UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR For the quarterly period ended June 30, 2001 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Exact name of registrants as specified in their charters, state of Commission incorporation, address of I.R.S. File principal executive offices, Employer Number and telephone number Identification Number 1-14465 IDACORP, Inc. 82-0505802 1-3198 Idaho Power Company 82-0130980 1221 W. Idaho Street Boise, ID 83702-5627 Telephone: (208) 388-2200 State of Incorporation: Idaho Web site: www.idacorpinc.com None Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of Common Stock outstanding as of June 30, 2001: IDACORP, Inc.: 37,412,136 Idaho Power Company: 37,612,351 shares, all of which are held by IDACORP, Inc. This combined Form 10-Q represents separate filings by IDACORP, Inc. and Idaho Power Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Idaho Power Company makes no representations as to the information relating to IDACORP, Inc.'s other operations. INDEX Page Definitions 2 Part I. Financial Information: Item 1. Financial Statements IDACORP, Inc.: Consolidated Statements of Income 3-4 Consolidated Balance Sheets 5-6 Consolidated Statements of Capitalization 7 Consolidated Statements of Cash Flows 8 Consolidated Statements of Comprehensive 9 Income Notes to Consolidated Financial Statements 10-18 Independent Accountants' Report 19 Idaho Power Company: Consolidated Statements of Income 20-21 Consolidated Balance Sheets 22-23 Consolidated Statements of Capitalization 24 Consolidated Statements of Cash Flows 25 Consolidated Statements of Comprehensive 26 Income Notes to Consolidated Financial Statements 27-28 Independent Accountants' Report 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 30-41 Item 3. Quantitative and Qualitative Disclosures 41 about Market Risk Item 4. Submission of Matters to a Vote of 42-43 Security Holders Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K 44-49 Signatures 50-51 DEFINITIONS FASB - Financial Accounting Standards Board FERC - Federal Energy Regulatory Commission IPUC - Idaho Public Utilities Commission kWh - kilowatt-hour MAF - Million Acre-Feet MMbtu - Million British Thermal Units MWH - Megawatt-hour OPUC - Oregon Public Utility Commission PCA - Power Cost Adjustment PUCN - Public Utility Commission of Nevada REA - Rural Electrification Administration SFAS - Statement of Financial Accounting Standards IPC - Idaho Power Company IE - IDACORP Energy MW - Megawatt DIG - Derivatives Implementation Group Cal ISO- California Independent System Operator CalPX - California Power Exchange FORWARD LOOKING INFORMATION This Form 10-Q contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read with the cautionary statements and important factors included in this Form 10-Q at Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Forward-Looking Information. Forward-looking statements are all statements other than statements of historical fact, including without limitation those that are identified by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," and similar expressions. PART I - FINANCIAL INFORMATION Item 1. Financial Statements IDACORP, Inc. Consolidated Statements of Income Three Months Ended June 30, 2001 2000 (Thousands of Dollars Except Per Share Amounts) OPERATING REVENUES: Electric Utility: General business $ 156,207 $ 139,168 Off system sales 58,650 64,054 Equity in earnings of partnerships 2,392 2,725 Other revenues 13,357 10,389 Total electric utility revenues 230,606 216,336 Energy marketing 94,774 38,664 Other 3,846 6,293 Total operating revenues 329,226 261,293 OPERATING EXPENSES: Electric Utility: Purchased power 169,419 101,630 Fuel expense 22,351 20,056 Power cost adjustment (68,086) (21,943) Other operations and maintenance 49,609 51,787 Depreciation 21,448 19,949 Taxes other than income taxes 5,409 5,463 Total electric utility expenses 200,150 176,942 Energy marketing 43,512 10,597 Other 8,746 8,932 Total operating expenses 252,408 196,471 OPERATING INCOME: Electric utility 30,456 39,394 Energy marketing 51,262 28,067 Other (4,900) (2,639) Total operating income 76,818 64,822 OTHER INCOME: Allowance for equity funds used during construction 361 635 Other - net (135) (523) Total other income 226 112 INTEREST EXPENSE AND OTHER: Interest on long-term debt 14,768 13,253 Other interest 4,286 1,989 Allowance for borrowed funds used during construction (1,251) (525) Preferred dividends of Idaho Power Company 1,292 1,484 Total interest expense and other 19,095 16,201 INCOME BEFORE INCOME TAXES 57,949 48,733 INCOME TAXES 21,861 16,211 NET INCOME $ 36,088 $ 32,522 AVERAGE COMMON SHARES OUTSTANDING (000's) 37,412 37,612 EARNINGS PER SHARE OF COMMON STOCK (basic and diluted) $ 0.96 $ 0.86 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Statements of Income Six Months Ended June 30, 2001 2000 (Thousands of Dollars Except Per Share Amounts) OPERATING REVENUES: Electric Utility: General business $ 289,328 $ 262,382 Off system sales 113,898 99,979 Equity in earnings of partnerships 5,047 6,711 Other revenues 25,438 17,731 Total electric utility revenues 433,711 386,803 Energy marketing 223,265 51,138 Other 6,354 10,846 Total operating revenues 663,330 448,787 OPERATING EXPENSES: Electric Utility: Purchased power 294,706 114,519 Fuel expense 47,597 44,715 Power cost adjustment (126,332) (18,685) Other operations and maintenance 98,757 96,033 Depreciation 42,399 39,836 Taxes other than income taxes 10,644 10,890 Total electric utility expenses 367,771 287,308 Energy marketing 133,435 14,528 Other 17,406 16,283 Total operating expenses 518,612 318,119 OPERATING INCOME: Electric utility 65,940 99,495 Energy marketing 89,830 36,610 Other (11,052) (5,437) Total operating income 144,718 130,668 OTHER INCOME: Allowance for equity funds used during construction 586 1,091 Gains on sales of assets 1,605 14,000 Other - net 306 1,551 Total other income 2,497 16,642 INTEREST EXPENSE AND OTHER: Interest on long-term debt 28,217 26,415 Other interest 8,660 4,686 Allowance for borrowed funds used during construction (2,416) (1,012) Preferred dividends of Idaho Power Company 2,753 2,912 Total interest expense and other 37,214 33,001 INCOME BEFORE INCOME TAXES 110,001 114,309 INCOME TAXES 39,143 39,707 NET INCOME $ 70,858 $ 74,602 AVERAGE COMMON SHARES OUTSTANDING (000's) 37,414 37,612 EARNINGS PER SHARE OF COMMON STOCK (basic and diluted) $ 1.89 $ 1.98 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Balance Sheets Assets June 30, December 31, 2001 2000 (Thousands of Dollars) CURRENT ASSETS: Cash and cash equivalents $ 25,542 $ 106,795 Receivables: Customer 136,694 243,647 Allowance for uncollectible accounts (43,253) (23,079) Employee notes 4,791 4,742 Other 14,276 15,611 Energy marketing assets 593,336 1,060,128 Derivative assets 59,320 - Taxes receivable 11,936 - Accrued unbilled revenues 47,539 44,825 Materials and supplies (at average cost) 28,562 29,731 Fuel stock (at average cost) 7,834 5,105 Prepayments 26,804 24,575 Regulatory assets associated with income taxes 12,857 8,672 Regulatory assets - derivatives 84,707 - Total current assets 1,010,945 1,520,752 INVESTMENTS AND OTHER ASSETS 149,873 157,068 PROPERTY, PLANT AND EQUIPMENT: Utility plant in service 2,880,822 2,799,874 Accumulated provision for depreciation (1,180,589) (1,142,572) Utility plant in service - net 1,700,233 1,657,302 Construction work in progress 140,105 136,388 Utility plant held for future use 2,214 2,167 Other property, net of accumulated depreciation 17,769 9,179 Property, plant and equipment - net 1,860,321 1,805,036 DEFERRED DEBITS: American Falls and Milner water rights 31,585 31,585 Company-owned life insurance 39,580 39,554 Energy marketing assets - long-term 261,221 43,556 Regulatory assets associated with income taxes 194,645 204,880 Regulatory assets - PCA 248,112 119,905 Regulatory assets - long-term derivatives 29,656 - Regulatory assets - other 40,566 45,750 Other 67,922 71,620 Total deferred debits 913,287 556,850 TOTAL $3,934,426 $4,039,706 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Balance Sheets Liabilities and Capitalization June 30, December 31, 2001 2000 (Thousands of Dollars) CURRENT LIABILITIES: Current maturities of long-term debt $ 38,889 $ 39,774 Notes payable 154,500 120,600 Accounts payable 188,779 272,376 Energy marketing liabilities 585,831 1,060,180 Derivative liabilities 144,027 - Taxes accrued - 15,631 Interest accrued 16,737 16,985 Deferred income taxes 12,857 8,672 Other 48,733 28,104 Total current liabilities 1,190,353 1,562,322 DEFERRED CREDITS: Deferred income taxes 537,117 460,464 Energy marketing liabilities - long- term 151,714 46,769 Derivative liabilities - long-term 29,656 - Regulatory liabilities associated with deferred investment tax credits 65,632 66,050 Regulatory liabilities associated with income taxes 39,843 40,230 Regulatory liabilities - other 4,422 4,621 Other 63,794 69,259 Total deferred credits 892,178 687,393 LONG-TERM DEBT 899,619 864,114 COMMITMENTS AND CONTINGENT LIABILITIES PREFERRED STOCK OF IDAHO POWER COMPANY 104,691 105,066 COMMON STOCK EQUITY: Common stock, no par value (shares authorized 120,000,000; 37,612,351 shares issued) 452,087 453,102 Retained earnings 406,070 370,126 Accumulated other comprehensive income (loss) (2,528) (921) Treasury stock (200,000 and 44,425 shares at cost, respectively) (8,044) (1,496) Total common stock equity 847,585 820,811 TOTAL $3,934,426 $4,039,706 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Statements of Capitalization June 30, December 31, 2001 % 2000 % (Thousands of Dollars) COMMON STOCK EQUITY: Common stock $ 452,087 $ 453,102 Retained earnings 406,070 370,126 Accumulated other comprehensive income (loss) (2,528) (921) Treasury stock (8,044) (1,496) Total common stock equity 847,585 46 820,811 46 PREFERRED STOCK OF IDAHO POWER COMPANY: 4% preferred stock 14,691 15,066 7.68% Series, serial preferred stock 15,000 15,000 7.07% Series, serial preferred stock 25,000 25,000 Auction rate preferred stock 50,000 50,000 Total preferred stock 104,691 6 105,066 6 LONG-TERM DEBT: First mortgage bonds: 6.93% Series due 2001 30,000 30,000 6.85% Series due 2002 27,000 27,000 6.40% Series due 2003 80,000 80,000 8 % Series due 2004 50,000 50,000 5.83% Series due 2005 60,000 60,000 7.38% Series due 2007 80,000 80,000 7.20% Series due 2009 80,000 80,000 6.60% Series due 2011 120,000 - Maturing 2021 through 2031 with rates ranging from 7.5% to 9.52% 155,000 230,000 Total first mortgage bonds 682,000 637,000 Amount due within one year (30,000) (30,000) Net first mortgage 652,000 607,000 bonds Pollution control revenue bonds: 8.30% Series 1984 due 2014 49,800 49,800 6.05% Series 1996A due 2026 68,100 68,100 Variable Rate Series 1996B due 2026 24,200 24,200 Variable Rate Series 1996C due 2026 24,000 24,000 Variable Rate Series 2000 due 2027 4,360 4,360 Total pollution control revenue bonds 170,460 170,460 REA notes 1,301 1,339 Amount due within one year (77) (77) Net REA notes 1,224 1,262 American Falls bond guarantee 19,885 19,885 Milner Dam note guarantee 11,700 11,700 Unamortized premium/discount - net (1,071) (1,330) Debt related to investments in affordable housing with rates ranging from 6.03% to 8.59% due 2001 to 2011 53,877 64,063 Amount due within one year (8,812) (9,697) Net affordable housing debt 45,065 54,366 Other subsidiary debt 356 771 Total long-term debt 899,619 48 864,114 48 TOTAL CAPITALIZATION $1,851,895 100 $1,789,991 100 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Statements of Cash Flows Six Months Ended June 30, 2001 2000 (Thousands of Dollars) OPERATING ACTIVITIES: Net income $ 70,858 $ 74,602 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Allowance for uncollectible accounts 20,174 - Unrealized losses (gains) from energy marketing activities (120,277) 4,434 Gain on sale of asset (1,605) (14,000) Depreciation and amortization 53,741 48,490 Deferred taxes and investment tax credits 87,009 6,669 Accrued PCA costs (127,031) (18,962) Undistributed earnings of affiliate 2,021 (6,495) Change in: Accounts receivable and prepayments 104,616 (46,138) Accrued unbilled revenue (2,714) (10,403) Materials and supplies and fuel stock (3,623) 119 Accounts payable (82,879) 49,331 Taxes accrued (27,567) 2,394 Other current assets and liabilities 20,381 7,208 Other - net (1,986) 399 Net cash provided by (used in) operating activities (8,882) 97,648 INVESTING ACTIVITIES: Additions to property, plant and equipment (100,755) (53,838) Investments in affordable housing projects - (10,704) Proceeds from sales of assets 9,707 17,500 Other - net (3,498) (5,809) Net cash used in investing activities (94,546) (52,851) FINANCING ACTIVITIES: Proceeds from issuance of: First mortgage bonds 120,000 - Pollution control revenue bonds - 4,360 Long-term debt related to affordable housing projects - 4,335 Retirement of: First mortgage bonds (75,000) (80,000) Long-term debt related to affordable housing projects (10,185) (10,145) Treasury stock acquired (6,397) - Dividends on common stock (34,914) (34,921) Increase (decrease) in short-term borrowings 33,900 5,701 Other - net (5,229) (1,796) Net cash provided by (used in) financing activities 22,175 (112,466) Net decrease in cash and cash equivalents (81,253) (67,669) Cash and cash equivalents at beginning of period 106,795 111,338 Cash and cash equivalents at end of period $ 25,542 $ 43,669 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash (received) paid during the period for: Income taxes $ (17,139) $ 23,864 Interest (net of amount $ 33,528 $ 31,204 capitalized) $ 25,542 $ 43,669 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Statements of Comprehensive Income Three Months Ended June 30, 2001 2000 (Thousands of Dollars) NET INCOME $ 36,088 $ 32,522 OTHER COMPREHENSIVE INCOME (LOSS): Unrealized gains (losses) on securities (net of tax of $156 and ($184)) 239 606 TOTAL COMPREHENSIVE INCOME $ 36,327 $ 33,128 The accompanying notes are an integral part of these statements. Six Months Ended June 30, 2001 2000 (Thousands of Dollars) NET INCOME $ 70,858 $ 74,602 OTHER COMPREHENSIVE INCOME (LOSS): Unrealized gains (losses) on securities (net of tax of ($925) and ($95)) (1,608) 743 TOTAL COMPREHENSIVE INCOME $ 69,250 $ 75,345 The accompanying notes are an integral part of these statements. IDACORP, Inc. Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Business IDACORP, Inc. (IDACORP or the Company) is a holding company whose principal operating subsidiaries are Idaho Power Company (IPC) and IDACORP Energy (IE). IPC is regulated by the FERC and the state regulatory commissions of Idaho, Oregon, Nevada and Wyoming, and is engaged in the generation, transmission, distribution, sale and purchase of electric energy. IPC is the parent of Idaho Energy Resources Co., a joint venturer in Bridger Coal Company, which supplies coal to IPC's Jim Bridger generating plant. IE is a marketer of electricity and natural gas trading in 31 states and two Canadian provinces. IDACORP's other significant subsidiaries are: Ida-West Energy - independent power projects development and management IdaTech - developer of integrated fuel cell systems IDACORP Financial Services - affordable housing and other real estate investments Rocky Mountain Communications (RMC) - commercial and residential Internet service provider IDACOMM - provider of telecommunications services IDACORP Services - products and services for homes and businesses Financial Statements In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly its consolidated financial position as of June 30, 2001, and its consolidated results of operations for the three and six months ended June 30, 2001 and 2000 and consolidated cash flows for the six months ended June 30, 2001 and 2000. These financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters that would be included in full year financial statements and therefore they should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Planned Major Maintenance The Company records repair and maintenance costs associated with planned major maintenance activities as these costs are incurred. Regulatory Assets IPC has $4.9 million of regulatory assets that are not earning a return. These assets are predominately related to reorganization costs and post-employment benefits, and have remaining amortization periods of less than five years. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Investments in business entities in which the Company and its subsidiaries do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Reclassifications Certain items previously reported for periods prior to June 30, 2001 have been reclassified to conform with the current period's presentation. Net income and common stock equity were not affected by these reclassifications. New Accounting Pronouncements In July 2001 the FASB issued SFAS 141, "Business Combinations," which addresses accounting and reporting for business combinations. SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for using one method, the purchase method. The Company does not believe the adoption will have a significant affect on its financial statements. Also in July 2001 the FASB issued SFAS 142 "Goodwill and Other Intangible Assets," which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. 2. INCOME TAXES The Company's effective tax rate for the first six months increased from 34.7 percent in 2000 to 35.6 percent in 2001. Reconciliations between the statutory income tax rate and the effective rates are as follows (in thousands of dollars): Six Months Ended June 30, 2001 2000 Amount Rate Amount Rate Computed income taxes based on statutory federal $ 38,501 35.0% $ 40,008 35.0% income tax rate Changes in taxes resulting from: Investment tax credits (1,552) (1.4) (1,542) (1.4) Repair allowance (1,400) (1.3) (1,400) (1.2) Pension expense (912) (0.8) (950) (0.8) State income taxes 5,179 4.7 5,607 4.9 Depreciation 3,799 3.5 3,461 3.0 Affordable housing tax credits (6,041) (5.5) (5,499) (4.8) Preferred dividends of IPC 964 0.9 1,019 0.9 Other 605 0.5 (997) (0.9) Total provision for federal and state income taxes $ 39,143 35.6% $ 39,707 34.7% 3. PREFERRED STOCK OF IDAHO POWER COMPANY: The number of shares of IPC preferred stock outstanding were as follows: June 30, December 31, 2001 2000 Cumulative, $100 par value: 4% preferred stock (authorized 215,000 shares) 146,910 150,656 Serial preferred stock, 7.68% Series (authorized 150,000 shares) 150,000 150,000 Serial preferred stock, cumulative, without par value; total of 3,000,000 shares authorized: 7.07% Series, $100 stated value, (authorized 250,000 shares) 250,000 250,000 Auction rate preferred stock, $100,000 stated value, (authorized 500 shares) 500 500 4. FINANCING: At June 30, 2001, IPC had regulatory authority to incur up to $500 million of short-term indebtedness. At June 30, 2001, IPC's short term borrowing totaled $75.5 million. The Company has credit facilities established at both IPC and IDACORP. IPC has a $120 million multi-year revolving credit facility under which it pays a facility fee on the commitment, quarterly in arrears, based on IPC's First Mortgage Bond rating. IPC also established on April 27, 2001 a new 364-day credit facility for up to $165 million in support of its ongoing operations. IPC commercial paper may be issued subject to the regulatory maximum. IDACORP has separately established a $50 million three-year credit facility that expires in December 2001, and a $375 million 364-day credit facility that expires in March 2002. Under these facilities IDACORP pays a facility fee on the commitment, quarterly in arrears, based on IPC's First Mortgage Bond rating. At June 30, 2001, short-term borrowing on these facilities totaled $79 million. The Company currently has a $300 million shelf registration statement that can be used for the issuance of unsecured debt and preferred or common stock. At June 30, 2001, none had been issued. On March 23, 2000, IPC filed a $200 million shelf registration statement that could be used for First Mortgage Bonds (including medium term notes), unsecured debt, or preferred stock. On December 1, 2000, $80 million principal amount of Secured Medium Term Notes, Series C, 7.38% Series due 2007 were issued. Proceeds were used for the early redemption in January 2001 of the $75 million First Mortgage Bonds 9.50% Series due 2021. On March 2, 2001, $120 million principal amount of Secured Medium Term Notes, Series C, 6.60% Series due 2011 were issued, and proceeds from this issuance were used to reduce short-term borrowing incurred in support of ongoing long-term construction requirements. At June 30, 2001, no amount remained to be issued on this shelf registration statement. 5. COMMITMENTS AND CONTINGENT LIABILITIES: Commitments under contracts and purchase orders relating to IPC's program for construction and operation of facilities amounted to approximately $7.4 million at June 30, 2001. Additionally, Ida-West Energy has commitments totaling $30.5 million. The commitments are generally revocable by the Company subject to reimbursement of manufacturers' expenditures incurred and/or other termination charges. From time to time the Company is party to various legal claims, actions, and complaints, certain of which may involve material amounts. Although the Company is unable to predict with certainty whether or not it will ultimately be successful in these legal proceedings, or, if not, what the impact might be, based upon the advice of legal counsel, management presently believes that disposition of these matters will not have a material adverse effect on the Company's financial position, results of operation, or cash flows. IE also has approximately $2.1 million in receivables from less-than-investment grade entities at June 30, 2001. California Energy Situation As a component of IPC's non-utility energy trading activities in the state of California, IPC, in January 1999, entered into a participation agreement with the California Power Exchange (CalPX), a California non-profit public benefit corporation. The CalPX operate a wholesale electricity market in California by acting as a clearinghouse through which electricity is bought and sold. Pursuant to the participation agreement, IPC could sell power to the CalPX under the terms and conditions of the CalPX Tariff. Under the participation agreement, if a particpant in the CalPX exchange defaults on a payment to the exchange, the other participants are required to pay their allocated share of the default amount to the exchange. The allocated shares are based upon the level of trading activity, which includes both power sales and purchases, of each participant during the preceding 3-month period. On January 18, 2001, the CalPX sent IPC an invoice for $2.2 million - a "default share invoice" - as a result of an alleged Southern California Edison (SCE) payment default of $214.5 million for power purchases. IPC made this payment. On January 24, 2001, IPC terminated the participation agreement. On February 8, 2001, the CalPX sent a further invoice for $5.2 million, due February 20, 2001, as a result of alleged payment defaults by SCE, Pacific Gas and Electric Company (PG&E), and others. However, because the CalPX owed IPC $11.3 million for power sold to the CalPX in November and December 2000, IPC did not pay the February 8 invoice. IPC essentially discontinued energy trading with California entities in December 2000. IPC believes that the default invoices were not proper and that IPC owes no further amounts to the CalPX. IPC intends to pursue all available remedies in its efforts to collect amounts owed to it by the CalPX. On February 20, 2001, IPC filed a petition with FERC to intervene in a proceeding which requests the FERC to suspend the use of the CalPX charge back methodology and provides for further oversight in the CalPX's implementation of its default mitigation procedures. A preliminary injunction has been granted by a Federal Judge in the Federal District Court for the Central District of California enjoining the CalPX from declaring any CalPX participant in default under the terms of the CalPX Tariff. On March 9, 2001, the CalPX filed for Chapter 11 protection with the U.S. Bankruptcy Court, Central District of California. In April 2001, PG&E filed for bankruptcy. The CalPX and the California Independent System Operator (Cal ISO) were also creditors of PG&E. To the extent that PG&E's bankruptcy filing affects the collectibility of our receivables from the CalPX and Cal ISO our receivables from these entities are at greater risk. Also in April 2001, the FERC issued an order stating that it was establishing price mitigation for sales in the California wholesale electricity market. Subsequently, in its June 19, 2001 Order, the FERC expanded that price mitigation plan to the entire western United States electrically interconnected system. That plan included the potential for orders directing electricity sellers into California since October 2, 2000 