumulated deferred investment tax credits (ADITC) amortization or any provision against revenues for sharing of earnings with customers under theIdaho regulatory settlement stipulation approved inMay 2018 .
Overview of General Factors and Trends Affecting Results of Operations and Financial Condition
IDACORP's andIdaho Power's results of operations and financial condition are affected by a number of factors, and the impact of those factors is discussed in more detail below in this MD&A. To provide context for the discussion elsewhere in this report, some of the more notable factors are as follows: 36
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•Regulation of Rates and Cost Recovery: The prices thatIdaho Power is authorized to charge for its electric and transmission service is a critical factor in determiningIDACORP's andIdaho Power's results of operations and financial condition. Those rates are established by state regulatory commissions and theFERC and are intended to allowIdaho Power an opportunity to recover its expenses and earn a reasonable return on investment.Idaho Power focuses on timely recovery of its costs through filings with its regulators, working to put in place innovative regulatory mechanisms, and on the prudent management of expenses and investments.Idaho Power has a regulatory settlement stipulation inIdaho that includes provisions for the accelerated amortization of certain tax credits to help achieve a minimum 9.4 percent Idaho ROE. The settlement stipulation also provides for the potential sharing betweenIdaho Power and itsIdaho customers ofIdaho -jurisdictional earnings in excess of 10.0 percent of Idaho ROE. The settlement stipulation has no expiration date but the minimum Idaho ROE would revert back to 95 percent of the allowed return on equity in the next rate case. The specific terms of the settlement stipulation are described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2020 Annual Report.Idaho Power will continue to assess the need to file a general rate case to reset base rates but does not anticipate filing a rate case in the next twelve months. •Economic Conditions and Loads: Economic conditions impact consumer demand for energy, revenues, collectability of accounts, the volume of wholesale energy sales, and the need to construct and improve infrastructure, purchase power, and implement programs to meet customer load demands. In recent years,Idaho Power has seen growth in the number of customers in its service area. Over the twelve months endedJune 30, 2021 ,Idaho Power's customer count grew by 2.9 percent. ForIdaho Power , a new all-time system peak demand of 3,751 MW was set onJune 30, 2021 , exceeding the previous high of 3,422 MW set onJuly 7, 2017 . The previous peak demand fromJuly 2017 was exceeded multiple times during the heat wave inIdaho Power's service area in June and July of 2021.Idaho Power expects its number of customers to continue to increase in the foreseeable future.Idaho Power expects that existing and sustained future customer growth and an increasing peak demand for electricity will requireIdaho Power to continue to enhance its distribution and transmission system infrastructure, including theBoardman -to-Hemingway project. That growth and peak demand may also result in the need forIdaho Power to procure other new sources of energy and capacity to serve growing demand and to maintain system reliability. Further, recent changes in the regional transmission markets have constrained the transmission system external toIdaho Power's service area and impactedIdaho Power's ability to import energy from energy markets in the westernUnited States .Idaho Power expects to need approximately 80 MW of additional capacity as early as the summer of 2023. OnJune 30, 2021 ,Idaho Power issued a formal request for proposals for up to 80MW of new resources to help meet peak electric energy needs in 2023.Idaho Power is analyzing options for potential energy and capacity resource procurement, while at the same time working on its 2021 Integrated Resources Plan. •Weather Conditions: Weather and agricultural growing conditions have a significant impact onIdaho Power's energy sales. Relatively low and high temperatures result in greater energy use for heating and cooling, respectively. During the agricultural growing season, which in large part occurs during the second and third quarters, irrigation customers use electricity to operate irrigation pumps, and weather conditions can impact the timing and extent of use of those pumps.Idaho Power also has tiered rates and seasonal rates, which contribute to increased revenues during higher-load periods, most notably during the third quarter of each year when overall customer demand is highest. Much of the adverse or favorable impact of weather on sales of energy to residential and small commercial customers is mitigated through the Idaho FCA mechanism, which is described in Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. Further, asIdaho Power's hydropower facilities comprise over one-half ofIdaho Power's nameplate generation capacity, precipitation levels impact the mix ofIdaho Power's generation resources. When hydropower generation decreases,Idaho Power must rely on more expensive generation sources and purchased power. When favorable hydropower generating conditions exist forIdaho Power , they also may exist for otherPacific Northwest hydropower facility operators, lowering regional wholesale market prices and impacting the revenueIdaho Power receives from wholesale energy sales. Much of the adverse or favorable impact of this volatility is addressed through theIdaho andOregon power cost adjustment mechanisms. For 2021,Idaho Power expects generation from its hydropower resources to be in the range of 5.0 to 6.0 million MWh, compared with average total annual generation of approximately 7.7 million MWh over the last 30 years. •Rate Base Growth andInfrastructure Investment : As noted above, the rates established by the IPUC and OPUC are determined with the intent to provide an opportunity forIdaho Power to recover authorized operating expenses and depreciation and earn a reasonable return on "rate base." Rate base is generally determined by reference to the original cost (net of accumulated depreciation) of utility plant in service and certain other assets, subject to various adjustments 37 -------------------------------------------------------------------------------- Table of Contents for deferred taxes and other items. Over time, rate base is increased by additions to utility plant in service and reduced by depreciation and retirement of utility plant and write-offs as authorized by the IPUC and OPUC.Idaho Power is pursuing significant enhancements to its utility infrastructure in an effort to maintain system reliability, ensure an adequate supply of electricity, and to provide service to new customers, including major ongoing transmission projects such as theBoardman -to-Hemingway and Gateway West projects.Idaho Power's existing hydropower and thermal generation facilities also require continuing upgrades and equipment replacement, and the company is undertaking a significant relicensing effort for theHells Canyon Complex (HCC), its largest hydropower generation resource.Idaho Power intends to pursue timely inclusion of any significant completed capital projects into rate base as part of a future general rate case or other appropriate regulatory proceeding. •Mitigation of Impact of Fuel and Purchased Power Expense: In addition to hydropower generation,Idaho Power relies significantly on natural gas and coal to fuel its generation facilities and on power purchases in the wholesale markets. Fuel costs are impacted by electricity sales volumes, the terms and conditions of contracts for fuel,Idaho Power's generation capacity, the availability of hydropower generation resources, transmission capacity, energy market prices, andIdaho Power's hedging program for managing fuel costs. Purchased power costs are impacted by the terms and conditions of contracts for purchased power, the rate of expansion of alternative energy generation sources such as wind or solar energy, and wholesale energy market prices. TheIdaho andOregon power cost adjustment mechanisms mitigate in large part the potential adverse impacts toIdaho Power of fluctuations in power supply costs. •Regulatory and Environmental Compliance Costs:Idaho Power is subject to extensive federal and state laws, policies, and regulations, as well as regulatory actions and audits by agencies and quasi-governmental agencies, including