Idacorp Inc Q2 FY2024 Earnings Call

Welcome to IDACORP's Second Quarter 2024 Earnings Conference Call. Today's call is being recorded and our webcast is live. A 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 Amy Shaw, Vice President of Finance, Compliance and Risk.

Thank you. Good afternoon, everyone. We appreciate you joining our call. This morning, we issued and posted to IDACORP's website our second quarter 2024 earnings release and the Form 10-Q. The slides we will reference during today's call are available on IDACORP's website. As noted on Slide 2, our discussion today includes forward-looking statements, including earnings guidance, spending forecast and regulatory plans that reflect our current views on what the future holds, and those are all subject to risks and uncertainties. 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. Our cautionary note on forward-looking statements and various risk factors are included in more detail for your review in our filings with the Securities and Exchange Commission. As shown on Slide 3, we have Lisa Grow, IDACORP's President and CEO; and Brian Buckham, IDACORP's Senior Vice President, CFO and Treasurer, presenting today. We also have other members of our management team available for a Q&A session following our prepared remarks. Slide 4 shows a summary of our financial results. IDACORP's second quarter 2024 diluted earnings per share were $1.71 compared with $1.35 for last year's second quarter. In the second quarter of this year, we recorded $7.5 million of additional tax credit amortization under the Idaho regulatory stipulation compared to $3.75 million in the second quarter of last year. For the first half of the year, earnings per diluted share were $2.67 compared with $2.46 during the first half of last year. Those results include additional tax credit amortization of $20 million for the first half of 2024 compared to $7.5 million during the first half of last year. Today, we updated certain key metrics and guidance for 2024. We raised the lower end of our previously reported full year 2024 earnings guidance by $0.05 to the range of $5.30 to $5.45 per diluted share. We also improved the top end of our expectation of additional tax credit Idaho Power will use to support earnings at the 9.12% return on equity in the Idaho jurisdiction to a range of $35 million to $50 million. Previously, the top end of that range was $60 million. We're pleased to see our strong operating performance reduce our estimate on tax credit usage. These estimates assume historically normal weather conditions and normal power supply expenses for the remainder of the year. Now I'll turn the call over to Lisa.