to refund portions of their sales prices if the FERC determined that those prices were not just and reasonable, and therefore not in compliance with the Federal Power Act. The June 19th Order also required all buyers and sellers in the Cal ISO market during the subject time-frame, to participate in settlement discussions to explore the potential for resolution of these issues without further FERC action. The settlement discussions failed to bring resolution of the refund issue and as a result, the FERC Chief Judge has submitted a Report and Recommendation to the FERC recommending that the FERC adopt his methodology set forth in his report and set for evidentiary hearing an analysis of the Cal ISO's and the CalPX's spot markets to determine what refunds may be due upon application of that methodology. The Judge recommended that his methodology should be applied to all sellers except those who at the evidentiary hearing are able to demonstrate that their costs exceed the results of the recommended methodology. On July 25, 2001, the FERC issued an order establishing evidentiary hearing procedures related to the scope and methodology for calculating refunds related to transactions in the spot markets operated by the Cal ISO and the CalPX during the period October 2, 2000 through June 20, 2001. The Company's marketing and trading subsidiary, IDACORP Energy, will participate in this proceeding. As to potential refunds, if any, the Company believes that its exposure will be more than offset by amounts due it from California entities. In addition, the FERC order established another proceeding to explore whether there may have been unjust and unreasonable charges for spot market sales in the Pacific Northwest during the period December 25, 2000 through June 20, 2001. Regarding the issue of refunds in the Pacific Northwest, IPC will participate in this proceeding. It is difficult to determine the extent of any potential impact at this time because the proceeding is in the early stages and the issues remain to be developed. We will continue to monitor both proceedings to determine the impact on the Company. Effective June 11, 2001, IPC transferred its wholesale electricity marketing operations to IDACORP Energy L.P. IDACORP Energy is a Delaware limited partnership with IDACORP, Inc. as its sole general partner and IDACORP Energy Services Co., a wholly-owned subsidiary of IDACORP, Inc., as its sole limited partner. (See Note 9 to the Idaho Power Company financial statements and the MD&A, "Other Matters - Energy Marketing".) Effective with the June 11 transfer, the outstanding receivables and payables with the CalPX and Cal ISO were assigned from IPC to IDACORP Energy. At June 30, 2001, the CalPX and Cal ISO owed $13 million and $31 million respectively for energy sales made to them by IPC in November and December 2000. In addition, at June 30, 2001, IDACORP Energy had accrued but not paid $24 million due to the Cal ISO as an offset to the outstanding receivable. IDACORP Energy has accrued a reserve of $44 million against these receivables and $7 million of other past due receivables (including less-than-investment-grade receviables). These reserves were calculated taking into account the continued deterioration of the California energy markets and, for the less-than-investment-grade receivables, by using a model that estimates the probability of default and the estimated recovery amounts of such receivables. Counsel has been retained in connection with the CalPX and PG&E bankruptcies and FERC proceedings. Based on the reserves recorded as of June 30, 2001, the Company believes that the future collectibility of these receivables or any potential refunds ordered by the FERC would not have a significant impact on operations or liquidity. 6. REGULATORY ISSUES: Idaho Power Cost Adjustment (PCA) IPC has a PCA mechanism that provides for annual adjustments to the rates IPC charges to Idaho retail customers. These adjustments, which take effect annually in May, are based on forecasts of net power supply expenses. During the year, the difference between actual and forecasted costs is deferred with interest. The balance of this deferral, called a true-up, is then included in the calculation of the next year's PCA adjustment. In the 2001 PCA, the IPUC authorized IPC to recover approximately $168 million of costs through a rate increase effective May 1, 2001, representing 74 percent of IPC's $227 million request. The increase reflects an average 31.6 percent increase to rates. The IPUC has deferred recovery of the remaining $59 million pending a formal hearing of issues involving IPC's operating and non-operating energy transactions. An expedited review process commenced May 10, 2001 and resolution is expected by September 28, 2001. The IPUC order does not address, and IPC is not accruing, a return on the deferred $59 million, but IPC has earned or paid a return on all previous PCA deferrals and intends to request a return on the deferred portion of this year's PCA. Although the Company is unable to predict the outcome of the IPUC's decision in this matter, the Company expects to be allowed recovery of the deferred $59 million. Of the $227 million requested by IPC, $185 million related to the true-up of power supply costs incurred in the 2000- 2001 PCA year and $42 million was for recovery of excess power supply costs forecasted in the 2001-2002 PCA year. The forecast amount, however, underestimates expected power supply costs in light of current water and market conditions; reservoir water is lower than forecast and electricity market prices have been higher than the assumptions used in the forecast. As part of the May 2001 PCA, the IPUC required IPC to implement a three-tiered rate structure for Idaho residential customers. The IPUC determined that the approved rates for residential customers should increase as a customer's electricity consumption increases. The residential rate increases are 14.4 percent for the first 800 kWh of usage, 28.8 percent for the next 1,200 kWh, and 62 percent for usage over 2,000 kWh. Oregon Excess Power Costs IPC filed an application with the OPUC to begin recovering extraordinary power supply costs for 2001 in its Oregon jurisdiction. On June 18, 2001, the OPUC approved new rates that will recover $0.8 million over the next year. Under the provisions of the deferred accounting statute, ORS757.259(6), annual rate recovery of deferred amounts is limited to $0.8 million or 3% of IPC's 2000 gross revenues in Oregon. 7. DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses financial instruments such as commodity futures, forwards, options and swaps to manage exposure to commodity price risk in the electricity and natural gas markets. The objective of the Company's risk management program is to mitigate the risk associated with the purchase and sale of electricity and natural gas as well as to optimize its energy marketing portfolio. The accounting for derivative financial instruments that are used to manage risk is in accordance with the concepts established in Emerging Issues Task Force (EITF) 98-10, "Accounting for Contracts Involved in Energy Trading Activities," and SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities." Energy Trading Contracts All contracts classified as energy trading contracts, including forward transmission contracts, under the guidance provided by EITF 98-10 that have an open short or long position are marked to market and the resulting change in fair value from the previous period is presented on IDACORP'S Statement of Income in "Energy marketing revenues." The same accounting treatment is applied for all energy trading contracts regardless of whether they are anticipated to be physically scheduled for delivery or net settled. In the settlement month of energy contracts, the gains and losses from settlement are recorded and the previously recognized mark-to-market values are reversed in the same financial statement line item. Transmission costs associated with the physical delivery of energy are reported as "Energy marketing expenses" in the month of settlement. The fair value of positions recorded on the balance sheet is dependent on the prices and volatility of the energy markets. As such, these items on the balance sheet can fluctuate greatly without large changes in volumes or positions. Cash flows from energy trading contracts are recognized in the statement of cash flows as an operating activity. Derivative Assets and Liabilities The Company adopted SFAS 133, as amended, effective January 1, 2001. Contracts company-wide were evaluated based upon the SFAS 133 derivative definitions and requirements. Most of the Company's contracts that meet the derivative definition are the energy trading contracts that were already recorded at fair value under EITF 98-10 as discussed above. Most of the remaining energy contracts meet the definition of a normal purchase or sale as described in SFAS 138 and therefore are not considered derivatives. However, IPC has certain electricity contracts that are periodically net settled with the counterparty (booked out). Booking out of electricity contracts is a normal business transaction within the electric utility industry, however the FASB and the Derivative Implementation Group (DIG) initially interpreted that book outs did not qualify for the normal purchase and sales exception. The Company has recorded the fair market value of the booked out system electricity contracts within the financial statements as Derivative Assets and Derivative Liabilities. Such assets and liabilities at January 1 and June 30, 2001 are as follows: January 1, 2001 June 30, 2001 (Thousands of Dollars) Assets $ 108,909 $ 59,320 Liabilities (207,407) (173,683) Net $ (98,498) $ (114,363) The electricity contracts identified above are subject to IPC regulatory processes. Accordingly, SFAS 71, "Accounting for the Effects of Certain Types of Regulation" allows the net amount of these Derivative Assets and Liabilities to be offset by regulatory assets or liabilities. The IPUC granted approval of this use of SFAS 71 regulatory assets or liabilities in its Order 28661 issued March 12, 2001. In June 2001 the DIG issued Interpretation C-15 that concludes that certain booked out contracts now qualify for the normal purchase and sales exception. IPC is evaluating the effect of this new conclusion on its treatment of booked out contracts but expects that some contracts previously classified as derivatives will soon be exempt. The effect of this change will be recorded as of July 1, 2001 and will not have a material effect on IPC's financial position, results of operations, or cash flows. As a result of the items discussed above, the Company's adoption of SFAS 133, as amended, did not have a material effect on its financial position, results of operations, or cash flows. 