ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 for IDACORP, Inc. and its subsidiaries (collectively, IDACORP) and Idaho Power Company and its subsidiary (collectively, Idaho Power) are discussed. While reading the MD&A, please refer to the accompanying condensed consolidated financial statements of IDACORP and Idaho 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 in IDACORP's and Idaho Power's Annual Report on Form 10-K for the year ended December 31, 2022 (2022 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 of Idaho Power's sales volumes, as discussed below.
INTRODUCTION
IDACORP is a holding company formed in 1998 whose principal operating subsidiary is Idaho Power. IDACORP’s common stock is listed and trades on the New York Stock Exchange under the trading symbol "IDA". Idaho Power is an electric utility whose rates and other matters are regulated by the Idaho Public Utilities Commission (IPUC), Public Utility Commission of Oregon (OPUC), and Federal Energy Regulatory Commission (FERC). Idaho Power generates revenues and cash flows primarily from the sale and distribution of electricity to customers in its Idaho and Oregon 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 of Idaho Energy Resources Co. (IERCo), a joint venturer in Bridger Coal Company (BCC), which mines and supplies coal to the Jim Bridger power plant (Jim Bridger plant) owned in part by Idaho Power. IDACORP’s other significant subsidiaries include IDACORP Financial Services, Inc., an investor in affordable housing and other real estate tax credit investments, and Ida-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 Objectives
In the 2022 Annual Report, IDACORP's and Idaho Power's management included a summary of their business objectives for the companies for 2023 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, as updated by some of the discussion in this MD&A. Developments that have occurred since that report include the following:
•Idaho Power continues to focus on timely recovery of costs and earning a reasonable return on investment. On March 31, 2023, Idaho Power provided notice to the IPUC of its intent to file a general rate case in Idaho on or after June 1, 2023.
•In March 2023, Idaho Power executed an agreement with the Bonneville Power Administration (BPA) to transfer BPA's 24 percent interest in the Boardman-to-Hemingway transmission line project to Idaho Power, bringing Idaho Power's interest in the project to 45 percent. Further, in March 2023 the Oregon Supreme Court affirmed the Energy Facility Siting Council's order granting a site certificate for the Boardman-to-Hemingway transmission line project.
•In April 2023, the IPUC approved Idaho Power's application for a revised special contract for electric service between Idaho Power and an existing industrial customer, Micron Technology, Inc. (Micron), modeled after Idaho Power's proposed Clean Energy Your Way program, which included the payment structure for Micron's renewable capacity credit.
•In April 2023, the IPUC approved Idaho Power's 20-year power purchase agreement with Pleasant Valley Solar, LLC to purchase the output from a planned 200 megawatt (MW) solar facility, with a scheduled in-service date of March 2025. Idaho Power plans to sell that output exclusively to a large industrial customer under an agreement modeled after Idaho Power's proposed Clean Energy Your Way program.
•Also in April 2023, Idaho Power entered into a 20-year agreement to purchase the storage capacity from a 150-MW battery storage facility scheduled to be online in June 2025. Idaho Power intends for this capacity to supplement over 200 MW of company-owned storage that it expects to be online in 2023 and 2024, and an additional 77 MW of company-owned storage it anticipates adding in 2025, pending regulatory approval.
•Idaho Power issued a formal request for proposals (RFP) in April 2023, soliciting bids for new energy and capacity resources as well as energy that can be delivered via transmission, beginning in 2026. The company’s long-range
planning process has identified a potential need in 2026 and 2027 for a combination of energy and capacity resources that provide approximately 350 MW of peak capacity and up to 1,100 MW of variable energy resources. The RFP provides that a portion of these resources may be transmitted via the Boardman-to-Hemingway transmission line project, which Idaho Power plans to have in-service in 2026.
Summary of Financial Results
The following is a summary of Idaho Power's net income, net income attributable to IDACORP, and IDACORP's earnings per diluted share for the three months ended March 31, 2023 and 2022 (in thousands, except earnings per share amounts):
| | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
Idaho Power net income | | $ | 55,710 | | | $ | 46,214 | | | | | |
Net income attributable to IDACORP, Inc. | | $ | 56,098 | | | $ | 46,260 | | | | | |
Weighted average outstanding shares – diluted | | 50,723 | | | 50,660 | | | | | |
IDACORP, Inc. earnings per diluted share | | $ | 1.11 | | | $ | 0.91 | | | | | |
The table below provides a reconciliation of net income attributable to IDACORP for the three months ended March 31, 2023, from the same period in 2022 (items are in millions and are before related income tax impact unless otherwise noted).
| | | | | | | | | | | | | | | | | | |
| | Three months ended | | |
Net income attributable to IDACORP, Inc. - March 31, 2022 | | | | $ | 46.3 | | | | | |
Increase (decrease) in Idaho Power net income: | | | | | | | | |
Customer growth, net of associated power supply costs and power cost adjustment mechanisms | | 2.7 | | | | | | | |
Usage per retail customer, net of associated power supply costs and power cost adjustment mechanisms | | 0.4 | | | | | | | |
Idaho fixed cost adjustment (FCA) revenues | | (1.2) | | | | | | | |
Retail revenues per megawatt-hour (MWh), net of associated power supply costs and power cost adjustment mechanisms | | 8.5 | | | | | | | |
Transmission wheeling-related revenues | | 5.1 | | | | | | | |
| | | | | | | | |
Other operations and maintenance (O&M) expenses | | — | | | | | | | |
| | | | | | | | |
Other changes in operating revenues and expenses, net | | (7.8) | | | | | | | |
| | | | | | | | |
Increase in Idaho Power operating income | | 7.7 | | | | | | | |
| | | | | | | | |
Non-operating expense, net | | 2.7 | | | | | | | |
| | | | | | | | |
Additional accumulated deferred investment tax credits (ADITC) amortization | | 3.8 | | | | | | | |
Income tax expense, excluding additional ADITC amortization | | (4.7) | | | | | | | |
Total increase in Idaho Power net income | | | | 9.5 | | | | | |
Other IDACORP changes (net of tax) | | | | 0.3 | | | | | |
Net income attributable to IDACORP, Inc. - March 31, 2023 | | | | $ | 56.1 | | | | | |
IDACORP's net income increased $9.8 million for the first quarter of 2023 compared with the first quarter of 2022, due primarily to higher net income at Idaho Power. At Idaho Power, customer growth increased operating income by $2.7 million in the first quarter of 2023 compared with the first quarter of 2022, as the number of Idaho Power customers grew by approximately 13,500, or 2.2 percent, during the twelve months ended March 31, 2023. Usage per customer was relatively consistent in the first quarter of 2023 compared with the first quarter of 2022, as both periods experienced comparable below-normal temperatures.
The net increase in retail revenues per MWh, net of associated power supply costs and power cost adjustment mechanisms, increased operating income by $8.5 million in the first quarter of 2023 compared with the first quarter of 2022. This was due partially to changes in Idaho Power's customer sales mix, which includes separate rate tariffs based on customer class. To a greater extent, the net increase in retail revenues per MWh was due to the June 1, 2022 rate increase for Idaho Power’s Idaho retail customers related to an order from the IPUC that authorized Idaho Power to accelerate the depreciation on and recover
through 2030 the net book value of coal-related assets at Idaho Power's jointly-owned Jim Bridger plant as of December 31, 2020, plus forecasted plant investments. For more information on the IPUC regulatory order related to the Jim Bridger Plant, see Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2022 Annual Report.
Transmission wheeling-related revenues increased $5.1 million during the first quarter of 2023 compared with the first quarter of 2022, resulting from Idaho Power's Open Access Transmission Tariff (OATT) rates being 1 percent higher during the quarter and due to elevated energy prices in the western United States in the first quarter of 2023 compared with the first quarter of 2022.
Total other O&M expenses in the first quarter of 2023 were consistent with the first quarter of 2022, as an increase in expenses due to inflationary pressures on labor-related and other costs were offset by lower expenses from planned maintenance projects compared with the same period in 2022, the timing of regulatory deferrals, and payment credits received related to a jointly-funded project.
Other changes in operating revenues and expenses, net, decreased operating income by $7.8 million in the first quarter of 2023 compared with the first quarter of 2022, due primarily to the increase in net power supply expenses that were not deferred for future recovery in rates through Idaho Power's power cost adjustment mechanisms. Higher wholesale natural gas and power market prices in the western United States increased Idaho Power's net power supply expenses in the first quarter of 2023 compared with the first quarter of 2022.
