Idacorp Inc Q4 FY2021 Earnings Call

Welcome to IDACORP’s Fourth Quarter and Full-Year 2021 Earnings Conference Call. Today's call is being recorded and our webcast is live. A complete replay will be available later today and for the next 12 months on the IDACORP website. I would now like to turn the call over to Justin Forsberg, Director of Investor Relations and Treasury.

Thanks, Savannah. And good afternoon, everyone. This morning, we issued and posted on IDACORP's website our fourth quarter and year-end 2021 earnings release and Form 10-K. The slides that accompany today's call are also available on IDACORP's website. We will refer to those slides by number throughout the call today. As noted on Slide 2, our discussion includes forward-looking statements, including earnings guidance and spending forecasts, which reflect our current views on what the future holds, but are subject to several risks and uncertainties. This cautionary note is also included in more detail for your review in our filings with the Securities and Exchange Commission. These risks and uncertainties may cause actual results to differ materially from statements made today, and we caution against placing undue reliance on any forward-looking statements. As shown on Slide 3, on today's call, we have Lisa Grow, IDACORP’s President and Chief Executive Officer, Steven Keen, IDACORP’s Senior Vice President and Chief Financial Officer, and Brian Buchanan, IDACORP’s Senior Vice President and General Counsel. As previously announced, Brian will assume the role of Chief Financial Officer on March 1. We also have other members of our management team available for a Q&A session after Lisa, Steve, and Brian provide updates.