theFERC , theNorth American Electric Reliability Corporation , and theWestern Electricity Coordinating Council . Compliance with these requirements directly influencesIdaho Power's operating environment and affectsIdaho Power's operating costs. Recently, energy industry regulators have issued substantial penalties for utilities alleged to have violated reliability and critical infrastructure protection requirements. Moreover, environmental laws and regulations, in particular, may increase the cost of constructing new facilities and transmission projects, may increase the cost of operating generation plants, includingIdaho Power's jointly-owned coal-fired generating plants, may require thatIdaho Power install additional pollution control devices at existing generating plants, or may require thatIdaho Power cease operating certain generation plants.Idaho Power expects to spend significant amounts on environmental compliance and controls in the next decade. Due to economic factors in part associated with the costs of compliance with environmental regulation,Idaho Power accelerated the retirement date of its jointly-owned coal-fired generating plant inValmy, Nevada (Valmy ), ceasing operations at one unit in 2019. InApril 2021 ,Idaho Power filed an application with the IPUC requesting an acknowledgment that its year-end 2025 exit date fromValmy unit 2 is appropriate based on economics and reliability needs. InJune 2021 ,Idaho Power filed an application with the IPUC requesting, among other things, authorization to accelerate depreciation for the Jim Bridger plant by end-of-year 2030. In addition,Idaho Power's jointly-owned coal plant inBoardman, Oregon , ceased operations as planned inOctober 2020 . •Water Management and Relicensing of Hydropower Projects: Becauseof Idaho Power's reliance on stream flow in theSnake River and its tributaries,Idaho Power participates in numerous proceedings and venues that may affect its water rights, seeking to preserve the long-term availability of its rights for its hydropower projects. Also,Idaho Power is involved in renewing its long-term federal licenses for the HCC, its largest hydropower generation source, and forAmerican Falls , its second largest hydropower generation source. Given the number of parties involved,Idaho Power's relicensing costs have been and are expected to continue to be substantial.Idaho Power cannot currently determine the ultimate terms of, and costs associated with, any resulting long-term licenses. •Wildfire Mitigation Efforts: In recent years, in the westernUnited States there has been an increasing trend in the degree of annual destruction from wildfires. A variety of factors have contributed in varying degrees to this trend including climate change, increased wildland-urban interfaces, historical land management practices, and overall wildland and forest health. WhileIdaho Power has not experienced the extent of catastrophic wildfires within its service area that have occurred inCalifornia ,Oregon , and elsewhere in the westernUnited States ,Idaho Power is taking a proactive approach to wildfire threat relative to its service area.Idaho Power has drafted a Wildfire Mitigation Plan (WMP) that outlines actionsIdaho Power is taking or is working to implement in the future to reduce wildfire risk and to strengthen the resiliency of its transmission and distribution system to wildfires.Idaho Power's approach to achieve these objectives includes identifying areas subject to elevated risk; system hardening programs, vegetation management, and field personnel practices to mitigate wildfire risk; incorporating current and forecasted weather and field conditions into operational practices; evaluating a public safety power shutoff approach; and evaluating the performance and effectiveness of the strategies identified in the WMP through metrics and monitoring. InJune 2021 , the IPUC authorizedIdaho Power to defer, for future amortization, theIdaho jurisdictional share of actual incremental 38 -------------------------------------------------------------------------------- Table of Contents O&M expenses and depreciation expense of certain capital investments necessary to implement the WMP, including incremental insurance costs, among other things. The WMP case with the IPUC is described in more detail in Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. RESULTS OF OPERATIONS This section of MD&A takes a closer look at the significant factors that affectedIDACORP's andIdaho Power's earnings during the three and six months endedJune 30, 2021 . In this analysis, the results for the three and six months endedJune 30, 2021 , are compared with the same period in 2020.
The table below presents
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
Retail energy sales 4,098 3,594 7,467 6,913
Wholesale energy sales 67 489 188 671
Bundled energy sales 34 110 245 272
Total energy sales 4,199 4,193 7,900 7,856
Hydropower generation 1,449 2,275 2,875 3,881
Coal generation 372 810 908 1,272
Natural gas and other generation 666 89 1,307 727
Total system generation 2,487 3,174 5,090 5,880
Purchased power 1,949 1,305 3,346 2,526
Line losses (237) (286) (536) (550)
Total energy supply 4,199 4,193 7,900 7,856
Weather-related information for Boise, Idaho , for the three and six months ended
June 30, 2021 and 2020, is presented in the table below. While Boise, Idaho
weather conditions are not necessarily representative of weather conditions
throughout Idaho Power's service area, the greater Boise area has the majority
of Idaho Power's customers and is included for illustrative purposes.
Three months ended Six months ended
June 30, June 30,
2021 2020 Normal (2) 2021 2020 Normal (2)
Heating degree-days(1) 594 664 719 2,921 2,902 3,199
Cooling degree-days(1) 383 195 183 383 195 183
Precipitation (inches) 2.4 6.4 2.4 7.5 11.6 6.0
(1) Heating and cooling degree-days are common measures used in the utility
industry to analyze the demand for electricity and indicate when a customer
would use electricity for heating and cooling. A degree-day measures how much
the average daily temperature varies from 65 degrees. Each degree of temperature
above 65 degrees is counted as one cooling degree-day, and each degree of
temperature below 65 degrees is counted as one heating degree-day.
(2) Normal heating degree-days and cooling degree-days elements are, by
convention, the arithmetic mean of the elements computed over 30 consecutive
years. The normal amounts are the sum of the monthly normal amounts. These
normal amounts are computed by the National Oceanic and Atmospheric
Administration .
Sales Volume and Generation: Retail sales volumes increased 14 percent and 8
percent in the second quarter and first six months of 2021, respectively,
compared with the same periods in 2020, primarily due to warmer and drier
weather that caused customers to use more energy for cooling or irrigation.
Cooling degree-days in Boise, Idaho were 96 percent higher during the three
months ended June 30, 2021 , compared with the three months ended June 30, 2020 ,
and 109 percent above normal. Also, precipitation in Idaho Power's service area
decreased significantly during the three months ended June 30, 2021 , compared
with the same period of 2020, which increased usage by irrigation customers.
During the second quarter and first six months of 2021, usage per irrigation
customer was approximately 25 percent and 24 percent higher, respectively,
compared with the same periods in 2020. During the second quarter and first six
months of 2021, usage per residential customer was approximately 10 percent and
5 percent higher, respectively, compared with the same periods in 2020. Customer
growth increased sales volumes
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during the three and six months ended June 30, 2021 , compared with the same
period in 2020, with the number of Idaho Power's customers growing by 2.9
percent over the prior twelve months. Increases in usage per commercial and
industrial customers were partially due to a return to more normal economic
activity in the second quarter of 2021 compared with the second quarter of 2020,
which was affected by negative COVID-19-related business conditions. During the
second quarter and first six months of 2021, usage per commercial customer was
approximately 12 percent and 5 percent higher, respectively, compared with the
same periods in 2020. Usage per industrial customer was approximately 8 percent
and 4 percent higher during the second quarter and first six months of 2021
compared with the same periods in 2020, respectively.