Thank you, Amy, and thanks to everyone joining us today. I'll start off with some highlights. We had strong financial results during the second quarter, driven by continued customer growth, higher-than-expected customer usage and the revenue benefits of our January 1 rate changes in our Idaho jurisdiction. We've had an exceptionally hot summer so far, especially during the last part of June and most of July, setting us up for a strong third quarter. As Amy mentioned, this allowed us to raise the lower end of our earnings guidance range and improve the top end of our ADITC guidance range for this year. I'm also excited to announce that we hit a record peak load of 3,793 megawatts on July 22 and, in fact, broke the prior record for 3 consecutive hours that day. Next, I want to talk about four things: customer growth, our regulatory filings, the status of major projects, and how we're serving new record peak loads. We continue to see robust customer growth and economic expansion across Idaho Power service area. As shown on Slide 5, our customer base has grown 2.6% since last year's second quarter and 2.8% for residential customers. Moody's is forecasting robust GDP growth in our area of 4.3% in 2024 and 3.8% in 2025, outperforming national trends. We see increasing interest from projects evaluating Idaho Power service area. Actual and prospective projects are coming from a variety of industries, including manufacturing, food processing, and, of course, data centers, and they are exploring both rural and urban sites. For energy-intensive projects, Idaho Power has its potential customers invest in studies to ensure we can provide accurate cost estimates and timelines to serve their needs. So we have a couple of those studies in process now. Serving that growing load requires infrastructure, and we continue to be ahead of our construction schedules to support two of our largest customer projects, the Meta data center in Kuna and the Micron expansion in Boise. Of note, the first transformer for the new 15-acre chip substation being built for Micron arrived at the end of June. We also recently joined Lamb Weston in celebrating their successful completion of a $415 million expansion at its facility in American Falls, which made it one of the largest frozen potato processing facilities in the world. As noted on Slide 6, our regulatory filings in Idaho and Oregon continue to move forward. In our Oregon general rate case, we reached a settlement that, if approved, would result in an overall rate increase of $6.7 million, or around 12%, effective this October. The main driver in that case is the significant investment we've made in the grid to serve our customers' growing energy needs since our last Oregon general rate case in 2011. In Idaho, we requested an increase of $99 million, or 7.3%, through a limited scope case that focuses on recovering only the infrastructure investment and labor expenses not included in our last general rate case. The limited scope case is in the early stages, and we're awaiting the procedural schedule. We suspect settlement procedures could start in late September or early October. We're working hard to acquire new resources to meet current and future demand. Turning to Slide 7. As part of our RFP process, we selected a 200-megawatt battery storage system to be owned by Idaho Power. We're also negotiating for additional resources to come online in summer 2026. For 2027 capacity and energy deficits, we're still working through the shortlist in negotiating with bidders. As we look beyond 2027, we've initiated an all-source RFP for resource needs in 2028 or later. We believe we'll need more dispatchable resources in the future. It continues to be an all-hands-on-deck effort. Transmission remains key to meeting demand, improving reliability and optimizing the movement of energy in the West. As I mentioned during our last call, delays in the final stages of permitting on the Boardman to Hemingway project have likely pushed the in-service date to no earlier than 2027. We're disappointed in the delays, of course, but we're working through the process. On Gateway West, our second major transmission line project, we're continuing to work with our partner, PacifiCorp, on the timing and configuration of that line and hope to get started on our segment soon. We're also in discussions with the developer of the Southwest Intertie Project, a third major transmission line, which would add capacity to the Desert Southwest. In addition to these transmission projects, we plan to convert our remaining coal-fired units to natural gas, which reduces the carbon emissions of those units by about half but maintains their generating capacity. We've already successfully converted two units at the Jim Bridger Plant, which have been helping us serve peak load during the summer heat wave. This is a low-cost solution that reduces carbon emissions while keeping dispatchable energy resources available, and we plan to convert our remaining coal-fired units at Bridger and Valmy over the next few years. In June, we signed an agreement with Nevada Energy to convert the two units at the North Valmy plant to natural gas by the end of 2025. Our hydropower outlook remains strong, thanks to a good water supply. We have almost all of our hydro units available because of the multiyear efforts we've made to refurbish our hydro fleet. Another growing piece of our resource portfolio is battery storage. The 100-megawatt Franklin Solar project in Southern Idaho came online in June, accompanied by 60 megawatts of company-owned batteries that came online in July. We also have 36 megawatts of batteries at the Hemingway station that are scheduled to come online in August. These batteries are instrumental in improving the reliability and resilience of our system and meeting increasing load demand. Wildfire season has been very active in the West, including within our own service area. Fires are not a new phenomenon, and for many years, we focused on increased investments in system resiliency and mitigation efforts. We've done a lot to harden our system. However, fires can still cause outages and require infrastructure replacement. Working with first responders, we've been able to keep our communities safe. I'm so impressed by our employees across our company for their dedication and ability to work through the many challenges that accompany wildfires. They've been quick to safely replace poles and restore service to our customers. In addition, I want to thank the firefighters and our public safety partners for the hard work they are doing to contain these fires. We've had a public safety power shutoff plan for several years now. We used it for the first time this year when rare 60-mile-per-hour winds briefly came across the Boise Front Range and a few other areas. We proactively de-energized our lines in certain areas following public communications and patrolled them as quickly as possible after the storm passed through. Our protocols worked as planned, and most customer comments were supportive of our proactive approach. I'll close with another look at the weather, which has been some of the hottest on record for much of Idaho Power service area. Temperatures in and around Boise have been above 100 degrees for most of July, and they are continuing into August. Our system reliability has been strong despite the heat wave and peak loads. I again want to express how much I appreciate our amazing employees for the work they are doing to safely serve our customers in these challenging conditions. And with that, I will turn the time over to Brian.

