IDACORP Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

Key Takeaways

  • IDACORP reported Q3 EPS of $2.12 vs $2.07 last year and raised its full-year 2024 earnings guidance to $5.35–$5.45 per share while expecting to use only $25–$35 million of tax credits.
  • The utility saw record system peaks amid Boise’s second-hottest summer, drove 2.6% customer growth (2.9% in residential) and forecasted a preliminary 5-year retail sales growth rate of 7.7% annually, even before accounting for two large potential industrial loads.
  • To meet rising demand, IDACORP has contracted for new wind, solar and battery capacity—highlighted by a 300 MW company-owned wind project—and launched all-source RFPs for resources in 2028-29, alongside major transmission upgrades.
  • The 5-year capital forecast jumped 46% (about $1.8 billion) through 2028—boosting the rate base CAGR to 16.9% and effectively doubling rate base—while leveraging a regulatory framework requiring new large customers to pre-fund dedicated infrastructure and ensuring rates remain affordable.
  • IDACORP plans to finance its growth with a balanced 50/50 debt-equity mix—targeting ~$1.3 billion of equity and ~$2 billion of debt through 2028—and will pursue frequent rate cases to align revenue recovery with asset in-service dates and support strong earnings growth.
AI Generated. May Contain Errors.
Earnings Conference Call
IDACORP Q3 2024
00:00 / 00:00

There are 9 speakers on the call.

Operator

I will now turn the call over to Amy Shaw, Vice President of Finance, Compliance and Risk.

Speaker 1

Thank you. Good afternoon, everyone. We appreciate you joining our call. This morning, we issued and posted to IDACORC's Web site our Q3 2024 earnings release and Form 10 Q. The slides we'll reference during today's call are available on IDACORP's Web site.

Speaker 1

As noted on Slide 2, our discussion today includes forward looking statements, including earnings guidance, spending forecasts, regulatory plans and actions, financing plans 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. Our cautionary note on forward looking statements and various risk factors are included in more details for your review in our filings with the Securities and Exchange Commission. As shown on Slide 3, we have Lisa Growe, 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 and A session following our prepared remarks.

Speaker 1

Slide 4 shows a summary of our financial results. IDACORP's Q3 2024 diluted earnings per share were $2.12 compared to $2.07 for last year's Q3. In the Q3 of this year, we recorded $2,500,000 of additional tax credit amortization under the Idaho regulatory stipulation, but recorded no additional ADITC amortization during the same period last year. Earnings per diluted share were $4.82 for the 1st 9 months of this year compared with $4.53 for the same period last year. Those results include additional tax credit amortization of $22,500,000 through Q3 of 2024 compared to $7,500,000 for the same period last year.

Speaker 1

Today, we updated certain key metrics and guidance for 2024. We increased the lower end of our previously reported full year 2024 earnings guidance to a range of $5.35 to $5.45 per diluted share. Our expectation of additional tax credit Idaho Power plans to use to support earnings also improved to a range of $25,000,000 to $35,000,000 We're pleased to see our strong operating performance reduce our full year estimate on tax credit usage again this quarter, preserving credits for the future. 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

Speaker 2

to Lisa. Thanks, Amy, and thanks to everyone for joining us on Halloween. We have a treat for you today. I want to begin by acknowledging the incredible work our employees have done during very hot and busy Q3. According to the National Weather Service, 2024 was Boise's 2nd hottest summer on record.

Speaker 2

When coupled with the robust customer growth in our service area, the demand for energy continues to grow. We set a new record system peak of 3,793 Megawatts on July 22 and we also hit new record monthly peaks in August September. Our ability to maintain reliable service for our customers during the hot summer months is a testament to our innovative, resilient and hardworking employees. Despite its challenges, the hot weather led to strong energy sales, which Brian will provide more color on during his remarks. The hot dry conditions led to an active wildfire season across the West, including in our service area.

Speaker 2

On the prevention side, as I mentioned during our last earnings call, we had our 1st public safety power shutoff event this summer, enacting the plans we've had in place for several years. A PSPS is one of our many wildfire mitigation efforts and we continue to mature and implement our wildfire mitigation plan to help keep our communities and our system safe. We're still experiencing strong customer growth and economic expansion across Idaho Power service area as you can see on Slide 5. Our customer base has grown 2.6% since last year's Q3, including 2.9% for residential customers. We now serve more than 640,000 customers across Southern Idaho and Eastern Oregon.

