2 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 For the quarterly period ended March 31, 1999 OR 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 incorporation, address of Commission principal executive offices, I.R.s. Employer File 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 March 31, 1999: IDACORP, Inc.: 37,612,351 Idaho Power Company: 37,612,351 shares, all of which are held by IDACORP, Inc. Index Page Definitions 2 Part I. Financial Information: Item 1. Financial Statements IDACORP, Inc. Consolidated Statements of Income 3 IDACORP, Inc. Consolidated Balance Sheets 4-5 IDACORP, Inc. Consolidated Statements of Capitalization 6 IDACORP, Inc. Consolidated Statements of Cash Flows 7 IDACORP, Inc. Notes to Consolidated Financial Statements 8-11 Independent Accountants' Report 12 Idaho Power Company Consolidated Statements of Income 13 Idaho Power Company Consolidated Balance Sheets 14-15 Idaho Power Company Consolidated Statements of Capitalization 16 Idaho Power Company Consolidated Statements of Cash Flows 17 Idaho Power Company Notes to Consolidated Financial Statements 18-19 Independent Accountants' Report 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21-27 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K 28-31 Signatures 32-33 DEFINITIONS FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission IPUC Idaho Public Utilities Commission OPUC Oregon Public Utilities Commission kWh kilowatt-hour MAF Million Acre-Feet MMbtu Million British Thermal Units MWh Megawatt-hour PCA Power Cost Adjustment REA Rural Electrification Administration SFAS Statement of Financial Accounting Standards PUCN Public Utility Commission of Nevada 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 and include, but are not limited to, statements under the heading "Other Matters" concerning the outcome of IDACORP, Inc.'s and Idaho Power Company's Year 2000 efforts. PART I - FINANCIAL INFORMATION Item 1. Financial Statements IDACORP, Inc. Consolidated Statements of Income Three Months Ended March 31, 1999 1998 (Thousands of Dollars except for per share amounts) REVENUES: General business $ 129,692 $ 112,223 Off system sales 37,510 45,591 Other revenues 6,947 9,534 Total revenues 174,149 167,348 EXPENSES: Operation: Purchased power 17,888 24,170 Fuel expense 22,020 20,720 Power cost adjustment 9,007 475 Other 32,767 32,947 Maintenance 7,883 9,028 Depreciation 19,171 18,895 Taxes other than income 5,584 5,344 taxes Total expenses 114,320 111,579 INCOME FROM OPERATIONS 59,829 55,769 OTHER INCOME: Allowance for equity funds 157 - used during construction Energy trading activities - Net 748 (328) Other - Net 2,235 2,101 Total other income 3,140 1,773 INTEREST EXPENSE AND OTHER: Interest on long-term debt 13,395 13,037 Other interest 2,229 2,086 Allowance for borrowed funds used during construction (224) (161) Preferred dividends of Idaho Power Company 1,368 1,405 Total interest expense and other 16,768 16,367 INCOME BEFORE INCOME TAXES 46,201 41,175 INCOME TAXES 16,700 13,125 NET INCOME $ 29,501 $ 28,050 AVERAGE COMMON SHARES OUTSTANDING (000) 37,612 37,612 EARNINGS PER SHARE OF COMMON STOCK (basic and diluted) $ 0.78 $ 0.75 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Balance Sheets Assets March 31, December 31, 1999 1998 (Thousands of Dollars) ELECTRIC PLANT: In service (at original cost) $ 2,676,592 $ 2,659,441 Accumulated provision for depreciation (1,028,346) (1,009,387) In service - Net 1,648,246 1,650,054 Construction work in progress 64,783 59,717 Held for future use 1,742 1,738 Electric plant - Net 1,714,771 1,711,509 INVESTMENTS AND OTHER PROPERTY 129,467 129,437 CURRENT ASSETS: Cash and cash equivalents 12,870 22,867 Receivables: Customer 74,256 81,245 Allowance for uncollectible accounts (1,397) (1,397) Natural gas 59,062 21,426 Notes 4,616 4,643 Employee notes 4,462 4,510 Other 6,609 6,059 Accrued unbilled revenues 26,736 34,610 Materials and supplies (at average cost) 31,534 30,157 Fuel stock (at average cost) 8,748 7,096 Prepayments 14,759 16,042 Regulatory assets associated with income taxes 2,965 2,965 Total current assets 245,220 230,223 DEFERRED DEBITS: American Falls and Milner water rights 31,830 31,830 Company-owned life insurance 42,481 35,149 Regulatory assets associated with income taxes 201,596 201,465 Regulatory assets - other 50,669 62,013 Other 49,764 49,994 Total deferred debits 376,340 380,451 TOTAL $ 2,465,798 $ 2,451,620 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Balance Sheets Capitalization and Liabilities March 31, December 31, 1999 1998 (Thousands of Dollars) CAPITALIZATION: Common stock equity: Common stock without par value (shares authorized 120,000,000; shares outstanding - 37,612,351) $ 451,185 $ 451,564 Retained earnings 290,641 278,607 Accumulated other comprehensive income 226 226 Total common stock equity 742,052 730,397 Preferred stock of Idaho Power Company 105,955 105,968 Long-term debt 734,757 815,937 Total capitalization 1,582,764 1,652,302 CURRENT LIABILITIES: Long-term debt due within one year 86,346 6,029 Notes payable 26,712 38,524 Accounts payable 47,738 73,499 Accounts payable - natural gas 47,522 28,476 Taxes accrued 44,503 24,785 Interest accrued 17,713 18,365 Deferred income taxes 2,965 2,965 Other 13,866 12,275 Total current liabilities 287,365 204,918 DEFERRED CREDITS: Regulatory liabilities associated with deferred investment 68,859 69,396 tax credits Deferred income taxes 422,375 422,196 Regulatory liabilities 28,075 28,075 associated with income taxes Regulatory liabilities - other 960 4,161 Other 75,400 70,572 Total deferred credits 595,669 594,400 COMMITMENTS AND CONTINGENT LIABILITIES TOTAL $ 2,465,798 $ 2,451,620 