Thanks, Lisa, and hi, everyone. Thanks for tuning in today. We're glad you're here. I'm going to start on Slide 8 with a reconciliation of the second quarter's results. IDACORP's net income increased almost $21 million for the second quarter compared with the second quarter of last year. I'll attribute that increase primarily to three different things: one was higher-than-expected usage per customer across all of our customer classes; the second one was continued customer growth; and the third was higher revenue from rate changes that went into effect at the start of this year. The net increase in retail revenues per megawatt hour that you see in the table increased operating income by nearly $20 million in the second quarter of this year. Now it's due mostly to the increase in base rates from the Idaho general rate case settlement, which was effective at the beginning of this year. It was a notable improvement in this line over what we saw in the first quarter of this year, which makes sense when much of our revenue recovery is from volumetric rates. Typically, the third quarter is the more significant contributor in this area, given the outsized volume of sales that we usually see in the third quarter, but it was also a large contributor in this second quarter's results this year. Next up, Lisa already talked about customer growth, and that growth increased operating income by $5.1 million in the second quarter this year. Usage per retail customer increased operating income by $6.2 million in the second quarter. While there was an increase in usage per customer for all retail customer classes, usage per irrigation customer increased most significantly 17% higher year-to-date than last year, as higher temperatures and the timing of precipitation compared with last year's more moderate second quarter led our irrigation customers to run irrigation pumps more frequently. In the second quarter, we saw an increase in cooling degree days of about 45% compared to normal. And those same high temperatures and lack of precipitation we saw for much of June continued through almost the entire month of July. Transmission wheeling-related revenues, net of power cost adjustment impacts, decreased $2.5 million on a relative basis despite a volume increase. We expected this change, a result of the terms of the settlement stipulation from our 2023 Idaho general rate case. We now track revenue from the financial settlement of transmission line losses in the power cost adjustment mechanism, making it subject to sharing with our customers. And this resulted in a much smaller overall contribution of transmission revenues to net income compared with the second quarter of last year. Total other O&M expenses increased $13.8 million in the second quarter of this year. Again, not a surprise because most of that increase related to amortization of around $4 million of increased pension-related expenses and $8 million of increased wildfire mitigation program and related insurance expenses, and that was all per the Idaho general rate case settlement. Both of these increases in expenses were mostly offset by increases in retail revenues because more costs are now recovered in base rates from the 2023 Idaho general rate case settlement. Remember that our full year O&M guidance range is $40 million to $50 million higher than last year's actual O&M results. And that includes the O&M for this year, the pension and wildfire mitigation increases we're now recovering in revenues. And as a reminder, the collection of those elements of O&M is based largely on volumetric rates, but we record the expenses straight line during the year. In the second quarter with higher volumes, we offset more of the expense amortization with revenues than we did in the first quarter. Aside from that, inflationary pressures on labor-related costs also contributed to the increase in other O&M expenses. Depreciation expense increased $7.6 million for the quarter. This increase was from ongoing system investments we made last year and into this year to meet our continued customer and load growth. Other net changes in operating revenues and expenses increased operating income by $13.9 million. That increase was due primarily to the timing of recording and adjusting regulatory accruals and deferrals and from power supply expenses. The decrease in net power supply expenses that were not deferred for future recovery and rates through power cost adjustment mechanisms increased operating revenues and expenses. And that's a good news story, more moderate wholesale natural gas and power market prices in the Western U.S., along with increased wholesale energy sales volumes, decreased Idaho Power's net power supply expenses, reducing both Idaho Power's and our customers' share of those costs. And that also had a cash flow benefit that I'll talk about later today. Nonoperating expense on a net basis was relatively flat. Interest expense on long-term debt was higher in the second quarter compared with the second quarter of last year, really the predictable result of an increase in long-term debt year-over-year. The interest expense increase was partially offset by an increase in AFUDC because our average construction work in progress balance was higher due to increased capital spending. You can see a notable increase in CWIP on our balance sheet, awaiting conversion to plant in service. Also, interest income increased