Idacorp Inc Q4 FY2025 Earnings Call

Welcome to IDACORP's Fourth Quarter and Year-end 2025 Earnings Call. Today's call is being recorded, and our website is live. A replay will be available later today and for the next 12 months on the IDACORP website. I will now turn the call over to Amy Shaw, Vice President of Finance and Compliance and Risk.

Thank you. Good afternoon, everyone. We appreciate you joining our call. The slides we'll 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, financing plans, regulatory plans and actions, and estimates and assumptions that reflect our current views on what the future holds, all of which are 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. We've included our cautionary note on forward-looking statements and various risk factors in more detail for your review in our filings with the Securities and Exchange Commission. As shown on Slide 3, also presenting today, we have Lisa Grow, President and CEO; Brian Buckham, EVP, CFO and Treasurer; and John Wonderlich, Investor Relations Manager. Slide 4 shows a summary of our full year financial results. IDACORP's diluted earnings per share were $5.90 compared with $5.50 last year. This made 2025 our 18th consecutive year of EPS growth, as noted on Slide 5. We ended up $0.15 per share above the midpoint of our original EPS guidance for 2025. These results include additional tax credit amortization of about $40 million for 2025 compared to almost $30 million of additional tax credit amortization in 2024. Today, we initiated our full year 2026 IDACORP earnings guidance estimate in the range of $6.25 to $6.45 diluted earnings per share, which includes our expectation that Idaho Power will use less than $30 million of additional tax credit amortization to support earnings. These estimates assume historically normal weather conditions throughout the year and normal power supply expenses. Now I'll turn the call over to Lisa.