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Statements of Capitalization March 31, December 31, 1999 % 1998 % (Thousand of Dollars) COMMON STOCK EQUITY Common stock $ 451,185 $ 451,564 Retained earnings 290,641 278,607 Accumulated other comprehensive income 226 226 Total common stock equity 742,052 47 730,397 44 PREFERRED STOCK OF IDAHO POWER COMPANY 4% preferred stock 15,955 15,968 7.68% Series, serial preferred 15,000 15,000 stock 7.07% Series, serial preferred 25,000 25,000 stock Auction rate preferred stock 50,000 50,000 Total preferred stock 105,955 7 105,968 7 LONG-TERM DEBT OF IDAHO POWER COMPANY First mortgage bonds: 8.65 % Series due 2000 80,000 80,000 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 Maturing 2021 through 2031 with rates ranging from 7.5% to 9.52% 230,000 230,000 Total first mortgage bonds 557,000 557,000 Amount due within one year (80,000) - Net first mortgage bonds 477,000 557,000 Pollution control revenue bonds: 7 1/4 % Series due 2008 4,360 4,360 8.30 % Series 1984 due 2014 49,800 49,800 6.05 % Series 1996A due 2026 68,100 68,100 Variable Rate Series 1996B 24,200 24,200 due 2026 Variable Rate Series 1996C 24,000 24,000 due 2026 Total pollution control 170,460 170,460 revenue bonds REA notes 1,471 1,489 Amount due within one year (74) (74) Net REA notes 1,397 1,415 American Falls bond guarantee 20,130 20,130 Milner Dam note guarantee 11,700 11,700 Debt related to investments in affordable housing with 61,227 62,103 rates ranging from 6.97% to 8.59% due 1999 to 2009 Amount due within one year (6,272) (5,955) Net affordable housing debt 54,955 56,148 Unamortized premium/discount-Net (1,515) (1,539) Net Idaho Power Company debt 734,127 815,314 OTHER SUBSIDIARY DEBT 630 623 Total long-term debt 734,757 46 815,937 49 TOTAL CAPITALIZATION $1,582,764 100 $1,652,302 100 The accompanying notes are an integral part of these statements. IDACORP, Inc. Consolidated Statements of Cash Flows Three Months Ended March 31, 1999 1998 (Thousands of Dollars) OPERATING ACTIVITIES: Net income $ 29,501 $ 28,050 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,383 21,654 Deferred taxes and investment (489) 1,997 tax credits Accrued PCA costs 12,185 502 Change in: Accounts receivable and (29,839) (1,752) prepayments Accrued unbilled revenue 7,874 9,516 Materials and supplies and (3,029) (1,717) fuel stock Accounts payable (6,715) (22,193) Taxes accrued 19,718 13,969 Other current assets and 939 (1,172) liabilities Other - net (6,408) (6,007) Net cash provided by operating 47,120 42,847 activities INVESTING ACTIVITIES: Additions to utility plant (21,637) (21,324) Investments in affordable (2,906) (5,000) housing projects Investments in company owned (7,332) - life insurance Other - net 5,317 2,226 Net cash used in investing (26,558) (24,098) activities FINANCING ACTIVITIES: Proceeds from issuance of: Long-term debt related to - 4,084 affordable housing projects Retirement of long-term debt (877) (116) Dividends on common stock (17,468) (17,490) Decrease in short-term (11,812) (8,700) borrowings Other - net (402) (94) Net cash used in financing (30,559) (22,316) activities Net decrease in cash and cash (9,997) (3,567) equivalents Cash and cash equivalents 22,867 6,905 beginning of period Cash and cash equivalents at end $ 12,870 $ 3,338 of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 514 $ 1,200 Interest (net of amount $ 14,844 $ 15,102 capitalized) The accompanying notes are an integral part of these statements IDACORP, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nature of Business IDACORP, Inc. (IDACORP or the Company), a holding company formed in 1998, is the parent of Idaho Power Company (IPC), Ida-West Energy Company, IDACORP Energy Solutions Co., IDACORP Energy Services Co. and IDACORP Technologies, Inc. On October 1, 1998 IPC's outstanding common stock was converted on a share-for- share basis into common stock of the Company. However, IPC's preferred stock and debt securities outstanding were unaffected and remain with IPC. IPC, a public utility, represents over 90% of the total assets of the Company and is its principal operating subsidiary. 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. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 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 March 31, 1999, and its consolidated results of operations and cash flows for the three months ended March 31, 1999 and 1998. These financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters which would be included in full year financial statements and, therefore, they should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 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. Accounting for Contracts Involved in Energy Trading and Risk Management Activities The Company adopted Emerging Issues Task Force 98-10 "Accounting for Contracts Involved in Energy Trading Activities," (EITF 98-10) effective January 1, 1999. The consensus establishes standards for designating between energy contracts and energy trading contracts and accounting for each. Energy trading contracts are measured at fair value as of the balance sheet date with the resulting gains and losses reported in the income statement. The resulting impact on net income of adoption was immaterial. Related to the adoption of EITF 98-10, the Company has begun reporting electricity trading activity net (netting revenues and expenses) in "Other Income-Energy trading activities" on the Consolidated Statements of Income. Prior periods have been reclassified to conform with the current period's presentation with no impact to net income. Derivative Financial Instruments The Company uses financial instruments such as commodity forwards, futures, options and