due to higher interest rates and higher average cash and cash equivalent balances. As I talked about last quarter, there's regulatory lag in recovery on our interest expense to finance our CapEx and in the recovery of our higher depreciation expense on increased plant in service. The lag results largely from the historic averaging on rate base in our 2023 Idaho general rate case. We've proposed to mitigate that lag in part with our pending limited scope case in Idaho that focuses on year-end rate base. The increase in income tax expense was mostly the result of higher income before income taxes, partially offset by an increase in additional ADITC amortization. Remember that there's a timing component here. We record our additional investment tax credit amortization ratably per quarter based on our expectation for the full year. And based on our current expectations for full year results this year, we reported $7.5 million of additional ADITC amortization for Idaho Power during the second quarter. By contrast, we only recorded $3.75 million of additional ADITC amortization during the second quarter last year. Year-to-date, we recorded $20 million of additional ADITCs based on our current estimate of $40 million of ADITC usage for the full year versus $7.5 million at the same time last year based on the then current full year estimate of $15 million of additional ADITCs for that year. On the capital side, we've seen some of the results from our 2026 to 2027 RFP process. We were hoping to have enough details to provide a refreshed update on our CapEx forecast today. But as Lisa noted, we're still negotiating with bidders on the last few projects on the shortlist. We're close, but we're not quite there yet. What I can say at this point, just reiterating what I noted last quarter, there's potential for a meaningful increase on our total 5-year CapEx figure compared to what we forecasted in February of this year, shared on that call. That, of course, depends on RFP results, the timing of starting and completing projects and regulatory outcomes, and all of those are moving targets. It's potentially a sizable increase on an already large CapEx spend, and we hope to have more details on a better quantification by our next quarterly call, if not earlier. So stay tuned for an update there. On the financing side, in May, we drew down around $230 million from the equity forward that IDACORP did in November of last year, now leaving over $60 million to be drawn under that transaction before its anniversary. That issuance was to fund our growing CapEx and part of our goal of maintaining our capital structure and managing dilution while we fund our growth. We're still planning to use a blend of debt and equity to fund our growth, and we want to retain a debt equity ratio of at least 50-50 or slightly higher on the equity side potentially. In the past, we've had a higher equity percentage. And right now, Idaho Power is sitting at 52%. We have a strong balance sheet, and we intend to keep it that way through this cycle. And to fund our equity and debt needs, all options are really on the table. To maintain that flexibility, in May, we've put an ATM program in place. So we haven't issued any shares to date under the program. We think our load growth and rate base profile, premised on a conservative view of only signed and committed loads and known projects, also a track record of 16 consecutive years of earnings growth and a track record of operating efficiently and keeping rates affordable, are some of the factors that make IDACORP an attractive company in the capital markets. And we want to really keep our options open on sources of debt and equity to fund our growth going forward. And our ATM is an important part of that. Turning to Slide 9. As we expected, cash flow from operations improved substantially from last year. We saw close to a net $250 million comparative increase in operating cash flow in the first half of the year. The June 2023 power supply cost rate change that was included in customer rates for the first half of the year, along with the revenue benefit of the January 2024 rate changes from the Idaho general rate case and the notable moderation in power supply costs, all combined to help in that regard. Slide 10 shows our updated full year earnings guidance and key operating metrics. After a generally on-plan start to the year in the first quarter, we saw a notable improvement in our results in the second quarter. From that, as Amy noted, we updated our expectation of IDACORP's earnings this year to be in the range of $5.30 to $5.45 per diluted share, which is an increase to the lower end of our guidance range. This assumes that Idaho Power will use between $35 million and $50 million of additional investment tax credit amortization, an improvement from our initial estimate of $35 million to $60 million. Our forecast ranges for O&M and CapEx for this year are currently unchanged. And then finally and another piece of good news, we've raised the lower end of our hydropower generation forecast. We now expect hydropower generation to be within the range of 7 million to 8 million megawatt hours for the year. We have solid carryover from the prior year, and we had a relatively strong snowpack this year and the right weather conditions to set us up for a good generation year through our hydro facilities. And with that, we're happy to take your questions.