8. INDUSTRY SEGMENT INFORMATION: The Company has identified two reportable operating segments, Utility Operations and Energy Marketing. The following table summarizes the segment information for the Company's utility operations and energy marketing segments and the total of all other segments, and reconciles this information to total enterprise amounts. Utility Energy Consolidated Operations Marketing Other Eliminations Total (Thousands of Dollars) Three months ended June 30, 2001: Revenues $ 230,606 $ 94,774 $ 3,846 $ - $ 329,226 Net income (loss) 5,810 31,112 (834) - 36,088 Total assets at June 30, 2001 $2,913,891 $1,014,583 $ 14,952 $ - $3,934,426 Three months ended June 30, 2000: Revenues $ 216,336 $ 38,664 $ 6,293 $ - $ 261,293 Net income (loss) 15,054 17,090 378 - 32,522 Total assets at December 31, 2000 $2,530,312 $1,312,045 $197,349 $ - $4,039,706 Six months ended June 30, 2001: Revenues $ 433,711 $ 223,265 $ 6,354 $ - $ 663,330 Net income (loss) 19,698 54,072 (2,912) - 70,858 Six months ended June 30, 2000: Revenues $ 386,803 $ 51,138 $ 10,846 $ - $ 448,787 Net income (loss) 42,651 22,555 9,396 - 74,602 INDEPENDENT ACCOUNTANTS' REPORT IDACORP, Inc. Boise, Idaho We have reviewed the accompanying consolidated balance sheet and statement of capitalization of IDACORP, Inc. and subsidiaries as of June 30, 2001, and the related consolidated statements of income and comprehensive income for the three and six month periods ended June 30, 2001 and 2000 and consolidated statements of cash flows for the six month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet and statement of capitalization of IDACORP, Inc. and subsidiaries as of December 31, 2000, and the related consolidated statements of income, comprehensive income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet and statement of capitalization as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet and statement of capitalization from which it has been derived. DELOITTE & TOUCHE LLP Boise, Idaho July 27, 2001 Idaho Power Company Consolidated Statements of Income Three Months Ended June 30, 2001 2000 (Thousands of Dollars) REVENUES: General business $ 156,207 $ 139,168 Off system sales 58,650 64,054 Other revenues 13,073 9,859 Total revenues 227,930 213,081 EXPENSES: Operation: Purchased power 169,419 101,630 Fuel expense 22,351 20,056 Power cost adjustment (68,086) (21,943) Other 34,074 37,885 Maintenance 15,535 13,902 Depreciation 21,448 19,949 Taxes other than income taxes 5,409 5,463 Total expenses 200,150 176,942 INCOME FROM OPERATIONS 27,780 36,139 OTHER INCOME: Allowance for equity funds used during construction 361 635 Other - Net 2,518 2,220 Total other income 2,879 2,855 INTEREST CHARGES: Interest on long-term debt 14,750 13,226 Other interest 2,603 914 Allowance for borrowed funds used during construction (1,251) (525) Total interest charges 16,102 13,615 INCOME BEFORE INCOME TAXES 14,557 25,379 INCOME TAXES 6,838 8,842 INCOME FROM CONTINUING OPERATIONS 7,719 16,537 DISCONTINUED OPERATIONS: Income from operations of energy marketing transferred to parent (net of income taxes of $18,195 in 2001 and $10,499 in 2000) 27,066 15,617 NET INCOME 34,785 32,154 Dividends on preferred stock 1,292 1,484 EARNINGS ON COMMON STOCK $ 33,493 $ 30,670 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Statements of Income Six Months Ended June 30, 2001 2000 (Thousands of Dollars) REVENUES: General business $ 289,328 $ 262,382 Off system sales 113,898 99,979 Other revenues 25,019 17,053 Total revenues 428,245 379,414 EXPENSES: Operation: Purchased power 294,706 114,519 Fuel expense 47,597 44,715 Power cost adjustment (126,332) (18,685) Other 71,541 73,121 Maintenance 27,216 22,912 Depreciation 42,399 39,836 Taxes other than income taxes 10,644 10,890 Total expenses 367,771 287,308 INCOME FROM OPERATIONS 60,474 92,106 OTHER INCOME: Allowance for equity funds used during construction 586 1,091 Other - Net 7,178 6,811 Total other income 7,764 7,902 INTEREST CHARGES: Interest on long-term debt 28,173 26,358 Other interest 4,820 2,391 Allowance for borrowed funds used during construction (2,416) (1,012) Total interest charges 30,577 27,737 INCOME BEFORE INCOME TAXES 37,661 72,271 INCOME TAXES 14,592 26,708 INCOME FROM CONTINUING OPERATIONS 23,069 45,563 DISCONTINUED OPERATIONS: Income from operations of energy marketing transferred to parent (net of income taxes of $33,573 in 2001 and $13,658 in 2000) 49,943 20,317 NET INCOME 73,012 65,880 Dividends on preferred stock 2,753 2,912 EARNINGS ON COMMON STOCK $ 70,259 $ 62,968 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Balance Sheets Assets June 30, December 31, 2001 2000 (Thousands of Dollars) ELECTRIC PLANT: In service (at original cost) $2,880,822 $2,799,590 Accumulated provision for depreciation (1,180,589) (1,142,572) In service - Net 1,700,233 1,657,018 Construction work in progress 131,691 130,477 Held for future use 2,214 2,167 Electric plant - Net 1,834,138 1,789,662 INVESTMENTS AND OTHER PROPERTY 21,701 21,502 CURRENT ASSETS: Cash and cash equivalents 11,422 83,494 Receivables: Customer 48,785 74,225 Allowance for uncollectible accounts (1,397) (1,397) Notes 2,933 2,945 Employee notes 4,791 4,742 Related parties 77,207 311 Other 5,057 4,943 Derivative assets 59,320 - Taxes receivable 9,243 - Accrued unbilled revenues 47,539 44,825 Materials and supplies (at average cost) 24,330 24,685 Fuel stock (at average cost) 7,834 5,105 Prepayments 26,561 24,145 Regulatory assets associated with income taxes 12,857 8,672 Regulatory assets - derivatives 84,707 - Net assets of discontinued operations - 37,702 Total current assets 421,189 314,397 DEFERRED DEBITS: American Falls and Milner water rights 31,585 31,585 Company-owned life insurance 39,580 39,554 Regulatory assets associated with income taxes 194,645 204,880 Regulatory assets - PCA 248,112 119,905 Regulatory assets - long-term derivatives 29,656 - Regulatory assets - other 40,566 45,750 Other 52,719 49,857 Total deferred debits 636,863 491,531 TOTAL $2,913,891 $2,617,092 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Balance Sheets Liabilities and Capitalization June 30, December 31, 2001 2000 (Thousands of Dollars) CAPITALIZATION: Common stock equity: Common stock, $2.50 par value (50,000,000 shares authorized; 37,612,351 shares outstanding) $ 94,031 $ 94,031 Premium on capital stock 362,528 362,430 Capital stock expense (4,083) (4,024) Retained earnings 349,145 313,800 Accumulated other comprehensive income (loss) (2,528) (921) Total common stock equity 799,093 765,316 Preferred stock 104,691 105,066 Long-term debt 854,198 808,977 Total capitalization 1,757,982 1,679,359 CURRENT LIABILITIES: Long-term debt due within one year 30,077 30,077 Notes payable 75,500 59,700 Accounts payable 116,139 164,237 Notes and accounts payable to related parties 19,624 4,212 Derivative liabilities 144,027 - Taxes accrued - 12,983 Interest accrued 14,400 15,002 Deferred income taxes 12,857 8,672 Other 19,088 18,460 Total current liabilities 431,712 313,343 DEFERRED CREDITS: Regulatory liabilities associated with deferred investment tax credits 65,632 66,050 Deferred income taxes 528,551 452,404 Derivative liabilities - long-term 29,656 - Regulatory liabilities associated with income taxes 39,843 40,230 Regulatory liabilities - other 4,422 4,621 Other 56,093 61,085 Total deferred credits 724,197 624,390 COMMITMENTS AND CONTINGENT LIABILITIES TOTAL $2,913,891 $2,617,092 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Statements of Capitalization June 30, December 31, 2001 % 2000 % (Thousands of Dollars) COMMON STOCK EQUITY: Common stock $ 94,031 $ 94,031 Premium on capital stock 362,528 362,430 Capital stock expense (4,083) (4,024) Retained earnings 349,145 313,800 Accumulated other comprehensive income (loss) (2,528) (921) Total common stock equity 799,093 45 765,316 46 PREFERRED STOCK: 4% preferred stock 14,691 15,066 7.68% Series, serial preferred stock 15,000 15,000 7.07% Series, serial preferred stock 25,000 25,000 Auction rate preferred stock 50,000 50,000 Total preferred stock 104,691 6 105,066 6 LONG-TERM DEBT: First mortgage bonds: 6.93% Series due 2001 30,000 30,000 6.85% Series due 2002 27,000 27,000 6.40% Series due 2003 80,000 80,000 8 % Series due 2004 50,000 50,000 5.83% Series due 2005 60,000 60,000 7.38% Series due 2007 80,000 80,000 7.20% Series due 2009 80,000 80,000 6.60% Series due 2011 120,000 - Maturing 2021 through 2031 with rates ranging from 7.5% to 9.52% 155,000 230,000 Total first mortgage bonds 682,000 637,000 Amount due within one year (30,000) (30,000) Net first mortgage bonds 652,000 607,000 Pollution control revenue bonds: 8.30% Series 1984 due 2014 49,800 49,800 6.05% Series 1996A due 2026 68,100 68,100 Variable Rate Series 1996B due 2026 24,200 24,200 Variable Rate Series 1996C due 2026 24,000 24,000 Variable Rate Series 2000 due 2007 4,360 4,360 Total pollution control revenue bonds 170,460 170,460 REA notes 1,301 1,339 Amount due within one year (77) (77) Net REA notes 1,224 1,262 American Falls bond guarantee 19,885 19,885 Milner Dam note guarantee 11,700 11,700 Unamortized premium/discount - Net (1,071) (1,330) Total long-term debt 854,198 49 808,977 48 TOTAL CAPITALIZATION $1,757,982 100 $1,679,359 100 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Statements of Cash Flows Six Months Ended June 30, 2001 2000 (Thousands of Dollars) OPERATING ACTIVITIES: Net income $ 73,012 $ 65,880 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Allowance for uncollectible accounts 20,174 - Unrealized losses (gains) from energy marketing activities (101,317) 3,545 Depreciation and amortization 48,297 44,895 Deferred taxes and investment tax credits 86,503 6,118 Undistributed earnings of affiliates (52) (4,151) Accrued PCA costs (127,031) (18,962) Changes in (net of effects of transfers to parent): Accounts receivable and prepayments 9,703 (33,684) Accrued unbilled revenue (2,714) (10,403) Materials and supplies and fuel stock (2,374) 763 Accounts payable 20,911 38,126 Taxes accrued (22,226) (5,756) Other current assets and liabilities 2,174 7,256 Other - net (6,355) (426) Net cash provided by (used in) operating activities (1,295) 93,201 INVESTING ACTIVITIES: Additions to utility plant (87,718) (53,838) Net cash of affiliates transferred to parent - (4,737) Other - net (2,443) (3,733) Net cash used in investing activities (90,161) (62,308) FINANCING ACTIVITIES: Proceeds from issuance of: First mortgage bonds 120,000 - Pollution control revenue bonds - 4,360 Retirement of first mortgage bonds (75,000) (80,000) Dividends on common stock (34,914) (34,921) Dividends on preferred stock (2,753) (2,912) Increase (decrease) in short-term borrowings 15,800 (4,467) Other - net (3,749) (185) Net cash provided by (used in) financing activities 19,384 (118,125) Net decrease in cash and cash equivalents (72,072) (87,232) Cash and cash equivalents at beginning of period 83,494 95,038 Cash and cash equivalents at end of period $ 11,422 $ 7,806 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ - $ 30,788 Interest (net of amount capitalized) 29,703 29,331 Net assets of affiliates transferred to parent as dividend - 22,090 Net assets transferred to parent for notes receivable 76,250 - The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Statements of Comprehensive Income Three Months Ended June 30, 2001 2000 (Thousands of Dollars) NET INCOME $ 34,785 $ 32,154 OTHER COMPREHENSIVE INCOME (LOSS): Unrealized gains (losses) on securities (net of tax of $156 and $184) 239 606 TOTAL COMPREHENSIVE INCOME $ 35,024 $ 32,760 The accompanying notes are an integral part of these statements. Six Months Ended June 30, 2001 2000 (Thousands of Dollars) NET INCOME $ 73,012 $ 65,880 OTHER COMPREHENSIVE INCOME (LOSS): Unrealized gains (losses) on securities (net of tax of ($925) and $95) (1,608) 743 TOTAL COMPREHENSIVE INCOME $ 71,404 $ 66,623 The accompanying notes are an integral part of these statements. Idaho Power Company Notes to the Consolidated Financial Statements On January 1, 2000 IPC's ownership interests in two subsidiaries were transferred to IDACORP at book value, total assets of $108 million and net assets of $22 million. Except as modified below, the Notes to the Consolidated Financial Statements of IDACORP also contained in this Form 10-Q are incorporated herein by reference insofar as they relate to IPC. Note 1 - Summary of Significant Accounting Policies Note 3 - Preferred Stock of Idaho Power Company Note 4 - Financing Note 5 - Commitments and Contingent Liabilities Note 6 - Regulatory Issues Note 7 - Derivative Financial Instruments 2. INCOME TAXES: IPC's effective tax rate for the first six months increased from 38.0 percent in 2000 to 39.7 percent in 2001. Reconciliations between the statutory income tax rate and the effective rates are as follows (in thousands of dollars): Six Months Ended June 30, 2001 2000 Amount Rate Amount Rate Computed income taxes based on statutory federal income tax rate $ 42,412 35.0% $ 37,186 35.0% Changes in taxes resulting from: Investment tax credits (1,552) (1.3) (1,542) (1.5) Repair allowance (1,400) (1.2) (1,400) (1.3) Pension expense (912) (0.8) (950) (0.9) State income taxes 5,667 4.7 5,145 4.8 Depreciation 3,799 3.1 3,461 3.3 Other 151 0.2 (1,534) (1.4) Total provision for federal and state income taxes $ 48,165 39.7% $ 40,366 38.0% 8. INDUSTRY SEGMENT INFOMRATION Based on the transfer of Energy Marekting discussed in Note 9, substantialble all of IPC consists of one operating segment, Utility Operations. The Utility Operations segment has two primary sources of income, the regulated operations of IPC and income from Bridger Coal Company, an unconsolidated joint venture also subject to regulation. IPC's regulated operations include the generation, transmission, distribution purchase and sale of electricity. 