swaps to hedge against exposure to commodity price risk in the electricity and natural gas markets as well as to optimize its energy trading portfolio. The accounting for derivative financial instruments is in accordance with the concepts established in SFAS No. 80, "Accounting for Futures Contracts," American Institute of Certified Public Accountants Statement of Position 86-2, "Accounting for Options," and recently issued EITF 98-10. Gains and losses from derivative instruments designed to hedge energy trading contracts as defined by EITF 98-10 are recognized in income on a current basis along with the gains and losses of the hedged transaction. Additionally, gains and losses on derivative transactions not qualifying as a hedge are recognized currently in income. Cash flows from derivatives are recognized in the statement of cash flows as an operating activity. Comprehensive Income For the three-month periods ended March 31, 1999 and 1998, the Company's comprehensive income was not materially different from net income. The components of comprehensive income include net income, the Company's proportionate share of unrealized holding gains on marketable securities held by an equity investee, and the changes in additional minimum liability under a deferred compensation plan for certain senior management employees and directors. Reclassifications Certain items previously reported for periods prior to March 31, 1999 have been reclassified to conform with the current period's presentation. Net income was not affected by these reclassifications. 2. INCOME TAXES: The Company's effective tax rate for the first three months increased from 31.9 percent in 1998 to 36.1 percent in 1999. Reconciliations between the statutory income tax rate and the effective rates for the three- month periods ended March 31, 1999 and 1998 are as follows: 1999 1998 Amount Rate Amount Rate Computed income taxes based on statutory federal income tax rate $16,170 35.0% $14,411 35.0% Changes in taxes resulting from: Current state income taxes 2,438 5.3 1,715 4.2 Net depreciation 1,360 2.9 1,350 3.3 Investment tax credits restored (739) (1.6) (729) (1.8) Removal costs (119) (0.3) (653) (1.6) Repair allowance (525) (1.1) (782) (1.9) Affordable housing credits (2,272) (4.9) (1,593) (3.9) Preferred dividends 479 1.0 492 1.2 Other (92) (0.2) (1,086) (2.6) Total $16,700 36.1% $13,125 31.9% 3. PREFERRED STOCK OF IDAHO POWER COMPANY: The number of shares of IPC preferred stock outstanding were as follows: March 31, December 31, 1999 1998 Cumulative, $100 par value: 4% preferred stock (authorized 215,000 159,549 159,680 shares) Serial preferred stock, 7.68% Series 150,000 150,000 (authorized 150,000 shares) Serial preferred stock, cumulative, without par value; total of 3,000,000 shares authorized: 7.07% Series, $100 stated value, 250,000 250,000 (authorized 250,000 shares) Auction rate preferred stock, $100,000 stated value, (authorized 500 shares) 500 500 4. FINANCING: The Company currently has a $300.0 million shelf registration statement that can be used for the issuance of unsecured debt securities and preferred or common stock. At March 31, 1999, none had been issued. IPC currently has a $200.0 million shelf registration statement with a balance of $83.0 million remaining to be issued. This can be used for first mortgage bonds (including medium term notes) or preferred stock. 5. COMMITMENTS AND CONTINGENT LIABILITIES: Commitments under contracts and purchase orders relating to the Company's program for construction and operation of facilities amounted to approximately $12.0 million at March 31, 1999. The commitments are generally revocable by the Company subject to reimbursement of manufacturers' expenditures incurred and/or other termination charges. The Company is party to various legal claims, actions, and complaints, certain of which 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. 6. REGULATORY ISSUES: PCA IPC has a PCA mechanism that provides for annual adjustments to the rates charged to Idaho retail customers. These adjustments, which take effect annually on May 16, are based on forecasts of net power supply costs and the true-up of the prior year's forecast. The difference between the actual costs incurred and the forecasted costs is deferred, with interest, and trued-up in the next annual rate adjustment. In the current rate period, actual power supply costs have been less than forecast, due to better than forecast hydroelectric generating conditions. IPC has recorded a reduction to regulatory assets of $15.3 million as of March 31, 1999. Regulatory Settlement Under the terms of an IPUC Settlement in effect through 1999, when earnings in IPC's Idaho jurisdiction exceed an 11.75 percent return on year-end common equity, 50 percent of the excess is set aside for the benefit of Idaho retail customers. On April 7, 1999 IPC submitted the 1998 annual earnings sharing compliance filing to the IPUC. This filing indicated that there was almost $6.4 million in earnings available for the benefit of IPC's Idaho customers. The 1997 filing was for $7.6 million. Some of the 1998 amount has already been committed by the IPUC for recovery of costs in cases currently pending. Recommendations regarding the disbursement of any remaining 1998 sharing amounts, have not yet been made to the IPUC. Demand-Side Management (Conservation) Expenses IPC has obtained changes to the regulatory treatment of previously deferred demand-side management (DSM) expenses in both Idaho and Oregon. In Idaho, IPC requested that the IPUC allow for the recovery of post-1993 DSM expenses and acceleration of the recovery of DSM expenditures authorized in the last general rate case. In its Order No. 