Non-operating expense, net, decreased $2.7 million in the first quarter of 2023 compared with the first quarter of 2022. Allowance for equity funds used during construction increased as the average construction work in progress balance was higher throughout the first quarter of 2023 compared with the first quarter of 2022. Also, interest income and benefit plan rabbi trust income increased due to higher market interest rates. These increases were partially offset by higher interest expense on long-term debt in the first quarter of 2023 compared with the first quarter of 2022.
The increase in income tax expense was principally the result of higher income before income taxes, partially offset by additional ADITC amortization. Based on Idaho Power's current expectations of full-year 2023 results, Idaho Power recorded $3.8 million of additional ADITC amortization under its Idaho regulatory settlement stipulation during the first quarter of 2023. Idaho Power currently expects to amortize up to $15 million of additional ADITC for the full-year 2023, but did not record any additional ADITC amortization in 2022.
Overview of General Factors and Trends Affecting Results of Operations and Financial Condition
IDACORP's and Idaho 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:
•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 significant growth in the number of customers in its service area. Over the twelve months ended March 31, 2023, Idaho Power's customer count grew by 2.2 percent. While current inflationary and volatile economic conditions could slow the rate of customer growth in the near-term, Idaho Power expects its number of customers and, to a greater extent its load due to anticipated commercial and industrial customer growth, to increase in the foreseeable future.
Idaho Power is preparing its 2023 Integrated Resource Plan (IRP), its 20-year forecast of power demand and supply options. The 2023 preliminary IRP assumptions include significant large commercial and industrial additions in the 5-year forecasted annual growth rate, including potential load from new facilities recently announced by Meta Platforms, Inc. and Micron. Included in the below table are Idaho Power's preliminary load forecast assumptions the company anticipates using in the 2023 IRP as of the date of this report, and for comparison purposes, the analogous average annual growth rates Idaho Power used in the prior two IRPs.
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| | 5-Year Forecasted Annual Growth Rate | | 20-Year Forecasted Annual Growth Rate |
| | Retail Sales (Billed MWh) | | Annual Peak (Peak Demand) | | Retail Sales (Billed MWh) | | Annual Peak (Peak Demand) |
2023 IRP (preliminary) | | 5.5% | | 3.7% | | 2.2% | | 1.8% |
2021 IRP | | 2.6% | | 2.1% | | 1.4% | | 1.4% |
2019 IRP | | 1.3% | | 1.4% | | 1.0% | | 1.2% |
Idaho Power believes that existing and sustained growth in customers, load, and peak demand for electricity, along with changes in the regional transmission markets that have constrained the availability of transmission outside Idaho Power’s service area to import energy during peak load periods, require Idaho Power to increase its investment in capacity resources, transmission, and distribution infrastructure. This includes the Boardman-to-Hemingway and Gateway West transmission projects, along with other capacity and energy resources contemplated by the procurement of resources described in the "Rate Base Growth and Infrastructure Investment" section below in this MD&A.
In order to meet growth in its service area, Idaho Power relies on numerous vendors to provide goods and services. Economic conditions in recent years have resulted in supply chain constraints and inflationary cost increases. Those inflationary pressures have impacted not only external costs, but also Idaho Power's internal labor costs. Idaho Power has taken measures to help ensure the availability of supply chain-constrained items that are needed to serve new and existing customers, such as ordering distribution transformers and other electrical apparatus in advance and from new suppliers. Idaho Power has also taken measures to help mitigate cost increases through supplier diversity and contract negotiation, as it works to meet the demands of continued customer and load growth amid an uncertain national and global economic environment.
•Rate Base Growth and Infrastructure Investment: The rates established by the IPUC, OPUC, and FERC are determined with the intent to provide an opportunity for Idaho 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 for deferred income taxes and other items. Over time, rate base is increased by additions to utility plant in service and reduced by depreciation 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 provide service to new customers, including major ongoing transmission projects such as the Boardman-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 the Hells 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.
As noted previously, Idaho Power believes that existing and sustained growth in customers, load, and peak demand for electricity, along with transmission constraints, has created the need for Idaho Power to acquire significant generation and storage resources to meet energy and capacity needs over the next several years. Idaho Power expects to spend more than $600 million from 2023 through 2027 on resource additions to address projected energy and capacity deficits. For more information about forecasted capital expenditures and expected rate base growth, see the "Liquidity and Capital Resources" section of this MD&A.
•Regulation of Rates and Cost Recovery; General Rate Case Filing: The prices that Idaho Power is authorized to charge for its electric and transmission service is a critical factor in determining IDACORP's and Idaho Power's results of operations and financial condition. Those rates are established by state regulatory commissions and the FERC and are intended to allow Idaho 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 prudent management of expenses and investments. Idaho Power has a regulatory settlement stipulation in Idaho that includes provisions for the accelerated amortization of ADITC to help achieve a minimum 9.4 percent Idaho-jurisdiction return on year-end equity (Idaho ROE). The settlement stipulation also provides for the potential sharing between Idaho Power and its Idaho customers of Idaho-jurisdictional earnings in excess of 10.0 percent of Idaho ROE, which would adjust to the authorized return on equity determined in the next general rate case. The settlement stipulation has no expiration date but the minimum Idaho ROE would revert back to 95 percent of the authorized return on equity determined in the next Idaho general rate case. The specific terms of the settlement stipulation are described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2022 Annual Report.
With Idaho Power’s current and anticipated significant infrastructure investments, including those that are intended to help meet projected near-term capacity deficits, Idaho Power plans to file a general rate case in Idaho, as early as June 2023, with a general rate case filing in Oregon likely to follow in 2024. To this end, on March 31, 2023, Idaho Power provided notice to the IPUC of its intent to file a general rate case in Idaho on or after June 1, 2023. However, several factors impact Idaho Power’s timing and need to file general rate cases. As it looks to a potential 2023 general rate case, Idaho Power is assessing the expected increase in depreciation expense from rate-base eligible assets as they are
placed into service (including its battery storage projects that it expects to be in-service in 2023), the significant amounts of capital expenditures Idaho Power has made since its last general rate case filed in 2011, the expected financing costs for capital expenditures in a higher interest-rate environment, and, to a lesser extent, the inflationary pressures on other O&M expenses described above. Idaho Power expects the processing of a general rate case in Idaho would span at least seven months before new rates would be in effect. In Oregon, Idaho Power expects that processing of a general rate case would take approximately ten months.
•Weather Conditions: Weather and agricultural growing conditions have a significant impact on Idaho 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 of each year, irrigation customers use electricity to operate irrigation pumps, and weather conditions, such as a prolonged winter, 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, as Idaho Power's hydropower facilities comprise over one-half of Idaho Power's nameplate generation capacity, precipitation levels impact the mix of Idaho 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 for Idaho Power, they also may exist for other Pacific Northwest hydropower facility operators, lowering regional wholesale market prices and impacting the revenue Idaho Power receives from wholesale energy sales. Much of the adverse or favorable impact of this volatility is addressed through the Idaho and Oregon power cost adjustment mechanisms, which lessen the potential earnings benefit or detriment of volatile hydrological conditions and their impact on overall power supply costs. For 2023, Idaho Power expects generation from its hydropower resources to be in the range of 6.0 to 7.5 million MWh, compared with 5.3 million MWh of hydropower generation in 2022 and a 30-year average annual total of 7.7 million MWh.
•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, and Idaho Power's hedging of fuel and power 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, generation resource maintenance outages, and wholesale energy market prices. The Idaho and Oregon power cost adjustment mechanisms mitigate in large part the potential adverse earnings impacts to Idaho Power of fluctuations in power supply costs. Idaho Power also has an energy risk management and hedging program designed to mitigate some, but not all, of the price risk associated with volatile and elevated power supply and fuel costs. However, collection from customers or return to customers of most of the difference between actual power supply costs compared with those included in retail rates is deferred to a subsequent period, which can affect Idaho Power’s operating cash flow and liquidity until those costs are recovered from or returned to customers.
•Regulatory and Environmental Compliance Costs; Coal Plant Retirements: 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 the FERC, the North American Electric Reliability Corporation, and the Western Electricity Coordinating Council. Compliance with these requirements directly influences Idaho Power's operating environment and affects Idaho Power's operating costs. Moreover, environmental laws and regulations may increase the cost of constructing new facilities, may increase the cost of operating generation plants, may require that Idaho Power install additional pollution control devices at existing generating plants, may result in penalties for non-compliance, even where inadvertent, or may require that Idaho Power curtail or cease operating certain generation plants. Idaho Power expects to spend significant amounts on environmental compliance and controls for the foreseeable future. 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 in Valmy, Nevada (Valmy plant), ceasing coal-fired operations at one unit in 2019 and planning to cease its participation in coal-fired operations at the remaining unit by year-end 2025. Idaho Power's jointly-owned coal plant in Boardman, Oregon, ceased operations as planned in October 2020. In June 2022, the IPUC approved Idaho Power's request to allow the coal-related assets at the Jim Bridger plant to be fully depreciated and recovered by end-of-year 2030. The IPUC's Bridger Order related to Idaho Power's plan to cease its participation in coal-related operations at the Jim Bridger plant by 2028 is described more fully in Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report.