Speaker 2

Many of our commercial and industrial customer segments increased their usage compared to 2023, including year to date growth of 15% for manufacturing, 12% for food processing, 8% for sugar production and 5% for dairy. We see sustained interest from large load customers evaluating Idaho Power service area. As we prepare for our 2025 IRP, the preliminary 5 year forecast for our retail sales growth rate is 7.7% annually. That's a notable increase from the already significant 5.5 percent growth rate we had in our 2023 IRP. This updated rate doesn't include the load for 2 prospective energy intensive projects for which we recently completed and delivered detailed construction and generation studies.

Speaker 2

We're working with these prospective customers to determine whether they intend to move forward with construction of their facilities. If either were to take that step, these projects would represent another significant increase in industrial load on our system, likely increasing the 7.7% rate. Additionally, our customer pipeline includes a robust mix of data centers, manufacturing, food processing, distribution, warehousing and cold storage projects. We've also experienced an uptick of biodigester projects partnering with our local dairy customers and we're engaged with several proposed large scale residential developments intended to serve growing workforce needs in Southern Idaho. As our service area grows and energy demand increases, we're working to secure additional resources to meet current and future needs.

Speaker 2

Turning to Slide 6, as part of our RFP process, we have selected several wind, solar and battery projects along with several power purchase arrangements to meet projected load deficits through 2027. Notably, we're under contract to purchase and own a 300 Megawatt Wind Generation Facility, which would become Idaho Power's first company owned wind project. Brian will touch on how these additional projects have impacted our CapEx plans in a bit. As we look beyond 2027, we've initiated an all source RFP for resource needs in 20282029. Along with our important transmission projects, new dispatchable resources will be part of the solution as we work hard to find a balance of lease cost, lease risk resources to serve our customers.

Speaker 2

Turning to Slide 7, I'll address our regulatory cases in Idaho and Oregon. The Oregon Commission approved our general rate case settlement in September, resulting in an overall base revenue increase of $6,700,000 or around 12% for Oregon customers effective October 15. This was our first general rate case in Oregon since 2011, driven primarily by the significant infrastructure investments we've made since then to serve our customers safely and reliably. In Idaho, we've requested an increase of $99,000,000 or 7.3% through a limited scope case we filed in late May to focus on recovering period end infrastructure investments through 2024 as well as our increased labor expenses. We're making our way through that proceeding and expect to go to case expect the case to go to hearings in December.

Speaker 2

We have requested new rates to be effective on January 1, pending approval from the Idaho Commission. I'll close with a look at hydropower conditions. As we head into winter, our outlook remains good. We're hopeful this winter snowpack will further bolster hydro conditions as we head into 2025. And if you look out our windows from our offices, there's some nice snow at the top of those mountains.

Speaker 2

As I mentioned last quarter, our multi year efforts to refurbish our hydro fleet were critical this summer. Those resources were key in helping us serve and balance load during the hot high demand summer months. As you can see, we have work to do to continue to provide our customers with safe, reliable, affordable and increasingly clean electricity in these exciting times. And we're up to the challenge. With that, I'll turn the time over to Brian.

Speaker 3

Thanks, Lisa. I have a relatively lengthy update, so I apologize for those of you getting ready to trick or treat. But I'd say today isn't your average conference call. We want to give you a more comprehensive update. And then we also look forward to following up with you in discussions during the upcoming EEI Financial Conference.

Speaker 3

So I'm going to start on Slide 8, our reconciliation of the 3rd quarter's results. IDH Corp's net income increased $8,300,000 for the Q3 of this year versus last year. That was due to higher net income at Idaho Power from this year's increase in Idaho base rates and from customer growth of 2.6% over the past 12 months. Higher usage for retail customer, particularly from residential and irrigation customers also benefited the quarter. Total other O and M expenses increased $20,300,000 in the 3rd quarter.

Speaker 3

That's in part from $4,000,000 of increased pension related expenses and $6,000,000 of increased wildfire mitigation and related insurance expenses during the quarter. Those costs were partially offset by increases in retail revenues because they were included in the last Idaho rate case for recovery through base rates. Inflationary pressures on labor related costs also contributed to the increase in other O and M expenses. Depreciation expense increased $5,600,000 for the quarter. We expected that increase from the system investments we've made to meet growing customer needs and to maintain system reliability.