Total system generation decreased 22 percent and 13 percent in the second
quarter and first six months of 2021, respectively, compared with the second
quarter and first six months of 2020, due primarily to lower hydropower and
coal-fired generation, partially offset by increased natural gas generation.
Generation from hydropower during the second quarter and first six months of
2021 decreased 36 percent and 26 percent, respectively, compared with the same
periods of 2020, due mostly to less snowpack and precipitation in the Snake
River basin. Coal-fired generation also decreased 54 percent and 29 percent
during the second quarter and first six months of 2021 compared with the same
periods of 2020, respectively, due to economic-, operations-, and
reliability-based decisions. During the second quarter and first six months of
2021, natural gas generation increased compared with the same periods of 2020,
due to the decreases in hydropower and coal-fired generation.
Purchased power volumes increased 49 percent and 32 percent in the second
quarter and first six months of 2021, respectively, mostly due to an increase in
purchases from the energy imbalance market implemented in the western United
States (Western EIM) and additional purchases to meet load requirements. The
financial impacts of fluctuations in wholesale energy sales, purchased power,
fuel expense, and other power supply-related expenses are addressed in Idaho
Power's Idaho and Oregon power cost adjustment mechanisms, which are described
below in "Power Cost Adjustment Mechanisms."
Operating Revenues
Retail Revenues: The table below presentsIdaho Power's retail revenues (in thousands) and MWh sales volumes (in thousands) for the three and six months endedJune 30, 2021 and 2020, and the number of customers as ofJune 30, 2021 and 2020. Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Retail revenues:
Residential (includes (
$ 122,633
Commercial (includes$165 ,$397 ,$647 , and$881 , respectively, related to the FCA)(1) 77,609 67,214 149,878 136,728 Industrial 48,047 43,087 93,477 85,847 Irrigation 76,799 60,149 77,885 61,523
Deferred revenue related to HCC relicensing AFUDC(2) (1,927)
(1,927) (4,046) (4,046)
Total retail revenues $ 323,161 Residential 1,262 1,127 2,764 2,575 Commercial 1,013 894 2,015 1,899 Industrial 856 801 1,708 1,653 Irrigation 967 772 980 786 Total retail MWh sales 4,098 3,594 7,467 6,913
Number of retail customers at period end
Residential 498,747 483,609
Commercial 75,187 73,620
Industrial 126 127
Irrigation 21,811 21,583
Total customers 595,871 578,939
40-------------------------------------------------------------------------------- Table of Contents (1) TheFCA mechanism is an alternative revenue program and does not represent revenue from contracts with customers. (2) As part of itsJanuary 30, 2009 general rate case order, the IPUC is allowingIdaho Power to recover a portion of the allowance for funds used during construction (AFUDC) on construction work in progress related to the HCC relicensing process, even though the relicensing process is not yet complete and the costs have not been moved to electric plant in service.Idaho Power is collecting approximately$8.8 million annually in theIdaho jurisdiction but is deferring revenue recognition of the amounts collected until the license is issued and the accumulated license costs approved for recovery are placed in service. Changes in rates, changes in customer usage, and changes inFCA mechanism revenues are the primary reasons for fluctuations in retail revenues from period to period. The primary influences on customer usage for electricity are weather, economic conditions, and energy efficiency. Extreme temperatures increase sales to customers who use electricity for cooling and heating, while moderate temperatures decrease sales. Precipitation levels and the timing of precipitation during the agricultural growing season also affect sales to customers who use electricity to operate irrigation pumps. Rates are also seasonally adjusted, providing for higher rates during peak load periods, and residential customer rates are tiered, providing for higher rates based on higher levels of usage. The seasonal and tiered rate structures contribute to seasonal fluctuations in revenues and earnings.
Retail revenues increased
•Customers: Customer growth of 2.9 percent during the twelve months endedJune 30, 2021 , increased retail revenues by$5.1 million and$10.2 million in the second quarter and first six months of 2021, respectively, compared with the same periods of 2020. •Usage: Higher usage (on a per customer basis) by irrigation, residential, commercial, and industrial customers increased retail revenues by$37.1 million and$36.9 million in the second quarter and first six months of 2021, respectively, compared with the same periods of 2020. Increased usage was primarily the result of warmer summer temperatures and drier weather inIdaho Power's service area, which increased usage by residential and irrigation customers. To a lesser extent, a return to more normal economic conditions for commercial and industrial customers also increased sales volumes on a per-customer basis, as the first half of 2020 was negatively affected by COVID-19-related business conditions. •Idaho FCA Revenue: TheFCA mechanism, applicable toIdaho residential and small commercial customers, adjusts revenue each year to accrue, or defer, the difference between the authorized fixed-cost recovery amount per customer and the actual fixed costs per customer recovered byIdaho Power through volume-based rates during the year. Higher usage (on a per customer basis) by residential and small general service customers during the second quarter and first six months of 2021 decreased the amount ofFCA revenue accrued by$5.1 million and$5.0 million , respectively, compared with the same periods in 2020. •Rates: Average customer rates, excluding amounts related to the power cost adjustment mechanisms, decreased retail revenues by$3.1 million and$4.1 million for the three and six months endedJune 30, 2021 , compared with the same periods in 2020. Customer rates also include the collection from customers of amounts related to the power cost adjustment mechanisms, which increased revenues by$11.1 million and$22.2 million in the second quarter and first six months of 2021, respectively, compared with the same periods of 2020. The amount collected from customers in rates under the power cost adjustment mechanisms has relatively little effect on operating income as a corresponding amount is recorded as expense in the same period it is collected through rates. Wholesale Energy Sales: Wholesale energy sales consist primarily of opportunistic sales of surplus system energy and sales into the Western EIM, and do not include derivative transactions. The table below presentsIdaho Power's wholesale energy sales for the three and six months endedJune 30, 2021 and 2020 (in thousands, except for per MWh amounts). Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Wholesale energy revenues$ 4,308 $ 6,866 $ 10,567 $ 10,775 Wholesale volume in MWh sold 67 489 188 671
Average wholesale energy revenues per MWh
In the second quarter and during the first six months of 2021, wholesale energy revenues decreased$2.6 million and$0.2 million , respectively, compared with the same periods of 2020, primarily due to a heat wave inIdaho Power's service area which increased energy usage byIdaho Power customers and resulted in less energy available for opportunistic market sales. Wholesale energy sales volumes decreased 86 percent and 72 percent in the second quarter and first six months of 2021, respectively, compared with the sames periods of 2020. The decreases in wholesale energy revenues related to lower volumes sold were partially offset by increases in average wholesale energy revenues per MWh due mostly to higher wholesale energy 41 -------------------------------------------------------------------------------- Table of Contents prices in the region. Wholesale energy prices were higher in the second quarter and first six months of 2021 compared with the same periods in 2020 as extreme weather resulted in higher demand and lower supply of energy to the wholesale markets in the region. Transmission Wheeling-Related Revenues: Transmission wheeling-related revenues increased$3.9 million , or 34 percent, and$8.0 million , or 37 percent, during the second quarter and during the first six months of 2021, respectively, compared with the same periods in 2020, as warmer, drier spring and summer weather in the westernUnited States increased wheeling volumes. Colder winter weather in the southwestUnited States in early 2021 also contributed to increased wheeling volumes in the first six months of 2021 compared with the first six months of 2020. In addition,Idaho Power's open access transmission tariff (OATT) rates were approximately 10 percent higher in the second quarter and first six months of 2021 compared with the same periods of 2020. Energy Efficiency Program Revenues: In bothIdaho andOregon , energy efficiency riders fund energy efficiency program expenditures. Expenditures funded through the riders are reported as an operating expense with an equal amount recorded in revenues, resulting in no net impact on earnings. The cumulative variance between expenditures and amounts collected through the rider is recorded as a regulatory asset or liability. A liability balance indicates thatIdaho Power has collected more than it has spent and an asset balance indicates thatIdaho Power has spent more than it has collected. AtJune 30, 2021 ,Idaho Power's energy efficiency rider balances were regulatory assets of$12.1 million in theIdaho jurisdiction and$0.8 million in theOregon jurisdiction.