•Water Management and Relicensing of Hydropower Projects: Because of Idaho Power's reliance on stream flow in the Snake 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 for American 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. As of the date of this report, Idaho Power cannot determine the ultimate terms of, and costs associated with, any resulting long-term licenses for the HCC or American Falls hydropower facilities.
•Wildfire Mitigation Efforts: In recent years, the western United States has experienced an increasing trend in the degree of annual destruction from wildfires. A variety of factors have contributed to this trend including climate change, increased wildland-urban interfaces, historical land management practices, and overall wildland and forest health. While Idaho Power has not experienced to-date the extent of catastrophic wildfires within its service area that have occurred in California and elsewhere in the western United States, Idaho Power is taking a proactive approach to wildfire threat in its service area and transmission corridors. Idaho Power has adopted a Wildfire Mitigation Plan (WMP) that outlines actions Idaho 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; public safety power shutoff protocols adopted in 2022; and evaluating the performance and effectiveness of the strategies identified in the WMP through metrics and monitoring. In regulatory orders received in June 2021 and March 2023, the IPUC authorized Idaho Power to defer, for future amortization, the Idaho jurisdictional share of actual incremental O&M expenses and depreciation expense of certain capital investments necessary to implement the WMP. The IPUC orders related to the WMP are described in more detail in the "Regulatory Matters" section of this MD&A.
RESULTS OF OPERATIONS
This section of MD&A takes a closer look at the significant factors that affected IDACORP’s and Idaho Power’s earnings during the three months ended March 31, 2023. In this analysis, the results for the three months ended March 31, 2023, are compared with the same period in 2022.
The table below presents Idaho Power’s energy sales and supply (in thousands of MWh) for the three months ended March 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
Retail energy sales | | 3,690 | | | 3,624 | | | | | |
Wholesale energy sales | | 208 | | | 28 | | | | | |
Energy sales bundled with renewable energy credits | | 353 | | | 372 | | | | | |
Total energy sales | | 4,251 | | | 4,024 | | | | | |
Hydropower generation | | 1,375 | | | 1,263 | | | | | |
Coal generation | | 427 | | | 819 | | | | | |
Natural gas and other generation | | 880 | | | 459 | | | | | |
Total system generation | | 2,682 | | | 2,541 | | | | | |
Purchased power | | 1,900 | | | 1,782 | | | | | |
Line losses | | (331) | | | (299) | | | | | |
Total energy supply | | 4,251 | | | 4,024 | | | | | |
Weather-related information for Boise, Idaho, for the three months ended March 31, 2023 and 2022, 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 March 31, | | |
| | 2023 | | 2022 | | Normal (2) | | | | | | |
Heating degree-days(1) | | 2,592 | | | 2,596 | | | 2,405 | | | | | | | |
Cooling degree-days(1) | | — | | | — | | | — | | | | | | | |
Precipitation (inches) | | 3.7 | | | 2.7 | | | 3.7 | | | | | | | |
(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 2 percent in the first quarter of 2023 compared with the same period in 2022. The number of Idaho Power's customers grew by 2.2 percent over the prior twelve months, contributing to the higher volumes. Usage per customer was relatively consistent in the first quarter of 2023 compared with the first quarter of 2022 as both periods experienced below-normal temperatures, which affects the amount of energy customers use for heating.
Total system generation increased 6 percent for the first quarter of 2023 compared with the same period in 2022, comprised of an increase in natural gas generation and hydropower generation, partially offset by decreased coal generation. For more information on the changes in generation, see the "Operating Expenses" section below in this MD&A.
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 presents Idaho Power’s retail revenues (in thousands) and MWh sales volumes (in thousands) for the three months ended March 31, 2023 and 2022, and the number of customers as of March 31, 2023 and 2022.
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| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
Retail revenues: | | | | | | | | |
Residential (includes $8,909 and $10,093, respectively, related to the FCA)(1) | | $ | 188,536 | | | $ | 169,295 | | | | | |
Commercial (includes $276 and $283, respectively, related to the FCA)(1) | | 87,830 | | | 78,566 | | | | | |
Industrial | | 55,544 | | | 49,060 | | | | | |
Irrigation | | 933 | | | 1,041 | | | | | |
| | | | | | | | |
Deferred revenue related to HCC relicensing AFUDC(2) | | (2,119) | | | (2,119) | | | | | |
| | | | | | | | |
Total retail revenues | | $ | 330,724 | | | $ | 295,843 | | | | | |
Volume of retail sales (MWh) | | | | | | | | |
Residential | | 1,732 | | | 1,665 | | | | | |
Commercial | | 1,072 | | | 1,061 | | | | | |
Industrial | | 876 | | | 884 | | | | | |
Irrigation | | 10 | | | 14 | | | | | |
Total retail MWh sales | | 3,690 | | | 3,624 | | | | | |
Number of retail customers at period end | | | | | | | | |
Residential | | 520,509 | | | 508,547 | | | | | |
Commercial | | 77,602 | | | 76,309 | | | | | |
Industrial | | 130 | | | 125 | | | | | |
Irrigation | | 22,091 | | | 21,842 | | | | | |
Total customers | | 620,332 | | | 606,823 | | | | | |
(1) The FCA mechanism is an alternative revenue program and does not represent revenue from contracts with customers.
(2) As part of its January 30, 2009 general rate case order, the IPUC is allowing Idaho 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 the Idaho 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, customer growth, and changes in FCA mechanism revenues are the primary reasons for fluctuations in retail revenues from period to period. The primary influences on customer usage of 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 $34.9 million during the first quarter of 2023 compared with the same period in 2022. The factors affecting retail revenues during the period are discussed below.
•Rates: Average customer rates, excluding amounts related to the power cost adjustment mechanisms, increased retail revenues by $8.5 million for the first three months of 2023 compared with the same period in 2022, due primarily to the June 1, 2022 rate increase for Idaho Power's retail customers related to the Bridger Order. Customer rates also include the collection from customers of amounts related to the power cost adjustment mechanisms, which increased revenues by $21.6 million in the first quarter of 2023 compared with the same period of 2022. 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.
•Customers: Customer growth of 2.2 percent during the twelve months ended March 31, 2023, increased retail revenues by $5.3 million in the first quarter of 2023 compared with the same period of 2022.
•Usage: Higher usage (on a per customer basis), primarily by residential customers, increased retail revenues by $0.7 million in the first quarter of 2023 compared with the same period of 2022, as both periods experienced comparable below-normal temperatures.
•Idaho FCA Revenue: The FCA mechanism, applicable to Idaho 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 by Idaho Power through volume-based rates during the year. Higher usage (on a per customer basis) by residential and small commercial customers during the first three months of 2023 decreased the amount of FCA revenue accrued by $1.2 million compared with the same period in 2022.
Wholesale Energy Sales: Wholesale energy sales consist primarily of long-term sales contracts, opportunistic sales of surplus system energy, and sales into the energy imbalance market in the western United States, and do not include derivative transactions. The table below presents Idaho Power’s wholesale energy sales for the three months ended March 31, 2023 and 2022 (in thousands, except for revenue per MWh amounts).
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Wholesale energy revenues | | $ | 30,195 | | | $ | 3,035 | |
Wholesale MWh sold | | 208 | | | 28 | |
Wholesale energy revenues per MWh | | $ | 145.17 | | | $ | 108.39 | |
In the first quarter of 2023, wholesale energy revenues increased $27.2 million compared with the same period of 2022, due primarily to an increase in volumes sold and average wholesale energy prices. Wholesale energy prices were higher during the first three months of 2023 compared with 2022 as extreme winter weather resulted in elevated demand and higher fuel costs (natural gas and coal) in the wholesale markets in the region. The increase in wholesale volumes sold was also partially due to energy originally purchased under derivative forward contracts to be bundled with renewable energy credits, but the energy was ultimately sold in the wholesale markets. Those sales increased wholesale energy revenues by $16.7 million in the first quarter of 2023 and a corresponding amount was recorded in purchased power on the condensed consolidated statements of income. The financial impacts of fluctuations in wholesale energy sales are largely mitigated by Idaho Power's Idaho and Oregon power cost adjustment mechanisms, which are described below in this section of the MD&A under "Power Cost Adjustment Mechanisms."