9. DISCONTINUED OPERATIONS Effective June 11, 2001, IPC transferred its wholesale electricity marketing operations ("Energy Marketing") to IDACORP Energy L.P. (IE). IE is a Delaware limited partnership with IDACORP, Inc. as its sole general partner and IDACORP Energy Services Co., a wholly owned subsidiary of IDACORP, Inc. as its sole limited partner. Energy Marketing net assets transferred consist primarily of energy trading contracts and trading accounts receivable and accounts payable. The results of operations of Energy Marketing were previously reported on IPC's Statements of Income as "Energy marketing activities - net." For all periods presented, Energy Marketing is reported as a discontinued operation. The Consolidated Financial Statements have been restated to conform to the discontinued operations presentation. In exchange for the transfer of Energy Marketing to IE, IPC received a partnership interest in IE, which was transferred to IDACORP in exchange for notes receivable from IDACORP totaling approximately $76 million. This amount approximates the historical book value of the transferred Energy Marketing net assets on May 31, 2001 of $21 million and retained intercompany tax liabilities of $55 million. The notes receivable are due over periods of one to ten years and will bear interest at IDACORP's overall variable short-term borrowing rate which was 4.56% at June 30, 2001. The net assets identified as part of the disposition of Energy Marketing are reported as "Net assets of discontinued operations" on IPC's consolidated balance sheet and consisted of the following at: May 31, December 31, 2001 2000 (Thousands of Dollars) Property, plant and equipment - net $ 551 $ 1,021 Investments and other property 864 382 Current assets 489,526 1,070,645 Current liabilities (481,762) (1,031,686) Other net noncurrent assets and liabilities 67,071 (2,660) Net assets of discontinued operations $ 76,250 $ 37,702 INDEPENDENT ACCOUNTANTS' REPORT Idaho Power Company Boise, Idaho We have reviewed the accompanying consolidated balance sheet and statement of capitalization of Idaho Power Company and subsidiaries as of June 30, 2001, and the related consolidated statements of income and comprehensive income for the three and six month periods ended June 30, 2001 and 2000 and consolidated statements of cash flows for the six month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet and statement of capitalization of Idaho Power Company and subsidiaries as of December 31, 2000, and the related consolidated statements of income, comprehensive income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet and statement of capitalization as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet and statement of capitalization from which it has been derived. DELOITTE & TOUCHE LLP Boise, Idaho July 27, 2001 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERTIONS In Management's Discussion and Analysis we explain the general financial condition and results of operations for IDACORP, Inc. and subsidiaries (IDACORP or the Company) and for Idaho Power Company and subsidiaries (IPC). IDACORP is a holding company formed in 1998 as the parent of IPC and several other entities. IPC is an electric utility with a service territory covering over 20,000 square miles in southern Idaho and eastern Oregon, and is the parent of Idaho Energy Resources, Co., a joint venturer in Bridger Coal Company, which supplies coal to IPC's Jim Bridger generating plant. Until June 2001, IPC also conducted electricity marketing operations. In that month, those operations were transferred to IDACORP's subsidiary IDACORP Energy. IPC's financial statements show these transferred operations as Discontinued Operations. IDACORP's other significant operating subsidiaries are: IDACORP Energy - marketer of electricity and natural gas in 31 states and two Canadian provinces; Ida-West Energy - independent power projects development and management; IdaTech - developer of integrated fuel cell systems; IDACORP Financial Services - affordable housing and other real estate investments; Rocky Mountain Communications (RMC) - commercial and residential Internet service provider; IDACOMM - provider of telecommunications services; IDACORP Services - products and services for homes and businesses. Except where we indicate otherwise, this discussion explains the material changes in results of operations and the financial condition of both IDACORP and IPC. This MD&A should be read in conjunction with the accompanying consolidated financial statements of both IDACORP and IPC. This discussion updates our MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2000. This discussion should be read in conjunction with the discussion in the annual report. FORWARD-LOOKING INFORMATION: In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), we are hereby filing cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of the Company and IPC in this quarterly report on Form 10-Q, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "anticipates", "believes", "estimates", "expects", "intends", "plans", "predicts", projects", "will likely result", "will continue", or similar expressions) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions, and uncertainties and are qualified in their entirety by reference to, and are accompanied by, the following important factors, which are difficult to predict, contain uncertainties, are beyond our control and may cause actual results to differ materially from those contained in forward- looking statements: prevailing governmental policies and regulatory actions, including those of the FERC, the IPUC, the OPUC, and the PUCN, with respect to allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operations and construction of plant facilities, recovery of purchased power and other capital investments, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs); the current energy situation in the western United States; economic and geographic factors including political and economic risks; changes in and compliance with environmental and safety laws and policies; weather conditions; population growth rates and demographic patterns; competition for retail and wholesale customers; pricing and transportation of commodities; market demand, including structural market changes; changes in tax rates or policies or in rates of inflation; changes in project costs; unanticipated changes in operating expenses and capital expenditures; capital market conditions; competition for new energy development opportunities; and legal and administrative proceedings (whether civil or criminal) and settlements that influence the business and profitability of the Company. Any forward-looking statement speaks only as of the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business, or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. RESULTS OF OPERATIONS In this section we discuss the factors that affected our earnings, beginning with a general overview, then discussing results for each of our operating segments. Earnings per share 2nd Quarter Year-to-date (EPS) 2001 2000 2001 2000 Utility operations $ 0.16 $ 0.40 $ 0.53 $ 1.13 Energy marketing 0.83 0.46 1.44 0.60 Other (0.03) 0.00 (0.08) 0.25 Total $ 0.96 $ 0.86 $ 1.89 $ 1.98 EPS from utility operations decreased due to increased power supply costs resulting from a decline in hydroelectric generating conditions and increased prices paid for purchased power. These increased costs are partially offset by increased general business revenues resulting from rate increases, customer growth and weather conditions, and the deferral of expenses related to our power cost adjustment mechanism. Our net income from energy marketing activities increased $14 million for the quarter and $31 million year-to-date, reflecting the expansion of marketing activities in terms of both volume and geographic area. EPS from IDACORP's other businesses decreased year-to-date due to the sale of our Hermiston project in 2000, which contributed approximately $0.22 per share in 2000 and due to increased losses at IdaTech and RMC in 2001. Utility Operations This section discusses IPC's utility operations, which are subject to regulation by, among others, the state regulatory commissions of Idaho and Oregon and the FERC. General Business Revenue The following table presents IPC's general business revenue and sales for the quarters and six months ended June 30, 2001 and 2000 (in thousands): 2nd Quarter Year-to-date Revenue MWH Revenue MWH 2001 2000 2001 2000 2001 2000 2001 2000 Residential $ 50,411 $ 43,890 829 847 $120,146 $104,751 2,177 2,085 Commercial 39,002 30,070 809 769 71,707 60,160 1,643 1,581 Industrial 38,037 33,179 998 1,228 68,570 64,887 2,062 2,496 Irrigation 28,757 32,029 571 840 28,905 32,584 573 852 Total $156,207 $139,168 3,207 3,684 $289,328 $262,382 6,455 7,014 Our general business revenue is dependent on many factors, including the number of customers we serve, the rates we charge, and economic and weather conditions. The increases in revenues in 2001 are due primarily to the following: our annual power cost adjustment increased average rates from Idaho customers subject to the PCA, resulting in increased revenues of $27 million for the quarter and $33 million year-to-date. We discuss the PCA in more detail below in "Regulatory Issues - PCA." population growth in our service territory increased our customer count by 2.5 percent. This increase resulted in a $2 million increase in revenues for the quarter and $5 million year-to-date. we implemented programs to reduce system load. Our load-reduction program with irrigators was the main factor in the reductions in sales to irrigation customers of 32 percent for the quarter and 33 percent year-to-date. These reductions decreased revenues approximately $10 million for both the quarter and year- to-date. weather and other usage factors increased sales to residential, commercial and small industrial customers by $3 million year-to-date. Heating degree-days, a common measure used in the utility industry to analyze demand, were above 2000 levels by 20 percent year-to- date. changes in contract provisions and sales volumes to certain large industrial customers resulted in decreased revenues from these customers of $2 million for the quarter and $3 million year-to-date. Off-system sales Off-system sales consist primarily of long-term sales contracts and opportunity sales of surplus system energy. The changes in 2001 are the result of two factors, substantial increases in electricity prices in the IPC region, offset by the decreased availability of excess energy due to poor hydroelectric generating conditions. 2nd Quarter Year-to-date $ (in MWHs (in $ (in MWHs (in thousands) thousands) thousands) thousands) 2001 2000 2001 2000 2001 2000 2001 2000 $58,650 $64,054 436 1,696 $113,898 $99,979 931 3,240 Power Supply Power supply components of income from operations include off-system sales (described above) and purchased power, fuel, and PCA expenses (analyzed below). Net power supply costs increased $29 million year-to-date. The portion of net power supply costs not recovered by the PCA and Oregon excess power cost mechanisms increased by $15 million for the quarter and $37 million year-to-date. Purchased power Purchased power expenses increased $68 million for the quarter and $180 million year-to-date. The increase for the quarter is due primarily to a 158 percent increase in the average cost per MWH purchased offset by a 35 percent decrease in MWH purchased, and the year-to-date increase is due primarily to a 206 percent increase in the average cost per MWH, offset by a 16 percent decrease in MWH purchased. The price increases are the result of the volatile western United States electricity markets. Purchased power volumes decreased in the second quarter due primarily to decreases in general business sales volume. 