27660 issued on July 31, 1998, the IPUC set a new amortization period of 12 years instead of the 24-year period previously adopted. The IPUC order reflects an increase in annual Idaho retail revenue requirements of $3.1 million for 12 years. Per Order No. 27660 issued July 31, 1998, IPC is funding the annual revenue requirement with revenue sharing amounts until May 16, 1999. A group of industrial customers has appealed the IPUC order to the Idaho Supreme Court. In December 1998, IPC filed with the IPUC a request to recover remaining deferred DSM expenditures of approximately $2.1 million. The IPUC conducted a hearing on this matter in March 1999. In the filing IPC requested that the amount be applied against 1998 earnings sharing amounts. A decision is pending. In Oregon, the OPUC authorized a five-year amortization of the Oregon-allocated share of DSM expenditures incurred through 1997. The DSM charge replaces an expiring rate surcharge related to extraordinary power supply costs associated with past drought conditions. IPC anticipates that the charge will recover approximately $540,000 per year. 7. NEW ACCOUNTING PRONOUNCEMENT: In June 1998 the FASB issued SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative financial instruments and other similar instruments and for hedging activities. It is effective for fiscal years beginning after June 15, 1999. The Company is reviewing this statement to determine its effects on the Company's financial position and results of operations. 8. DERIVATIVE FINANCIAL INSTRUMENTS The notional amount of open commodity derivative positions as of March 31, 1999 was a net long electricity position of 3 MW and a net short natural gas position of 178 BCF. The loss in fair value of commodity derivative positions (including natural gas and electricity forwards, futures, options and swaps) included in income as of March 31, 1999 was $(0.7) million. 9. INDUSTRY SEGMENT INFORMATION: IDACORP's dominant operating segment is the regulated utility operations of IPC. IDACORP's non-utility operating segments do not individually constitute more than 10% of enterprise revenues, income or assets, nor in aggregate do they comprise more than 25% of enterprise revenues, income or assets. IPC's primary business is the generation, transmission, distribution, purchase and sale of electricity. Substantially all of the Company's revenue comes from the sale of electricity and related services, predominately in the United States. The Company also sells natural gas, solar electric products and systems, control systems integration services for substations and semiconductor manufacturing, and miscellaneous other services. These revenues, however, are not significant. The following table summarizes the segment information for IPC utility operations, with a reconciliation to total enterprise information: IPC Total Utility Other Enterprise (Thousands of Dollars) Three Months Ended March 31, 1999 Revenues $174,149 $ - $174,149 Net income 28,122 1,379 29,501 Total assets 2,258,807 206,991 2,465,798 Three Months Ended March 31, 1998 Revenues $167,348 $ - $167,348 Net income 27,237 813 28,050 Total assets 2,334,607 112,639 2,447,246 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 March 31, 1999, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 1999 and 1998. 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 making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and statement of capitalization of IDACORP, Inc. and subsidiaries as of December 31, 1998, 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 January 29, 1999, 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, 1998 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 April 30, 1999 Idaho Power Company Consolidated Statements of Income Three Months Ended March 31, 1999 1998 (Thousands of Dollars) REVENUES: General business $ 129,692 $ 112,223 Off system sales 37,510 45,591 Other revenues 6,947 9,534 Total revenues 174,149 167,348 EXPENSES: Operation: Purchased power 17,888 24,170 Fuel expense 22,020 20,720 Power cost adjustment 9,007 475 Other 32,767 32,947 Maintenance 7,883 9,028 Depreciation 19,171 18,895 Taxes other than 5,584 5,344 income taxes Total expenses 114,320 111,579 INCOME FROM OPERATIONS 59,829 55,769 OTHER INCOME: Allowance for equity 157 - funds used during construction Energy trading 726 (328) activities - Net Other - Net 1,952 2,101 Total other income 2,835 1,773 INTEREST CHARGES Interest on long-term 13,360 13,037 debt Other interest 2,162 2,086 Allowance for borrowed funds used during (224) (161) construction Total interest 15,298 14,962 charges INCOME BEFORE INCOME 47,366 42,580 TAXES INCOME TAXES 16,582 13,125 NET INCOME 30,784 29,455 Dividends on preferred 1,368 1,405 stock EARNINGS ON COMMON STOCK $ 29,416 $ 28,050 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Balance Sheets Assets March 31, December 31, 1999 1998 (Thousands of Dollars) ELECTRIC PLANT: In service (at original cost) $ 2,676,592 $ 2,659,441 Accumulated provision for (1,028,346) (1,009,387) depreciation In service - Net 1,648,246 1,650,054 Construction work in progress 63,390 58,904 Held for future use 1,742 1,738 Electric plant - Net 1,713,378 1,710,696 INVESTMENTS AND OTHER PROPERTY 104,860 105,600 CURRENT ASSETS: Cash and cash equivalents 7,381 20,029 Receivables: Customer 74,252 81,227 Allowance for uncollectible (1,397) (1,397) accounts Natural gas - 21,426 Notes 370 467 Employee notes 4,462 4,510 Other (includes $99 from related parties in 1998 and 7,533 8,502 $909 in 1999) Accrued unbilled revenues 26,736 34,610 Materials and supplies (at 31,445 30,143 average cost) Fuel stock (at average cost) 8,748 7,096 Prepayments 14,680 16,011 Regulatory assets