Thank you, Justin. And thanks to everyone for joining us on today's call. I'll begin my remarks today pointing to Slide 5 with the exciting news that IDACORP and Idaho Power just completed the safest year in our company's history. We experienced record low totals for injury, vehicle accidents, and employee time lost due to injury. Our 15 employees received the President's Award for safety, an important recognition for employees whose actions exemplify our safety culture. Safety is one of our core values, and I'm very proud of our employees' efforts to stay safe both at work and at home. Our company's safety culture was also recognized by the Edison Electric Institute, which recently awarded Idaho Power its inaugural Thomas F. Farrell, II Safety Leadership and Innovation Award. Safety is such a vital component of our business and of our everyday lives. I commend our leaders and employees for their steadfast commitment to keep themselves, each other, and our communities safe. Staying safe allows us to give our absolute best efforts to our customers, and we continue to do just that in 2021. As noted on Slide 6, our customer satisfaction score tied the highest year-end score in our Annual Customer Survey, while ranking at the top of the list among our peer utilities in a national survey. From working with customers on energy efficiency projects, to developing a new and improved online customer accounts tool, to expanding our menu of clean energy options, we continue to look for new and innovative ways to interact with our customers and improve our customers’ experience. Reliability also saw another outstanding year as Idaho Power kept customers' lights on over 99.9% of the time. Our yield cruise load-serving operators and employees across our organization stepped up throughout the year to ensure power quality and reliability for our customers while overcoming drought conditions, record summer heat, and the highest peak demand for energy our company has ever seen. Turning to Slide 7, as Justin just noted, IDACORP is celebrating its 14th consecutive year of growth in earnings per share. As previously mentioned, we believe this is an unprecedented achievement among investor-owned utilities in the United States. IDACORP’s quarterly common stock dividend was again increased from $0.71 to $0.75 per share, marking our tenth consecutive year with a dividend increase. With the most recently announced dividend to be paid out at the end of this month, the company has paid a dividend for 314 consecutive quarters since 1943. Steve will discuss the 2021 earnings drivers following my remarks. As noted on Slide 8, customer growth remained strong across Idaho Power's service area. Our customer base continues the strong trend and grew 2.8% in 2021. We now serve more than 600,000 customers. According to U.S. News and World Report, Idaho led the U.S. in the rate of population growth in 2021, the fifth consecutive year that it's had the nation's top growth percentage. We view the reliable, affordable, clean energy our company provides as a key driver for continuing to attract new business and residential customers to our service area. Inquiries for incoming and expanding large load projects continue to come in at a rapid pace. In December, we filed a request with the Idaho PUC for a special contract to bring a 950,000 square-foot Meta enterprise data center to Southern Idaho. Meta is set to become a new customer on our system, creating an expected 100 jobs and adding capital investment to the local economy with as many as 1,200 construction jobs needed to build the site. As noted in their public announcement yesterday, Meta plans to begin operations in 2025. The data center also plans to support 100% of its operations through the addition of new renewable resources connected to Idaho Power's system using the framework for large power customers outlined in our clean energy program proposal, which Idaho Power filed with the IPC in December. We look forward to serving the data center's energy needs and working to help Meta meet its own clean energy goals. In addition to customer growth, the economy within Idaho Power's service area continues to outperform national trends. Moody's GDP predicts sustained economic growth going forward. The forecast calls for growth of 5.9% in 2022 and 4.9% in 2023. Unemployment within Idaho Power's service area is at 1.8%, which is significantly below the 3.9% reported nationally. Employment in our region grew 2.8% in 2021. The resource needs identified in our recently filed 2021 Integrated Resource Plan (IRP) continue our path towards a 100% clean energy future. As highlighted on Slide 9, the plan calls for a conversion of two coal units to cleaner natural gas by summer 2024, operating until 2034, and exiting from coal-fired generation entirely by year-end 2028. This facilitates our move away from coal-fired energy while pivoting to transmission, renewable energy resources, and battery storage, along with increased energy efficiency. As noted in our earnings release, we expect the implementation of the IRP could increase our five-year capital expenditures forecast by nearly $800 million or 40%. We continue to work with our plant co-owner and regulators as we work toward removing coal-fired resources from our system. Our recently resumed filing with IPC related to the Jim Bridger plant requests full recovery of and return on investment in the coal-related plant balances to be completed no later than 2030. This filing is consistent with the structure of Idaho Power’s previous filings related to the North Valmy and Boardman plants. In addition to our current low carbon profile, you'll also see, on Slide 9, Idaho Power has in place short-term, medium-term, and long-term targets for further CO2 reduction. Our short-term target is to reduce CO2 emissions intensity from company-owned generation resources by 35% for the period of 2021 through 2025, compared to the 2005 baseline year. We are finalizing the reduction calculations for the period 2010 through the end of 2021, and it looks like we will do better than our 35% reduction goal. Our medium-term target is based on our IRP, which anticipates a 79% reduction from 2005 emissions by 2030. And of course, our long-term target is to be 100% clean by 2045. As of today, we expect to sign contracts soon related to the 2023 deficit to purchase and own 120 megawatts of battery storage assets. We also recently signed a 40-megawatt solar power purchase agreement. These needed new resources will help meet the growing demand for energy during the peak summer evening hours. The 2021 IRP calls for the addition of 700 megawatts of wind, more than 1,400 megawatts of solar, and nearly 1,700 megawatts of storage in the 20-year preferred portfolio. In addition to the increased transmission impact that I will discuss in a moment. The capital expenditure forecast that Brian will address includes our plans to invest over $400 million in capital expenditures from 2022 to 2025 for these resource additions. A critical part of our clean future depends on enhanced transmission. As highlighted on Slide 11, our Boardman to Hemingway high-voltage transmission project (B2H) continues to be a cost-effective resource in our preferred IRP portfolio and continues to move forward. In January, Idaho Power entered into a non-binding term sheet with the project participants, Bonneville Power Administration and PacifiCorp, that contemplates Bonneville transferring its share of the project to Idaho Power, commensurate with BPA intent to utilize the line for a minimum of 20 years through a long-term service agreement. Taking over and building BPA's share of the line simplifies permitting and construction of B2H, strengthening our chances of completing the project on schedule so we can meet growing customer demand. Idaho Power has begun pre-construction activities such as detailed design, survey, and geotechnical investigation. We expect to finalize B2H permitting in 2022, with the line currently planned to be in service in 2026. We now expect to invest over $380 million in additional capital expenditures from 2022 through 2026 related to B2H, approaching $500 million in potential Idaho Power total system rate base related to the project by 2026. Given the expected growth in rate base, in-service date of major capital investments, and current growth projections, and other factors, Idaho Power's evaluations show the appropriate time for a general rate case in Idaho and Oregon is approaching. Steady customer growth, constructive regulatory outcomes, effective cost management, projects and service date, and economic conditions also play significant roles as we refine the need and timing of the future general rate case. Turning to a more near-term outlook, Slide 12 shows a recent outlook of precipitation and weather from the National Oceanic and Atmospheric Administration. Current weather projections for March through May call for relatively normal conditions. We started with good snowfall in late December and early January, and we hope more is on the way before the winter ends. Clean, low-cost hydro generation has traditionally been our single largest generation resource. Strong hydro power generation helps keep power costs low for our customers as we enter this new phase of growth in Idaho Power system. Finally, on Slide 13, you'll see an overview of recently announced changes in our management team and Board of Directors. As we announced last November, Steven Keen, who has played a substantial role in our financial performance over the past several years, announced his retirement to be effective October 1st of this year. By that time, he'll have more than 40 years of service to Idaho Power. The Board of Directors has appointed Brian Russo to succeed Steve effective March 1, and Steve will stay on as a Senior Vice President until he retires. Harrington, our Corporate Secretary, will assume the role of General Counsel also on March 1. His contribution to Idaho Power is hard to overstate. He has helped us navigate challenges and seize opportunities, always making sure we were well-positioned financially to best serve our customers and shareholders. David Page has paved an incredible path and has built a strong finance team. Brian is well-positioned to continue to lead that effort. I invite you all to join me in wishing Steve well. I'd also like to acknowledge our newest board member, Jeff Latham, who was appointed last week. Jeff is a board member of the Arctic Slope Regional Corporation, a private for-profit corporation owned by and representing the business interests of the peer shareholders, and he was previously President and CEO of the ASRC Energy Service, one of their largest business units. Jeff has strong Idaho connections, having attended Northwest Nazarene University here in the Treasure Valley, and his background makes him a perfect fit for our Board. With that, I will hand things over to Steve for an overview of our 2021 results.

