IDA Q3 2024: Annual Rate Cases to Convert 46% CapEx into Rate Base
- Frequent Rate Case Filings to Convert CapEx into Rate Base: Executives highlighted planned frequent regulatory engagements to reduce regulatory lag, allowing the substantial CapEx (including wind and battery projects) to be timely converted into rate base. This provides a sound basis for sustained earnings growth over time.
- Robust Infrastructure and Customer Growth: Management emphasized a diversified infrastructure build-out and a growing customer base—including significant industrial load additions and robust retail growth—that supports increased revenue streams and enhances operating performance.
- Improved Cash Flow and a Balanced Financing Strategy: The discussion underscored improved operating cash flow and a disciplined capital structure (approximately 50% debt and 50% equity) that supports reinvestment while positioning the company for long-term dividend flexibility and enhanced credit metrics.
- Regulatory Lag Uncertainty: Management acknowledged that regulatory lag could persist, meaning the conversion of significant CapEx into rate base may be delayed, which would limit near‐term earnings improvement.
- Earnings Lumpiness Risk: The sizable and ongoing CapEx program—with forecasts showing over a 46% increase and potential for non‑linear conversion into rate base—could lead to intermittent and lumpy earnings, depending on the timing of rate case approvals and project milestones.
- Credit Metrics and Dividend Pressure: There are concerns that if regulatory approvals and improved cash flows take longer than expected, the credit metrics (close to downgrade thresholds) could remain under pressure, while deliberate slower dividend growth to preserve funds may not satisfy investors seeking steady income growth.
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Earnings Support
Q: Earning levels at ADITC floor?
A: Management expects earnings to be supported at the ADITC baseline with tax credit usage in the $25–$35M range this year, noting a small regulatory lag that should normalize over time. -
Generation Mix
Q: Future dispatchable vs. intermittent resources?
A: They plan to add a mix of wind, solar, batteries, and gas conversions—with a focus on dispatchable resources in winter—to balance rising load demand. -
Affordability Impact
Q: Residential bill increases impact?
A: Using a “no harm” analysis, most incremental costs will be borne by large industrial customers, keeping residential rates aligned roughly with inflation. -
Rate Case Frequency
Q: How frequent will rate cases be?
A: The plan is to file rate cases more frequently—potentially on an annual or multiyear basis—to ensure timely inclusion of significant CapEx into rates. -
Earnings Lumpiness
Q: Will earnings be non-linear?
A: Earnings may appear lumpy with high rate base growth—around 17% CAGR—as CapEx converts into the rate base and regulatory lag varies by period. -
Dividend Policy
Q: How will dividends grow going forward?
A: Dividends will grow at a moderated pace as cash is reinvested for future expansion, with the plan to eventually return to a 60–70% payout ratio. -
ADITC Guidance
Q: Why is Q4 ADITC lower than guidance?
A: Q3 strong performance reduced the immediate ADITC requirement, so only a modest amount is expected in Q4 to meet the full-year target of roughly $25–$30M. -
Irrigation Sales
Q: Why only a 3.4% growth in irrigation?
A: A delayed start in planting and seasonal usage patterns led to a modest 3.4% increase, despite overall decent performance.
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