Operating Expenses
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
Expense
PURPA contracts $ 53,163 $ 47,388 $ 96,220 $ 89,677
Other purchased power (including wheeling) 42,953 14,386 67,884 33,298
Total purchased power expense $ 96,116 $ 61,774 $ 164,104 $ 122,975
MWh purchased
PURPA contracts 979 915 1,675 1,621
Other purchased power 970 390 1,671 905
Total MWh purchased 1,949 1,305 3,346 2,526
Average cost per MWh from PURPA contracts $ 54.30 $ 51.79 $ 57.44 $ 55.32
Average cost per MWh from other sources $ 44.28 $ 36.89 $ 40.62 $ 36.79
Weighted average - all sources $ 49.32 $ 47.34 Purchased power expense increased$34.3 million , or 56 percent, and$41.1 million , or 33 percent, during the second quarter and first six months of 2021 compared with the same periods of 2020, primarily due to 148 percent and 84 percent increases, respectively, in MWh purchased from sources other than PURPA contracts mostly due to increases in purchases from the Western EIM and additional purchases to meet load requirements. 42 -------------------------------------------------------------------------------- Table of Contents Fuel Expense: The table below presentsIdaho Power's fuel expenses and thermal generation for the three and six months endedJune 30, 2021 and 2020 (in thousands, except for per MWh amounts). Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Expense Coal$ 11,672 $ 27,414 $ 28,607 $ 43,188 Natural gas 19,519 4,000 35,889 18,242 Total fuel expense$ 31,191 $ 31,414 $ 64,496 $ 61,430 MWh generated Coal 372 810 908 1,272 Natural gas 666 89 1,307 727 Total MWh generated 1,038 899 2,215 1,999 Average cost per MWh - Coal$ 31.38 $ 33.84 $ 31.51 $ 33.95 Average cost per MWh - Natural gas$ 29.31 $ 44.94 $ 27.46 $ 25.09 Weighted average, all sources$ 30.05 $ 34.94 $
29.12
The majority of the fuel forIdaho Power's jointly-owned coal-fired plants is purchased through long-term contracts, including purchases from BCC, a one-third owned joint venture of IERCo. The price of coal from BCC is subject to fluctuations in mine operating expenses, geologic conditions, and production levels. BCC supplies approximately two-thirds of the coal used by the Jim Bridger plant. Natural gas is mainly purchased on the regional wholesale spot market at published index prices. In addition to commodity (variable) costs, both natural gas and coal expenses include costs that are more fixed in nature for items such as capacity charges, transportation, and fuel handling. Period to period variances in fuel expense per MWh are noticeably impacted by these fixed charges when generation output is substantially different between the periods. Fuel expense decreased$0.2 million , or 1 percent in the second quarter of 2021, but increased$3.1 million , or 5 percent, in the first six months of 2021 compared with the same periods of 2020. The slight decrease in fuel expense in the second quarter of 2021 compared with the same period in 2020 was due to a 14 percent decrease in the average cost per MWh generated at the thermal plants, mostly offset by an increase in thermal generation to meet load requirements. The increase in fuel expense in the first six months of 2021 compared with the same period in 2020 was due to an increase in thermal generation to meet higher load requirements, partially offset by a 5 percent decrease in the average cost per MWh generated at the thermal plants. Power Cost Adjustment Mechanisms:Idaho Power's power supply costs (primarily purchased power and fuel expense, less wholesale energy sales) can vary significantly from year to year. Volatility of power supply costs arises from factors such as weather conditions, wholesale market prices, volumes of power purchased and sold in the wholesale markets,Idaho Power's hydropower and thermal generation volumes and fuel costs, generation plant availability, and retail loads. To address the volatility of power supply costs,Idaho Power's power cost adjustment mechanisms in theIdaho andOregon jurisdictions allowIdaho Power to recover from customers, or refund to customers, most of the fluctuations in power supply costs. In theIdaho jurisdiction, the PCA includes a cost or benefit sharing ratio that allocates the deviations in net power supply expenses between customers (95 percent) andIdaho Power (5 percent), with the exception of PURPA power purchases and demand response program incentives, which are allocated 100 percent to customers. TheIdaho deferral period, or PCA year, runs fromApril 1 through March 31 . Amounts deferred or accrued during the PCA year are primarily recovered or refunded during the subsequentJune 1 through May 31 period. Because of the power cost adjustment mechanisms, one of the primary financial impacts of power supply cost variations is that cash is paid out but recovery from customers does not occur until a future period, or cash that is collected is refunded to customers in a future period, resulting in fluctuations in operating cash flows from year to year. 43 -------------------------------------------------------------------------------- Table of Contents The table that follows presents the components of theIdaho andOregon power cost adjustment mechanisms for the three and six months endedJune 30, 2021 and 2020 (in thousands). Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 Power supply cost accrual$ 866
Amortization of prior year authorized balances (8,800) (13,527) (18,389) (27,875) Total power cost adjustment expense$ (7,934)
The power supply accruals represent the portion of the power supply cost fluctuations accrued under the power cost adjustment mechanisms. When actual power supply costs are lower than the amount forecasted in power cost adjustment rates, which was the case for all periods presented, most of the difference is accrued as an increase to a regulatory liability or decrease to a regulatory asset. When actual power supply costs are higher than the amount forecasted in power cost adjustment rates, most of the difference is deferred as an increase to a regulatory asset or decrease to a regulatory liability. The amortization of the prior year's balances represents the offset to the amounts being collected or refunded in the current power cost adjustment year that were deferred or accrued in the prior PCA year (the true-up component of the power cost adjustment mechanism). Other O&M Expenses: Other O&M expenses increased$5.3 million , or 6 percent, and$1.2 million , or 1 percent, for the second quarter and first six months of 2021 compared with the first quarter of 2020, respectively, primarily due to the timing of completing certain maintenance projects at its jointly-owned thermal generation plants in 2021 instead of 2020. Also, other O&M expenses increased in the second quarter of 2021 compared with the second quarter of 2020, as a result of an increase in labor-related costs from higher performance-based variable compensation accruals. Income TaxesIDACORP's andIdaho Power's income tax expense increased$5.3 million and$5.7 million for the six months endedJune 30, 2021 , when compared with the same period in 2020, respectively, primarily due to greater pre-tax income. For information relating toIDACORP's andIdaho Power's computation of income tax expense and effective income tax rates, see Note 2 - "Income Taxes" to the condensed consolidated financial statements included in this report.