Thank you, Lisa. And thank you to everyone who has helped me work toward the success of this company over the years. Our finance organization has been truly outstanding, and Brian will be leading a skilled team with the likes of Tim Peterson and our talented group of finance leaders. While I'm excited for what lies ahead, I will sincerely miss my interactions with all of you. I can't walk through a hotel lobby without remembering our many great discussions about this industry. So, here's a virtual toast to each of you for your interest in IDACORP and also for your friendship. Now let's move to Slide 14, where you'll see our full-year 2021 financial results as compared to 2020. We had a very good year, boosted by positive weather impacts, continued strong customer growth, and more normal operating and maintenance expenses, allowing IDACORP to achieve its highest earnings ever recorded with more than $245 million in net income. On the table of quarter-over-quarter changes, you'll see our continuing customer growth added $16 million to operating income. Cooling degree days were 28% higher than 2020, and the hot and dry conditions led to a respective 6% and 1% higher irrigation and residential per customer usage. While more normal operating conditions led to 3% higher usage per commercial and industrial customer. You'll note on the table that the combined usage changes led to a $13.4 million increase to operating income. Right below this, you'll see a decrease in operating income of $13.4 million that relates to the charge for change in the per megawatt hour revenue net of power supply costs, and power cost adjustment impacts year-to-year. The partial driver of this relates to the decrease in annual customer rates, reflecting the full depreciation of all Boardman power plant investments after ceasing coal-fired operations at that plant in October 2020. In addition, the balance of the decrease relates to the amount of net power supply expenses that were not deferred to Idaho Power’s power cost adjustment mechanisms. Recall that Idaho customers generally bear 95% of power cost fluctuations, and those costs were higher as the summer heat wave in 2021 impacted wholesale energy prices at a time of increased energy usage by our customers. The summer heat wave, combined with cold weather in the Southwest in early 2021, led to higher transmission wheeling-related revenues, which increased operating income by $16.4 million. These higher weather-related wheeling volumes were in addition to two new long-term wheeling agreements that also increased transmission wheeling-related revenues beginning last April and running through March of 2024. Wheeling customers also paid 10% more for Idaho Power's OATT rate that increased in October 2020 to reflect higher transmission costs. The OATT rates increased an additional 4% on October 1, 2021, to account for higher costs of the transmission system going forward. Next on the table, other operating and maintenance expenses increased by $9.2 million primarily due to a return to more normal levels of purchased services and maintenance costs compared with the previous year, which was more negatively impacted by the COVID-19 pandemic. Also, labor-related other O&M expenses increased slightly in 2021, and in a moment, Brian will discuss our future expectations related to O&M. Idaho Power also recorded a $0.6 million provision against current revenues to be refunded to customers through a rate reduction expected to take effect in June 2022. The sharing is premised on our regulatory mechanism in Idaho and based on the full-year 2021 return on year-end equity in the Idaho jurisdiction, having exceeded 10%. We have now been able to share nearly $130 million with Idaho customers while the earnings support and revenue sharing mechanism has been in place. This represents more than 6% of total Idaho jurisdiction net income since 2011. Non-operating expense led to a $3.1 million decrease in earnings mostly due to an actuarial-related medical plan charge that is not expected to recur. Finally, income tax expense increased by $7.7 million this year, due mostly to greater 2021 pretax income. The changes collectively resulted in a net increase to IDACORP’s net income of $8.2 million or $0.16 per share. With that, I will turn the call over to Brian.