2nd Quarter Year-to-date $ (in MWHs (in $ (in MWHs (in thousands) thousands) thousands) thousands) 2001 2000 2001 2000 2001 2000 2001 2000 $169,419 $101,629 1,094 1,690 $294,706 $114,519 1,673 1,991 Fuel expense Fuel expenses increased moderately in 2001, due to increases in the average price of coal used. 2nd Quarter Year-to-date Thermal MWHs Thermal MWHs generated generated $ (in (in thousands) $ (in (in thousands) thousands) thousands) 2001 2000 2001 2000 2001 2000 2001 2000 $22,351 $20,056 1,697 1,669 $47,597 $44,715 3,648 3,629 PCA The PCA decreased $46 million for the quarter and $108 million year-to-date. The PCA expense component is related to our PCA regulatory mechanism, which increases expense when actual power supply costs are below the costs forecasted in the annual PCA filing, and decreases expense when actual power supply costs are above the forecast. In 2001, actual power supply costs have been significantly greater than forecasted, resulting in a large PCA credit. We discuss the PCA in more detail below in "Regulatory Issues." Other expenses Other operating and maintenance expenses decreased $2 million for the quarter and increased $3 million year-to- date. The decrease for the quarter is due primarily to a $2 million decrease in wheeling (transmission of electricity by others) related to declining sales for resale volumes. The year-to-date increase is the result of $2 million for increased maintenance at the Company's thermal operations, and $3 million of customer expenses, primarily for our new customer information system. Energy Marketing Energy marketing revenues increased $56 million for the quarter and $172 million year-to-date. This increase reflects the expansion of the marketing activities in both volume and geographic reach. Power marketing volumes increased by 27 percent over the prior year, primarily attributable to expansion into markets in Canada and the midwestern and southwestern United States. Energy marketing is now doing business in 31 states and two Canadian provinces. Energy marketing expenses increased $33 million for the quarter and $119 million year-to-date. The increase for the quarter is due primarily to increased transmission costs of $27 million. The year-to-date increase is due to increased transmission costs of $61 million, $20 million in reserves recorded in 2001 related to trading activities conducted with California entities in 2000, $11 million of expenses related to our exposure to losses from non-California trading counterparties, and a $27 million increase in general and administrative costs. We discuss the ongoing California energy situation, including its effect on operations and liquidity, below in "California Energy Situation." Other Diversified Operations Other diversified operations include the results of operations of IDACORP's diversified subsidiaries, including Ida-West Energy, IdaTech, IDACORP Financial Services, RMC, IDACOMM and IDACORP Services. Revenues Revenues from other diversified operations decreased $2 million for the quarter and $4 million year-to-date. Applied Power Company (APC), sold in January 2001, had contributed $4 million for the quarter and $8 million year- to-date in 2000. Loss of this revenue was partially offset by revenues from RMC, which we acquired in August 2000. RMC has $2 million of revenue in the quarter, and $4 million year-to-date. Expenses Other diversified operating expenses were about the same during the quarter, and increased slightly year-to-date. For the quarter, a $5 million decrease in expenses due to the sale of APC was offset by $3 million of expenses at RMC, which was acquired in August 2000, and $2 million from increased product development activities at IdaTech, our fuel cell technology subsidiary. Year-to-date, expense decreases of $9 million related to APC were more than offset by a $6 million increase from RMC and $4 million increase from IdaTech. Other Income IDACORP's other income decreased for year-to-date because in March 2000 we recorded a pre-tax gain of $14 million on the sale of our interest in the Hermiston Power Project, a 536- MW, gas-fired cogeneration project located near Hermiston, Oregon. Income Taxes IDACORP's income taxes increased for the quarter, due primarily to the increase in net income before taxes. IDACORP's income taxes were also affected by an increase in tax credits from affordable housing projects. IPC's income taxes decreased for the quarter and year-to-date, due primarily to decreases in net income before taxes. LIQUIDITY AND CAPITAL RESOURCES: Cash Flow IDACORP's net cash used by operations totaled $9 million for the six months ended June 30, 2001. The most significant factor affecting operating cash flows was increased power supply costs in excess of amounts recovered through the PCA rate adjustments. The balance in our PCA regulatory asset has increased $68 million for the quarter and $128 million year-to-date. In addition, power supply costs not recoverable through the PCA or Oregon excess power cost mechanism were $15 million for the quarter and $37 million year-to-date. Though cash flows from operations were positively affected when we begin realizing increased revenues from the May 2001 PCA adjustment (see "PCA" below). We also expect that continuing poor water conditions and high purchased power costs will result in power supply costs that continue to exceed the amounts we are recovering in rates in the 2001- 2002 PCA rate year. These conditions could have an adverse effect on our operating cash flows and may require additional short-term borrowing or other financing options. Working Capital The changes in IDACORP's customer receivables and accounts payable are attributed primarily to trading volumes and prices on settled energy trading contracts. The increase in IDACORP's allowance for uncollectible accounts of $20 million is due to additional reserves against settled energy trading contracts related to trading activities in the California markets. The remaining changes in working capital are attributed to timing and normal business activity. Cash Expenditures We forecast that internal cash generation after dividends will provide approximately 34 percent of total capital requirements in 2001 and 109 percent during the four-year period 2002-2005. We expect to finance our utility construction programs and other capital requirements with both internally generated funds and, to the extent necessary, externally financed capital. Financing Program At June 30, 2001, IPC had regulatory authority to incur up to $500 million of short-term indebtedness. At June 30, 2001, IPC's short term borrowing totaled $75.5 million. We have credit facilities established at both IPC and IDACORP. IPC has a $120 million multi-year revolving credit facility under which we pay a facility fee on the commitment, quarterly in arrears, based on IPC's First Mortgage Bond rating. We also established on April 27, 2001, a 364-day credit facility for up to $165 million in support of IPC's ongoing operations. Commercial paper may be issued subject to the regulatory maximum. IDACORP has separately established a $50 million three-year credit facility that expires in December 2001, and a $375 million 364-day credit facility that expires in March 2002. Under these facilities we pay a facility fee on the commitment, quarterly in arrears, based on IPC's First Mortgage Bond rating. At June 30, 2001, short-term borrowing on these facilities totaled $79 million. IDACORP currently has a $300 million shelf registration statement that can be used for the issuance of unsecured debt (including medium-term notes) and preferred or common stock. At June 30, 2001 none had been issued. In March 2000 IPC filed a $200 million shelf-registration statement that could be used for both first mortgage bonds (including medium-term notes), unsecured debt or preferred stock. In December 2000, $80 million of Secured Medium Term Notes were issued. Proceeds were used in January 2001 for the early redemption of $75 million of First Mortgage Bonds originally due in 2021. In March 2001, $120 million of Secured Medium Term Notes were issued. Proceeds were used to reduce short-term borrowing incurred in support of ongoing long-term construction requirements. At June 30, 2001, no amount remained to be issued on this shelf registration statement. OTHER MATTERS: Regulatory Issues: Idaho Power Cost Adjustment (PCA) IPC has a PCA mechanism that provides for annual adjustments to the rates we charge to our Idaho retail customers. These adjustments, which take effect annually in May, are based on forecasts of net power supply expenses. During the year, the difference between actual and forecasted costs is deferred with interest. The balance of this deferral, called a true-up, is then included in the calculation of the next year's PCA adjustment. In the 2001 PCA, the IPUC authorized IPC to recover approximately $168 million of costs through a rate increase effective May 1, 2001, representing 74 percent of IPC's $227 million request. The increase reflects an average 31.6 percent increase to rates. The IPUC will be conducting hearings on August 28 - 30 on the $59.1 million deferral of funds we requested to recover through the annual PCA. The IPUC is reviewing energy transactions between Idaho Power and IDACORP Energy. We have filed testimony stating that we conduct affiliate transactions in accordance with IPUC rules. We expect to receive a decision on the deferral funds by the end of September. The IPUC order does not address, and IPC is not accruing, a return on the deferred $59 million, but IPC has earned or paid a return on all previous PCA deferrals and intends to request a return on the deferred portion of this year's PCA. Although we are unable to predict the outcome of the IPUC's decision in this matter, we expect to be allowed recovery of the deferred $59 million. Of the $227 million requested by IPC, $185 million related to the true-up of power supply costs incurred in the 2000- 2001 PCA year and $42 million was for recovery of excess power supply costs forecasted in the 2001-2002 PCA year. The forecast amount, however, underestimates expected power supply costs in light of current water and market conditions; reservoir water is lower than forecast and electricity market prices have been higher than the assumptions used in the forecast. As part of the May 2001 PCA, the IPUC required IPC to implement a three-tiered rate structure for Idaho residential customers. The IPUC determined that the approved rates for residential customers should increase as a customer's electricity consumption increases. The residential rate increases are 14.4 percent for the first 800 kWh of usage, 28.8 percent for the next 1,200 kWh, and 62 percent for usage over 2,000 kWh. Oregon Excess Power Costs IPC filed an application with the OPUC to begin recovering extraordinary power supply costs for 2001 in its Oregon jurisdiction. On June 18, 2001, the OPUC approved new rates that will recover $0.8 million over the next year. Under the provisions of the deferred accounting statute, ORS757.259(6), annual rate recovery of deferred amounts is limited to $0.8 million or 3% of IPC's 2000 gross revenues in Oregon. New Idaho Legislation Idaho Senate Bill No. 1255, chapter 15, title 61, Idaho Code (the Act), was signed into law on April 10, 2001. It authorizes the IPUC to allow public utilities or their assignees to issue energy cost recovery bonds to finance, among other things, significant increases in the cost of electricity resulting from shortfalls in available hydroelectric power for which higher-cost replacement power must be substituted. The legislative intent of the Act is to provide utilities with a mechanism for recovery of these increased costs while leveling the rate impact of such increases on the utilities' customers. Energy cost recovery bonds must have an expected maturity date no later than five years after issuance and a legal maturity date no later than seven years after issuance. Under the Act, the IPUC may issue an energy cost financing order in favor of the utility, pursuant to which a charge, known as an energy cost bond charge, would be included on the bills of the utility's Idaho customers. The Act requires the energy cost bond charge to remain in effect until the energy cost recovery bonds are paid in full. In addition, the charge is subject to periodic adjustment to ensure the timely payment of principal and interest on the energy cost recovery bonds and the recovery of certain related expenses. An energy cost financing order creates energy cost property, which includes the right to receive revenues arising from the energy cost bond charge. Energy cost property may be sold or otherwise transferred to, among others, the assignee of the public utility that issues energy cost recovery bonds, and it may be pledged as security for such bonds. The Act requires that, before it issues an energy cost financing order, the IPUC must find that the public interest would be better served if increased costs reflected in a fuel or power cost adjustment and related expenses were recovered through the issuance of energy cost recovery bonds than if these amounts were recovered over a one-year period assuming a conventional financing. Before seeking to recover costs through the issuance of energy bonds, IPC must file with the IPUC a proposal to establish a threshold energy cost amount, or