Speaker 3

Other net changes in operating revenues and expenses increased operating income by $3,300,000 That was mostly due to a decrease in net power supply expenses that weren't deferred for future recovery and rates due to power cost adjustment mechanisms. And on a net basis, non operating expenses decreased $2,400,000 in the 3rd quarter from a combination of increased AFUDC from a higher construction work in progress balance and increased interest income from higher interest rates on cash. Those increases were partially offset by an increase in interest expense on long term debt as you might expect. The increase in income tax expense shown in the table was mostly the result of higher income before income taxes, partially offset by an increase in additional ADITC amortization compared to last year's Q3. Turning to Slide 9.

Speaker 3

Cash flow from operations improved substantially from last year. That's close to a net $300,000,000 comparative increase. The June 2023 power supply cost rate change and the revenue benefit of the January 2024 rate changes from the Idaho general rate case and a notable moderation in power supply costs all combined to help with a significant improvement in cash flow. Okay. With that, I want to spend the rest of my time on some important updates that we have.

Speaker 3

As Lisa noted, our 2025 IRP's preliminary 5 year forecast for annual retail sales growth rate is 7.7%, which is obviously substantial. And I'm going to reiterate the point that the 7.7% doesn't include loads from the 2 potential energy intensive customers that Lisa mentioned nor does it include any sort of estimated sign on rate for the remaining several gigawatts of prospective customers that are in our pipeline. So looking out over the next few years of load additions, there's still potential upside on that rate of load growth. That customer growth inevitably results in additional CapEx. In February of this year, we increased our 5 year capital forecast by 21% from our February 2023 5 year CapEx estimates.

Speaker 3

And we mentioned there was some upside potential in that. And that February increase resulted from a lot of different things like project cost updates and time to get new resources, but it didn't include results from our 2026 and 2027 RFPs. So we've largely made our way through those RFPs and we've updated CapEx estimates for our projects from 2024 through 2028. And the updated CapEx estimates are on slide 10. I think you'll agree they're substantial.

Speaker 3

These updates include 2 particularly sizable projects, the 200 megawatts of company owned batteries for 2026 and the 300 megawatt owned wind project in Wyoming that Lisa mentioned. And combined in terms of dollars for those two projects and some interconnection infrastructure for them, that's always over $1,000,000,000 of incremental CapEx through 2028, including our estimate of AFUDC for just those two projects. The payment timing and construction windows move around, so we'll plan to update this slide again in February and add in 2029 as our usual cadence for CapEx updates. We're providing this update today because of the magnitude of the increase. All in, our total CapEx increase from our February estimate this year to our current estimate is about 46%, which is $1,800,000,000 in incremental capital.

Speaker 3

We're not necessarily done yet. As Lisa noted, we have RFPs outstanding for resources in 20 28 and beyond. They're all resource RFPs and Idaho Power has submitted its proposed company owned projects into the process. Any potential wins from those RFPs are not yet in our CapEx forecast and we're several months out from knowing even the shortlist in that process. Also excluded as of now are the incremental capacity in energy resources we may need to serve either of the 2 large industrial customers that Lisa and I mentioned.

Speaker 3

I think it's important to remember that we're building to serve our growing customers. It's not optional work. As a vertically integrated utility, it's our obligation to serve existing and new customers reliably and that's why we're building this infrastructure. IDACORP is a different company than it was even a couple of years ago and I'll say it's an exciting place to be. It isn't enough to build the needed infrastructure.

Speaker 3

We're also charged with converting that CapEx into rate base through the regulatory process to keep the utility financially healthy. Our estimated rate base CAGR was 10.8% in our last refresh in February and that was based on our prior CapEx estimates. On slide 11, you can see our updated rate base CAGR forecast of 16.9% with the latest CapEx forecast. Based on our estimated in service dates and assuming timely inclusion of the new CapEx in rates. If you look at the chart, we're effectively expecting to double our net rate base on a 5 year period from where it was when we filed our 2023 Idaho general rate case.

Speaker 3

I'm not sure we've seen that organically in our industry before, at least not in the last few decades. Although we did look back and Idaho Power did it in the late 1950s with the construction of 2 portions of the Hells Canyon Complex. So there is at least precedent for that doubling. One common question we've received is how can we keep rates affordable for customers with that level of CapEx and rate based growth? And on affordability, we're in a good position with our regulatory and service area formula.

Speaker 3

We start with lower rates of around 20% to 30% below the national average. Related to that, Idaho's growth pace for growth regulatory approach will also help accommodate the additional rate base. New large load customers pay upfront for certain infrastructure that directly serves them, like a transmission intertie or a dedicated substation. After that, those new large load customers are required to pay through their special contract a load ratio share of incremental system resources that come out of our generation and construction studies. This is under the base premise that the infrastructure development we undertake for our large new customers shouldn't harm our existing customers.