Thanks, Steve. As Lisa noted, you have a tremendous legacy with this company, and I'm grateful to have a few more months to work with you and gather more of your knowledge before you retire. I've been with IDACORP for nearly a dozen years, but for some of you, I'm a new face. Over the past few months, I've met some of you who are on the call, and I'm looking forward to spending more time with all of you going forward. I'll start on Slide 15, which shows our initial full-year 2022 earnings guidance and our current key financial and operating metrics estimates. As Justin noted earlier, we expect IDACORP’s 2022 earnings to be in the range of $4.85 to $5.05 per diluted share. This guidance assumes normal weather and economic conditions for the year, and it also assumes Idaho Power will use no additional tax credits in 2022 under the Idaho regulatory stipulation, which provides support in the Idaho jurisdiction of the 9.4% return on year-end $355 million to $365 million. And as we've accomplished in the past, we will be driving to keep O&M relatively flat with last year. It's fair to say this goal will be challenged by the level of customers and load growth we're experiencing in our service area, as well as the associated cost pressures. I will discuss the five-year CAPEX forecast in a moment, but I'll mention we currently expect the 2022 capital expenditures to significantly increase from our actual 2021 CapEx to the new range of $480 million to $500 million, reflecting the capital spending Lisa outlined earlier. And finally, we expect hydro power generation to fall within the range of 5.5 million megawatt hours to 7.5 million megawatt hours. Moving to Slide 16, you'll see our five-year CapEx forecast has grown by approximately $800 million from last year's five-year forecast, which is an increase of 40%. And while much of the increase relates to additional potential capacity resources and the now incorporated assumption that Idaho Power will build and own 45% of the B2H project, the overall amount of ongoing capital spending is a notable lift to the previous base levels, which were closer to $300 million per year for the past few years. This anticipated higher level of spending reflects the ongoing needs to continue upgrading existing infrastructure and respond to the needs of the growing service area and customer expectations. As you can see, we expect to be very busy over the next few years implementing our capital spending infrastructure development plans. Turning to Slide 17, we provide a refreshed look at the projected total system rate base over the next five years, which includes our assumption that the Federal Energy Regulatory Commission could grant a new license for the Hells Canyon Complex in 2024. You can see on the slide that our capital forecast could result in an increase in rate base of about $2.2 billion over the next five years, or a cumulative average growth rate of 9.8%. A variety of factors, including those that Lisa previously mentioned, like customer growth and cost management, illustrate why our efforts to determine the timing of filing general rate cases will be ongoing. At this point, while we're doing that assessment, we believe the time Idaho Power could file a general rate case in Idaho and Oregon is approaching, as Lisa mentioned. Keep in mind that Idaho Power is required to file a notice of intent to file a general rate case with the Idaho Commission at least 60 days before filing an application. As we look to our anticipated increased CapEx forecast, IDACORP and Idaho Power continue to maintain strong balance sheets, including investment-grade credit ratings and sound liquidity. We expect this to enable us to fund our growing capital expenditures and deliver on our dividend plan to shareholders. IDACORP’s operating cash flows and liquidity position as of the end of 2021 are included on Slide 18. Cash flows from operations in 2021 were about $25 million lower than 2020, and that decrease was mostly related to typical items such as the funding of tax payments, as well as working capital fluctuations. The liquidity available under IDACORP and Idaho Power's credit facilities is shown in the middle of Slide 18. At that time, we don't anticipate issuing any equity outside of our compensation plans in 2022. You can also see on the slide that we targeted a 50-50 capital structure at Idaho Power. As we worked to fund our upcoming capital plans, we plan to primarily finance the execution of those projects with debt, at least until the ratio is closer to target. Overall, our existing cash, operating cash flow, and access to liquidity, along with expected regulatory support from our annual adjustment mechanisms, serve as substantial backstop to our expected near-term capital and operating needs. As you'll see on Slide 19, in addition to our current equity-heavy capital structure, we believe our current debt profile and bond maturities provide significant flexibility and windows of opportunity for debt issuances. With that, Lisa, Steve, and I, and others on the call are happy to answer your questions.