associated 2,965 2,965 with income taxes Total current assets 177,175 225,589 DEFERRED DEBITS: American Falls and Milner water 31,830 31,830 rights Company-owned life insurance 42,481 35,149 Regulatory assets associated 201,596 201,465 with income taxes Regulatory assets - other 50,669 62,013 Other 49,213 49,448 Total deferred debits 375,789 379,905 TOTAL $ 2,371,202 $ 2,421,790 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Balance Sheets Capitalization and Liabilities March 31, December 31, 1999 1998 (Thousands of Dollars) CAPITALIZATION: Common stock equity: Common stock, $2.50 par value (50,000,000 shares authorized; $ 94,031 $ 94,031 37,612,351 shares outstanding) Premium on capital stock 362,158 362,156 Capital stock expense (3,823) (3,823) Retained earnings 264,063 252,137 Accumulated other 226 226 comprehensive income Total common stock equity 716,655 704,727 Preferred stock 105,955 105,968 Long-term debt 734,757 815,937 Total capitalization 1,557,367 1,626,632 CURRENT LIABILITIES: Long-term debt due within one 86,346 6,029 year Notes payable 10,702 38,508 Accounts payable 45,231 72,660 Accounts payable-natural gas - 28,476 Taxes accrued 44,977 25,164 Interest accrued 17,682 18,364 Deferred income taxes 2,965 2,965 Other 13,704 12,117 Total current liabilities 221,607 204,283 DEFERRED CREDITS: Regulatory liabilities associated with deferred investment 68,859 69,396 tax credits Deferred income taxes 420,642 420,268 Regulatory liabilities 28,075 28,075 associated with income taxes Regulatory liabilities - other 960 4,161 Other 73,692 68,975 Total deferred credits 592,228 590,875 COMMITMENTS AND CONTINGENT LIABILITIES TOTAL $ 2,371,202 $ 2,421,790 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Statements of Capitalization March 31, December 31, 1999 % 1998 % (Thousands of Dollars) COMMON STOCK EQUITY Common stock $ 94,031 $ 94,031 Premium on capital stock 362,158 362,156 Capital stock expense (3,823) (3,823) Retained earnings 264,063 252,137 Accumulated other 226 226 comprehensive income Total common stock equity 716,655 46 704,727 43 PREFERRED STOCK 4% preferred stock 15,955 15,968 7.68% Series, serial 15,000 15,000 preferred stock 7.07% Series, serial 25,000 25,000 preferred stock Auction rate preferred stock 50,000 50,000 Total preferred stock 105,955 7 105,968 7 LONG-TERM DEBT First mortgage bonds: 8.65 % Series due 2000 80,000 80,000 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 Maturing 2021 through 2031 with rates ranging from 230,000 230,000 7.5% to 9.52% Total first mortgage bonds 557,000 557,000 Amount due within one year (80,000) - Net first mortgage bonds 477,000 557,000 Pollution control revenue bonds: 7 1/4% Series due 2008 4,360 4,360 8.30 % Series 1984 due 2014 49,800 49,800 6.05 %Series 1996A due 2026 68,100 68,100 Variable Rate Series 1996B 24,200 24,200 due 2026 Variable Rate Series 1996C 24,000 24,000 due 2026 Total pollution control 170,460 170,460 revenue bonds REA notes 1,471 1,489 Amount due within one year (74) (74) Net REA notes 1,397 1,415 American Falls bond guarantee 20,130 20,130 Milner Dam note guarantee 11,700 11,700 Debt related to investments in affordable housing with 61,227 62,103 rates ranging from 6.97% to 8.59% due 1999 to 2009 Amount due within one year (6,272) (5,955) Net affordable housing 54,955 56,148 debt Other subsidiary debt 630 623 Unamortized premium/discount (1,515) (1,539) - - Net Total long-term debt 734,757 47 815,937 50 TOTAL CAPITALIZATION $1,557,367 100 $1,626,632 100 The accompanying notes are an integral part of these statements. Idaho Power Company Consolidated Statements of Cash Flows Three Months Ended March 31, 1999 1998 (Thousands of Dollars) OPERATING ACTIVITIES: Net income $ 30,784 $ 29,455 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,339 21,654 Deferred taxes and investment (294) 1,997 tax credits Accrued PCA costs 12,185 502 Change in: Accounts receivable and 30,847 (1,752) prepayments Accrued unbilled revenue 7,874 9,516 Materials and supplies and (2,955) (1,717) fuel stock Accounts payable (55,905) (22,193) Taxes accrued 19,813 13,969 Other current assets and 905 (1,172) liabilities Other - net (5,416) (6,007) Net cash provided by operating 61,177 44,252 activities INVESTING ACTIVITIES: Additions to utility plant (21,057) (21,324) Investments in affordable (2,906) (5,000) housing projects Investments in company owned (7,332) - life insurance Other - net 5,032 2,226 Net cash used in investing (26,263) (24,098) activities FINANCING ACTIVITIES: Proceeds from issuance of long- term debt related to affordable housing - 4,084 projects Retirement of long-term debt (877) (116) Dividends on common stock (17,490) (17,490) Dividends on preferred stock (1,368) (1,405) Decrease in short-term (27,806) (8,700) borrowings Other - net (21) (94) Net cash used in financing (47,562) (23,721) activities Decrease in cash and cash (12,648) (3,567) equivalents Cash and cash equivalents 20,029 6,905 beginning of period Cash and cash equivalents at end $ 7,381 $ 3,338 of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 9 $ 1,200 Interest (net of amount $ 14,810 $ 15,102 capitalized) The accompanying notes are an integral part of these statements. IDAHO POWER COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On October 1, 1998, IDACORP, Inc. (IDACORP) became the parent of Idaho Power Company and its subsidiaries (IPC). At that time IPC's ownership interests in two subsidiaries were transferred to IDACORP at book value. IPC's March 31, 1998 Statement of Consolidated Income includes $0.5 million of net income attributable to the transferred subsidiaries. In 1999 the gas trading operations of IPC were transferred to another subsidiary of IDACORP. The