Speaker 3

With our growth, we're also fortunate to have an expanding denominator of customers, including new and expanding industrial customers with individual special contracts based on the cost to serve them to absorb rate increases. Also, much of what we're constructing are long lived assets, which reduces the magnitude of recovery of depreciation and rates. And I'll say last, I'll mention our culture of keeping operations efficient and a track record of continuing to manage O and M expenses also helps with rates. Ultimately, with each of those aspects of our service area and regulatory framework, our expectation is that we'll be in front of our regulator frequently, but with reasonable rate requests for our existing customers with the new and expanding larger special contract customers providing cash flows for much of the infrastructure we'll construct for them. Our customers, our owners, our cost of capital and economic development in our service area all benefit from this thoughtful regulatory framework.

Speaker 3

A continued thoughtful and constructive regulatory framework is an important aspect of our value proposition and important to our attracting capital that helps us in our service area prosper. Another area I want to cover is the financing plan for our CapEx. Like we've said before, we'll need growth capital and it's going to be a blend of debt and equity. We intend to keep our capital ratio around 50% equity and debt and that's a really important metric for us. We have a strong balance sheet now and we intend to keep it that way through this cycle.

Speaker 3

Turning to slide 12, the amount of external financing we estimate we need for 2025 through 2028 is about $1,300,000,000 in equity and about $2,000,000,000 in debt. And this is just the amount for the next 4 years and we plan to update it when we build 2029 into the forecast for our February call. We've already financed our needs for 2024. And at this point, we expect to see a step down in the run rate of our external capital needs further out when cash flow from including CapEx and rate base helps. Lots of factors influence how much external financing we'll need and when and even the blend of debt and equity in any given year or overall.

Speaker 3

And it's a litany of things. I'll call out a few like project in service dates, capital spend, the timing of regulatory recovery and the resulting cash flows, payment timing on major projects, maintaining our debt equity ratio on our credit metrics and capital market conditions, so quite a few different factors. Because of all those factors, I wouldn't assume our debt or equity issuance amounts are consistent each year or that they're necessarily proportionate in any given year. As I noted before, our operating cash flow this year has improved substantially over a low cash flow year last year and we expect the cash flow increase will help lower our financing needs going forward. In terms of the nature of our financing, we have lots of tools available in the toolbox.

Speaker 3

For equity, we have an ATM program on file already, and that's our preferred method for raising equity given the cost and efficiency. We could potentially use the current and subsequent ATM programs to fund a considerable amount of our equity needs over the next 4 years. Historically, we've been conservative and simple in our financing approaches We've had good reception in the capital markets. Simplicity in maintaining a solid and understandable balance sheet has been beneficial to the company. We've seen hybrids and mandatory convertibles and other instruments be more in vogue in our industry.

Speaker 3

That's not necessarily off the table, though it's not our first choice. We don't have any holding company debt and it's not our preference to take that route either, though again it's not necessarily off the table. We'll focus on the right financing at the right time. Next up, as we continue our infrastructure build out, our cadence on regulatory proceedings will be more frequent than you've seen in the last decade. You've seen the impact of regulatory lag in our results this year, which we expected.

Speaker 3

2023 general rate case in Idaho was a traditional case with a historic or arguably hybrid test year, which created that regulatory lag. So in our 2024 Idaho case filed at the end of May, we focused on requesting a period end rate base. The idea was to alleviate some of the regulatory lag that results from a historic test year methodology. Going forward with continued high levels of CapEx, we still anticipate filing rate cases on a frequent basis. These could take the form of general rate cases, limited scope cases, multiyear approaches, one off recoveries of major projects, different types of avenues, all in an effort to match the timing of our collection through rates more closely with when assets are in service and serving our customers.

Speaker 3

So what does all this mean for potential earnings growth? We think our estimated rate base growth rate is an opportunity for the current future share owners and bondholders who are supporting our growth, those who are providing growth capital for our business. If you start with our rate base growth as the baseline for estimating potential future earnings, there's an aspect of structural lag to remove, but it's typically relatively small and consistent because we're thoughtful spenders and we've kept our business model core and simple. Another factor is regulatory lag, which can change from year to year, but typically works out over time. The dilution from equity issuances to fund the growth is the other item to consider in the equation.