Our first question is from Shar Pourreza with Guggenheim Partners.

Just look like with sort of the settlement now working through the process, I guess, how are you sort of thinking about the timing of the next rate case and then just concurrently, the timing of the capital plan and any guidance around rate base?

Are you talking about the Oregon case or the Idaho case? Or both?

Both, please.

Okay. So we're hopeful that we will have the approval of the Oregon case soon. We are, again, thinking that would go into effect in October. And then for the Idaho rate case, thinking settlements, as I've mentioned, could start. We don't have the procedural calendar yet, but we're hopeful that we could start settlement discussions sometime in the September, October range. And then as far as ongoing rate cases, we've been pretty clear that with the capital program that we have, the regulatory lag, we're going to do as much as we can to reduce that as we go forward.

Got it. And so just on the timing of just the capital plan and the guidance around rate base as you guys are getting through these settlements.

That should be around the third quarter.

Okay. All right. Perfect. That was the question. And then just around the financing, the $300 million ATM, I couldn't get a sense from your prepared remarks, but are you planning on tapping it? Or are you sort of looking at other traditional means like straight equity or junior subordinates forwards, et cetera? Couldn't get a sense on which way you're leaning.

Yes. Shar, this is Brian. Thanks for the question. The equity financing we did last year was intended to finance 2024 and actually partially into '25 potentially. So as we look at the ATM program, we do have it in place as a financing tool. We don't really have an equity need that we see this year. But as we work our way through the RFP process and look at power supply costs, some of those things, we do see the ATM as a tool that we could use as we see fluctuations. We could also use it as a great tool to match up payment obligations with the timing of that need. So the ATM is an important tool for us. It doesn't foreclose any other options that we have on the equity side. Some of it depends on the magnitude of the equity needs that will be out there, which again depends a lot on cash flow and the RFP outcomes. But for right now, the ATM does offer us a great tool to keep our capital ratio where we need. But I would not suggest that it's an exclusive tool we could be out in the markets doing secondary offerings, block trades as well.

Got it. And the reason why I ask is the RFP outcomes could be a little bit lumpy, right, depending on the timing, et cetera, which is why I asked on the ATM.

Yes, Shar. Absolutely. There's two different ways. One is the magnitude of the CapEx. The other aspect of that is the timing of the payment obligations, and some of the projects could be relatively substantial. And depending on DTAs or self-builds, the timing sometimes matters on when those payment obligations come due, and we'll have to have a financing plan that matches the timing of those payment obligations.

Okay. Perfect. And then just lastly for me on the O&M side, no change from the prior guide. I mean we've seen a little bit of pressure with peers on that O&M side. I guess what's your ability to sustain with growth kind of accelerating there? Can you kind of maintain that 1% you guys guide forward?

That's certainly our intention. That is something that's really kind of in our DNA. We work really hard at that and have for over a decade, where we're really looking for ways to innovate, reduce waste, automate things, deploy technology, replacing things that have become very high in O&M costs and really being thoughtful about our workforce. Obviously, as the system is growing, so we're going to need more people to help us care for the system. But we're very, very thoughtful about how we spend those dollars. And Brian, what would you add?

Yes. So I'll add just a couple of points on that, reiterate what Lisa said about the mindset and the cultural approach we have to O&M. But when we set the budget each year, there's lots of people around the table, and we actually apply that culture. There may be some groaning from time to time because we operate with a mindset of efficiency. And yes, you're looking at things differently each year when we sit down to look at our costs. And some of that is to innovate where we can. I've got a panel a couple of weeks ago for an LP investment we have at IDACORP, where we talked about innovation in the utility space. And one of the things I talked about was this concept of innovation by constraint, right? It's this idea that when the budget is set tight, people find a way within reasonable limits to do that. And some of that takes innovation. We don't shortchange things like maintenance and safety. Those always get priority, and they always get spent and performed. But we do look at things like automation. Just as examples, we were an early adopter of AMI meters. We've done some AI implementation at the company. We also put a lot of effort into our contract negotiations, RFPs, making sure we're getting good pricing from our vendors. We also see O&M benefits from regulatory mechanisms, where we see some escalating costs. I think the best example of that is the wildfire mitigation deferral that currently includes vegetation management and insurance costs. We did some averaging on facility maintenance in our last case. I think that helps out from an O&M perspective, taking out some of the volatility. But I know Adam, our COO, he's got a team that's focused on grant opportunities. And so we've been able to harvest some grant funding and cost-sharing opportunities out there. A lot of the pressure is on the labor side at this point. We've got a really great workforce, and we want to retain our people and make sure they're paid. And I mentioned we operate efficiently, and that's on the back of our employees. And the success in that area has been thanks to the efforts of our strong people. So making sure that we keep our labor costs at the right level is important to us.