Thank you, Amy, and thank you to everyone for being with us today. Reflecting on 2025, it was a particularly busy and exciting year for IDACORP. Our employees have excelled, delivering strong results for our customers and shareholders. Our company achieved its 18th consecutive year of earnings per share growth, as Amy pointed out. We sold a record amount of energy to our retail clients, initiated the B2H transmission project, and recorded some of the best reliability scores in the history of the company. We accomplished this while adhering to our core values of safety first, integrity always, and respect for all. We successfully settled our general rate case proceeding in Idaho, resulting in positive outcomes for both the company and our customers. I would like to express my gratitude to our exceptional employees for their dedication to building a secure energy future that powers our customers' lives and businesses. As shown on Slide 6, growth remains strong across Idaho Power's service area, surpassing national trends and showcasing our region's economic vitality. In 2025, our customer base grew by 2.3%, including a 2.5% increase in residential customers, bringing the total number of metered customers we serve to over 660,000. This growth is being seen across various customer segments, with significant residential, commercial, and industrial construction ongoing in our service area. In 2025, Micron's new semiconductor facility continued its path toward completion, the scale of which is impressive, as illustrated on Slide 7. Meta also made considerable progress on its data center construction, as highlighted on Slide 8, with the project starting to draw power last year. Additionally, Idaho Power facilitated several other important industrial projects, including a Tractor Supply distribution warehouse and an expansion of Chobani's yogurt production facility. Alongside steady interest from our primary industries of food processing, manufacturing, distribution, and warehousing, we're observing increased inquiries from other energy-intensive customers looking to establish operations in our service area. We collaborate closely with potential large customers to establish realistic and sensible timelines for meeting their energy requirements while ensuring these demands do not impose costs on our other customers. We believe that serving the load growth from new large customers involves several key components. We must adhere to the physical laws of power delivery and ensure the price is acceptable to the customer. We also need to access reliable resources and have them available according to the timeline agreed upon with the customer. Furthermore, it must be properly derisked operationally and financially through specific contracts with the customer, and it should not be subsidized by our other customers. Based on our findings, we are experiencing the fastest load growth rate in the nation, and we are managing it with a prudent and considered approach to ensure there are advantages for our company and its owners, while also reducing the risk of cost shifts to our other customers that could arise if our growth were not managed effectively under Idaho's regulatory model. Notably, last year, Micron announced plans for a second semiconductor facility in Boise. The load and capital expenditure projections we share today do not yet factor in this expansion, but we are working through the details with Micron. As we have stated before, our public growth projections for Idaho Power only include projects that have signed contracts or significant financial commitments for customer-funded infrastructure. This method means our growth forecast for large load customers is solely based on confirmed projects. We also have a substantial pipeline featuring a diverse array of prospective large load customers, which exceeds our current 4,000-megawatt peak load. However, we do not incorporate these potentials into our load projections, as we do not base our forecasts on speculation or hope. Turning to Slides 9 and 10, affordability remains one of Idaho Power's primary focus areas. We strive to keep costs low and deliver exceptional value to our customers, and our rates have risen at a considerably slower pace compared to national averages. We believe that, even after implementing the outcome of our 2025 Idaho general rate case, our prices will still be significantly lower than the national average. We take pride in our low rates, and despite considerable infrastructure investments and the expansion of our customer base, we anticipate rates will remain stable according to our regulatory framework in Idaho. To emphasize affordability, based on current projections, we do not plan to file a general rate case in Idaho by June 1 of this year. While we expect higher depreciation and interest expenses linked to growth and infrastructure projects, as well as costs for wildfire mitigation, we believe revenues from new large load contracts will help counterbalance those additional costs. Furthermore, we continue to benefit from our practice of careful and thoughtful spending. We will closely monitor revenues and cash flow throughout the year as part of our ongoing assessment of the necessity and timing of a rate case. As displayed on Slide 7 or Slide 11, we are moving forward with our major infrastructure projects. Progress is rapid on our B2H project, with 80 towers already completed and many more under construction. We expect B2H to be operational by late 2027. The permitting process for the SWIP-North transmission project is nearly finished, and we aim to start construction this year as well. We anticipate the project could be completed as early as 2028. We are also continuing our collaboration with PacifiCorp on the Gateway West transmission project, with a crucial section of the line between our Hemingway and Midpoint substations expected to come online as soon as 2028. Given these timelines, we foresee multiple significant transmission projects being added to our system in 2027 and 2028. Transmission development requires considerable permitting time, so we are pleased to have begun this process early. In terms of resource planning, we have recently received acknowledgment of our 2025 Integrated Resource Plan from our Idaho and Oregon commissions. Moving to Slide 12, Idaho Power is adding generation and storage resources to maintain outstanding reliability as demand increases. The 200-megawatt Pleasant Valley Solar project came online in 2025 as part of our Clean Energy Your Way program, and we integrated 230 megawatts of battery storage into our resource portfolio. Additional projects are in progress to help us meet the rising customer demand, including 250 megawatts of batteries and 125 megawatts of solar, both set to be operational later this spring. Idaho Power plans to add 167 megawatts of natural gas generating capacity next to the existing Bennett Mountain Power Plant in 2028. We are pleased that this company-owned project was identified as the most cost-effective resource in the request for proposals. As mentioned in previous calls, we are focused on addressing the generation requirements for 2029 and 2030, which involves a shortfall of about 200 megawatts of additional firm capacity needed each year. We expect to procure further resources to address these shortfalls. The new gas plant near Bennett Mountain, along with other anticipated resources, is incorporated in our capital expenditure forecast that Brian will elaborate on. We have submitted a request for a Certificate of Public Convenience and Necessity for the capacity addition adjacent to the Bennett Mountain plant and plan to file requests for CPCNs for other new resources in the near future. These filings will appear on the Idaho Commission's website once submitted. In recent developments concerning generation resources, in 2025, Unit 1 of the Valmy coal-fired power plant was transitioned to natural gas, and we also completed the final coal burn at another Valmy unit, which is currently undergoing conversion to natural gas. We expect this conversion to conclude this summer. Lastly, I would like to address this morning's announcement concerning our Oregon service area. We have entered into a definitive asset purchase agreement with the Oregon Trail Electric Cooperative for the sale of our distribution system and certain transmission assets in Oregon. Following this transaction, we will no longer have regulated retail operations in Oregon, although we will supply power to OTEC for a transitional period under a power purchase agreement. The base purchase price for the transaction is $154 million, subject to various adjustments. The completion of this transaction is contingent upon multiple conditions, including approval from the Idaho and Oregon Public Utility Commissions and from FERC. Oregon accounts for a small fraction of our overall service area, expected to be less than 3% of our total sales by 2030. We are confident that OTEC will provide a strong local focus and dedicated service for Eastern Oregon while Idaho Power remains focused on supporting rapidly growing communities in Idaho. If the sale is approved, Idaho Power's 20,000 Oregon customers will transition to OTEC service. Although Idaho Power will no longer directly serve Oregon electric customers, we will retain ownership of our Oregon generation facilities and the majority of our Oregon transmission assets, including B2H, which will serve Oregon residents and businesses. We are collaborating closely with OTEC to ensure a smooth transition and to prepare the necessary regulatory filings to support the sale. While it's early to estimate, we anticipate that regulatory approval may take 10 months or more. I will now turn the call over to Brian.