Speaker 3

Taking all of those factors into account, we'd expect to see what we believe will be among the leading earnings growth and earnings quality profiles in the industry. It's not necessarily linear growth, of course, particularly as we build infrastructure ahead of the time revenues from use of that infrastructure comes in the door. But the infrastructure that we're building for our current and future customers represents a considerable amount of earnings horsepower. So to summarize all this, we have a level of customer growth ahead of us that creates an infrastructure need that would both excite and challenge even the nerdiest of electrical engineers. This growth represents a tremendous opportunity for our company, for our owners and for our service area and its economy.

Speaker 3

We're also focused on affordability for our customers and have what we believe to be a formula to keep rates affordable. And we'll of course need, as we've mentioned before, accretive growth capital. That's not necessarily imminently, but it will be in combination with our plan for regulatory actions that increase cash flow, support our balance sheet and help reduce those financing needs over time. Our plan, as you might expect, is to remain focused on maintaining our record of consistent execution in this scenario of rapid growth and infrastructure development and in what we expect to be a continued constructive regulatory environment. But to finally wrap up, I'll cover slide 13, which looks more near term and shows our updated full year earnings guidance and key operating metrics.

Speaker 3

After generally on plan start to the year in the Q1, we saw a notable improvement in our results in the 2nd 3rd quarters. From that, as Amy noted, we updated our expectation of IDECORP's earnings this year and also our ADITC usage expectations that you can see on the slide. We also tightened our hydro range as we move into the final quarter of the year. With that, we're happy to address questions. Again, thanks for listening on our lengthy Halloween Halloween update.

Speaker 3

We have a lot going on here at IDACORP. It's certainly been busy, but also a tremendous amount of fun. One might even call it a treat.

Operator

We are now ready to begin the question and answer session. Your first question comes from Alex Mortimer with Mizuho. Please go ahead.

Speaker 2

Hi, Alex.

Speaker 3

Hi, good afternoon.

Speaker 4

Good afternoon.

Speaker 5

Good afternoon. So

Speaker 4

just given the update, I just I understand there are some puts and takes given pending regulatory outcomes. But generally, do you expect to be earning maybe around your support level in the coming years? And then maybe tied into that, any thoughts on how we should view the trajectory of tax credit usage?

Speaker 3

Yes. Alex, this is Brian. So if you mean the base level, do you mean by the base level the ADITC earnings level?

Speaker 6

Yes, correct.

Speaker 3

Yes. So there we do expect there to be an element of regulatory lag going forward. But again, that regulatory lag should be relatively consistent year by year. So the amount of depreciation and interest expense that we would incur, even if we had a period end rate base, will cause some lag most likely in our earnings. That customer growth alone may not be adequate to cover.

Speaker 3

So from that basis, yes, it is possible that in the coming years, we could be earning at that base level that was set for the ADITC mechanism. Over time though, we would expect the inclusion of rate base in rates to eliminate the need to rely on the mechanism over time. And that's where the incremental significant earnings horsepower comes from. Understood. What was the second aspect of your question, Alex?

Speaker 4

Oh, and then just the trajectory of tax credit usage, but it sounds like that's also been answered. I actually just turning So we're

Speaker 3

assuming we do have a tax credit appetite, Alex. And so we will be using some of those credits for purposes of our returns, but we would expect there to be carryover balances. The amount in the mechanism right now is about $105,000,000 plus or minus. And we have an expectation, as you saw in our guidance, to use $25,000,000 to $35,000,000 of that this year.

Speaker 4

Understood. And then I guess you're continuing to add generation, but also continuing to raise your low growth expectations. So I guess how do you think about the scale maybe of your future generation needs above and beyond the current plan? And then maybe also how to view the split between dispatchable and intermittent resources going forward, just given the load profile of some of your customers, particularly the larger ones coming onto the system?

Speaker 2

Hi, Alex. This is Lisa. So I think it's important to add in the substantial amount of transmission that we're adding to the system as well. So it's not only generation assets that will help us meet the demand. But having said that, Adam, what would you add on retail?

Speaker 7

Yes. The transmission, Alex, this is Adam.

Speaker 3

Of course, we're going to add a fair amount

Speaker 7

of wind, solar and batteries. We're also converting our current coal fleet to gas both at Balmy's Falmi and at Bridger. In addition to that, Lisa mentioned that the SWIFT project is a project we're looking at. Gateway West is a project on the transmission side that we need to kind of move forward to accommodate some of this growth. And then of course B2H in 2027.

Speaker 7

In terms of dispatchable resources, as we go out for these RFPs, they're all resource RFPs, but our models are starting to show more and more the need for dispatchable resources, particularly in the winter time. And so you will see us in this IRP really start to focus in on that and see if that's needed for kind of the timeframe of 2019 through 2021.