Shar, this is Adam. Just to give you an example, Brian and I were in a meeting earlier today, a capital budgeting meeting. We got into the details of everything we're spending in the company. People can be surprised by that in these meetings, but every dollar matters for our customers and shareholders. We really do scrutinize every line item of our expenditures. Sometimes Brian mentions this, which can be frustrating for others in the meeting, but it's really important for us to maintain that focus.

Yes. And the final thing I'll mention, which may be more than you expected, Shar, is that when we discuss capital and operating and maintenance expenses, it all comes down to the important issue of affordability as we navigate this exciting period of building infrastructure, which is our focus. As an infrastructure company, we have to be mindful of the effects on our customers regarding affordability.

Congrats on the execution. It's pretty notable. I appreciate it.

Thank you.

Thanks, Shar.

Our next question is from David Arcaro with Morgan Stanley.

Could you explain what you're observing regarding the pipeline of load looking to connect to your system? How is that evolving? Is this affecting your considerations for the future generation needs of the system?

I will begin, and Adam will provide additional details. We remain very engaged in responding to inquiries from a variety of companies interested in establishing or expanding their operations here. Our planning process focuses on how we can best accommodate their needs. Some companies have specific requirements, while others are simply searching for an ideal location where they can access power. We have a comprehensive process in place, and inquiries are still coming in. Some are significant in scale, unlike anything we have encountered in our history, and we are thrilled about these opportunities. We are working closely with them to determine the best way to integrate them into our operations without adversely affecting our existing customers. What would you like to add?

Yes. We've mentioned this before. This is Adam. We track what we call large load inquiries. That's everything from a megawatt to, frankly, 1,000 megawatts. And in 2023, we had a record amount of those inquiries. When you look at 2024, it's still very robust, not quite at the level of 2023 but certainly at the same level we saw in 2021 and 2022. And there's just a variety of different companies that are looking to site in Idaho, everything from data centers to dairy to biodigesters to nonfood manufacturing. And so it's been extremely steady. And the companies that are already here, Micron and Meta, I was in a site visit on both those facilities in April and May. They are moving. There's a ton of construction work going on. Meta, it's going vertical. At Micron, I think there's up to 20 cranes now working on that project. So we're just seeing a lot of growth, not only in real time that we can see in terms of construction, but also in these inquiries that are coming in the door over the last 3, 4, 5 months.

It's great to hear that. I understand. Yes, let me take a moment. I appreciate the insights regarding wildfire activity this season. I am curious about the status of your system. How has it been performing this year? You experienced a PSPS event. How did operations go during that time? Additionally, how is this fire season compared to previous ones?

Yes, this has been one of the most active Julys in our history. Many people in the West seem to have the Watch Duty app on their phones as much of the region is experiencing wildfires. In Eastern Oregon, for instance, we faced significant challenges with the Durkee Fire, which at one point became the largest fire in the nation. Although we lost several lines and hundreds of structures, it did not severely affect the overall system. Our team quickly adapted and restored those lines once it was safe to enter the areas. There are additional fires burning in Idaho, but they are not currently threatening our facilities. We monitor the situation closely with a team working around the clock. This is simply the reality we face today. We have invested significantly in hardening our system through vegetation management, sectionalizing lines, and using fuses that don't emit sparks. Over the next five years, we plan to continue investing hundreds of millions of dollars in these efforts. We work closely with our utility partners and engage with state agencies to navigate these critical times to maintain community safety. Adam, do you have anything to add?