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Idaho Power has been pursuing significant enhancements to its utility infrastructure in an effort to ensure an adequate supply of electricity, to provide service to new customers, and to maintain system reliability.Idaho Power's existing hydropower and thermal generation facilities also require continuing upgrades and component replacement.Idaho Power anticipates these substantial capital expenditures will continue, with expected total capital expenditures of approximately$2.0 billion over the five-year period from 2021 (including expenditures incurred to-date in 2021) through 2025.Idaho Power funds its liquidity needs for capital expenditures through cash flows from operations, debt offerings, commercial paper markets, credit facilities, and capital contributions fromIDACORP .Idaho Power periodically files for rate adjustments for recovery of operating costs and capital investments to provide the opportunity to alignIdaho Power's earned returns with those allowed by regulators.Idaho Power uses operating and capital budgets to control operating costs and capital expenditures. During the first six months of 2021,Idaho Power continued its efforts to optimize operations, control costs, and generate operating cash inflows to meet operating expenditures, contribute to capital expenditure requirements, and pay dividends to shareholders.
As of
•their respective$100 million and$300 million revolving credit facilities; •IDACORP's shelf registration statement filed with theU.S. Securities and Exchange Commission (SEC) onMay 17, 2019 , which may be used for the issuance of debt securities and common stock; •Idaho Power's shelf registration statement filed with theSEC onMay 17, 2019 , which may be used for the issuance of first mortgage bonds and debt securities;$190 million remains available for issuance pursuant to state regulatory authority; and 44 -------------------------------------------------------------------------------- Table of Contents•IDACORP's and Idaho Power's commercial paper, which may be issued up to an amount equal to the available credit capacity under their respective credit facilities.IDACORP andIdaho Power monitor capital markets with a view toward opportunistic debt and equity transactions, taking into account current and potential future long-term needs. As a result,IDACORP may issue debt securities or common stock, andIdaho Power may issue debt securities or first mortgage bonds, if the companies believe terms available in the capital markets are favorable and that issuances would be financially prudent. Based on planned capital expenditures and other O&M expenses, the companies believe they will be able to meet capital and debt service requirements and fund corporate expenses during at least the next twelve months with a combination of existing cash, operating cash flows generated byIdaho Power's utility business, availability under existing credit facilities, and access to commercial paper and long-term debt markets.IDACORP andIdaho Power generally seek to maintain capital structures of approximately 50 percent debt and 50 percent equity, and maintaining this ratio influencesIDACORP's andIdaho Power's debt and equity issuance decisions. As ofJune 30, 2021 ,IDACORP's andIdaho Power's capital structures, as calculated for purposes of applicable debt covenants, were as follows: IDACORP Idaho Power Debt 43% 46% Equity 57% 54%IDACORP andIdaho Power typically maintain their cash and cash equivalents in highly liquid investments, such asU.S. Treasury Bills, money market funds, and bank deposits. Operating Cash FlowsIDACORP's andIdaho Power's operating cash inflows for the six months endedJune 30, 2021 , were$167 million and$155 million , respectively, an increase of$39 million forIDACORP and an increase of$25 million forIdaho Power , compared with the same period in 2020. With the exception of cash flows related to income taxes,IDACORP's operating cash flows are principally derived from the operating cash flow ofIdaho Power . Significant items that affected the comparability of the companies' operating cash flows in the first six months of 2021 compared with the same period in 2020 were as follows: •increased net income; •changes in regulatory assets and liabilities, mostly related to the relative amounts of costs deferred and collected under the Idaho PCA mechanism, increased operating cash flows by$21 million ; and •changes in working capital balances due primarily to timing, including fluctuations in accounts receivable, accounts payable, other current assets, and other current liabilities as follows: •timing of collections of accounts receivable balances decreased operating cash flows by$6 million forIDACORP and$4 million forIdaho Power ; •timing of accounts payable payments increased operating cash flows by$33 million forIDACORP and$25 million forIdaho Power , of which$8 million of the difference betweenIDACORP andIdaho Power related to intercompany tax payments in the first six months of 2020; •the changes in other current assets decreased operating cash flows by$24 million forIDACORP andIdaho Power , which was primarily due to fluctuations in accrued unbilled revenues and the timing of purchases and consumption of coal atIdaho Power's jointly-owned coal-fired generating plants; and •the changes in other current liabilities, which includes compensation, customer deposits, accrued interest, and other miscellaneous liabilities, decreased operating cash flows by$7 million forIDACORP andIdaho Power .
Investing Cash Flows
Investing activities consist primarily of capital expenditures related to new construction and improvements toIdaho Power's generation, transmission, and distribution facilities.IDACORP's andIdaho Power's net investing cash outflows for the six months endedJune 30, 2021 , were$107 million and$122 million , respectively. Investing cash outflows for 2021 and 2020 were primarily for construction of utility infrastructure needed to addressIdaho Power's aging plant and equipment, customer growth, and environmental and regulatory compliance requirements. During the first six months of 2021,IDACORP's investing cash inflows and outflows also included$50 million of proceeds from maturities of short-term investments and$25 million of 45 -------------------------------------------------------------------------------- Table of Contents purchases of short-term investments, respectively. In addition,IDACORP's investing cash outflows also included$10 million and$9 million of investments in affordable housing and other tax credits during the six months endedJune 30, 2021 and 2020, respectively. Financing Cash Flows Financing activities provide supplemental cash for both day-to-day operations and capital requirements, as needed.Idaho Power funds liquidity needs for capital investment, working capital, managing commodity price risk, and other financial commitments through cash flows from operations, debt offerings, commercial paper markets, credit facilities, and capital contributions fromIDACORP .IDACORP funds its cash requirements, such as payment of taxes, capital contributions toIdaho Power , and non-utility expenses allocated toIDACORP , through cash flows from operations, commercial paper markets, sales of common stock, and credit facilities.IDACORP's andIdaho Power's net financing cash outflows for the six months endedJune 30, 2021 , were$75 million and$72 million , respectively. In the first six months of 2021,IDACORP andIdaho Power paid dividends of approximately$72 million .
