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Rating Action:

Moody's affirms Idaho Power at A3 and IDACORP at Baa1; outlooks stable

05 Feb 2018

New York, February 05, 2018 -- Moody's Investors Service, ("Moody's") today affirmed the ratings of Idaho Power Company (IPC), including its A3 Issuer rating, A1 senior secured rating, its P-2 short term rating for commercial paper and its VMIG 2 industrial revenue bond rating. Moody's affirmed the ratings of its parent company, IDACORP's (IDA) Baa1 Issuer rating and its P-2 short term rating for commercial paper. The outlooks of IPC and IDA are stable. IDA's credit profile is based primarily on its principal subsidiary, IPC, with one notch of structural subordination applied. IDA has no standalone long-term debt, but is an occasional issuer of commercial paper.

RATINGS RATIONALE

"Nearly 100% of IDACORP's revenue, assets and cash flow are derived from utility operations at Idaho Power. The low business risk profile, financial performance and credit profile of IDACORP's primary subsidiary are the most important factors supporting IDACORP's rating" said Robert Petrosino, Vice President/Senior Analyst. IDA's other operating subsidiaries are relatively small and include: IDACORP Financial Services, an investor in affordable housing projects and other real estate investments; and Ida-West Energy, an operator of nine small hydro-electric generation projects that satisfy the requirements of the Public Utility Regulatory Policies Act of 1978.

IPC enjoys a constructive regulatory environment and a unique asset base that largely mitigate the utility's weaker relative cash flow metrics, including CFO pre-WC to debt consistently in the mid-to-high teens. This compares poorly to A3-rated vertically integrated peers, which typically produce between 20% and 25% CFO pre-WC to debt. IPC does not fully benefit from tax deferrals as they are flowed back to customers in rates, and has a longer depreciable asset life given its hydro generation centric asset base, both of which contribute to the relative weakness in CFO metrics.

Nevertheless, given the predictability of IPC's financial profile and the above average regulatory support in Idaho, we see a high degree of credit stability. IPC's financial and regulatory consistency support the A3 rating, compared to peers that have a higher degree of risk in regulatory decisions or increased financial volatility. The cooperative regulatory environment that the IPUC maintains helps to lower IPC's business risk, as the suite of cost recovery provisions allowed is above average compared to the other states across the US. These mechanisms provide certainty to cash flow generation in any given year, with variances typically due to hydro or weather conditions that average out over time.

In addition to the commodity and conservation trackers, and decoupling, IPC is currently operating under a settlement stipulation through 2019. The settlement is a significant credit positive, since it allows IPC to amortize additional accumulated deferred investment tax credits (ADITC) in an aggregate amount up to $45 million should its return on equity (ROE) fall below 9.5% in its Idaho jurisdiction. This essentially provides an earnings floor level for IPC. Assuming the $45 million availability is not exhausted, this enhances the predictability of IPC's earnings and cash flow for the three year term of the settlement. However, IPC has not needed to use ADITC amortization to meet its 9.5% ROE since the settlement was enacted.

In May 2017, IPC received approval to accelerate rate base recovery related to its ownership interests in the North Valmy coal plant. IPC expects to end participation in the North Valmy plant by 2025.

In December 2017, IPC filed with its Idaho regulators for approval of a stipulation of settlement related to the expenses incurred in the re-licensing process of its Hells Canyon Hydro-electric Complex (HCC). The company is seeking a prudence determination on $216.5 million to be included in customer rates in the future. HCC has 1,167 MWs of generation capacity, representing 34% of IPC's total capacity. The company has been collecting $6.5 million annually in AFUDC related to HCC's relicensing. When a relicensed HCC is moved into rate base, IPC's hydro generation will represent a value of approximately $600/kw. IPC expects a new 40 to 50 year license no earlier than 2021.

IPC is experiencing good growth across customer classes driven by its nation leading population growth in Idaho as well as by attracting new business and existing business expansion. The state and its cities are experiencing population growth as existing companies expand operations and new companies open their doors in IPC's service territory.

IPC's generation resources are sufficient to meet the company growing load profile. IPC's 2017 Integrated Resource Plan does not call for any additional generation resources over the near to intermediate term with no resource needs prior to 2026. Longer term planning needs are largely expected to be met by the mid-2020s expected in-service date of its Boardman to Hemingway (B2H) transmission line, currently in development with minor permitting approvals remaining.

We expect a gradual absolute and relative improvement in IPC's financial profile. A consistent capital plan which averages $300 million annually over the next few years has largely been funded with cash flow. IDA has achieved steady dividend growth and its payout is commensurate with the industry and peers.

Rating Outlook

IDA's stable outlook is substantially driven by the outlook of IPC. IPC's stable rating outlook reflects a very supportive regulatory environment that offers timely cost recovery and constructive rate making policies, providing very consistent and predictable cash flow.

Factors that Could Lead to an Upgrade

IDA's rating would likely be upgraded with the upgrade of IPC. The rating of IPC could be upgraded if key credit metrics improve such that cash flow from operations pre-working capital (CFO pre-WC) to debt approaches mid 20% percent on a sustained basis.

Factors that Could Lead to a Downgrade

IDA's rating would likely be downgraded with the downgrade of IPC. IPC could be downgraded if financial metrics were to weaken, such that CFO pre-WC to debt persists below the high teens. Additionally, IPC's rating could be downgraded if the company were to experience a decline in the level of regulatory support for its operating or capital expenditures.

Outlook Actions:

..Issuer: IDACORP, Inc.

....Outlook, Remains Stable

..Issuer: Idaho Power Company

....Outlook, Remains Stable

Affirmations:

..Issuer: American Falls Reservoir District, ID

....Senior Unsecured Revenue Bonds, Affirmed A3

....Senior Unsecured Revenue Bonds, Affirmed VMIG 2

..Issuer: Humboldt (County of) NV

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: IDACORP, Inc.

.... Issuer Rating, Affirmed Baa1

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Idaho Power Company

.... Commercial Paper, Affirmed P-2

.... Issuer Rating, Affirmed A3

....Senior Secured First Mortgage Bonds, Affirmed A1

....Senior Secured Regular Bond/Debenture, Affirmed A1

....Underlying Senior Secured Regular Bond/Debenture, Affirmed A1

..Issuer: Morrow (Port of) OR

....Senior Unsecured Revenue Bonds, Affirmed A3

....Senior Unsecured Revenue Bonds, Affirmed VMIG 2

..Issuer: Sweetwater (County of) WY

....Senior Secured Revenue Bonds, Affirmed A1

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Robert Petrosino
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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