Maybe I'd just add on the fires that our crews did a wonderful job. And in the span of about 2 weeks, we've been able to replace almost 400 structures, 400 poles. On the system side of things, I got to give our load-serving operations a ton of credit and really the folks that look after our generation fleet. It's been pretty smooth from a generation standpoint. Every year, you wonder, is every facility going to run the way it should? And this year, it has, and that's been a real positive for us. So we've had some transmission lines go out outside of our system that can cause some issues with imports. But the team has been able to work around that, and it's been really successful in ensuring that our customers have air conditioning going when it's 105 degrees straight for 5 days, which is exactly what happened here.

Our next question is from the line of Alex Mortimer with Mizuho Securities.

So Brian, you mentioned that the final decisions on the RFP short-list will be made in the coming months. Can you share your expectations regarding the timing of that spending over the 5-year plan? Is it likely to be more concentrated in the latter half? Any additional insights on how things might be progressing would be appreciated.

So that's a little bit difficult in light of the fact that we're still negotiating the contracts. And some of the terms of the contracts, we haven't locked in what the timing of the spend would be. And one of the things I mentioned is if it's a build-transfer agreement, sometimes those provide for payment at the end. There are other types of arrangements that we might negotiate that provides for payment over time, milestone payments. So it makes the shape of the CapEx a little bit hard to determine at this point. And that's one of the reasons why I noted in our prepared remarks that we just aren't quite ready yet to give a lot of guidance on our CapEx, either in terms of magnitude or shaping. I think as you've seen now, the numbers are large. I don't necessarily want to stack a large CapEx amount in any one given year. So we do look to spread that, in part from a financing perspective. But in any event, whatever that shape looks like, these are important reliability projects to serve our customers, so we will go out and procure the financing to do it.

Understood. And turning to the regulatory side. I mean you had a little over 4% revenue increase this year from the settlement last year, another around 7% increase requested for this year. Given the significant necessary investment you're anticipating undergoing in the coming years, how do you think about the trajectory of your rate requests going forward? Keeping in mind, obviously, the robust load growth, I would imagine, allows for maybe some degree of bill headroom and then understanding that, obviously, there are some moving targets in regards to the capital projects.

Yes, I'll start. We have used various methods to help manage the situation. You're correct that with a growing load base, having a larger denominator is beneficial. Our system is structured so that growth funds further growth, preventing any negative impact on our existing customers. We will also keep working with our regulators to navigate this period, ensuring we serve our customers safely and reliably while also focusing on affordability. Tim Tatum, our VP of Regulatory, is here. Is there anything you would like to add, Tim?

Yes. Thanks, Lisa. This is Tim. Yes, I think Lisa said it well. The only thing I would add is we're working through our current case, and the outcome of that case will certainly influence the next ask and affordability, as Lisa mentioned, top of mind. I think with the revenue growth, we may be able to keep things in single-digit increases, but time will tell.

Alex, this is Brian. I'll add a couple more things on the financial side. One is that the assets that we're putting into service generally have long lives. So they're depreciated over a longer period of time and, therefore, the customer rate impact isn't necessarily as large. And also, the O&M sustainability that we've talked about really helps from a customer affordability perspective as well. And then finally, we've actually been fairly successful in the RFP process that's coming in as the lowest cost provider of some of these lease costs, lease risk resources, and that benefit ultimately flows down to our customers. And finally, I've mentioned the tax credits that are generated from the projects. Those do ultimately belong to our customers and flow down to them. So to the extent those tax credits remain an option, they will be helpful to affordability going forward.

Understood. Congrats on a great quarter.

Thank you.

We have a next question here from Julien Dumoulin with Jefferies.