Transmission Wheeling-Related Revenues: Transmission wheeling-related revenues increased $5.1 million, or 31 percent, during the first three months of 2023 compared with the first three months of 2022, primarily due to elevated energy prices in the western United States. Also, Idaho Power's OATT rates were approximately 1 percent higher in the first quarter of 2023 compared to the first quarter of 2022.
Energy Efficiency Program Revenues: In both Idaho and Oregon, 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 that Idaho Power has collected more than it has spent and an asset balance indicates that Idaho Power has spent more than it has collected. At March 31, 2023, Idaho Power's energy efficiency rider balances were regulatory assets of $0.2 million in the Idaho jurisdiction and $0.4 million regulatory liability in the Oregon jurisdiction.
Operating Expenses
Purchased Power: The table below presents Idaho Power’s purchased power expenses and volumes for the three months ended March 31, 2023 and 2022 (in thousands, except for per MWh amounts).
| | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
Expense | | | | | | | | |
PURPA contracts | | $ | 48,324 | | | $ | 39,997 | | | | | |
Other purchased power (including wheeling) | | 122,769 | | | 45,427 | | | | | |
Total purchased power expense | | $ | 171,093 | | | $ | 85,424 | | | | | |
MWh purchased | | | | | | | | |
PURPA contracts | | 690 | | | 608 | | | | | |
Other purchased power | | 1,210 | | | 1,174 | | | | | |
Total MWh purchased | | 1,900 | | | 1,782 | | | | | |
Average cost per MWh from PURPA contracts | | $ | 70.03 | | | $ | 65.78 | | | | | |
Average cost per MWh from other sources | | $ | 101.46 | | | $ | 38.69 | | | | | |
Weighted average - all sources | | $ | 90.05 | | | $ | 47.94 | | | | | |
Purchased power expense increased $85.7 million during the first quarter of 2023 compared with the same period of 2022. The increase in purchased power expense was primarily due to elevated wholesale energy prices in the western United States.
Fuel Expense: The table below presents Idaho Power’s fuel expenses and thermal generation for the three months ended March 31, 2023 and 2022 (in thousands, except for per MWh amounts).
| | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
Expense | | | | | | | | |
Coal | | $ | 17,063 | | | $ | 27,659 | | | | | |
Natural gas | | 72,017 | | | 18,043 | | | | | |
Total fuel expense | | $ | 89,080 | | | $ | 45,702 | | | | | |
MWh generated | | | | | | | | |
Coal | | 427 | | | 819 | | | | | |
Natural gas | | 880 | | | 459 | | | | | |
Total MWh generated | | 1,307 | | | 1,278 | | | | | |
Average cost per MWh - Coal | | $ | 39.96 | | | $ | 33.77 | | | | | |
Average cost per MWh - Natural gas | | $ | 81.84 | | | $ | 39.31 | | | | | |
Weighted average, all sources | | $ | 68.16 | | | $ | 35.76 | | | | | |
| | | | | | | | |
The majority of the fuel for Idaho 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 increased $43.4 million, or 95 percent, in the first quarter of 2023 compared with the first quarter of 2022, primarily due to higher natural gas market prices in 2023, which resulted in an increase in the average cost per MWh of natural gas generation. In addition, Idaho Power's natural gas generation increased in the first quarter of 2023 compared with the first quarter of 2022, as the prior year's planned maintenance project at the Langley Gulch plant resulted in lower generation in the first quarter of 2022. Idaho Power's coal generation decreased in the first quarter of 2023 compared with the first quarter of
2022, mostly due to the availability of the Langley Gulch natural gas plant and Idaho Power is optimizing dispatch of coal generation resources in an effort to help ensure adequate coal supply during its period of peak demand in 2023. To preserve coal supply for peak periods, Idaho Power relied more on natural gas-fired generation to meet customer demand during the first quarter of 2023 compared with the same period in 2022.
Included in fuel expense are losses and gains on settled financial gas hedges entered into in accordance with Idaho Power's energy risk management policy. For the first three months of 2023 and 2022, gains on financial gas hedges of $23.5 million and $1.5 million, respectively, reduced natural gas fuel expense. Most of these realized hedging gains are passed on to customers through the power cost adjustment mechanisms described below.
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 the Idaho and Oregon jurisdictions allow Idaho Power to recover from customers, or refund to customers, most of the fluctuations in power supply costs. The Idaho-jurisdiction power cost adjustment (PCA) includes a cost or benefit sharing ratio that allocates the deviations in net power supply expenses between customers (95 percent) and Idaho Power (5 percent), with the exception of PURPA power purchases and demand response program incentives, which are allocated 100 percent to customers. The Idaho deferral period, or PCA year, runs from April 1 through March 31. Amounts deferred or accrued during the PCA year are primarily recovered or refunded during the subsequent June 1 through May 31 period. Because of the power cost adjustment mechanisms, the primary financial impacts of power supply cost variations are 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.
The table that follows presents the components of the Idaho and Oregon power cost adjustment mechanisms for the three months ended March 31, 2023 and 2022 (in thousands).
| | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
Power supply cost (deferral) accrual | | $ | (60,267) | | | $ | 4,483 | | | | | |
Oregon power supply cost accrual | | 23 | | | — | | | | | |
Amortization of prior year authorized balances | | 8,907 | | | (4,883) | | | | | |
Total power cost adjustment (income statement) | | $ | (51,337) | | | $ | (400) | | | | | |
The power supply (deferrals) accruals represent the portion of the power supply cost fluctuations (deferred) accrued under the power cost adjustment mechanisms. When actual power supply costs are lower than the amount forecasted in power cost adjustment rates, 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. During the first quarter of 2023, purchased power costs led to higher actual power supply costs compared with the forecasted amount, which resulted in a significant increase in the amount of power supply costs deferred by the mechanism. 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: Total other O&M expenses in the first quarter of 2023 were consistent with the first quarter of 2022, as an increase in expenses due to inflationary pressures on labor-related and other costs were offset by lower expenses from planned maintenance projects, the timing of regulatory deferrals, and payment credits received related to a jointly-funded project.
Income Taxes
IDACORP's and Idaho Power's income tax expense increased $1.1 million and $0.9 million, respectively, for the three months ended March 31, 2023, when compared with the same period in 2022, primarily due to greater pre-tax income, net of ADITC amortization from the regulatory mechanism described in Note 3 – “Regulatory Matters” to the condensed consolidated financial statements in this report. For information relating to IDACORP's and Idaho Power's computation of income tax expense, see Note 2 - "Income Taxes" to the condensed consolidated financial statements included in this report.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Idaho Power funds its liquidity needs for capital expenditures through cash flows from operations, debt offerings, commercial paper markets, credit facilities, a term loan facility, and capital contributions from IDACORP. Idaho Power periodically files for rate adjustments for recovery of operating costs and capital investments to provide the opportunity to align Idaho Power's earned returns with those allowed by regulators.
As of April 28, 2023, IDACORP's and Idaho Power's access to debt, equity, and credit arrangements included:
•their respective $100 million and $300 million revolving credit facilities;
•IDACORP's shelf registration statement filed with the U.S. Securities and Exchange Commission (SEC) on May 16, 2022, which may be used for the issuance of debt securities and common stock;
•Idaho Power's shelf registration statement filed with the SEC on May 16, 2022, which may be used for the issuance of first mortgage bonds and other debt securities; $630 million remains available for issuance pursuant to state regulatory authority; and
•IDACORP's and Idaho Power's issuance of commercial paper, which may be issued up to an amount equal to the available credit capacity under their respective credit facilities.
In March 2023, Idaho Power issued the following long-term debt with the proceeds being used for general corporate purposes, including repaying outstanding commercial paper and long-term debt and funding Idaho Power's capital projects:
•$60 million of 5.06% first mortgage bonds, secured medium-term notes, Series N, maturing in March 2043;
•$62 million of 5.20% first mortgage bonds, secured medium-term notes, Series N, maturing in March 2053; and
•$400 million of 5.50% first mortgage bonds, secured medium-term notes, Series M, maturing in March 2053.
In March and April 2023, a portion of the proceeds from the March 2023 issuances were used to repay outstanding commercial paper, $100 million in principal amount from a March 2022 term loan agreement, and $75 million in principal amount of maturing 2.5% first mortgage bonds, Series I.