Thanks, Lisa. I'll begin with Slide 13, which shows our usual reconciliation of year-end results. Going through the table, IDACORP's net income rose by over $34 million compared to 2024, with Idaho Power benefiting from a higher operating income due to the January rate increase and customer growth, totaling around $75 million. However, usage per customer decreased our operating income by $6.5 million due to milder temperatures in 2025 compared to the previous year, although both years had above-average cooling-free days. Operating and maintenance costs were another offset, though smaller than expected. Total other operating expenses increased by less than $10 million, mainly due to higher labor costs. We ended up at the lower end of our operating and maintenance guidance for the year, which is a positive outcome. Depreciation and amortization expenses rose by nearly $28 million this year, in line with our increased system investments and new assets coming into service. Last year, a new leased battery storage facility began operations, adding a modest increase in expenses from the amortization of the related right-of-use asset. Other revenue and expense changes reduced operating income by a net $3.8 million due to the conclusion of property tax litigation in 2024, which resulted in refunds that year. The timing of regulatory accruals and deferrals positively affected 2024 results but did not recur at that same level last year. These were partially offset by cost recoveries from the new battery finance lease through the power cost adjustment. The expense for the new battery financing lease impacted interest expense and amortization, but was offset in the power cost adjustment mechanism, resulting in a near-zero effect on operating income. The decrease in power supply expenses that weren't deferred also provided a benefit relative to 2024. Non-operating expenses increased by approximately $23 million, primarily driven by greater interest expenses due to rising long-term debt balances. Interest on the new finance lease also contributed to this increase, although it is offset in the power cost adjustment mechanism. Partially balancing these increases was higher AFUDC due to increased construction work in progress, which we expect to continue for the next several years. Idaho Power amortized $40.3 million of additional tax credits under the Idaho mechanism to reach the 9.12% return on year-end equity, increasing by $10.5 million compared to last year. Additionally, the $20.4 million decrease in income tax expense, excluding extra ADITC amortization, was mainly driven by adjustments for state taxes and standard plant-related flow-through items. That's it for the reconciliation table. Moving to Slide 14, we've updated our five-year Capital Expenditure forecast as promised, showing a significant increase. We now forecast an average spending of $1.4 billion per year for the 2026 to 2030 period, totaling around $7 billion, which doubles our average actual spending of about $700 million over the prior five years and is in line with our current market capitalization. To provide some perspective, this new forecast represents a 26% increase in Capital Expenditure compared to the 2025 to 2029 forecast we shared last year. The CapEx graph looks similar to last year, but the scale on the left side has changed significantly. The last two years in the chart may have potential upside as we refine our plans and projects for that timeframe. Some of this upside comes from the fact that our forecast does not yet account for the resources needed to support Micron's second fab or other anticipated load growth. Throughout this investment phase, it’s essential to emphasize the importance of affordability for all our customers. Our regulatory processes ensure that new large load customers bear a fair share of system costs without being subsidized by existing customers. As we consider not filing a rate case this year and also the possible magnitude of future cases, we envision a future where affordability remains attainable despite our significant investments. Additionally, we need to maintain the utility's financial health, which means converting our capital investments into rate base and providing returns to our debt and equity holders to support our growth. On Slide 15, we present our rate base forecast for the 2026 to 2030 period. Our total system rate base from our 2025 Idaho general rate case stood at $5.3 billion, a significant increase from $4.6 billion from the 2024 Idaho limited scope rate case. We anticipate that by 2030, the rate base could exceed $11 billion, more than double our 2025 rate base, signifying substantial growth. We project a 16.7% compound annual growth rate for the rate base for the 2026 to 2030 period, which is an improvement from the previous year’s forecast of 16.1% for 2025 to 2029, even with the higher base year taken into account. In the cash flow statement, you'll observe that additions to property, plant, and equipment in 2025 approached $1.2 billion, while the Qualified Infrastructure Plant on the balance sheet surpasses $1.7 billion, showcasing the considerable amount of activity we've experienced in recent years. Amidst this prolonged growth cycle, it is crucial that IDACORP and Idaho Power maintain a strong balance sheet. We aim for an average capital structure of 50% debt and 50% equity with a straightforward balance sheet, with no holding company debt or significant maturities on the horizon; our capital structure currently consists of medium-term notes and common stock. There is elegance in this simplicity. Moving to Slide 16, net cash flow from operations is covering over half of our Capital Expenditure requirements for the 2026 to 2030 period. We will need additional growth capital, estimated at $2 billion in equity and $2.9 billion in debt to maintain our target capital ratio. However, we've executed over $600 million of equity through forward sales agreements to settle in 2026, leaving us with a lower net amount of $1.4 billion in equity sales needed through 2030. This means our anticipated future capital market transactions will comprise about two-thirds debt and one-third equity, averaging less than $300 million in equity per year for the entirety of the five-year forecast period, excluding already-sold forward equity, which is manageable within our issuance range and provides us with flexibility in raising our equity growth capital. We expect cash flows from operations to rise as we progress through the forecast period, particularly with increased large load revenues over time. Importantly, any additional Capital Expenditure to accommodate additional load would necessitate further financing, likely more skewed towards the latter part of our forecast. Lisa mentioned the execution of a definitive agreement to sell Idaho Power's Oregon distribution assets. From a financing perspective, we are looking to offset some of the equity needs with the net after-tax proceeds from this transaction. This sale will simplify our business, as Lisa highlighted, while also providing another capital source for our rapid growth investments in Idaho. In the financing table, no proceeds from this prospective sale have been factored in, as we estimate the one-time gain from the asset sale will be minimal; that is not the motive for the sale. We anticipate the transaction will yield slight accretion in earnings in the year it closes and also deliver ongoing benefits to earnings per share from reduced dilution. On Slide 17, our cash flows from operations exceeded $600 million for the first time in company history. Customer growth, benefits from the general rate cases, and moderate power supply costs all contributed to this achievement. These robust cash flows have helped ease our financing needs, resulting in a strong cash position for IDACORP today. To conclude, I reiterate a point made last year that remains relevant. Over the forecast window we discussed today, we anticipate demonstrating leading actual earnings growth and earnings quality profiles within the industry. It is crucial to understand that our expectations are based on Generally Accepted Accounting Principles and stem from 18 years of consecutive GAAP earnings growth. Therefore, we set our growth expectations against a robust year with no non-GAAP exclusions or adjustments. We aim for elegance and simplicity, being mindful of those providing debt and equity capital for our growth and the importance of generating returns for them. Our focus is on what matters to them: ensuring strong, risk-mitigated execution, ongoing infrastructure development, maintaining affordability for customers, actual rate base growth from approved and in-progress projects, real near-term earnings gains, diverse customer revenue streams, and the long-term viability of our earnings growth and returns. This approach has been our guiding principle and what both you and we have come to expect from us. Now, I’ll turn it over to John.