subsidiary assumed the accounts receivable and accounts payable related to gas operations, and IPC recorded the transfer as a reduction of accounts receivable from the subsidiary. IPC's Consolidated Balance Sheet as of December 31, 1998 included $21.4 million of assets and $28.4 million of liabilities related to gas operations. Except as modified below, the Notes to the Consolidated Financial Statements of IDACORP also contained in this 10-Q Report 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 - New Accounting Pronouncement 2. INCOME TAXES: IPC's effective tax rate for the first three months increased from 30.8 percent in 1998 to 35.0 percent in 1999. Reconciliations between the statutory income tax rate and the effective rates for the three -month periods ended March 31, 1999 and 1998 are as follows: 1999 1998 Amount Rate Amount Rate Computed income taxes based on statutory federal income tax rate $16,578 35.0% $14,903 35.0% Changes in taxes resulting from: Current state income taxes 2,438 5.1 1,715 4.0 Net depreciation 1,360 2.9 1,350 3.2 Investment tax credits restored (739) (1.6) (729) (1.7) Removal costs (119) (0.3) (653) (1.5) Repair allowance (525) (1.1) (782) (1.8) Affordable housing credit (2,272) (4.8) (1,593) (3.7) Other (139) (0.2) (1,086) (2.7) Total $16,582 35.0% $13,125 30.8% 8. DERIVATIVE FINANCIAL INSTRUMENTS: The notional amount of open commodity derivative positions as of March 31, 1999 was a net long electricity position of 3 MW. The loss in fair value of commodity derivative positions (including electricity forwards, futures, options and swaps) included in income as of March 31, 1999 was $(1.3) million. 9. INDUSTRY SEGMENT INFORMATION: IPC's dominant operating segment is its regulated utility operations. IPC's non-utility operating segments do not individually constitute more than 10% of enterprise revenues, income or assets, nor in aggregate do they comprise more than 25% of enterprise revenues, income or assets. IPC's primary business is the generation, transmission, distribution, purchase and sale of electricity. Substantially all of IPC's revenue comes from the sale of electricity and related services, predominately in the United States. IPC subsidiaries also sell solar electric products and systems, control systems integration services for substations and semiconductor manufacturing, and miscellaneous other services. These revenues, however, are not significant. The following table summarizes the segment information for the regulated electric operations, with a reconciliation to total enterprise information: Regulated Electric Total Operations Other Enterprise (Thousands of Dollars) Three Months Ended March 31, 1999 Revenues $ 174,149 $ - $ 174,149 Net income 28,122 2,662 30,784 Total assets 2,258,807 112,395 2,371,202 Three Months Ended March 31, 1998 Revenues $ 167,348 $ - $ 167,348 Net income 27,237 2,218 29,455 Total assets 2,334,607 112,639 2,447,246 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 March 31, 1999, and the related consolidated statements of income and cash flows for the three month periods ended March 31, 1999 and 1998. 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 making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and statement of capitalization of Idaho Power Company and subsidiaries as of December 31, 1998, 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 January 29, 1999, 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, 1998 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 April 30, 1999 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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). IPC, an electric utility, is IDACORP's principal operating subsidiary, accounting for over 90 percent of IDACORP's assets, revenue and net income. Unless we indicate otherwise, this discussion explains the material changes in results of operations and the financial condition of both the Company and IPC. This discussion should be read in conjunction with the accompanying consolidated financial statements for the quarters ending March 31, 1999 and 1998. This discussion updates the discussion that we included in our Annual Report on Form 10-K for the year ended December 31, 1998. This discussion should be read in conjunction with the discussion in the annual report. We have reclassified our electricity trading activities from "Off system sales" and "Purchased power" to "Energy trading activities - net" on the Consolidated Statements of Income for the quarters ending March 31, 1999 and 1998. This change was made to more clearly report the results of our utility operations and our energy trading activities. 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, operation 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); - - 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; - - Year 2000 issues; - - 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, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. 