In addition to the discussion above, which includes notable liquidity developments in 2023, more information on IDACORP's and Idaho Power's debt, equity, and credit facilities is included in Part II, Item 7 - "MD&A – Financing Programs and Available Liquidity" in the 2022 Annual Report.
IDACORP and Idaho 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, and Idaho Power may issue first mortgage bonds or other debt securities, if the companies believe terms available in the capital markets are favorable and that issuances would be financially prudent. Idaho Power also periodically analyzes whether partial or full early redemption of one or more existing outstanding series of first mortgage bonds is desirable, and in some cases, may refinance indebtedness with new indebtedness.
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 by Idaho Power's utility business, availability under existing credit facilities, access to commercial paper, short-term and long-term debt markets, and equity issuances.
IDACORP and Idaho Power generally seek to maintain capital structures of approximately 50 percent debt and 50 percent equity. Maintaining this ratio influences IDACORP's and Idaho Power's debt and equity issuance decisions. As of March 31, 2023, IDACORP's and Idaho Power's capital structures, as calculated for purposes of applicable debt covenants, were as follows:
| | | | | | | | | | | | | | |
| | IDACORP | | Idaho Power |
Debt | | 48% | | 49% |
Equity | | 52% | | 51% |
IDACORP and Idaho Power generally maintain their cash and cash equivalents in highly liquid investments, such as U.S. Treasury Bills, money market funds, and bank deposits.
At March 31, 2023, IDACORP and Idaho Power believed they were in compliance with all credit facility and long-term debt covenants. Further, IDACORP and Idaho Power do not anticipate they will be in violation or breach of their respective debt covenants during 2023.
Operating Cash Flows
IDACORP's and Idaho Power's principal sources of cash flows from operations are Idaho Power's sales of electricity and transmission capacity. Significant uses of cash flows from operations include the purchase of fuel and power, other operating expenses, interest, income taxes, and plan contributions. Operating cash flows can be significantly influenced by factors such as weather conditions, rates and the outcome of regulatory proceedings, and economic conditions. As fuel and purchased power are significant uses of cash, Idaho Power has regulatory mechanisms in place that provide for the deferral and recovery of the majority of the fluctuation in those costs. However, if actual costs rise above the level currently allowed in retail rates, deferral balances increase (reflected as a regulatory asset), negatively affecting operating cash flows until such time as those costs, with interest, are recovered from customers.
IDACORP’s and Idaho Power’s operating cash outflows for the three months ended March 31, 2023, were $90 million and $93 million, respectively, a decrease in cash flows from operations of $183 million for IDACORP and $184 million for Idaho Power, when compared with the same period in 2022. With the exception of cash flows related to income taxes, IDACORP's operating cash flows are principally derived from the operating cash flows from Idaho Power. Significant items that affected the companies' operating cash flows in the first three months of 2023 when compared with the same period in 2022 were as follows:
•a $10 million and a $9 million increase in IDACORP and Idaho Power net income, respectively;
•changes in regulatory assets and liabilities, mostly related to the relative amounts of costs deferred and collected under the Idaho PCA, FCA, and energy efficiency program cost mechanisms, decreased operating cash flows by $64 million; and
•changes in working capital balances due primarily to timing, including fluctuations as follows:
◦timing of collections of accounts receivable and unbilled revenues decreased operating cash flows by $22 million for IDACORP and Idaho Power;
◦the changes in materials, supplies, and fuel stock decreased operating cash flows by $9 million for IDACORP and Idaho Power, which was primarily due to an increase in material and supply inventory offset by the timing of purchases and consumption of coal at Idaho Power's jointly-owned coal-fired generating plants;
◦the changes in accounts and wages payable decreased operating cash flows by $67 million for IDACORP and $68 million for Idaho Power, which was primarily due to an increase in power supply costs and associated timing of payments; and
◦the changes in other assets and liabilities, which includes accrued paid time off and leave, customer deposits, accrued interest, and other miscellaneous liabilities, decreased operating cash flows by $28 million for IDACORP and Idaho Power.
Investing Cash Flows
Investing activities consist primarily of capital expenditures related to new construction of, and improvements to, Idaho Power’s generation, transmission, and distribution facilities. IDACORP’s and Idaho Power’s net investing cash outflows for the three months ended March 31, 2023, were $109 million. Investing cash outflows for 2023 and 2022 were primarily for construction of utility infrastructure needed to address Idaho Power’s aging plant and equipment, customer growth, and environmental and regulatory compliance requirements. Significant items and transactions that affected investing cash flows in the first three months of 2023 were as follows:
•IDACORP’s and Idaho Power’s investing cash outflows for 2023 included $118 million of additions to utility plant;
•IDACORP's and Idaho Power's investing cash inflows for 2023 included $3 million from Boardman-to-Hemingway project joint permitting participants relating to a portion of the permitting expenditures and a security deposit; and
•IDACORP's and Idaho Power's investing cash inflows for 2023 included $2 million in sales of equity securities, held in a rabbi trust, which is designated to provide funding for obligations related to Idaho Power's security plan for senior management employees.
Financing Cash Flows
Financing activities provide supplemental cash for both day-to-day operations and capital requirements, as needed. IDACORP's and Idaho Power's net financing cash inflows for the three months ended March 31, 2023, were $380 million and $423 million, respectively. Idaho Power funds liquidity needs for capital investment, working capital, managing commodity price risk, dividends, and other financial commitments through cash flows from operations, debt offerings, commercial paper markets, credit facilities, a term loan facility, and capital contributions from IDACORP. IDACORP funds its cash requirements, such as payment of taxes, payment of dividends, capital contributions to Idaho Power, and non-utility expenses allocated to IDACORP, through cash flows from operations, commercial paper markets, sales of common stock, and credit facilities. Significant items and transactions that affected financing cash flows in the first three months of 2023 were as follows:
•in March 2023, Idaho Power repaid $100 million in principal amount of a March 2022 term loan agreement;
•in March 2023, Idaho Power issued $60 million in principal amount of 5.06% first mortgage bonds, secured medium-term notes, Series N, maturing in March 2043;
•in March 2023, Idaho Power issued $62 million in principal amount of 5.20% first mortgage bonds, secured medium-term notes, Series N, maturing in March 2053;
•in March 2023, Idaho Power issued $400 million in principal amount of 5.50% first mortgage bonds, secured medium-term notes, Series M, maturing in March 2053; and
•IDACORP and Idaho Power paid dividends of $41 million and $1 million in 2023, respectively.
Available Short-Term Borrowing Liquidity
The table below outlines available short-term borrowing liquidity as of the dates specified (in thousands). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | 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) | | — | | | (19,885) | | | — | | | (19,885) | |
Net balance available | | $ | 100,000 | | | $ | 280,115 | | | $ | 100,000 | | | $ | 280,115 | |
(1) 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 April 28, 2023, IDACORP and Idaho Power had no loans outstanding under their revolving credit facilities and had no commercial paper outstanding. The table below presents additional information about short-term commercial paper borrowing during the three months ended March 31, 2023.
| | | | | | | | | | | | | | |
| | Three months ended March 31, 2023 |
| | IDACORP(1) | | Idaho Power |
Commercial Paper: | | | | |
Period end: | | | | |
Amount outstanding | | $ | — | | | $ | — | |
Weighted average interest rate | | — | % | | — | % |
Daily average amount outstanding during the period | | $ | — | | | $ | 37,314 | |
Weighted average interest rate during the period | | — | % | | 4.94 | % |
Maximum month-end balance | | $ | — | | | $ | 110,000 | |
(1) Holding company only.
Impact of Credit Ratings on Liquidity and Collateral Obligations
IDACORP’s and Idaho 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 to IDACORP's or Idaho Power's ratings by Standard & Poor’s Ratings Services or Moody’s Investors Service from those included in the 2022 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.
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 of March 31, 2023, Idaho Power had posted $62.9 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 upon Idaho Power’s current energy and fuel portfolio and market conditions as of March 31, 2023, the amount of additional collateral that could be requested upon a downgrade to below investment grade is approximately $44.6 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 cash capital expenditures, excluding AFUDC, were $114 million during the three months ended March 31, 2023. The table below presents Idaho Power's estimated accrual-basis additions to property, plant, and equipment for 2023 (including amounts incurred to-date) through 2027 (in millions of dollars). The amounts in the table exclude AFUDC but include net costs of removing assets from service that Idaho Power expects would be eligible to be included in rate base in future rate case proceedings. 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. The capital expenditure table below assumes, among other projects, construction and ownership of a number of capacity resources identified in Idaho Power's RFPs, 2021 IRP, and preliminary 2023 IRP modeling in order to safely and reliably serve the company's customers. The timing and amount of actual constructed projects and capital expenditures could be affected by Idaho Power’s ability to timely obtain labor or materials at reasonable costs, supply chain disruptions and delays, regulatory determinations, inflationary pressures, macroeconomic conditions, or other issues, including those described below.