Thanks, Brian. This marks my 1-year anniversary of conference calls in my IR role. So Brian asked me to give a new fun fact about myself. Last year, I noted that I was an assistant coach for a third-grade basketball team, and I'm happy to let you know that I was promoted from the role of assistant to the head coach to a full assistant coach this year. And I moved up the ladder to fourth-grade basketball. Turning to Slide 18, you can see our 2026 full year earnings guidance and key operating metrics. This guidance assumes normal weather throughout 2026 and normal power supply expenses. We expect IDACORP's diluted earnings per share this year to be in the range of $6.25 to $6.45. The midpoint of this range reflects an 8% EPS growth rate over 2025 actual results, premised on what we would consider a conservative set of assumptions. We expect that Idaho Power will use less than $30 million of additional investment tax credit amortization in 2026, so less than the amount in 2025. We expect full year O&M expense to be in the range of $525 million to $535 million. And I'd like to provide some context on that range. The largest driver of the increase over the prior year is wildfire mitigation costs, which are offset by revenues from the general rate case. So it's not an apples-to-apples comparison between 2025 actuals and the 2026 estimate. As we continue to expand our system to accommodate growth, we do expect to also see higher O&M expense. We also continue to experience inflationary pressure on labor and professional services, but our culture of spending wisely to help ensure affordability for our customers is very much intact. We continue to focus on keeping costs as low as possible while keeping the system safe and reliable. We anticipate spending between $1.3 billion and $1.5 billion on CapEx in 2026. As the 5-year forecast showed, we continue to expect higher CapEx numbers as we respond to strong growth in our service area. Finally, given our current forecast of hydropower operating conditions, we expect hydropower generation to be within the range of 5.5 million to 7.5 million megawatt hours for the year. With that, we're happy to address any questions you might have.