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 Earnings Per Share and Book Value Earnings per share of common stock (basic and diluted) was $0.78 for the quarter ended March 31, 1999, an increase of $0.03 (4.0 percent) from the same quarter last year. At March 31, 1999, the book value per share of IDACORP common stock was $19.73, compared to $19.20 at the same date in 1998. General Business Revenue Our general business revenue is dependent on many factors, including the number of customers we serve, the rates we charge, and weather conditions (temperature and precipitation) in our service territory. Compared to the first quarter of 1998, the number of general business customers we served increased 3.1 percent. This increase was due primarily to economic growth in our service territory. Our revenue per MWh increased 10.4 percent for the quarter ended March 31, 1999, compared to 1998. Changes in revenue per MWh result from the annual rate adjustments authorized by regulatory authorities. These adjustments are discussed below in "PCA" and "Regulatory Settlement." Temperatures in the first quarter were cooler in 1999 than in 1998, which contributed to increased sales of energy. Heating degree days, a common measure used in the utility industry to analyze demand, were 10.5 percent above 1998 levels. Compared to 1998, the average Kwh's sold per general business customer increased 1.6 percent. The combination of these factors resulted in a $17.5 million (15.6 percent) increase in general business revenue for the quarter compared to 1998. Off System Sales Off-system sales are comprised of long-term sales contracts and opportunity sales made when we have surplus energy available. The $8.1 million (17.7 percent) decrease in off-system revenue is due primarily to a 17.7 percent decrease in MWhs sold, which resulted from reduced market opportunities. Expenses Purchased power expenses decreased $6.3 million (26.0 percent) for the quarter. This decrease is due primarily to a 45.5 percent decrease in MWhs purchased, offset by an increase in the price per MWh. The decrease in MWh purchased results from decreased availability of economically advantageous purchases. Fuel expenses increased $1.3 million (6.3 percent), due primarily to an increase in the average cost of coal used at our coal-fired power plants. The PCA component of expenses increased $8.5 million. The PCA 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 the first quarter of 1999, actual power supply costs were well below what had been forecast; in the first quarter of 1998 actual power supply costs were near the forecast. The 1998-99 forecast used to set the 1998-99 PCA rate adjustment, anticipated near-normal streamflow conditions. Actual conditions have been better than forecasted and are discussed below in "Streamflow Conditions." We discuss the PCA in more detail below in "PCA." Maintenance expenses decreased $1.1 million (12.7 percent). This decrease is due primarily to a decrease in expenses at our coal- fired generating facilities. Other The increase in other income is due primarily to improved margins on energy trading. Income taxes increased due primarily to increased net income before taxes and the impact of a tax settlement which reduced expenses in 1998. LIQUIDITY AND CAPITAL RESOURCES Cash Flow For the three months ended March 31, 1999, IDACORP generated $47.1 million in net cash from operations. After deducting for dividends, net cash generation from operations provided approximately $29.7 million for our construction program and other capital requirements. Cash Expenditures We estimate that our cash construction program for 1999 will require approximately $115.5 million. This estimate is subject to revision in light of changing economic, regulatory, environmental, and conservation factors. During the first three months of 1999, we spent approximately $21.6 million for construction. Our primary financial commitments and obligations are related to contracts and purchase orders associated with ongoing construction programs. To the extent required, we expect to finance these commitments and obligations by using both internally generated funds and externally financed capital. At March 31, 1999, our short-term borrowings totaled $26.7 million. Financing Program IDACORP has a $300.0 million shelf registration statement that can be used for the issuance of unsecured debt securities and preferred or common stock. At March 31, 1999, none had been issued. IPC has a $200 million shelf registration statement that can be used for both First Mortgage Bonds (including Medium Term Notes) and Preferred Stock of which $83 million remains available at March 31, 1999. Our objective is to maintain capitalization ratios of approximately 45 percent common equity, 5 to 10 percent preferred stock, and the balance in long-term debt. For the twelve-month period ended March 31, our consolidated pre-tax interest coverage was 3.27 times. REGULATORY ISSUES 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 on May 16, are based on forecasts of net power supply costs and the true-up of the prior year's forecast. The difference between the actual costs incurred and the forecasted costs is deferred, with interest, and trued-up in the next annual rate adjustment. In the current rate period, actual power costs have been less than forecast, due to better than forecast hydroelectric generating conditions. For the rate period we have recorded a reduction to regulatory assets of $15.3 million as of March 31, 1999. On April 15, 1999, we filed a request with the IPUC to implement the annual PCA. If approved, the adjustment would reduce all Idaho residential customer electricity rates by seven percent. The decrease results from projected above-average hydroelectric generating conditions and the true-up of the 1998-99 rate period. Overall, IPC's annual general business revenues are expected to decrease by $40.4 million. Regulatory Settlement IPC has a settlement agreement with the IPUC that remains in effect through 1999. Under the terms of the settlement, when earnings in our Idaho jurisdiction exceed an 11.75 percent return on year-end common equity, we set aside 50 percent of the excess for the benefit of our Idaho retail customers. On April 7, 1999 we submitted our 1998 annual earnings sharing compliance filing to the IPUC. This filing indicated that there was almost $6.4 million in earnings available for the benefit of our Idaho