We are now ready to begin the question-and-answer session. We would like to remind you to ensure that your mute function is turned off just before you ask your question. We will take as many questions as time permits on a first-come basis. Our first question will come from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Hi, Julien.

Hey, afternoon team. Thank you. Again, Steve, talk about leaving on a high note here. Wow, what an incredible year you guys just had. It's really top-notch. Absolutely. Wow. Maybe to that point actually, can we go back to your comments in the remarks on rate case timing? I just want to understand a little bit more on the relative merits of timing. What are the factors here that you're thinking about? Obviously capital, but what else? I mean tax credits? What else could be driving the timing of this? Is it looming over us in the next few years?

I can start, and then I'll hand it off to Steve. Certainly, the things that you mentioned, our capital plan, our financing of that, cost increases with materials and the wage pressure there. There are a lot of factors that are coming together for that, and we're watching very carefully. Steve, what else would you add?

Yes, Julien, I would say it's really about if we can achieve earnings that satisfy you, other analysts, and all of our shareholders without needing to approach the customer. We prefer this approach, and it has been quite successful for us. Currently, we are facing increased capital expenditures, and while we experienced a slight rise in operating and maintenance costs this year, I believe this aligns more with our expected trajectory, had we not experienced the pandemic. We still have hope that we can meet our goals for this year. There will be challenges, but our objective is to generate earnings that benefit shareholders without involving the customer. However, we are reaching a point where the investments we need to make for growth and cleaner resources will require compensation, and that threshold is approaching. We will continue to assess this situation closely as we have done each year. We are also mindful of future challenges, such as those posed by Hells Canyon. Something will trigger the need for us to act in accordance with the overall plan.

Got it. Thank you for that. Maybe if I can ask you another question around the culmination of this a little bit further. How are you thinking about the longer-term EPS trajectory here? You've got a lot of different pieces moving, obviously a lot higher CapEx. But perhaps if you think about getting visibility on these various investments. At what point in time do you actually get a more formal update in the long-term target?

Yes, I would say, and Lisa will put it this way and then you can take it if you'd like. But I think these are formulating pretty quickly right now. I mean, this growth that we had in 2021 was a step-up from '20, and then you put in the bigger customers with the one that was just announced. Those are big shifts, and as we roll that in, I think you'll see a better projection. We have talked about the fact that the way you predict our future earnings is likely going to shift over to the rate base look the way you've done in most of the industry. It will be a little less on how much new customer growth and how past control work, and a little bit more on where that's driving us as a company in size. I think that when that switch happens, you'll get a better deal in the future because it will be based on those projections we're giving you on capital.

Super cool. Last quick detail on equity. I know you made some comments in the prepared remarks there, but just across the full-year or the multi-year outlook rather than just '22 here.

Yes, I would just say we're going to go to debt first, would be my think. Brian concurs with that, but we have some room that we can do growth and really fund it all with the lowest cost capital, which is the debt. When we get to the point that we do need to issue equity, I think we'll be assessing options on what's the best way to do that. But I think it's out a little way; we have some room. And the good earnings years actually give us more room before we have to do that, so each year that we've had positive results helps us out a little bit with that.

Yeah. What's the metric you're targeting, just as you think about that, what estimate is that? You say the emphasis on funding with them?

We're mainly targeting, I think, when we get to a rate case, we will probably be in and around 50-50. Our FFO from debt, we haven't actually always put that out, but partly it's because I think our really long lines of our assets, our collection is slightly slower than some others. If you have all gas assets or non-production, we have production assets that have been around for 100 years, so it slows things down where you're getting paid over a really long time. But needless to say, our cash flows are really strong, and we feel very good about where we sit there. It's more in line, but I think we'll be watching that debt-equity ratio, wanting to keep them approaching and locked in around that 50-50. That's probably our optimal place when we get back to the rate planning.

Right. Excellent. So those two sounds like they'll be tied up one next to the other eventually.

Excellent.

Awesome, guys. I'll leave it there. Thank you for your patience. Again, congratulations, Steve and team.

Thanks, Julien.

Thanks, Julien.

Thank you.

And our next question will come from Brian Russo with Sidoti. Please go ahead.

Hi, good afternoon. Can you hear me?

Yes, we can hear you.