Your first question comes from David Arcaro of Morgan Stanley.

Look, I was wondering if you could give an update on maybe your customer load pipeline. What are the latest discussions you're having in terms of either expansions of current large load customers? And how is the pipeline shaping up for new companies coming into your service territory?

We certainly continue to receive a lot of inquiries from various industries, with interest coming from both small and large companies. It's not limited to just one sector. I'll let Adam provide more details. Additionally, we are bound by non-disclosure agreements, so there are certain topics we cannot discuss.

Yes, I feel like I keep repeating myself, but the inquiries remain strong. They come from a variety of sectors, including data centers and manufacturing. For instance, we have a data center interested in a service area with a conditional use permit called Diode, which is located in the Gemstone Technology Park. Additionally, the Idaho National Lab is expanding, and Perpetua, a mine in the north, is looking to commence operations there. Overall, the situation is quite positive. However, many of these discussions are confidential, so I can't provide more specifics, but I believe the growth looks strong.

And David, just one thing I'll add is the last time you've seen a formal load growth update from us was associated with the 2025 IRP. So that was from quite some time ago. We do plan to update that the load growth at some point during the year, usually towards the end. But there's a lot of customers that we've talked about that just aren't in that 8.3% load growth update or load growth number that we have out there as of right now. We should see an update later this year.

And maybe I'll add that of those customers, a lot of them aren't just inquiries. They're actually doing construction studies and generation studies. We have energy service agreements that we're looking at for a fair amount of megawatts. So when we talk about inquiries, a lot of times it goes beyond just people kind of touching and feeling and actually going to the next stage of looking at what it looks like to come to our service territory.

Got it. I appreciate that information. That's helpful. I wanted to ask about the equity needs side of things with the refresh. There may be a couple of moving pieces, but I was wondering if you could give a sense of what the general guideline would be regarding incremental CapEx. How do you view the funding split in terms of external equity from our current position, considering your latest outlook on operating cash flow? Additionally, I was curious if there are any repair tax impacts from the guidance provided.