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2024 | | 2025-2027 |
Expected capital expenditures (excluding AFUDC) | | $650-$700 | | $800-$850 | | $1,500-$1,700 |
| | | | | | |
| | | | | | |
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 2022 Annual Report. The discussion below should be read in conjunction with that report.
Resource Additions to Address Projected Energy and Capacity Deficits: As noted previously, Idaho Power believes that existing and sustained growth in customers, load, and peak demand for electricity, along with transmission constraints, will create the need for Idaho Power to acquire significant generation, transmission, and storage resources to meet energy and capacity needs over the next several years. To help meet peak needs in 2023 through 2025, Idaho Power entered into or expects to enter into contracts to purchase, own, and operate 280 MW of battery storage assets with expected useful lives of approximately 20 years, entered into a 20-year agreement to purchase the storage capacity from a 150-MW battery storage facility, and also entered into three power purchase agreements for the combined 340 MW output of planned third-party solar facilities with 20- to 25-year terms. As described in “Regulatory Matters” of this MD&A, Idaho Power plans to sell the output of two of these solar power purchase agreements totaling 240 MW exclusively to two large industrial customers under agreements modeled after Idaho Power’s proposed Clean Energy Your Way program. To help address the additional capacity deficits projected for 2026 through 2027, Idaho Power has issued RFPs for additional resources. The capital requirements table above includes capital expenditures of more than $600 million from 2023 through 2027 for resource additions to address projected energy and capacity deficits in those years. Depending on factors such as RFP results, the timing of project in-service dates, estimated load and resource balances and customer growth, the nature and quantity of resources owned versus acquired under power purchase agreements or similar agreements, and the outcome of regulatory proceedings, actual expenditures and their timing could deviate substantially from Idaho Power's expected expenditures.
Boardman-to-Hemingway Transmission Line: The Boardman-to-Hemingway line, a proposed 300-mile, high-voltage transmission project between a substation near Boardman, Oregon, and the Hemingway substation near Boise, Idaho, would provide transmission service to meet future resource needs. Until recently, Idaho Power had a joint funding agreement with PacifiCorp and BPA to pursue permitting of the project, with Idaho Power having an approximate 21 percent interest, BPA having an approximate 24 percent interest, and PacifiCorp having an approximate 55 percent interest in the permitting phase of the project.
In March 2023, BPA, PacifiCorp, and Idaho Power signed various agreements to facilitate certain asset transfers and other coordination efforts among the parties as the transmission line moves toward construction. In particular, an agreement between
Idaho Power and BPA transferred BPA’s total interest in the project to Idaho Power, increasing Idaho Power's interest to approximately 45 percent, and provided that Idaho Power will deliver transmission service to BPA's customers across southern Idaho. The agreement also required BPA to make a $10 million security payment to Idaho Power. On Idaho Power's condensed consolidated balance sheet as of March 31, 2023, the agreement increased construction work in progress by $31 million for the acquired permitting interest, cash and cash equivalents by $10 million for the additional security payment, and other non-current liabilities by $41 million for Idaho Power's obligation to pay for the permitting interest and to return the security deposit to BPA. Payments to BPA for the permitting interest are expected to be made over a 15-year period beginning 10 years after energization of the transmission line project, while the security deposit is due to be returned to BPA upon energization.
Idaho Power has spent approximately $160 million, including Idaho Power's AFUDC, on the Boardman-to-Hemingway project through March 31, 2023. Pursuant to the terms of the joint funding arrangements, Idaho Power has received $102 million in reimbursement as of March 31, 2023, from project co-participants for their share of costs (including $31 million related to BPA's share, which was transferred to Idaho Power in March 2023 as part of the agreement described above). As of the date of this report, no material co-participant reimbursements are outstanding. The remaining joint permitting participant is obligated to reimburse Idaho Power for their share of any future project permitting expenditures or agreed upon early construction expenditures incurred by Idaho Power under the terms of the joint funding agreement.
The permitting phase of the Boardman-to-Hemingway project is subject to federal review and approval by various federal agencies. Federal agency records of decision have been received and all lawsuits challenging the federal rights-of-way have been resolved. In the separate State of Oregon permitting process, the state's Energy Facility Siting Council (EFSC) approved Idaho Power's site certificate on September 27, 2022. The Oregon Department of Energy subsequently issued a final order and site certificate. Three parties filed appeals to the Oregon Supreme Court asking that court to overturn EFSC's approval of the Boardman-to-Hemingway site certificate. On March 9, 2023, the Oregon Supreme Court affirmed the EFSC's final order approving Idaho Power's site certificate.
Total cost estimates for the project are between $1.1 billion and $1.3 billion, including Idaho Power's AFUDC. The capital requirements table above includes approximately $430 million of Idaho Power's share of estimated costs (excluding AFUDC) related to the remaining permitting phase, design, material procurement, and construction phases of the project. The preliminary estimates of construction costs could change as the construction timeline nears and as the project participants obtain more detailed information on construction and material costs.
In July 2021, Idaho Power awarded contracts for detailed design, geotechnical investigation, land surveying, and right-of-way option acquisition; and work commenced in the third quarter of 2021. In April 2022, Idaho Power awarded a contract for constructability consulting services. 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 2012, Idaho Power and PacifiCorp entered a joint funding agreement for permitting of the project. Idaho Power has expended approximately $53 million, including Idaho Power's AFUDC, for its share of the permitting phase of the project through March 31, 2023. 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 $300 million and $500 million, including AFUDC. The capital requirements table above includes approximately $40 million of Idaho Power's share of estimated costs (excluding AFUDC) for the permitting phase of the project and early construction costs, based on Idaho Power's current estimate that it may commence construction of applicable segments during that time period.
The permitting phase of the Gateway West project was subject to review and approval of the U.S. Bureau of Land Management (BLM). The BLM has published its records of decision for all segments of the transmission line. In late 2020, PacifiCorp completed construction and commissioned a 140-mile segment of their portion of the project in Wyoming. In March 2023, PacifiCorp initiated the pre-construction phase of 620 miles of 500-kV transmission line from the Populus substation near Downey, Idaho, to the Hemingway substation near Melba, Idaho. 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 has no minimum contribution requirement to its defined benefit pension plan in 2023 and during the three months ended March 31, 2023, Idaho Power made no contributions. In April 2023, Idaho Power made a $10 million contribution to its pension plan. Idaho Power is considering contributing up to an additional $30 million to its pension plan during 2023 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.
Contractual Obligations
IDACORP’s and Idaho Power’s contractual cash obligations have not materially changed during the three months ended March 31, 2023, except as disclosed in Note 5 – “Long-Term Debt” and Note 8 – “Commitments” to the condensed consolidated financial statements included in this report.
Dividends
The amount and timing of dividends paid on IDACORP’s common stock are within the discretion of IDACORP’s board of directors. IDACORP's board of directors reviews the dividend rate periodically to determine its appropriateness in light of IDACORP’s current and long-term financial position and results of operations, capital requirements, rating agency considerations, contractual and regulatory restrictions, legislative and regulatory developments affecting the electric utility industry in general and Idaho Power in particular, competitive conditions, and any other factors the board of directors deems relevant. The ability of IDACORP to pay dividends on its common stock is generally dependent upon dividends paid to it by its subsidiaries, primarily Idaho Power.
For additional information relating to IDACORP and Idaho Power dividends, including restrictions on IDACORP’s and Idaho Power’s payment of dividends, see Note 6 - “Common Stock” to the condensed consolidated financial statements included in this report.
Off-Balance Sheet Arrangements
IDACORP's and Idaho Power's off-balance sheet arrangements have not changed materially from those reported in MD&A in the 2022 Annual Report.
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 the FERC. The IPUC and OPUC determine the rates that Idaho Power is authorized to charge to its retail customers. Idaho Power is also under the regulatory jurisdiction of the IPUC, the OPUC, and the Wyoming Public Service Commission 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 its FERC tariff and to provide transmission services under its OATT. Additionally, the FERC has jurisdiction over Idaho Power's sales of transmission capacity and wholesale electricity, hydropower project relicensing, and system reliability, among other items.