trigger. In June 2001, the IPUC approved IPC's application, establishing a one cent per kWh trigger amount. California Energy Situation As a component of IPC's non-utility energy trading activity in the state of California, IPC, in January 1999, entered into a participation agreement with the California Power Exchange (CalPX), a California non-profit public benefit corporation. The CalPX operates a wholesale electricity market in California by acting as a clearinghouse through which electricity is bought and sold. Pursuant to the participation agreement, IPC could sell power to the CalPX under the terms and conditions of the CalPX Tariff. Under the participation agreement, if a participant in the CalPX defaults on a payment to the exchange, the other participants are required to pay their allocated share of the default amount to the exchange. The allocated shares are based upon the level of trading activity, which includes both power sales and purchases, of each participant during the preceding 3-month period. On January 18, 2001, the CalPX sent IPC an invoice for $2.2 million - a "default share invoice" - as a result of an alleged Southern California Edison (SCE) payment default of $214.5 million for power purchases. We made this payment. On January 24, 2001, IPC terminated the participation agreement. On February 8, 2001, the CalPX sent a further invoice for $5.2 million, due February 20, 2001, as a result of alleged payment defaults by SCE, Pacific Gas and Electric Company (PG&E), and others. However, because the CalPX owed IPC $11.3 million for power sold to the CalPX in November and December 2000, IPC did not pay the February 8 invoice. IPC essentially discontinued energy trading with California entities in December 2000. IPC believes that the default invoices were not proper and that it owes no further amounts to the CalPX. IPC intends to pursue all available remedies in its efforts to collect amounts owed to it by the CalPX. On February 20, 2001, IPC filed a petition with FERC to intervene in a proceeding which requests the FERC to suspend the use of the CalPX charge back methodology and provides for further oversight in the CalPX's implementation of its default mitigation procedures. A preliminary injunction has been granted by a Federal Judge in the Federal District Court for the Central District of California enjoining the CalPX from declaring any CalPX participant in default under the terms of the CalPX Tariff. On March 9, 2001, the CalPX filed for Chapter 11 protection with the U.S. Bankruptcy Court, Central District of California. In April 2001, PG&E filed for bankruptcy. The CalPX and the California Independent System Operator (Cal ISO) were also creditors of PG&E. To the extent that PG&E's bankruptcy filing affects the collectibility of our receivables from the CalPX and Cal ISO our receivables from these entities are at greater risk. Also in April 2001, the FERC issued an order stating that it was establishing price mitigation for sales in the California wholesale electricity market. Subsequently, in its June 19, 2001 Order, the FERC expanded that price mitigation plan to the entire western United States electrically interconnected system. That plan included the potential for orders directing electricity sellers into California since October 2, 2000 to refund portions of their sales prices if the FERC determined that those prices were not just and reasonable, and therefore not in compliance with the Federal Power Act. The June 19th Order also required all buyers and sellers in the Cal ISO market during the subject time-frame, to participate in settlement discussions to explore the potential for resolution of these issues without further FERC action. The settlement discussions failed to bring resolution of the refund issue and as a result, the FERC Chief Judge has submitted a Report and Recommendation to the FERC recommending that the FERC adopt his methodology set forth in his report and set for evidentiary hearing an analysis of the Cal ISO's and the CalPX's spot markets to determine what refunds may be due upon application of that methodology. The Judge recommended that his methodology should be applied to all sellers except those who at the evidentiary hearing are able to demonstrate that their costs exceed the results of the recommended methodology. On July 25, 2001, the FERC issued an order establishing evidentiary hearing procedures related to the scope and methodology for calculating refunds related to transactions in the spot markets operated by the Cal ISO and the CalPX during the period October 2, 2000 through June 20, 2001. The Company's marketing and trading subsidiary, IDACORP Energy, will participate in this proceeding. As to potential refunds, if any, the Company believes that its exposure will be more than offset by amounts due it from California entities. In addition, the FERC order established another proceeding to explore whether there may have been unjust and unreasonable charges for spot market sales in the Pacific Northwest during the period December 25, 2000 through June 20, 2001. Regarding the issue of refunds in the Pacific Northwest, IPC will participate in this proceeding. It is difficult to determine the extent of any potential impact at this time because the proceeding is in the early stages and the issues remain to be developed. We will continue to monitor both proceedings to determine the impact on the Company. Effective June 11, 2001, IPC transferred its wholesale electricity marketing operations to IDACORP Energy L.P. IDACORP Energy is a Delaware limited partnership with IDACORP, Inc. as its sole general partner and IDACORP Energy Services Co., a wholly-owned subsidiary of IDACORP, Inc., as its sole limited partner. (See Note 9 to the Idaho Power Company financial statements.) Effective with the June 11 transfer, the outstanding receivables and payables with the CalPX and Cal ISO were assigned from IPC to IDACORP Energy. At June 30, 2001, the CalPX and Cal ISO owed $13 million and $31 million respectively for energy sales made to them by IPC in November and December 2000. In addition, at June 30, 2001, IDACORP Energy had accrued but not paid $24 million due to the Cal ISO as an offset to the outstanding receivable. IDACORP Energy has accrued a reserve of $44 million against these receivables and $7 million of other past due receivables (including less-than-investment grade receivables). These reserves were calculated taking into account the continued deterioration of the California energy markets and, for the less-than-investment-grade receivables, by using a model that estimates the probability of default and the estimated recovery amounts of such receivables. Counsel has been retained in connection with the CalPX and PG&E bankruptcies and FERC proceedings. Based on the reserves recorded as of June 30, 2001, the Company believes that the future collectibility of these receivables or any potential refunds ordered by the FERC would not have a significant impact on operations or liquidity. Energy Marketing Effective June 11, 2001, IPC transferred its wholesale electricity marketing operations to IDACORP Energy, L.P. (IE). Prior to June 11, all wholesale electric trading operations were conducted by IPC. IE is a Delaware limited partnership with IDACORP, Inc. as its sole general partner and IDACORP Energy Services Co., a wholly owned subsidiary of IDACORP, Inc. as its sole limited partner. Concurrent with the transfer, IE and IPC have entered into an Electricity Supply Management Services Agreement (Agreement). IPC has received approval of the Agreement from the IPUC, the OPUC and the FERC. Under the Agreement, IPC will continue to own, operate and maintain its electric generating equipment and transmission facilities (System Resources) and be responsible for system reliability. IE will manage and dispatch the System Resources to balance generation and load within the IPC operating area. When buying and selling energy, the high volatility of energy prices can have a significant impact on profitability. Also, counterparty creditworthiness is key to ensuring that transactions entered into withstand dramatic market fluctuations. To manage these risks while implementing our business strategy, the Company has risk management committees, comprised of Company officers, to oversee the risk management program as defined in the risk management policy. The program is intended to manage, within approved limits, commodity price risk, credit risk, and other risks related to the energy trading business. The aggregate potential daily loss in earnings from our energy trading activity as of June 30, 2001 is estimated to be $5.6 million at a 95 percent confidence interval and for a holding period of one business day (common industry parameters). This potential loss in earnings was estimated using an analytic value-at-risk methodology. This methodology computes value-at-risk based upon forward market prices and historical volatilities as of June 30, 2001. The value-at-risk is understood to be a statistical calculation of potential loss and not a forecast of expected loss and as such, is not guaranteed to occur. The confidence level and holding period imply that there is a five percent chance that the daily loss could exceed $5.6 million. The daily value-at-risk estimate is managed within approved limits and is reported daily to the Risk Management Committee. Power supply and demand management Our utility operations are being affected by the electricity market and generation conditions in the western United States. The tremendous unpredictability of prices for purchased power, along with increasing demand and reduced hydroelectric generation, have combined to produce substantial increases in our costs to supply power. We monitor the effect of streamflow conditions on Brownlee Reservoir, the water source for our three Hells Canyon hydroelectric facilities. In a typical year, these three projects combine to produce about half of our generated electricity. Inflows into Brownlee result from a combination of precipitation, storage and ground water conditions. Our most recent forecast for inflows into Brownlee during the April-July runoff period is 2.4 MAF. This compares to the 73-year median of 5.1 MAF and last year's 4.4 MAF. Hydro generation on IPC's system decreased 38 percent or 0.9 million MWH for the quarter and 43 percent or 2.2 million MWH year-to-date compared to 2000 because of these poor generating conditions. These conditions are expected to continue through this water year. These conditions have set in motion a number of programs to decrease our reliance on expensive wholesale power. These programs are designed to reduce overall energy use, decrease peak demand levels, and increase generation within our service territory. Significant programs include the following: IPC filed to site a 90-MW simple-cycle, natural gas- fired combustion turbine near Mountain Home, Idaho, targeting completion in September 2001. IPC has also sited mobile generators at various locations in Boise. These generators can supply up to 40 MW of additional generating capacity if the need arises. The IPUC approved a two-year agreement through which IPC will compensate its largest industrial customer, Astaris, for reducing its load by 50 MW. The load reduction, effective in April 2001, should provide IPC an additional 300,000 MWHs in 2001. In March 2001, the IPUC and OPUC approved a program that compensates large customers who voluntarily reduce load by at least one MW when requested to do so by IPC. The IPUC and OPUC have also approved a program that compensates irrigation customers capable of reducing usage by at least 100 MWh. The program is projected to reduce usage by 500,000 MWh, more than 25 percent of normal irrigation load. As part of the May 2001 PCA discussed above, the IPUC required IPC to implement a tiered rate structure for Idaho residential customers. This rate structure increases rates as a customer's usage increases. IPC is also studying residential and commercial conservation programs, e.g. fluorescent light bulbs, AC heat pump servicing, and methods of funding such programs. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is included in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Other Matters - Energy Marketing". Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Regular annual meeting of IDACORP'S stockholders, held May 17, 2001 in Boise, Idaho. (b) Directors elected at the meeting for a three-year term: Rotchford L. Barker Jon H. Miller Robert A. Tinstman Continuing Directors: Jan B. Packwood Roger L. Breezley Peter T. Johnson John B. Carley Peter S. O'Neill Jack K. Lemley Evelyn Loveless (c)(1)a) To elect three Director Nominees: Name For Withheld Total Voted Rotchford L. Barker 32,096,939 553,647 32,650,586 Jon H. Miller 31,954,676 695,910 32,650,586 Robert A. Tinstman 32,034,214 616,372 32,650,586 b) To amend the IDACORP 2000 Long-Term Incentive and Compensation Plan to approve the authorization of additional shares subject to the plan: Class of For Against Abstain Total Stock Voted Common 27,108,594 4,868,034 673,958 32,650,586 c) To amend the IDACORP 2000 Long-Term Incentive and Compensation Plan to increase Section 162(m) limits: Class of For Against Abstain Total Stock Voted Common 27,712,810 4,216,059 721,717 32,650,586 d) To ratify the selection of Deloitte & Touche LLP (D&T) as independent auditors for the fiscal year ending December 31, 2001. Class of For Against Abstain Total Stock Voted Common 32,096,848 346,731 207,007 32,650,586 Item 4. Submission of Matters to a Vote of Security Holders (a) Regular annual meeting of Idaho Power Company's stockholders, held May 17, 2001 in Boise, Idaho. (b) Directors elected at the meeting for a three-year term: Rotchford L. Barker Jon H. Miller Robert A. Tinstman Continuing Directors: Jan B. Packwood Roger L. Breezley Peter T. Johnson John B. Carley Peter S. O'Neill Jack K. Lemley Evelyn Loveless (c)(1)a) To elect three Director Nominees: Common 4% Preferred 7.68% Preferred Name For Withheld For Withheld For Witheld Rotchford L. Barker 37,612,351 - 1,946,594 43,080 124,467 715 Jon H. Miller 37,612,351 - 1,945,034 44,640 124,467 715 Robert A. Tinstman 37,612,351 - 1,943,434 46,240 124,467 715 b) To ratify the selection of Deloitte & Touche LLP (D&T) as independent auditors for the fiscal year ending December 31, 2001. Class of For Against Abstain Total Stock Voted Common 37,612,351 - - 37,612,351 4% Preferred 1,979,394 3,820 6,460 1,989,674 7.68% Preferred 124,782 400 - 125,182 Total 39,716,527 4,220 6,460 39,727,207 (2) Director Nominees Class of Stock For Withheld Total Voted Common 37,612,351 - 37,612,351 4% Preferred 1,943,434 46,240 1,989,674 7.68% Preferred 124,467 715 125,182 Total 39,680,252 46,955 39,727,207 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit File Number As Exhibit *2 333-48031 2 Agreement and Plan of Exchange between IDACORP, Inc., and IPC dated as of February 2, 1998. *3(a) 33-00440 4(a)(xiii) Restated Articles of Incorporation of IPC as filed with the Secretary of State of Idaho on June 30, 1989. *3(a)(i) 33-65720 4(a)(ii) Statement of Resolution Establishing Terms of Flexible Auction Series A, Serial Preferred Stock, Without Par Value (cumulative stated value of $100,000 per share) of IPC, as filed with the Secretary of State of Idaho on November 5, 1991. *3(a)(ii) 33-65720 4(a)(iii) Statement of Resolution Establishing Terms of 7.07% Serial Preferred Stock, Without Par Value (cumulative stated value of $100 per share) of IPC, as filed with the Secretary of State of Idaho on June 30, 1993. *3(a)(iii) 1-3198 3(a)(iii) Articles of Amendment to Form 10-Q Restated Articles of for 6/30/00 Incorporation of IPC as filed with the Secretary of State of Idaho on June 15, 2000. *3(b) 1-3198 3(c) By-laws of IPC amended on Form 10-Q September 9, 1999, and for 9/30/99 presently in effect. *3(c) 33-56071 3(d) Articles of Share Exchange, as filed with the Secretary of State of Idaho on September 29, 1998. *3(d) 333-64737 3.1 Articles of Incorporation of IDACORP, Inc. *3(e) 333-64737 3.2 Articles of Amendment to Articles of Incorporation of IDACORP, Inc. as filed with the Secretary of State of Idaho on March 9, 1998. *3(f) 333-00139 3(b) Articles of Amendment to Articles of Incorporation of IDACORP, Inc. creating A Series Preferred Stock, without par value, as filed with the Secretary of State of Idaho on September 17, 1998. *3(g) 1-14465 3(c) Amended Bylaws of IDACORP, Inc. Form 10-Q as of July 8, 1999. for 6/30/99 *4(a)(i) 2-3413 B-2 Mortgage and Deed of Trust, dated as of October 1, 1937, between IPC and Bankers Trust Company and R. G. Page, as Trustees. *4(a)(ii) IPC Supplemental Indentures to Mortgage and Deed of Trust: Number Dated 1-MD B-2-a First July 1, 1939 2-5395 7-a-3 Second November 15, 1943 2-7237 7-a-4 Third February 1, 1947 2-7502 7-a-5 Fourth May 1, 1948 2-8398 7-a-6 Fifth November 1, 1949 2-8973 7-a-7 Sixth October 1, 1951 2-12941 2-C-8 Seventh January 1, 1957 2-13688 4-J Eighth July 15, 1957 2-13689 4-K Ninth November 15, 1957 2-14245 4-L Tenth April 1, 1958 2-14366 2-L Eleventh October 15, 1958 2-14935 4-N Twelfth May 15, 1959 2-18976 4-O Thirteenth November 15, 1960 2-18977 4-Q Fourteenth November 1, 1961 2-22988 4-B-16 Fifteenth September 15,1964 2-24578 4-B-17 Sixteenth April 1, 1966 2-25479 4-B-18 Seventeenth October 1, 1966 2-45260 2(c) Eighteenth September 1, 1972 2-49854 2(c) Nineteenth January 15, 1974 2-51722 2(c)(i) Twentieth August 1, 1974 2-51722 2(c)(ii) Twenty-first October 15, 1974 2-57374 2(c) Twenty-second November 15, 1976 2-62035 2(c) Twenty-third August 15, 1978 33-34222 4(d)(iii) Twenty-fourth September 1, 1979 33-34222 4(d)(iv) Twenty-fifth November 1, 1981 33-34222 4(d)(v) Twenty-sixth May 1, 1982 33-34222 4(d)(vi) Twenty-seventh May 1, 1986 33-00440 4(c)(iv) Twenty-eighth June 30, 1989 33-34222 4(d)(vii) Twenty-ninth January 1, 1990 33-65720 4(d)(iii) Thirtieth January 1, 1991 33-65720 4(d)(iv) Thirty-first August 15, 1991 33-65720 4(d)(v) Thirty-second March 15, 1992 33-65720 4(d)(vi) Thirty-third April 1, 1993 1-3198 4 Thirty-fourth December 1, 1993 Form 8-K Dated 12/17/93 1-3198 4 Thirty-fifth November 1, 2000 Form 8-K Dated 11/21/00 *4(b) 33-65720 10(c) Instruments relating to IPC American Falls bond guarantee. (see Exhibit 10(c)). *4(c) 33-65720 4(f) Agreement of IPC to furnish certain debt instruments. *4(d) 33-00440 2(a)(iii) Agreement and Plan of Merger dated March 10, 1989, between Idaho Power Company, a Maine Corporation, and Idaho Power Migrating Corporation. *4(e) 1-14465 4 Rights Agreement, dated as of Form 8-K September 10, 1998, between dated IDACORP, Inc. and the Bank of September 15, New York as Rights Agent. 1998 *10(a) 2-49584 5(b) Agreements, dated September 22, 1969, between IPC and Pacific Power & Light Company relating to the operation, construction and ownership of the Jim Bridger Project. *10(a)(i) 2-51762 5(c) Amendment, dated February 1, 1974, relating to operation agreement filed as Exhibit 10(a). *10(b) 2-49584 5(c) Agreement, dated as of October 11, 1973, between IPC and Pacific Power & Light Company. *10(c) 33-65720 10(c) Guaranty Agreement, dated March 1, 1990, between IPC and West One Bank, as Trustee, relating to $21,425,000 American Falls Replacement Dam Bonds of the American Falls Reservoir District, Idaho. *10(d) 2-62034 5(r) Guaranty Agreement, dated as of August 30, 1974, between IPC and Pacific Power & Light Company. *10(e) 2-56513 5(i) Letter Agreement, dated January 23, 1976, between IPC and Portland General Electric Company. *10(e)(i) 2-62034 5(s) Agreement for Construction, Ownership and Operation of the Number One Boardman Station on Carty Reservoir, dated as of October 15, 1976, between Portland General Electric Company and IPC. *10(e)(ii) 2-62034 5(t) Amendment, dated September 30, 1977, relating to agreement filed as Exhibit 10(e). *10(e)(iii) 2-62034 5(u) Amendment, dated October 31, 1977, relating to agreement filed as Exhibit 10(e). *10(e)(iv) 2-62034 5(v) Amendment, dated January 23, 1978, relating to agreement filed as Exhibit 10(e). *10(e)(v) 2-62034 5(w) Amendment, dated February 15, 1978, relating to agreement filed as Exhibit 10(e). *10(e)(vi) 2-68574 5(x) Amendment, dated September 1, 1979, relating to agreement filed as Exhibit 10(e). *10(f) 2-68574 5(z) Participation Agreement, dated September 1, 1979, relating to the sale and leaseback of coal handling facilities at the Number One Boardman Station on Carty Reservoir. *10(g) 2-64910 5(y) Agreements for the Operation, Construction and Ownership of the North Valmy Power Plant Project, dated December 12, 1978, between Sierra Pacific Power Company and IPC. *10(h)(i) 1-3198 10(n)(i) The Revised Security Plan for Form 10-K Senior Management Employees - a for 1994 non-qualified, deferred compensation plan effective August 1, 1996. *10(h)(ii) 1-3198 10(n)(ii) The Executive Annual Incentive Form 10-K Plan for senior management for 1994 employees of IPC effective January 1, 1995. *10(h)(iii) 1-3198 10(n)(iii) The 1994 Restricted Stock Plan Form 10-K for officers and key executives for 1994 of IDACORP, Inc. and IPC effective July 1, 1994. *10(h)(iv) 1-14465 10(h)(iv) The Revised Security Plan for 1-3198 Board of Directors - a non- Form 10-K qualified, deferred for 1998 compensation plan effective August 1, 1996, revised March 2, 1999. *10(h) (v) 14465 10(e) IDACORP, Inc. Non-Employee Form 10-Q Directors Stock Compensation for 6/30/99 Plan as of May 17, 1999. *10(h)(vi) 1-3198 10(y) Executive Employment Agreement Form 10-K dated November 20, 1996 between for 1997 IPC and Richard R. Riazzi. *10(h)(vii) 1-3198 10(g) Executive Employment Agreement Form 10-Q dated April 12, 1999 between for 6/30/99 IPC and Marlene Williams. *10(h)(viii) 1-14465 10(h) Agreement between IDACORP, Inc. Form 10-Q and Jan B. Packwood, J. LaMont for 9/30/99 Keen, James C. Miller, Richard Riazzi, Darrel T. Anderson, Bryan Kearney, Cliff N. Olson, Robert W. Stahman and Marlene K. Williams. 10(h)(ix) IDACORP, Inc. 2000 Long-Term Incentive and Compensation Plan. *10(i) 33-65720 10(h) Framework Agreement, dated October 1, 1984, between the State of Idaho and IPC relating to IPC's Swan Falls and Snake River water rights. *10(i)(i) 33-65720 10(h)(i) Agreement, dated October 25, 1984, between the State of Idaho and IPC relating to the agreement filed as Exhibit 10(i). *10(i)(ii) 33-65720 10(h)(ii) Contract to Implement, dated October 25, 1984, between the State of Idaho and IPC relating to the agreement filed as Exhibit 10(i). *10(j) 33-65720 10(m) Agreement Regarding the Ownership, Construction, Operation and Maintenance of the Milner Hydroelectric Project (FERC No. 2899), dated January 22, 1990, between IPC and the Twin Falls Canal Company and the Northside Canal Company Limited. *10(j)(i) 33-65720 10(m)(i) Guaranty Agreement, dated February 10, 1992, between IPC and New York Life Insurance Company, as Note Purchaser, relating to $11,700,000 Guaranteed Notes due 2017 of Milner Dam Inc. 12 Statement Re: Computation of Ratio of Earnings to Fixed Charges. (IDACORP, Inc.) 12(a) Statement Re: Computation of Supplemental Ratio of Earnings to Fixed Charges. (IDACORP, Inc.) 12(b) Statement Re: Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividend Requirements. (IDACORP, Inc.) 12(c) Statement Re: Computation of Supplemental Ratio of Earnings to Combined Fixed Charges and Preferred Dividend Requirements. (IDACORP, Inc.) 12(d) Statement Re: Computation of Ratio of Earnings to Fixed Charges. (IPC) 12(e) Statement Re: Computation of Supplemental Ratio of Earnings to Fixed Charges. (IPC) 12(f) Statement Re: Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividend Requirements. (IPC) 12(g) Statement Re: Computation of Supplemental Ratio of Earnings to Combined Fixed Charges and Preferred Dividend Requirements. (IPC) 15 Letter Re: Unaudited Interim Financial Information. 21 Subsidiaries of IDACORP, Inc. and IPC. 1Compensatory plan (b)Reports on Form 8-K. The following reports on Form 8-K were filed for the three months ended June 30, 2001. Items Reported Date of Filed By Report Item 2 - Acquisition or Disposition of Assets June 11, 2001 IPC Item 7 - Financial statements and exhibits * Previously filed and Incorporated herein by Reference. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IDACORP, Inc. (Registrant) Date August 3, 2001 By: /s/ J LaMont Keen J LaMont Keen Senior Vice President Administration and Chief Financial Officer (Principal Financial Officer) Date August 3, 2001 By: /s/ Darrel T Anderson Darrel T Anderson Vice President-Finance and Treasurer (Principal Accounting Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IDAHO POWER COMPANY (Registrant) Date August 3, 2001 By: /s/ J LaMont Keen J LaMont Keen Senior Vice President Administration and Chief Financial Officer (Principal Financial Officer) Date August 3, 2001 By: /s/ Darrel T Anderson Darrel T Anderson Vice President-Finance and Treasurer (Principal Accounting Officer)