Yes, David, on the repairs tax side, our forecast assumptions usually remain stable. They do change occasionally each year, but there hasn’t been a significant update in our repairs tax deduction. Regarding equity needs, any additional CapEx that we incorporate into the forecast is likely financed with a 50-50 debt equity split, at least beyond our current situation and the update we shared this morning. However, many large load customers also bring in substantial cash flow, which can affect our needs. The equity figure in our estimate currently includes conservative assumptions about expected cash flow. If you examine the increase in cash flow in the bar chart comparing February of last year to this year, you'll notice some changes, which are meant to cover a significant amount of CapEx we’re forecasting. Therefore, some adjustments in that chart stem from the cash available on the balance sheet and the timing of our forward drawdowns from equity programs. This can skew year-over-year comparisons on equity needs. So, the numbers do fluctuate with cash flows and could be influenced by factors like the sale of the Oregon territory. There are several elements that can affect the equity figure, and I would characterize it as relatively conservative at this stage. Thus, the 50-50 debt equity split may also be seen as a cautious approach to how we assess our equity needs moving forward.

Your next question comes from the line of Michael Lonegan of Barclays.

So obviously, you mentioned your current capital plan does not include Micron Fab 2. Would you be able to help us understand the size of that investment opportunity in the latter part of your plan?

We're just working with Micron to determine that. So we don't have anything to share in terms of size today. So more to come as we work our way through the path.

Yes, Michael, this is Adam. They haven't given publicly a load ramp. The size of their first fab is public, but they haven't come out with the second fab yet. So when we are able to share that, we will.

Okay, great. And then secondly for me, obviously, a sizable CapEx increase with today's update, modest increase in equity content needs. You're on track for significant cash flow generation increases, like you said, with the large customer ramp-ups. Just wondering, where did you end 2025 on FFO to debt? And where do you anticipate being over the course of your plan? And do you think there's an opportunity for Moody's to take your rating off negative watch?

Yes, thank you for the question. I believe there is an opportunity for that, although we have made a substantial capital investment. We are maintaining a very strong balance sheet, which is balanced 50-50, and this has been favorable from a rating agency perspective. By the end of 2025, we were about 14.3% at Idaho Power according to Moody's, and just below 14% on S&P for funds from operations to debt. Our threshold for Moody's is 13% and for S&P is 14%, so we are currently at that floor level. We anticipate moving beyond this with revenues from large loads and the cash flows to support it while keeping a strong balance sheet. The outcomes of our rate cases, particularly the one in 2025, will positively impact our credit metrics in 2026. I expect we will be at or near those levels again in 2026 before gradually improving from there. Typically, we perform better than our internal forecasts, which I believe Moody's and S&P recognize. We plan to meet with them in March to discuss future directions. Additionally, we don't have holding company debt, and there are no exotic items on our balance sheet. We also don’t have any upcoming maturities until 2030, except for a $160 million pollution control revenue bond that we need to refinance this year. Overall, our balance sheet is very strong, and I think the rating agencies will acknowledge that.

Your next question comes from the line of Shar Pourreza of Wells Fargo.

This is Whitney Mutalemwa on for Shar. You currently have precedents for large load arrangements, including a certain tariff tied to tariff Schedule 33 related to a special contract. Do you anticipate transitioning to a standardized large load tariff instead of negotiating special contracts on a case-by-case basis? If so, what would influence that decision?

At this point, we don't have plans for that. Each customer really comes with their own unique needs. And so we really try to make sure that we understand them and meet them. So they really are tariffs of one, if you will, that are very catered to the customer.

That's correct. Yes. Nothing in the near term from our perspective.

Your next question comes from the line of Julien Dumoulin-Smith of Jefferies.

Yes, Brian Russo on for Julien. You mentioned the downward slope in CapEx in the outer years and you take a conservative approach to what you include. What could be upside there? Is there anything left on the '28 and '29 RFPs that would be additive? Or is this, say, another RFP that would be needed for the post-2030 time frame?

Yes, Brian, this is Adam. We are considering a request for proposals in the post-2031, '32 period. As you know, we previously had one for 2028 and another for 2029. The RFP for 2029 and beyond primarily focused on a natural gas project, which you’ve heard us discuss that is currently under construction. We are actually advancing that project to 2028. Therefore, as we assess 2029 and 2030, we will need to explore options to enhance power production during that time, and we aim to provide you with an update soon. Lisa mentioned in her opening comments that we do have some possibilities, and those will be made public in the near future.