Financing Programs and Available Liquidity
IDACORP Equity Programs:
Idaho Power First Mortgage Bonds:Idaho Power's issuance of long-term indebtedness is subject to the approval of the IPUC, OPUC, andWyoming Public Service Commission (WPSC). In April andMay 2019 ,Idaho Power received orders from the IPUC, OPUC, and WPSC authorizing the company to issue and sell from time to time up to$500 million in aggregate principal amount of debt securities and first mortgage bonds, subject to conditions specified in the orders. Following theApril 2020 issuance of Series K medium-term notes and theJune 2020 issuance of Series L medium-term notes described in the 2020 Annual Report, in Part II, Item 7 - "MD&A - Liquidity and Capital Resources,"$190 million of debt securities remains available for issuance under the orders. Authority from the IPUC is effective throughMay 31, 2022 , subject to extension upon request to the IPUC. The OPUC's and WPSC's orders do not impose a time limitation for issuances, but the OPUC order does impose a number of other conditions, including a requirement that the interest rates for the debt securities or first mortgage bonds fall within either (a) designated spreads over comparableU.S. Treasury rates or (b) a maximum all-in interest rate limit of seven percent. InMay 2019 ,Idaho Power filed a shelf registration statement with theSEC , which became effective upon filing, for the offer and sale of an unspecified principal amount of its first mortgage bonds. The issuance of first mortgage bonds requires thatIdaho Power meet interest coverage and security provisions set forth inIdaho Power's Indenture of Mortgage and Deed of Trust, dated as ofOctober 1, 1937 , as amended and supplemented from time to time (Indenture). Future issuances of first mortgage bonds are subject to satisfaction of covenants and security provisions set forth in the Indenture, market conditions, regulatory authorizations, and covenants contained in other financing agreements. InJune 2020 ,Idaho Power entered into a selling agency agreement with six banks named in the agreement in connection with the potential issuance and sale from time to time of up to$500 million aggregate principal amount of first mortgage bonds, secured medium term notes, Series L (Series L Notes), underIdaho Power's Indenture of Mortgage and Deed of Trust, dated as ofOctober 1, 1937 , as amended and supplemented (Indenture). Also inJune 2020 ,Idaho Power entered into the Forty-ninth Supplemental Indenture, dated effective as ofJune 5, 2020 , to the Indenture (Forty-ninth Supplemental Indenture). The Forty-ninth Supplemental Indenture provides for, among other items the issuance of up to$500 million in aggregate principal amount of Series L Notes pursuant to the Indenture. The Indenture limits the amount of first mortgage bonds at any one time outstanding to$2.5 billion , and as a result, the maximum amount of additional first mortgage bondsIdaho Power could issue as ofJune 30, 2021 , was limited to approximately$534 million .Idaho Power may increase the$2.5 billion limit on the maximum amount of first mortgage bonds outstanding by filing a supplemental indenture with the trustee as provided in the Indenture of Mortgage and Deed of Trust. Separately, the Indenture also limits the amount of additional first mortgage bonds thatIdaho Power may issue to the sum of (a) the principal amount of retired first mortgage bonds and (b) 60 percent of total unfunded property additions, as defined in the Indenture. As ofJune 30, 2021 ,Idaho Power could issue approximately$1.8 billion of additional first mortgage bonds based on retired first mortgage bonds and total unfunded property additions.IDACORP and Idaho Power Credit Facilities: InDecember 2019 ,IDACORP andIdaho Power entered into amendments to credit agreements for$100 million and$300 million credit facilities, respectively, replacing prior-credit agreements. Each of the credit facilities may be used for general corporate purposes and commercial paper back-up.IDACORP's facility permits 46 -------------------------------------------------------------------------------- Table of Contents borrowings under a revolving line of credit of up to$100 million at any one time outstanding, including swingline loans not to exceed$10 million at any one time and letters of credit not to exceed$50 million at any one time.IDACORP's facility may be increased, subject to specified conditions, to$150 million .Idaho Power's facility permits borrowings through the issuance of loans and standby letters of credit of up to$300 million at any one time outstanding, including swingline loans not to exceed$30 million at any one time and letters of credit not to exceed$50 million at any one time outstanding.Idaho Power's facility may be increased, subject to specified conditions, to$450 million . The credit facilities currently provide for a maturity date ofDecember 6, 2024 , thoughIDACORP andIdaho Power may request up to two-one-year extensions of the credit agreements, subject to certain conditions. Other terms and conditions of the credit facilities are described in the 2020 Annual Report, in Part II, Item 7 - "MD&A - Liquidity and Capital Resources." Each facility contains a covenant requiring each company to maintain a leverage ratio of consolidated indebtedness to consolidated total capitalization equal to or less than 65 percent as of the end of each fiscal quarter. In determining the leverage ratio, "consolidated indebtedness" broadly includes all indebtedness of the respective borrower and its subsidiaries, including, in some instances, indebtedness evidenced by certain hybrid securities (as defined in the credit agreement). "Consolidated total capitalization" is calculated as the sum of all consolidated indebtedness, consolidated stockholders' equity of the borrower and its subsidiaries, and the aggregate value of outstanding hybrid securities. AtJune 30, 2021 , the leverage ratios forIDACORP andIdaho Power were 43 percent and 46 percent, respectively.IDACORP's andIdaho Power's ability to utilize the credit facilities is conditioned upon their continued compliance with the leverage ratio covenants included in the credit facilities. There are additional covenants, subject to exceptions, that prohibit certain mergers, acquisitions, and investments, restrict the creation of certain liens, and prohibit entering into any agreements restricting dividend payments from any material subsidiary. AtJune 30, 2021 ,IDACORP andIdaho Power believed they were in compliance with all facility covenants. Further,IDACORP andIdaho Power do not anticipate they will be in violation or breach of their respective debt covenants during 2021. Without additional approval from the IPUC, the OPUC, and the WPSC, the aggregate amount of short-term borrowings byIdaho Power at any one time outstanding may not exceed$450 million .Idaho Power has obtained approval of the IPUC, the OPUC, and the WPSC for the issuance of short-term borrowings throughDecember 2026 .IDACORP and Idaho Power Commercial Paper:IDACORP andIdaho Power have commercial paper programs under which they issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time not to exceed the available capacity under their respective credit facilities, described above.IDACORP's andIdaho Power's credit facilities are available to the companies to support borrowings under their commercial paper programs. The commercial paper issuances are used to provide an additional financing source for the companies' short-term liquidity needs. The maturities of the commercial paper issuances will vary but may not exceed 270 days from the date of issue. Individual instruments carry a fixed rate during their respective terms, although the interest rates are reflective of current market conditions, subjecting the companies to fluctuations in interest rates.