Speaker 4

Great. Thank you so much. I'll leave it there and congrats on a great quarter.

Speaker 5

Thanks, Alex. Thank you.

Operator

Your next question comes from the line of Ross Fowler with Bank of America. Please go ahead.

Speaker 5

Afternoon, guys. Happy Halloween. So maybe just let me pull on a couple of threads here that you talked about on the earnings call. So the affordability one, right, let's talk through that a little bit, right? Your rate base growth CAGR is 17%.

Speaker 5

You're sort of doubling your rate base from where you were before. And you talked, Brian, about how you shouldn't think about a doubling of bills or rates because there's a lot of things that mitigate that back against that, right? So you have the depreciation that brings that in over time. Of course, you have all the industrials paying for what they're using on the grid. And that's really maybe the piece I want to explore because that volume growth of that industrial load seems very high, right, for your service territory.

Speaker 5

So what does that actually walk the residential bill increase back to in sort of a broad scope? Is that within the scope of inflation? Is it sort of mid single digits? Is it higher than that? Like what do you guys see as you put this plan through the regulatory process around those bill increases and that rate pressure for customers?

Speaker 3

Yes, Ross, great question. There's a lot that goes into that. And at the end of the day, what we're required to show in front of the commission as we get approval of special contracts for these large industrial customers is a so called no harm analysis. And in doing that, that's making sure that the infrastructure serving these new large industrial customers is being charged to those customers either in advance or over time in their rates. And so by doing that no arm analysis, you do end up with a lot of the incremental cost of resources being allocated towards those large industrial customers and covered by their revenue requirement.

Speaker 3

And so I don't have exact numbers for you, but residential rates that track more along the rate of inflation and the industrial rates coming up for those special contract customers on a cost to serve basis would generally be considerably higher than what you would see for residential customer. Right. So if I For residential and industrial.

Speaker 5

No. I got you, Brian. So if I thought about that and maybe another way, if I thought about the large CapEx program here and I sort of tried to figure out what was serving sort of those industrial customers, I could sort of take that aside and say, okay, I know where that is going from a rate perspective and then the rest is sort of just served the residential commercial and I think about that as the actual kind of rate pressure rate base math I would think of absent sort of volume growth in that dynamic, if that makes sense?

Speaker 3

That's a fair way to do that, Ross. I will say that as you look across what the CapEx increase is worth, a lot of the CapEx is to serve existing customers as well on a reliable basis. It will be spread over a larger denominator. But we're making upgrades and other system resources like the distribution system, for example, hardening of the system that benefit all customers and some of our transmission investment, for example, benefits all customers. And so that element of it as well will be allocated across the full customer base.

Speaker 3

But a very significant portion will be allocated to the customers that are causing the increase. One other thing I would mention is that for some of these customers, we have to build out say a substation specific to them or transmission intertied specific to them. Those costs don't get allocated across the system to any other customers. Those are dedicated specifically and paid upfront by the large industrial customer.

Speaker 5

Yes, that makes complete sense. And then as I think about you said you'd have to sort of I guess given the scale of the CapEx program, what do you you mentioned this a little bit in the call, but what is the tenor of rate cases here? Should I think about being in front of the regulator every year as you pretty significant capital program goes through? Or how are you thinking about that in terms of future rate case?

Speaker 2

Yes. I think that's a reasonable assumption just given we're trying to reduce the regulatory lag as we go through just record amounts of capital expenditures. So yes, I think that would be a reasonable assumption.

Speaker 3

One thing I would add, Ross, is we could do different arrangements. We could do, for example, a multiyear arrangement with the commission. That's not what's sitting in front of them right now. But because of the frequent need to be in front of the regulator and get rate changes to incorporate all of this CapEx and convert it to rate base, I mean, it will be serving these customers. So we do have to have a relatively frequent cadence.

Speaker 3

So we could be there on an annual basis or a mechanism that perhaps requires us to not be in every single year.

Speaker 5

That makes sense, Brian. And then I can't let you get away to go trick or treating without the earnings growth guidance question. I mean, you kind of triangulated a little bit for us in the call, but is there any thought process as to where you might win or you might get more specific on that?

Speaker 3

No, not at this point, Ross. We're just looking to execute well on our various projects. We have a lot going on and it's incumbent on management to get in and make sure we're converting that into rate base while it serves our customers. And that methodology that I talked about, starting with rate base growth and using equity dilution to help come up with a rough estimate is our best approach at this point.

Speaker 5

Okay, perfect. Thank you. Thank you.