Idaho Power develops its regulatory filings taking into consideration short-term and long-term needs for rate relief and several other factors that can affect the structure and timing of those filings. These factors include in-service dates of major capital investments, the timing and magnitude of changes in major revenue and expense items, and customer growth rates, as well as other factors. Idaho Power's most recent general rate cases in Idaho and Oregon were filed during 2011, and in 2012, large single-issue rate cases for the Langley Gulch power plant resulted in the resetting of base rates in both Idaho and Oregon. Idaho Power also reset its base-rate power supply expenses in the Idaho 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 FCA 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. With Idaho Power’s current and anticipated significant infrastructure investments, including those that are intended to help meet projected near-term capacity deficits, Idaho Power plans to file a general rate case in Idaho as early as June 2023, with a general rate case filing in Oregon likely to follow in 2024. To this end, on March 31, 2023, Idaho Power provided notice to the IPUC its intent to file a general rate case in Idaho on or after June 1, 2023.
The outcomes of significant proceedings are described in part in this report and further in the 2022 Annual Report. In addition to the discussion below, which includes notable regulatory developments since the discussion of these matters in the 2022 Annual Report, refer to Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report for additional information relating to Idaho Power's regulatory matters and recent regulatory filings and orders.
Notable Pending Retail Rate Changes
During 2023, Idaho Power filed applications requesting orders authorizing the rate changes summarized in the table below.
| | | | | | | | | | | | | | | | | | | | |
Description | | Status | | Estimated Annual Rate Impact(1) | | Notes |
Power Cost Adjustment Mechanism - Idaho | | Filed April 14, 2023; Pending | | $200.2 million PCA increase for the period from June 1, 2023, to May 31, 2024 | | The income statement impact of revenue changes associated with the Idaho PCA mechanism is largely offset by associated increases and decreases in actual power supply costs and amortization of deferred power supply costs. The rate increase reflects higher costs associated with market energy and natural gas prices, combined with limited coal supply. |
Fixed Cost Adjustment Mechanism - Idaho | | Filed March 15, 2023; Pending | | $10.1 million FCA decrease for the period from June 1, 2023, to May 31, 2024 | | The FCA is designed to remove a portion of Idaho Power’s financial disincentive to invest in energy efficiency programs by partially separating (or decoupling) the recovery of fixed costs from the volumetric kilowatt-hour charge and instead linking it to a set amount per customer. |
Annual Power Cost Update - Oregon | | Filed March 24, 2023; Pending | | $9.0 million APCU increase for the period from June 1, 2023, to May 31, 2024 | | The rate increase reflects continued high natural gas prices, combined with limited coal generation and increased forward market electric prices. |
(1) The annual amount collected in rates is typically not recovered on a straight-line basis (i.e., 1/12th per month), and is instead recovered in proportion to retail sales volumes.
Idaho Earnings Support and Sharing from Idaho Settlement Stipulation
A May 2018 Idaho settlement stipulation related to tax reform (May 2018 Idaho Tax Reform Settlement Stipulation) is described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2022 Annual Report. IDACORP and Idaho Power believe that the terms allowing additional amortization of ADITC in the settlement stipulations provide the companies with a greater degree of earnings stability than would be possible without the terms of the stipulations in effect. Based on its estimate of full-year 2023 Idaho ROE, in the first quarter of 2023, Idaho Power recorded $3.75 million in additional ADITC amortization under the May 2018 Idaho Tax Reform Settlement Stipulation. Accordingly, at March 31, 2023, $41.25 million of additional ADITC remains available for future use. Idaho Power recorded no additional ADITC amortization or provision against revenues for sharing of earnings with customers during the first quarter of 2022, based on its then-current estimate of full-year 2022 Idaho ROE.
Change in Deferred (Accrued) Net Power Supply Costs and the Power Cost Adjustment Mechanisms
Deferred (accrued) power supply costs represent certain differences between Idaho Power's actual net power supply costs and the costs included in its retail rates, the latter being based on annual forecasts of power supply costs. Deferred (accrued) power supply costs are recorded on the balance sheets for future recovery or refund through customer rates.
Idaho Power's power cost adjustment mechanisms in its Idaho and Oregon jurisdictions address the volatility of power supply costs and provide for annual adjustments to the rates charged to retail customers. The power cost adjustment mechanisms and associated financial impacts are described in "Results of Operations" in this MD&A and in Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. With the exception of power supply expenses incurred under PURPA and certain demand response program costs that are passed through to customers substantially in full, the Idaho PCA mechanism allows Idaho Power to pass through to customers 95 percent of the differences in actual net power supply expenses as compared with base net power supply expenses, whether positive or negative. Thus, the primary financial statement impact of power supply cost deferrals or accruals is that the timing of when cash is paid out for power supply expenses differs from when those costs are recovered from customers, impacting operating cash flows from year to year.
As noted in the table above, in April 2023, Idaho Power filed an application with the IPUC requesting a $200.2 million net increase in PCA revenues, effective for the 2023-2024 PCA collection period from June 1, 2023, to May 31, 2024. The net increase in PCA revenues reflects higher market energy and natural gas prices, combined with limited low-cost coal supply. To reduce potential rate impacts on customers, the IPUC could take rate mitigation measures, such as spreading the recovery of the requested increase over a two-year period. The IPUC has not taken such measures in the past when comparable rate increases were approved, but if taken, rate mitigation measures could affect the timing of Idaho Power's cash recovery of its PCA regulatory asset. As of the date of this report, the IPUC has not yet issued an order on the application.
The following table summarizes the change in deferred (accrued) net power supply costs during the three months ended March 31, 2023 (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Idaho | | Oregon | | Total |
Deferred net power supply costs at December 31, 2022 | | $ | 128.7 | | | $ | 0.6 | | | $ | 129.3 | |
Current period net power supply costs deferred (accrued) | | 60.3 | | | (0.1) | | | 60.2 | |
| | | | | | |
Prior amounts (collected) refunded through rates | | (9.0) | | | 0.1 | | | (8.9) | |
SO2 allowance and renewable energy certificate sales | | (6.8) | | | (0.3) | | | (7.1) | |
Interest and other | | 1.5 | | | — | | | 1.5 | |
Deferred net power supply costs at March 31, 2023 | | $ | 174.7 | | | $ | 0.3 | | | $ | 175.0 | |
Oregon Resource Procurement Filing
The State of Oregon has competitive bidding rules regarding a public utility's procurement of resources. However, as allowed by the OPUC in certain cases, Idaho Power is pursuing an exception for 2023 resource needs, and plans to pursue additional exceptions to the competitive bidding rules for certain projects to meet the identified resource needs in 2024 and 2025.
In March 2023, following initial review by an independent evaluator appointed by the OPUC, Idaho Power released a draft request for proposals to procure resources for its anticipated energy and capacity needs in 2026 and 2027. Under the Oregon competitive bidding rules, the draft request for proposals is subject to further modification and OPUC approval before becoming final.
Jim Bridger Power Plant Base Rate Adjustment and Recovery
In June 2022, the IPUC issued an order approving, with modifications, Idaho Power’s amended application requesting authorization to (1) accelerate depreciation for the Jim Bridger plant, to allow the coal-related plant assets to be fully depreciated and recovered by December 31, 2030, (2) establish a balancing account to track the incremental costs, benefits, and required regulatory accounting associated with ceasing participation in coal-fired operations at the Jim Bridger plant, and (3) increase customer rates related to the associated incremental annual levelized revenue requirement (Bridger Order). The Bridger Order and associated accounting are described in Note 3 – “Regulatory Matters” to the condensed consolidated financial statements included in this report. Idaho Power plans to cease participation in all coal-related operations at the Jim Bridger plant by 2028.
Wildfire Mitigation Cost Deferral
In June 2021, the IPUC authorized Idaho Power to defer for future amortization incremental O&M and depreciation expense of certain capital investments necessary to implement the company's WMP. The IPUC also authorized Idaho Power to record these deferred expenses as a regulatory asset until the company can request amortization of the deferred costs in a future IPUC proceeding, at which time the IPUC will have the opportunity to review actual costs and determine the amount of prudently incurred costs that Idaho Power can recover through retail rates. In its 2021 application with the IPUC, Idaho Power projected spending approximately $47 million in incremental wildfire mitigation-related O&M and roughly $35 million in wildfire mitigation system-hardening incremental capital expenditures over a five year period. The IPUC authorized a deferral period of five years, or until rates go into effect after Idaho Power's next general rate case, whichever is first. As of March 31, 2023, Idaho Power’s deferral of Idaho-jurisdiction costs related to the WMP was $34.8 million.