Available Short-Term Borrowing Liquidity
The table below outlines available short-term borrowing liquidity as of the dates specified (in thousands).
June 30, 2021 December 31, 2020
IDACORP(2) Idaho Power IDACORP(2) Idaho Power
Revolving credit facility $ 100,000 $ 300,000 $ 100,000 $ 300,000
Commercial paper outstanding - - - -
Identified for other use(1) - (24,245) - (24,245)
Net balance available $ 100,000 $ 275,755 $ 100,000 $ 275,755
(1) Port of Morrow and American Falls bonds that Idaho Power could be required
to purchase prior to maturity under the optional or mandatory purchase
provisions of the bonds, if the remarketing agent for the bonds is unable to
sell the bonds to third parties.
(2) Holding company only.
On July 23, 2021 , IDACORP had no loans outstanding under its credit facilities
and had no commercial paper outstanding. Idaho Power also had no loans
outstanding under its credit facilities and no commercial paper outstanding at
that date. During the three and six months ended June 30, 2021 , IDACORP and
Idaho Power issued no short-term commercial paper.
Impact of Credit Ratings on Liquidity and Collateral Obligations
IDACORP's andIdaho Power's access to capital markets, including the commercial paper market, and their respective financing costs in those markets, depend in part on their respective credit ratings. There have been no changes toIDACORP's or 47 -------------------------------------------------------------------------------- Table of ContentsIdaho Power's ratings byStandard & Poor's Ratings Services (S&P) or Moody's Investors Service (Moody's) from those included in the 2020 Annual Report. However, any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant the change. InJune 2021 , Moody's rating outlook forIDACORP andIdaho Power were modified to negative, from stable, due to Moody's perception of the companies' financial profile relative to its A-rated peers. Moody's rating outlook indicated that it expects thatIDACORP andIdaho Power will not take any material actions to improve their cash flows over the next 12-18 months. As disclosed in the 2020 Annual Report, Moody's credit ratings ofIDACORP andIdaho Power are currently higher than the similar ratings of S&P. WereIDACORP's andIdaho Power's credit ratings at Moody's to decrease to a similar level as S&P, the companies' credit ratings would nonetheless remain investment grade and the companies do not believe it would have a material impact on their liquidity or access to debt capital. Moody's credit ratings of Baa3 and above are considered to be investment grade, or prime, ratings.Idaho Power maintains margin agreements relating to its wholesale commodity contracts that allow performance assurance collateral to be requested of and/or posted with certain counterparties. As ofJune 30, 2021 ,Idaho Power had posted$0.4 million cash performance assurance collateral related to these contracts.Should Idaho Power experience a reduction in its credit rating on its unsecured debt to below investment grade,Idaho Power could be subject to requests by its wholesale counterparties to post additional performance assurance collateral, and counterparties to derivative instruments and other forward contracts could request immediate payment or demand immediate ongoing full daily collateralization on derivative instruments and contracts in net liability positions. Based uponIdaho Power's current energy and fuel portfolio and market conditions as ofJune 30, 2021 , the amount of additional collateral that could be requested upon a downgrade to below investment grade is approximately$27.6 million . To minimize capital requirements,Idaho Power actively monitors its portfolio exposure and the potential exposure to additional requests for performance assurance collateral through sensitivity analysis.
Capital Requirements
Idaho Power's construction expenditures, excluding AFUDC, were$122 million during the six months endedJune 30, 2021 . The cash expenditure amount excludes net costs of removing assets from service. The table below presentsIdaho Power's estimated accrual-basis additions to electric plant for 2021 (including amounts incurred to-date) through 2025 (in millions of dollars). The amounts in the table exclude AFUDC but include net costs of removing assets from service thatIdaho Power expects would be eligible to include in rate base in future rate case proceedings. However, given the uncertainty associated with the timing of infrastructure projects and associated expenditures, actual expenditures and their timing could deviate substantially from those set forth in the table. 2021 2022 2023-2025 Expected capital expenditures (excluding AFUDC)$320-$330 $340-$350 $1,250-$1,350 Major Infrastructure Projects:Idaho Power is engaged in the development of a number of significant projects and has entered into arrangements with third parties concerning joint infrastructure development. The discussion below provides a summary of developments in certain of those projects since the discussion of these matters included in Part II, Item 7 - "MD&A - Capital Requirements" in the 2020 Annual Report. The discussion below should be read in conjunction with that report.Boardman -to-Hemingway Transmission Line: TheBoardman -to-Hemingway line, a proposed 300-mile, high-voltage transmission project between a substation nearBoardman, Oregon , and the Hemingway substation nearBoise, Idaho , would provide transmission service to meet future resource needs. InJanuary 2012 ,Idaho Power entered into a joint funding agreement with PacifiCorp and theBonneville Power Administration (BPA) to pursue permitting of the project. The joint funding agreement provides thatIdaho Power's interest in the permitting phase of the project would be approximately 21 percent. Total cost estimates for the project are between$1.0 billion and$1.2 billion , includingIdaho Power's AFUDC. This cost estimate is preliminary and excludes the impacts of inflation and price changes of materials and labor resources that may occur following the date of the estimate. Approximately$118 million , including AFUDC, has been expended on theBoardman -to-Hemingway project throughJune 30, 2021 . Pursuant to the terms of the joint funding arrangements,Idaho Power has received$78 million in reimbursement as ofJune 30, 2021 , from project co-participants for their share of costs. As of the date of this report, no material co-participant reimbursements are outstanding. Joint permitting participants are obligated to reimburseIdaho Power for their share of any future project permitting expenditures or agreed upon early construction expenditures incurred byIdaho Power under the terms of the joint funding agreement.
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permitting, design, material procurement, and construction. The preliminary
estimates of Idaho Power's share of construction costs, which are primarily
included in the table in the period 2023-2025, could significantly change as the
construction timeline nears and as the project participants further align on
future activities, allocation of ownership interests, and cost estimates. In
addition to the estimated costs included in the table above, costs will continue
to be incurred until the transmission line is placed into service.
The permitting phase of the Boardman -to-Hemingway project is subject to federal
review and approval by the U.S. Bureau of Land Management (BLM), the U.S. Forest
Service , the Department of the Navy , and certain other federal agencies. The BLM
issued its record of decision for the project in November 2017 , approving a
right-of-way grant for the project to cross approximately 86 miles of
BLM-administered land. The U.S. Forest Service issued its record of decision in
November 2018 , authorizing the project to cross approximately seven miles of
National Forest lands. In September 2019 , the Department of the Navy issued its
record of decision authorizing the project to cross approximately seven miles of
Department of the Navy lands. In November 2019 , third parties filed a lawsuit in
the federal district court of Oregon challenging the BLM and U.S. Forest Service
records of decision for the Boardman -to-Hemingway project on several grounds. In
February 2020 , Idaho Power filed a motion to intervene in the legal proceeding,
and the motion was granted in April 2020 . The litigation remains pending as of
the date of this report, and a decision is expected in the second half of 2021.