Right. Is one of those options brownfield development, I think it's Peregrine...

Yes, Peregrine 1, yes, absolutely. We have an energy site there. And just as a quick reminder, too, we don't have any generation resources for Micron Fab 2. Fab 2 is not in the load resource balance nor is Diode. So you would see additional CapEx there as long as well as additional generation resources to meet that growth.

Okay, great. And then the less than $30 million ADITC usage in '26, notable, as you mentioned earlier. Would that be like the inflection? Or with the likely stay out this year of filing a rate case, how should we look at post-2026 support for earnings?

Certainly, as the large loads begin to come online, we're starting to see those revenues help reduce the need for rate cases and hopefully decrease the reliance on ADITCs. So far, we're on track, and we feel optimistic. While I wouldn't necessarily label this as an inflection point, we are beginning to see some of that revenue coming in.

And Brian, I would like to highlight that one way to approach this is by examining the rate base growth slide discussed during the call. You can observe that there is substantial rate base growth in 2026 and 2027. However, looking ahead to 2028, there is significant anticipated growth. The company will continue to generate earnings from the rate base over time, in addition to large load customers. We are at a juncture where we need to evaluate each year which outcome is more favorable.

Okay. And then just lastly, obviously, not surprising the assumption on the hydropower forecast. But could you just talk more or just share some thoughts on what the current hydro conditions are and drought conditions, understanding that you've got very strong mechanisms, but I'm just curious with the dynamic with irrigation sales as we move into the spring. I mean, is there a high probability of a dry and hot irrigation season?

It's quite interesting. If you're skiing out west, this winter has been somewhat disappointing. However, our hydrologists indicate that on the east side of our system, we're at normal levels, which is where we generate most of our power since it flows through all our hydro resources. While there is less snow than in previous years at lower elevations, it's been quite wet this winter. This means that while the precipitation didn't always turn into snow, it helps keep the soils moist, allowing runoff from higher elevations to reach the river. Overall, we feel optimistic. Additionally, yesterday felt like Christmas here, as we're starting to experience some storms, so it's not over yet regarding snowpack accumulation. Living out west, we are accustomed to fluctuations and drought cycles. We have established mechanisms to adapt, and we prepare carefully for summer operations as we assess conditions for those seasons. Adam, do you have anything to add?

No, I agree. You covered it. I think the range reflects that. We've been much lower than that 5.5 over the last 5 years. I think in 2021 and 2022, we were below that 5.5 number. So we're actually feeling somewhat optimistic that it's higher than what you would think, and that's why the range is what it is.

Your next question comes from the line of Chris Ellinghaus of Siebert Williams Shank.

So if you're going to forgo the middle-year rate case for this year, would you expect to stay on a similar midyear cadence going forward?

Historically, that's been our rhythm, but we are always assessing our financial situation to make decisions accordingly. If there is a need to adjust the timing, we will do so. We do have an obligation to provide notice before we file, so we will inform people ahead of time. Tim, do you have anything to add?

Yes. Chris, this is Tim Tatum. The only thing I would add is, in the past, we have filed general rate cases in the fall, targeting a June 1 effective date. So we would have the opportunity there. We look at June 1 because that coincides with our annual power cost adjustment updates and our fixed cost adjustment update. So that's another time that we could look at to file. We'll keep monitoring and certainly only file if we absolutely have to, but that's a potential option as well.

The customer growth has been a bit more moderate in the second half of the year. Do you have a clearer understanding of what is impacting residential growth? Is it related to the interest rate environment or something else?

Those are always the key drivers. It seems there has been a bit more buying and selling activity recently. During the period when people were largely confined to their homes and interest rates were high, activity was somewhat stagnant. That situation appears to have eased, possibly because people have either adjusted to it or felt compelled to act for various reasons. Nevertheless, we continue to experience solid growth. While it's unclear what influences the fluctuations, we remain optimistic overall. Many subdivisions are in the planning stages or are already under construction, particularly large ones to the east and west. We're enthusiastic about this development, especially with major employers like Micron needing housing for their employees, which is significantly contributing to this growth.