During the 2021 and 2022 wildfire seasons, Idaho Power identified needs for expanded mitigation measures by gaining additional insights and knowledge on wildfires and wildfire mitigation activities. In October 2022, Idaho Power filed an updated WMP with the IPUC along with an application requesting authorization to defer an estimated $16 million of newly identified incremental costs expected to be incurred between 2022 and 2025 associated with expanded wildfire mitigation efforts. In March 2023, the IPUC approved Idaho Power's updated WMP and request to defer additional incremental costs.
Large Customer Rate Proceedings
Brisbie, LLC (Brisbie) Data Center: In December 2021, Idaho Power filed an application with the IPUC for approval of a special contract for electric service for a new large load customer, Brisbie, LLC (Brisbie), for a new 960,000 square-foot enterprise data center. Brisbie is a wholly-owned subsidiary of Meta Platforms, Inc. Idaho regulations require any utility customer with an average load exceeding 20 MW to enter into a special contract with Idaho Power. Brisbie, in addition to its large load service requirements in excess of 20 MW, has a sustainability objective to support 100 percent of its operations with new renewable resources. Under the proposed special contract, Idaho Power would procure enough renewable resources to provide Brisbie with 100 percent renewable energy on an annual basis for Brisbie’s facility. In its application, Idaho Power requested authority to procure the necessary resources contemplated within its agreement with Brisbie without seeking IPUC approval for each such procurement and requested assurance from the IPUC that each such resource procurement would receive the same ratemaking treatment outlined in the case, unless otherwise modified in a subsequent proceeding. As of the date of this report, the IPUC's decision in this matter is pending.
In November 2022, Idaho Power filed an application with the IPUC requesting approval of an arrangement under which Brisbie would purchase from Idaho Power energy generated by a to-be-constructed 200-MW solar facility pursuant to a long-term power purchase agreement between Idaho Power and Pleasant Valley Solar, LLC. The solar facility is scheduled to begin operating as early as March 2025. The application is modeled after the Clean Energy Your Way program described in the 2022 Annual Report. In April 2023, the IPUC approved Idaho Power's application for the long-term power purchase agreement.
Micron Dedicated Renewable Resource: In March 2022, Idaho Power filed an application with the IPUC requesting approval of a revised special contract for electric service between Idaho Power and Micron. The application included an arrangement under which Micron would be the purchaser from Idaho Power of the energy generated by a to-be-constructed 40-MW solar facility pursuant to a 20-year power purchase agreement between Idaho Power and a third party. The solar facility is scheduled to begin operating as early as June 2023. Idaho Power also requested in the application revised electric service rates for Micron that include new energy rates that incorporate the solar generation and compensation for capacity value and excess renewable energy generation. The application is modeled after the Clean Energy Your Way program described in the 2022 Annual Report. In August 2022, the IPUC issued an order approving Idaho Power’s application, with modifications. In December 2022, Idaho Power made a compliance filing requesting approval of Idaho Power's proposed payment structure for Micron's renewable capacity credit, and in April 2023, the IPUC approved the compliance filing.
Western Resource Adequacy Program
In March 2023, Idaho Power filed an application with the IPUC requesting that the IPUC issue an order acknowledging the potential for long-term cost savings associated with Idaho Power's participation in the Western Resource Adequacy Program (WRAP), and allowing the company to recover WRAP-associated costs in a future rate proceeding. The WRAP is a regional reliability and compliance program being developed in western North America with the intent of providing a region-wide approach for assessing and addressing resource adequacy and reliability. Idaho Power anticipates that by participating in the WRAP it can avoid paying higher prices for energy in the open market. In addition to the potential cost savings, Idaho Power anticipates its participation in the WRAP to provide the company with insight into regional resource adequacy and the ability to procure energy and capacity in times of extreme need. As of the date of this report, the IPUC's determination in this matter is pending.
Customer-Owned Generation Filing
Customer-owned generation enables customers to install solar panels or other on-site energy-generating resources and connect them to Idaho Power’s grid. If a customer requires more energy than its system generates, it uses energy supplied by Idaho Power’s grid and infrastructure. If a customer's system generates more energy than the customer uses, the energy is transferred to the grid and Idaho Power applies a corresponding kilowatt-hour (kWh) credit to the customer’s bill. In May 2018, the IPUC issued an order authorizing the creation of two new customer classes for residential and small commercial customers who install their own on-site generation, with no change to pricing or compensation. Idaho Power has initiated several cases with the IPUC related to studying the costs and benefits of customer-owned generation on Idaho Power’s system, and exploring potential modifications to the customer-owned generation pricing structure. The IPUC issued orders in December 2019 and February 2020 directing Idaho Power to (1) complete additional studies related to the costs and benefits of customer generation before changes to the compensation structure are implemented, and (2) continue to allow residential and small commercial customers with on-site generation installed prior to December 20, 2019, to be subject to the compensation and billing structure in place on that date until December 20, 2045. In December 2020, the IPUC issued an order establishing a 25-year grandfathering term for large commercial, industrial, and irrigation customers, similar to the terms approved for the residential and small commercial customer classes.
In June 2021, Idaho Power filed an application requesting that the IPUC initiate the multi-phase process for a comprehensive study of the costs and benefits of on-site generation as directed by previous IPUC orders. In December 2021, the IPUC issued an order requiring Idaho Power to complete the comprehensive study on the costs and benefits of on-site generation based on the IPUC’s study framework findings and conclusions. In June 2022, Idaho Power filed the comprehensive study and in December 2022, the IPUC issued an order that acknowledged the company's study and directed Idaho Power to file a new case requesting to implement changes to the structure and design of its on-site generation program. In May 2023, Idaho Power filed a new case as directed by the IPUC, requesting the IPUC to implement changes for non-grandfathered customers starting January 1, 2024, including: 1) a change from net monthly to real-time net billing, which would better measure customers’ actual reliance on the grid; 2) a change in the excess exported energy credit from a kWh credit ranging in value of 5 to 12 cents, depending on the customer class, to a time-differentiated financial bill credit ranging from approximately 5 to 20 cents per kWh that would be updated annually; and 3) a modification to the eligibility cap for large commercial, industrial and irrigation customers.
Renewable and Other Energy Contracts
Idaho Power has contracts for the purchase of electricity produced by third-party owned generation facilities, most of which produce energy with the use of renewable generation sources such as wind, solar, biomass, small hydropower, and geothermal. The majority of these contracts are entered into as mandatory purchases under PURPA. As of March 31, 2023, Idaho Power had contracts to purchase energy from 129 online PURPA projects. An additional four contracts are with online non-PURPA projects, including the Elkhorn Valley wind project with a 101-MW nameplate capacity and the Jackpot Solar project with a 120-MW nameplate capacity.
The following table sets forth, as of March 31, 2023, the resource type and nameplate capacity of Idaho Power's signed agreements for power purchases from PURPA and non-PURPA generating facilities. These agreements have original contract terms ranging from one to 35 years.
| | | | | | | | | | | | | | | | | | | | |
Resource Type | | On-line (MW) | | Under Contract but not yet On-line (MW) | | Total Projects under Contract (MW) |
PURPA: | | | | | | |
Wind | | 627 | | | — | | | 627 | |
Solar | | 316 | | | 74 | | | 390 | |
Hydropower | | 150 | | | 1 | | | 151 | |
Other | | 44 | | | — | | | 44 | |
Total | | 1,137 | | | 75 | | | 1,212 | |
Non-PURPA: | | | | | | |
Wind | | 101 | | | — | | | 101 | |
Geothermal | | 35 | | | — | | | 35 | |
Solar | | 120 | | | 340 | | | 460 | |
Total | | 256 | | | 340 | | | 596 | |
The PURPA-qualifying facility projects not yet online include one hydropower project that is scheduled to be online in 2023, and three PURPA-qualifying facility solar projects scheduled to be online in 2024. Three non-PURPA solar projects, for 40 MW, 100 MW, and 200 MW, are scheduled to be online in 2023, 2024, and 2025, respectively. In April 2023, Idaho Power also entered into an agreement, pending regulatory approval, to purchase the storage capacity from a 150-MW battery storage facility, scheduled to be online in June 2025.
Relicensing of Hydropower Projects
HCC Relicensing: In connection with Idaho Power's major efforts to relicense the HCC, Idaho Power's largest hydropower complex, as described in more detail in the 2022 Annual Report in Part II, Item 7 - "Regulatory Matters," Idaho Power submitted to the FERC in July 2020 its supplement to the final license application. The supplement incorporated the settlement agreement reached between Idaho and Oregon on the Clean Water Act (CWA) Section 401 certifications, which precipitated the states issuing final CWA Section 401 certifications in May 2019. The states of Idaho and Oregon also submitted the CWA