Operator

Your next question comes from the line of Bill Apostoli with UBS Securities. Please go ahead.

Speaker 2

Hi, Bill.

Speaker 8

Hi, Bill.

Speaker 6

Hi, good afternoon.

Speaker 3

Just a couple

Speaker 6

of questions maybe building on one of Ross' last questions there on the earnings growth. So, I mean, right, you're talking nearly 17% rate base growth. And I guess, is this potentially moving higher when you include 29? I mean, or is that do we think we sort of peaked out here at this level? I guess that's one question.

Speaker 6

And then, I mean, yes, I mean, dollars 1,300,000,000 even if it's not going to be ratable, even sort of simplistically, that's 5% or 6% of the market cap, right? So I mean, you can sort of, to your point there, sort of back into a potential for double digit earnings growth over time. But I mean the second part of my question after the rate base part of it is, how lumpy should we expect it to be? I mean is there going to be periods where the lag is worse than others and will be catching up, So it's sort of not a linear growth, but it's going to be more soft tooth depending on the rate case outcomes and the cadence of cases?

Speaker 2

Yes. Starting with your last question, I would say that's certainly a possibility. We really are thoughtful about what we asked for in each rate case and we work through each one and that sort of indicates what we need to do think about in the next case. And then as far as the first part of your question, as we go beyond this forecast period, as we mentioned, there are additional loads and additional resources that are out there as potential. And we'll keep updating that forecast as we go through time and have more certainty on those.

Speaker 3

Yes. And Bill, what I would add to that is on that rate base growth percentage. So we would start with a higher base year on that and that will certainly impact the percentage growth. But the number would still be as we expect with 29 added still robust. And as Lisa mentioned, we're not done.

Speaker 3

There may be more additions there that we're not aware of as of yet and are waiting on the results of customers who have construction and generation studies that are in hand. What I would say on the lumpiness is if you look at the rate base slide that we put out there, you can see that there's a pretty significant amount of CapEx that converts to rate base at least based on our current estimates in 2027. So just even looking at the rate base forecast, you'd expect there to be some lumpiness in our earnings. And the regulatory lag part is difficult to estimate with projects that move around in terms of timing that can create lumpiness in our results. But again, this is CapEx that's being used to serve customers from a reliability perspective, not really optional.

Speaker 3

So as we're going into the regulatory arena, we have a lot of confidence in the capital we're converting into rate base. But yes, certainly not linear. And you can see the we put the quick conversion on that rate base growth forecast slide so you could see what we would expect to move in and out of rates based on project timing.

Speaker 6

Right. Okay. And then just to clarify on the RFP wins, the batteries and the wind, you'll be constructing that yourself, so you will get the quip. It's not a build on transfer kind of 1 shot deal?

Speaker 3

That's correct. So we'll be making payments on those. And because we'll be making payments, we'll be earning AFUDC on those assets. There are circumstances where paying at the end of a project is our preference, but these will be projects that have milestone payments.

Speaker 6

Okay. And then just lastly, on the credit metrics, can you just speak to the updated outlook there? I know you've been sort of tracking below the ultimate target, but given the pace of growth, I mean, do you feel like you're still trending upwards on the FFO targets? Or is this going to take you longer to get there now with this sort of another leg up of growth?

Speaker 3

Well, a lot of that's going to depend on the outcome of rate cases and whether or not we're successful in removing some of the regulatory lag. A regulator that understands the importance of the financial health of the utility is important in that regard to make sure that our cash flow metrics stay in a good spot and our credit metrics are good. You look at our plan, we plan to issue equity. We do plan to file frequent rate cases for cash collection. So getting cash sooner will help.

Speaker 3

Certainly seen that this year with a dramatic improvement in cash flow. As we look ahead on Moody's and S and P, there are circumstances where we sort of stay near our downgrade threshold where we are now. And it is possible it takes longer to get out. And that's part of why we filed our case in the Idaho Commission to reduce some of that regulatory lag that puts pressure on those credit metrics.

Speaker 6

Okay. All right, great. Thank you so much.

Speaker 5

Thank you.

Operator

Your next question comes from the line of Chris Illinghaus with SWS. Please go ahead.

Speaker 8

Hey, everybody. How are you? Hey, Chris. Congrats on the update. It's pretty exciting.

Speaker 8

Brian, you gave us a number in your financing slide for dividends. It sort of suggests that you're going to lag dividend growth based on sort of what I'm inferring on the earnings growth side. So can you give us a little thought on what you're thinking about dividend growth going forward?