In the separate State of Oregon permitting process, the Oregon Department of
Energy (ODOE) issued a Proposed Order in July 2020 that recommends approval of
the project to the state's Energy Facility Siting Council (EFSC). The project
permit is actively undergoing the EFSC administrative process, and Idaho Power
currently expects the EFSC to issue a final order and site certificate in the
second half of 2022.
Under the current joint funding agreement, Idaho Power has an approximate 21
percent interest, BPA has an approximate 24 percent interest, and PacifiCorp has
an approximate 55 percent interest in the permitting phase. As the current joint
funding agreement covers primarily permitting activities, which are nearing
completion, Idaho Power and its co-participants are exploring several scenarios
of ownership, asset, and service arrangements aimed at maximizing the value of
the project to each of the co-participants' customers. In July 2021 , the
co-participants entered into an agreement and acknowledged that BPA does not
intend to participate in the construction of the project or to be a co-owner, in
whole or in part, of the project, and that BPA intends to sell its interest in
the project to either Idaho Power or a third party. Any changes regarding the
ownership structure would be addressed through amended or new funding agreements
for the future phases of the project.
Given the status of ongoing permitting activities and the construction period,
Idaho Power expects the in-service date for the transmission line will be no
earlier than 2026.
Gateway West Transmission Line: Idaho Power and PacifiCorp are pursuing the
joint development of the Gateway West project, a high-voltage transmission lines
project between a substation located near Douglas, Wyoming and the Hemingway
substation located near Boise, Idaho . In January 2012 , Idaho Power and
PacifiCorp entered a joint funding agreement for permitting of the project.
Idaho Power has expended approximately $46 million , including Idaho Power's
AFUDC, for its share of the permitting phase of the project through June 30,
2021 . As of the date of this report, Idaho Power estimates the total cost for
its share of the project (including both permitting and construction) to be
between $250 million and $450 million , including AFUDC. Idaho Power's estimated
share of ongoing expenditures for the permitting phase of the project (excluding
AFUDC) is included in the capital requirements table above. Idaho Power's share
of potential early construction costs are excluded from the capital requirements
table above because the timing of construction of Idaho Power's portion of the
project is uncertain. Idaho Power and PacifiCorp continue to coordinate the
timing of next steps to best meet customer and system needs.
Defined Benefit Pension Plan Contributions
Idaho Power contributed$10 million to the defined benefit pension plan in the first half of 2021. InJuly 2021 ,Idaho Power contributed an additional$10 million to the plan.Idaho Power has no further minimum required contributions to be made to its defined benefit pension plan during 2021, but depending on market conditions and cash flows,Idaho Power expects it will contribute up to a total of$40 million to the pension plan for the full year of 2021.Idaho Power's contributions are made in a continued effort to balance the regulatory collection of these expenditures with the amount and timing of contributions and to mitigate the cost of being in an underfunded position. The primary impact of pension contributions is on the timing of cash flows, as the timing of cost recovery lags behind contributions. InMarch 2021 , the American Rescue Plan Act of 2021 was signed into law, which included changes to the funding rules for single employer pension plans. The minimum funding requirements have been lowered by revising liability discount rates and by lengthening the period over which unfunded liabilities must be amortized. This did not have a material effect onIdaho Power's near-term pension contribution plans. 49
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Contractual Obligations
During the six months endedJune 30, 2021 ,IDACORP's andIdaho Power's contractual obligations, outside the ordinary course of business, did not change materially from the amounts disclosed in the 2020 Annual Report, except thatIdaho Power entered into two new long-term transmission purchase agreements, which increasedIdaho Power's contractual purchase obligations by approximately$16 million over the 5-year terms of the contracts, and five new replacement contracts for expiring power purchase agreements with PURPA-qualifying hydropower facilities, which increasedIdaho Power's contractual purchase obligations by approximately$29 million over the 20-year terms of the contracts.
Off-Balance Sheet Arrangements
REGULATORY MATTERS
Introduction
Idaho Power is under the jurisdiction (as to rates, service, accounting, and other general matters of utility operation) of the IPUC, the OPUC, and theFERC . The IPUC and OPUC determine the rates thatIdaho Power is authorized to charge to its retail customers.Idaho Power is also under the regulatory jurisdiction of the IPUC, the OPUC, and the WPSC as to the issuance of debt and equity securities. As a public utility under the Federal Power Act,Idaho Power has authority to charge market-based rates for wholesale energy sales under itsFERC tariff and to provide transmission services under its OATT. Additionally, theFERC has jurisdiction overIdaho Power's sales of transmission capacity and wholesale electricity, hydropower project relicensing, and system reliability, among other items.Idaho Power's development of regulatory filings takes into consideration short-term and long-term needs for rate relief and involves several factors that can affect the timing of these regulatory filings. These factors include, among others, in-service dates of major capital investments, the timing and magnitude of changes in major revenue and expense items, and customer growth rates.Idaho Power's most recent general rate cases inIdaho andOregon were filed during 2011. In 2012, large single-issue rate cases for the Langley Gulch power plant inIdaho andOregon resulted in the resetting of base rates in bothIdaho andOregon .Idaho Power also reset its base-rate power supply expenses in theIdaho jurisdiction for purposes of updating the collection of costs through retail rates in 2014 but without a resulting net increase in rates. The IPUC and OPUC have also approved base rate changes in single issue cases subsequent to 2014. Between general rate cases,Idaho Power relies upon customer growth, a fixed cost adjustment mechanism, power cost adjustment mechanisms, tariff riders, and other mechanisms to mitigate the impact of regulatory lag, which refers to the period of time between making an investment or incurring an expense and recovering that investment or expense and earning a return. Management's regulatory focus in recent years has been largely on regulatory settlement stipulations and the design of rate mechanisms. InMay 2021 , the IPUC orderedIdaho Power to work with interested parties and initiate separate cases to review the PCA andFCA mechanisms and to propose any modifications it determines are appropriate so those cases may be processed before the filing of the 2022 PCA application inApril 2022 and the 2022FCA application inMarch 2022 . Reviews of the mechanisms are ongoing, and to date, discussions have been productive and aimed toward mutually agreeable solutions.Idaho Power continues to assess the need and timing of filing a general rate case in its two retail jurisdictions, based on its consideration of factors such as those described above, but does not anticipate filing a general rate case in the next twelve months. The outcomes of significant proceedings are described in part in this report and further in the 2020 Annual Report. In addition to the discussion below, which includes notable regulatory developments since the discussion of these matters in the 2020 Annual Report, refer to Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report for additional information relating toIdaho Power's regulatory matters and recent regulatory filings and orders. 50
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