Hey. So, just on Boardman to Hemingway line in the development there on the regulatory side, I think we're awaiting a final order from the Energy Facilities Siting Council in Oregon in the second half of 2022. Is that still kind of the timeline? And then we're also expecting a conditional use permit in Idaho. Maybe just if you could add some clarity on the timeline there. And then I think there's still some pending litigation or contested case that's ongoing. If you could just address that as well.

Sure. You're correct that we expect that process to be completed towards the end of this year. Adam, I'll hand it over to you.

Yeah. That's correct. We're in the middle of doing pre-construction activities as well, which we hope to have our 30% design coming out in the next couple of months. We've had an RFP out to builders who will construct the line. We're doing geotech work as well. So, in addition to the state permitting, we're making good progress on another pre-construction side too. I think when you mentioned CUPs, I think you might be referring to Gateway West mainly. With Gateway, we continue to keep an eye on that. It's being built by a specific core, kind of the east working its way west. We continue to put it in our Integrated Resource Plan; it shows up as being a solid benefit. But probably after B2H is when that would come into place.

Are you asking about the CPCN for working with Hemingway?

Yeah. What are the next steps regarding the regulatory approvals?

Sorry. I thought you said CUP. So CPCN. Yeah. As soon as we get the state permitting process through, we would file, hopefully, a CPCN towards the end of this year.

With both Idaho and Oregon, yeah.

Okay. Great. And then also on Boardman to Hemingway, the transmission agreement that you're likely to sign with BPA, is that incremental revenue and margin relative to the $500 million of incremental rate base that you've earned a return on?

Go ahead, Ken.

Brian, it'll become bifurcated, so retail customers would be paying a portion of that and then BPA paying a portion of the revenue requirement associated with the $500 million.

Okay. Got it. Understood. Just on the O&M forecast. Basically, over 10 years of flat annual growth in O&M and with the inflationary environment that we're in, what were the assumptions made in that forecast that made you comfortable to actually convey, incorporate the relatively flat O&M in your guidance?

I will begin by stating that we have been intensely focused on this for over a decade. Our primary goal is to find efficiencies and identify ways to reduce costs in serving our customers. However, it is evident that we are experiencing cost increases like many others across various industries, including ours. We are continually working to manage our costs in light of these increases, but we recognize that our capacity to do so is not limitless. We will make every effort possible, and this situation may lead us to consider a rate case. Would anyone like to add to this?

The only thing I might add to Brian, is the growth has just been focused floats up here than as we've grown more, we have more to maintain. And so, you start to see a little bit of increase in O&M just based on the amount of customers that we're seeing out there, which is a good thing. But at the end of the day, sometimes that puts a little bit of stress and pressure on O&M as well.

Regarding the guidance, it appears that for many years, your initial projections have been quite conservative, and as the year progresses, the expectations tend to rise. I'm curious about what we should anticipate this year concerning similar guidance updates. Is it primarily influenced by weather conditions in the third quarter, or is it more about sales in relation to costs? Additionally, I would like to understand if the range is defined by a minimum of 9.4 and a maximum of 10%.

I believe it encompasses all of those factors. We are cautious because we like to keep our commitments, so we are closely monitoring growth and weather conditions. The third quarter is definitely our strongest. I don't see anything particularly unusual on the horizon; it's reflective of how our business has performed in recent years. We will be attentive to growth and price trends from last year, along with historical fees.

Okay. Got it. And is there any regulatory matter to consider?

Brian, I might just add to that.

Yes, Steve.

If you look at last year's guidance, we started with a range of $460 to $480, and we are currently $0.25 above that at both the low and high ends. While this may not seem as strong compared to our robust finish, we have consistently stated that it's challenging to continue growing indefinitely, and we are now in our 14th consecutive year without a reset. Therefore, we may be setting slightly modest expectations at the outset, but similar to last year, we adjusted that guidance upwards a couple of times. As we approached summer, we increased it slightly and then refined it later in the year. We will look for those opportunities and hope to deliver positive news that we can share.

Understood. And then just on the regulatory cap structure target of 50-50, is there any regulatory appetite to maintain a higher regulatory equity ratio? Is there any recent precedent in any regulatory outcomes where you've been granted a higher equity ratio than 50?

Brian, we haven't observed much recent activity in this regard. Some of our competitors have exceeded the 50% equity mark slightly. So, it's not out of the question that we could be a bit different. I believe we typically plan long-term with 50-50 as a reasonable target that we aim to stay around.

