Fitch Rates Idaho Power's Secured MTNs 'A-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to Idaho Power Company's (Idaho Power) $200 million issuance of secured medium term notes (MTNs). The MTNs are split into two tranches, with $100 million of 10-year, 3.40% first mortgage bonds due Nov. 1, 2020 and $100 million of 30-year, 4.85% first mortgage bonds due Aug. 15, 2040. The Rating Outlook is Stable.

Proceeds from the issuance will be used to pay at maturity Idaho Power's $120 million 6.60% first mortgage bonds due March 2, 2011 and to fund a portion of the utility's future capital requirements.

The issuance is expected to close later today.

Key ratings factors for Idaho Power and its parent, IDACORP, Inc. (IDACORP), include a balanced regulatory environment in Idaho, a low-cost hydroelectric generation fleet, and annual and seasonal volatility in hydroelectric generation output.

Several constructive regulatory actions by the Idaho Public Utilities Commission (IPUC) since the beginning of 2009 have lowered Idaho Power's operating risk and improved the company's financial performance. In 2009, the IPUC authorized the use of Idaho Power's operation plan power supply cost forecast, which should better match collections with actual net power supply costs. The IPUC also changed the Power Cost Adjustment (PCA) mechanism's sharing ratio for deviations in net power supply expenses to 95% for customers and 5% for shareholders, an improvement from 90% and 10%, respectively. This year, the IPUC adopted the proposed 2009 general rate case settlement agreement, which results in an increase in rate base and an increase in annual base net power supply costs, effective June 1, 2010. This brings power supply costs reflected in base rates closer to actual net power supply costs, which reduces the magnitude of future PCA adjustments. The settlement also permits Idaho Power to accelerate the amortization of its accumulated deferred investment tax credits in 2010 and 2011 if its actual Idaho jurisdictional rate of return remains below 9.5% (versus its authorized return on equity of 10.5%).

Idaho Power's 2010 base rate increase and its PCA mechanism should help mitigate the downside risk to financial performance, which is important given the volatility of hydroelectric generating conditions and its impact on earnings and cash flows. Snow pack last winter was below average, and, despite a rainy second quarter with improved streamflow, Fitch is expecting lower hydroelectric generation output this year relative to 2009.

The utility's other regulatory mechanisms - including the Fixed Cost Adjustment mechanism, energy efficiency rider, and trackers for pension funding and the advanced metering infrastructure project - allow for timely recovery of costs. In addition, the IPUC's pre-approval of construction costs related to the Langley Gulch combined cycle natural gas generating facility, which is expected to be in service by mid-2012, provides additional support for continued financial performance and stability commensurate with current ratings. The Langley Gulch plant is estimated to cost $427 million (including allowance for funds used during construction [AFUDC]), with its original estimate of $396.6 million approved for recovery and the balance subject to approval in a separate future rate proceeding.

Fitch expects IDACORP and Idaho Power to have funds from operations (FFO) interest and EBITDA interest coverage ratios of around 3.5 times (x)-4.0x and a FFO-to-debt ratio above 16% over the long term.

IDACORP and Idaho Power currently have the following ratings:

IDACORP

--Long-term Issuer Default Rating (IDR) 'BBB';

--Short-term IDR and commercial paper 'F2'.

Idaho Power

--Long-term IDR 'BBB';

--Senior secured debt 'A-';

--Senior unsecured debt 'BBB+';

--Short-term IDR and commercial paper 'F2'.

IDACORP is a holding company whose principal operating subsidiary and only reportable segment is Idaho Power, which accounts for roughly 95% of consolidated income from continuing operations. IDACORP's other subsidiaries include IDACORP Financial Services, Inc., which invests in affordable housing and other real estate, and Ida-West Energy Company, an operator of small hydroelectric generation projects.

Idaho Power is an integrated electric utility that serves approximately 490,000 customers in southern Idaho and eastern Oregon. Around 95% of revenue comes from customers in Idaho. More than 52% of Idaho Power's internal nameplate generating capacity is from hydroelectric generating facilities. Idaho Power is the parent of Idaho Energy Resources Co. (IERCo), a joint venturer in Bridger Coal Company (Bridger Coal), which supplies coal to the Jim Bridger generating plant owned in part by Idaho Power.

Additional information is available at 'www.fitchratings.com'

Applicable criteria available at 'www.fitchratings.com' include:

--'Corporate Rating Methodology' (Aug. 16, 2010);

--'Credit Rating Guidelines for Regulated Utility Companies' (July 31, 2007);

--'Parent and Subsidiary Rating Linkage: Fitch's Approach to Rating Entities within a Corporate Group Structure' (July 14, 2010).

--'U.S. Power and Gas Comparative Operating Risk (COR) Evaluation and Financial Guidelines' (Aug. 22, 2007);

--'Utilities Sector Notching and Recovery Ratings' (March 16, 2010).

Related Research:

Utilities Sector Notching and Recovery Ratings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=504546

U.S. Power and Gas Comparative Operating Risk (COR) Evaluation and Financial Guidelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=338030

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Credit Rating Guidelines for Regulated Utility Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=334652

Parent and Subsidiary Rating Linkage Criteria Report

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826

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