It certainly feels like everyone is focused on the task at hand based on your comments. I want to clarify something because you've mentioned a significant increase in capital expenditures after already raising them several times over the years, which is not a small percentage increase, especially compared to earlier benchmarks. I'm also interested in discussing your financing strategy. It's noteworthy that while the rating agencies have downgraded your outlook, you still managed to raise equity. Now we're looking at another substantial increase, although it may not happen immediately. I'm considering the options available to you based on what you've observed from some of your regional competitors, many of whom are exploring various strategies to meet the heightened capital needs driven by load growth that you can currently identify, not to mention the additional growth or adjustments that may come later. Ultimately, how do capital expenditures align with your long-term equity financing plans, especially given that the rating agencies still view your outlook negatively?

Yes, Julien, that's a great question. When planning our financing, we pay close attention to credit ratings. Our metrics from Moody's in 2023 showed around 14%. We expect those to improve this year at both IDACORP and Idaho Power, with a target of 15% CFO pre-working capital to debt at Moody's. For S&P, the 2023 figure was about 14.5%, though it might decrease slightly this year due to capital expenditures, as you pointed out. However, we anticipate recovery over time, partly through rate cases and reducing regulatory lag, along with hopefully some moderation in power supply costs, which should positively impact our credit ratings. We also aim for 15% at S&P, even if short-term numbers are lower. We've explored various financing options, including hybrids and convertibles, and during our medium-term note offerings, we generally receive strong interest. Our equity financing for IDACORP common stock has also been well-received. We appreciate the forward feature and the ability to match the timing of costs with equity issuance, which helps minimize early shareholder dilution. We'll assess the RFP results in the third quarter for financing strategies, which will likely involve a mix of debt and equity, with a focus on more debt. Our balance sheet remains strong and straightforward, and we believe a traditional financing model will suit us well. Cash flow will significantly influence how we finance our capital expenditures, and we will seek additional debt and growth equity as needed. By the third quarter, we hope to have more information on our specific financing plan for that growth capital.

Got it. But the core of the situation is that they have a negative aspect. You're indicating that our metrics are where we want them to be and that they will eventually align with our perspective on maintaining the company. There is no intention to further enhance the metrics from that 14% to 15% range.

Yes. Julien, over time, yes, we do. But when we're in this CapEx-intensive period, we want to maintain our credit ratings where they are. But the improvement in the credit ratings will be later on in this capital cycle when the cash flow catches up from our regulatory cycle.

Got it. And then related here, if I can, just to push rate case cycle, you've got a big CWIP balance standing here already over $1 billion. And I say this, obviously, with something in hand already in '24 on a rate case front. But how do you think about the next big round on the rate case front, considering the CWIP, considering the need for cash recovery? And then related, you've got a lot of spending ahead. So likely, there's going to be some degree of pressure from the earlier days.

Yes, that's accurate. We will be pursuing rate cases more frequently than before. It certainly won't be another decade or more until we do so again. We are being very deliberate about our spending, financing, and the frequency of these rate cases. We're also very conscious of the risk of rate fatigue from both our customers and regulators. Therefore, we don't take this lightly and ensure that we keep everyone informed throughout the process, so they understand what is happening and that we are doing our best.

And Julien, this is Brian. What I would add is you have to recognize that CWIP did increase pretty dramatically on the balance sheet. But note that a lot of that CWIP is actually part of the rate case that we have in Idaho filed now, the limited scope rate case because we're looking at a period-end plant in service. So some of that are projects that are nearing completion that just haven't yet been closed, the plant. And that will decrease our CWIP balance fairly sizably as we move ahead. Now there are still some large projects in CWIP, you think about Hells Canyon and Boardman to Hemingway. Those are a couple of big ones there. But that number will be declining as we put plants in service.

We have no further questions at this time, so that will conclude the question-and-answer session for today. Ms. Grow, I will turn the conference back over to you.

Great. Thank you. Thanks to everyone for joining us and for your continued interest in IDACORP, and I hope you all have a great evening. Thank you.

Thank you. And ladies and gentlemen, that will conclude today's conference. Thank you for your participation. Have a great evening.