Okay, great. Thank you very much. Steve, thank you for the help over the years. Best of luck.

You bet. Thanks a lot, Brian. I've really enjoyed our time together.

Thanks, Brian.

Our next question will come from Chris Ellinghaus with Siebert Williams.

Hi, everybody.

Hi, Chris.

Hi, Chris.

Congratulations to Brian Buchanan and especially you, Steve. I do hope you enjoy your retirement. Brian, as far as looking at this CapEx slide and your discussion about equity in the cap structure. Can I assume that within this timeline, this time horizon, that you do imagine some equity?

I think one thing that Steve mentioned or reiterated is that we do have quite a bit of room on the debt side. Quite a bit of room there. If you look at a 50-50 cap structure compared to where we are today, we do have some pretty sizable capital projects in the mix. There is a possibility that equity comes into our window in the next few years, certainly. But again, we're going to target that 50-50 and try to use that lower cost debt headroom first.

Sure. Lisa, you talked about the additional capacity needs. Can you just talk about what the company's philosophy is versus ownership and PPAs right now?

Sure. We certainly would like to own as much as we can, not just because we're a for-profit entity, but I just believe that the business model of being a regulated monopoly and having the obligation to serve incentivizes making those longer-term investments. We built this system so that we can really survive the extremes. At that, you can look at taxes and some of the works more merchant base where that's not always the case. Now, having said that, I think it's a little bit of all of the above where I think PPAs have a place in our portfolio, if you will, and so we're not trying to make it all one thing, but we're very careful. We've had cases where people have said that they want to bid in to an RFP and then they pull out because they decide they don't want to do that, and that's really hard to build a system based on that. And then finally, as our system changes and we're shifting into our clean portfolio, the way you operate that we haven't done that in our history, and so we're learning, and it may be really hard to contract for the services that we might need that we haven't experienced yet. So, having ownership and that capability to run the system, the way we need to, to keep our reliability in focus and keep costs down, I think all of that together is how we're viewing it. So, short version is all of the above, long version is we think there is an advantage to the utility owning it, so that we can fulfill our obligation to serve.

You talked about the gas conversions as sort of I guess, sort of a stopgap measure. What are your thoughts strategically for future capacity, batteries, solar, wind, whatever? What do you envision your future additions mix looking like and do contracts like Meta sort of skew your thought process a little bit about what types of resources you do want?

We are progressing in refining our portfolio by eliminating coal. We need to take immediate action, and the options available include wind, solar, and storage. I don't think our plans are influenced negatively by Meta’s requirements; in fact, they may even support our objectives. However, as we aim for our targets of 20%, 45%, and 100%, we will need additional solutions. We've previously discussed that hydrogen and small modular reactors present interesting possibilities. I believe other technologies will be necessary because wind, solar, and short-duration batteries alone won’t suffice. We have time to evaluate how these options fit into our portfolio. Meanwhile, regarding gas conversion, this approach helps reduce our carbon emissions while ensuring the system remains reliable and affordable. This situation is a clear illustration of how this transition will unfold. Adam, would you like to add anything?

No, just that in addition to that, obviously, transmission is a big part of our diversification as well and having two projects that are close to being permitted is something that we think is pretty special in the industry, and we're going to continue to focus on diversifying how we bring energy to us through transmission as well.

Sure. Lastly, as you start to approach that next general rate case, have you got any thoughts about on how you might envision adjustments to your mechanism through that case?

We have some adjustments that we just went through. And, Ken, you have some down there?

Well, the adjusted regulatory mechanism carries through for the next rate case if we actually have the credit still available. So, if we're able to save that mechanism, we'll just move forward. The other mechanisms that we have would also move forward; they will be updated, but the FCA would have new fixed costs if they would put into it. PCA would have new power supply costs picked into us. So, those are all natural movements that occur in a rate case.

Okay, great. Thanks. Best of luck to you.

Thank you very much, Chris.

And with no further questions, that will conclude the question-and-answer session for today. Ms. Grow, I will turn the conference back to you.

Thank you all for your continued interest in IDACORP, and we look forward to seeing some of you at the upcoming conferences that we plan to attend over the next several weeks. I continue to wish you all good health, and I hope you have a great afternoon or evening, depending on where you are. Thank you very much.

And that will conclude today's conference. Thank you for your participation, and you may now disconnect.