Yes. I wanted to say, given the large new employers, is there going to be some lumpiness to what the residential customer growth looks like for the next 5 years?

It very well could. You know, it's never perfectly matched. So it looks like people are gearing up to provide housing for sure.

I don't have a specific number. I can show you the way I would look at it from a sales volume perspective. If you look at a 1.5% year-over-year sales growth on a weather-adjusted basis, it's 2.3%. So weather did certainly have its impact on the year. We had a great third quarter as a result of some of the, say, drier conditions and very hot conditions. But again, cooling degree days in both of the last two years were high and that impacted our sales. If you look at, say, November, December, they were very warm months. What I would note, though, is the FCA does have some impact on the outcome of that or the impact of weather on our results. But again, no, I would say there are parts of the year that were more moderate conditions that had an impact on those sales numbers.

Okay. Do you have an estimate for your large load growth for 2027 that mitigates the large CapEx and equity dilution and whatnot? Have you got an estimate for what 2027 looks like?

In terms of financing?

But we can tell you, Chris, that that's when a lot of that growth is going to start to ramp up when you're going to see a lot of these in-service dates for Micron and others. But I don't think we have an exact number unless you guys do.

No, we don't. We just have the 5-year CAGR out there as of now. And I think as we've mentioned, that number has been there for a while, somewhat more back-end loaded, but I would include 2027 as one of those larger ramp years, '25 or '26, '28, '29, and out into the 2030s actually being pretty significant ramp years for us.

Okay. I'm just checking because 2027 looks like a significant year based on my calculations. With the acceleration in capital expenditures, AFUDC, and the rate case, should we conclude that 2025 was the peak usage of ADITC?

I would say not necessarily. I wouldn't assume that. There's a few different factors that influence ADITC usage. One of them is just a book equity number at the end of the year is what the calculation is based on. So that's impactful. Other things can be what's the amount of depreciation and interest expense that's unrecovered that's not offset fully by AFUDC and whether or not we file rate cases is another aspect of that. So it's not linear in any given sense that ADITC usage would go down. What we're seeing this year, though, if you think about even into 2027, you could see something similar. It's a little too far out to know for now. But in the further out years, when you look at some of that rate base growth we've talked about, that does have to be financed. And with our hybrid test year or our historic test year, depending on how you want to look at it, there is a lag that sometimes has to be covered by ADITCs. And that's really why in the rate case, it was important to us to have that as an element of the settlement is to smooth out some of those years where ADITCs may be a little higher.

Sure. I don't see a significant decrease in the ROE that would necessitate a much larger figure compared to last year so far. Additionally, you've reduced the dividend payout target alongside the dividend increase in September. Can you share your thoughts on what you consider to be a minimum? Do you believe it's feasible to go below 50%? Is there a specific range you're aiming to maintain as a minimum or a minimum growth rate? Any insights on that would be appreciated.

We are constantly evaluating that. Our focus is on avoiding issuing equity to fund dividends and instead, the general agreement is that reinvesting in the company yields better returns. While we have a defined range, we approach this period flexibly and make recommendations to our Board that are sensible.

Your next question comes from the line of David Arcaro of Morgan Stanley.

Just one more that I wanted to check in with you on. I was wondering, just any thoughts on the prospect here for depreciation and interest expense tracker just going forward from a regulatory standpoint, whether that's something you might seek again in the future?

We have definitely considered this issue and discussed it. When we evaluated our forecast for this year, we determined that there is no immediate need for a rate case. However, we will monitor the situation closely since our large capital program has significant implications for our financials. We are interested in this matter and will continue to engage in discussions about it, although it’s not currently a priority for us.

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

Thank you once more for being with us today and for your ongoing interest in IDACORP and John's coaching career. We hope you all have a wonderful evening. Thank you.

This concludes today's conference call. You may now disconnect.