Speaker 3

Yes, Chris. So what we did there is we looked at the dividend that we decided to pay in September and rolled that forward. So I wouldn't necessarily use that as a proxy of what we're going to do for the next 4 years because that can change based on our cash flow at any given time. So we made the decision with our Board in September to slow the rate of growth of the dividend down to reinvest that money in our business. And when that starts to pay more in cash flow, then we'll have the flexibility to increase our dividend payout.

Speaker 3

And over time, over the long term, get back towards that 60% to 70% payout ratio. But again, we've got in front of us what we think is a compelling growth story and we want to be able to capitalize on the dollars that we're getting to reinvest in the business.

Speaker 8

So are you thinking dividend growth will sort of be lockstep sort of lumpiness with earnings?

Speaker 3

Not necessarily. If you look at what we've done on our dividend growth since 2012, it has been relatively steady. We decided for now to slow the growth rate down. Once we've gone through the regulatory process and we have some of these projects in service and we're receiving revenues from our customers for some of the investment, we could accelerate the growth in the dividend. I wouldn't expect the dividend to track earnings necessarily every year.

Speaker 3

I would expect a more steady cadence in the increase in the dividend growth rate for the next few years.

Speaker 8

Okay, great. That's helpful. Something that seemed a little odd to me, the ADITC recognition for the quarter versus your guidance for the year, maybe I don't understand your process, but it would seem that as you move through the year, it's sort of natural for your ADITC recognition to sort of decline as you have a better view of the full year. So in the Q3, you get a really good picture of the year at that point. But your guidance sort of implies a bigger recognition in the Q4 and I don't quite understand why that would be.

Speaker 8

Can you give us a little thought there?

Speaker 3

So right now, we have 22,500,000 of ADITCs recorded. So if we end up at the end of the year with say 25,000,000 or 30,000,000 of ADITCs used, we'd record another quarter of $2,500,000 to $5,000,000 ADITCs. So last year, if you'll recall, we actually reversed them because our estimate for the year end change. This year we slowed the rate down because we will amortize off whatever we need in any given quarter to hit what we believe our year end target will be. And so that's why we recorded larger amounts in the first half of the year compared to what we recorded in the Q3.

Speaker 3

So we would expect on that cadence to record a small amount in the Q4 if everything continued as we planned. Okay. We had strong operating performance during the year. The Q1 was not as strong for us. 2nd and Q3 were stronger, which a lot of that operating performance allowed us to reduce that credit need going into the end of the year.

Speaker 2

I think it's also worth noting that in our 2023 rate case that we didn't put the battery in the revenue requirement instead of recognizing those ADITCs to sort of make up the difference as we go through these as a rate case going forward. So it's the way to keep rate flow for the customers. So that's a little bit different than previous years.

Speaker 8

Right. Thanks, Lisa. Another thing that seems a little odd to me in the quarter, looks like irrigation sales were only up 3.4%. Given the weather conditions that you had, which seemed pretty extreme,

Speaker 3

at least for agriculture purposes,

Speaker 8

give us a little color there? It seems like a pretty small increase year over year.

Speaker 2

Yes. So Chris, you have to think about what crops are in. They kind of had a late start given the cold spring. So we kind of saw disappointing results in that first part of the season. And then once they start cutting hay and those crops that come off a little bit early, it naturally drops in Q3 anyway.

Speaker 2

So overall, it's been a decent year for irrigation. It's just sort of the cadence of when they use and how much they use.

Speaker 8

Okay. One last thing. These additional large load potential customers, do you have any sense of when you may know about them?

Speaker 2

It's really up to them. Adam, what Yes.

Speaker 3

Hey, Chris.

Speaker 7

We delivered them their studies in October. The way these studies work, they generally provide kind of cost and timing information. We're waiting for a response. I'd hate to predict exactly when, but probably hope in the next couple of months to get a good feel for where they're headed.

Speaker 8

Okay, great. Thanks for the details. We'll see you soon.

Speaker 2

All right.

Speaker 5

We'll see you soon. Thanks, Chris.

Operator

That concludes the question and answer session for today. Ms. Glow, I will turn the conference back to you.

Speaker 2

Thank you. And thanks again to everybody for joining us today, especially given that it's Halloween. I hope you have a great evening and go out with your trick or treaters and hope there's lots of chocolate in their little baskets that you'll pretend you're not taking away from them when they're sleeping. So, we look forward to seeing many of you at EEI. And again, thank you for your continued interest in IDACOR.

Speaker 2

Thank you.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

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