customers. Our 1997 and 1996 filings were for $7.6 million and $4.9 million, respectively. Some of the 1998 amount has already been committed by the IPUC for recovery of costs in cases currently pending. We have not made any recommendations to the IPUC regarding the disbursement of any remaining 1998 sharing amounts. OTHER MATTERS: Energy Trading Energy trading activity, which includes both electricity and natural gas, is reported on a fair value basis with gains and losses recorded in other income. Inherent in the energy trading business are risks related to market movements and the creditworthiness of counterparties. When buying and selling energy, the high volatility of energy prices can have a significant impact on profitability if not managed. Also, counterparty creditworthiness is key to ensuring that transactions entered into withstand dramatic market fluctuations. To mitigate these risks while implementing our business strategy, the Board of Directors gave approval for executive management to form a Risk Management Committee, comprised of officers of IDACORP and subsidiaries, to oversee a risk management program. The program is intended to minimize fluctuations in earnings while managing the volatility of energy prices. Embedded within the Risk Management policy and procedures is a credit policy requiring a credit evaluation of all counterparties before doing business with them. The objective of our risk management program is to mitigate commodity price risk, credit risk, and other risks related to the energy trading business. Streamflow Conditions We monitor the effect of streamflow conditions on Brownlee Reservoir, the water source for our three Hells Canyon hydroelectric projects. 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. The National Weather Service is projecting that April-July 1999 inflow into Brownlee Reservoir, Idaho Power's key water storage facility, will be 7.36 MAF, compared to the 70-year median of 4.9 MAF and 1998's 8.8 MAF. Year 2000 Costs Many existing computer systems use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. Unless proper modifications are made, the program logic in many of these systems will start to produce erroneous results because, among other things, the systems will read the date "01/01/00" as being January 1 of the year 1900 or another incorrect date. In addition, the systems may fail to detect that the year 2000 is a leap year. Similar problems could arise prior to the year 2000 as dates in the next millennium are entered into systems that are not Year 2000 compliant. We recognize the Year 2000 problem as a serious threat to the Company and our customers. Our Year 2000 effort has been underway for over two years and is being addressed at the highest levels within the Company. IPC's Vice President of Corporate Services is responsible for coordinating the corporate effort. IPC vice presidents and affiliate presidents are responsible for addressing the problem within their respective business units and each has assigned a Year 2000 Project Leader to execute the project plan. Each subsidiary President is responsible for addressing the problem within their subsidiary in coordination with the corporate effort. In addition, we have appointed a full- time Year 2000 Project Manager to direct the project. Additional staff has been committed to complete the conversion and implementation needed to bring non-compliant items into compliance. This staff consists of a mix of end users, IPC Information Services staff and contract programmers. Currently, there are over 20 full-time employees devoted to the project with dozens of others involved to varying degrees. We have retained third parties who have completed technical and legal audits of our plan. With respect to the technical audit, we have implemented the recommendations as recommended by the Y2K Steering Committee. The legal audit recommendations are also being implemented. We have targeted July 1999 as the date by which we expect to be ready for the Year 2000. This means that all critical systems are expected to be capable of handling the century rollover and that we will be able to continue servicing our customers without interruption. It also means that all of the less critical systems are expected to have been identified and that contingency and/or repair plans are expected to be in place for dealing with the change of century. We are following a detailed project plan. The methodology is modeled after those used by some of the top companies in the world and has been adapted to meet our unique requirements. This process includes all the phases and steps commonly found in such plans, including the (i) identification and analysis of critical systems, key manufacturers, service providers, embedded systems, generation plants, (parts of which are owned by IPC but is operated by another electric utility), (ii) remediation and testing, (iii) education and awareness and (iv) contingency planning. With respect to that key component of the methodology related to the identification of critical systems, we have identified those critical systems that must be Year 2000 compliant in order to continue operations. Many are already compliant or are in the process of vendor upgrades to become compliant. The largest of these critical systems and their status regarding compliance are set forth below: System Description Status Business The business systems include the PeopleSoft Systems financial and administrative and PassPort functions common to most companies. are both Business systems include accounts compliant payable, general ledger, accounts vendor receivable, labor entry, inventory, packages. purchasing, cash management, Testing to budgeting, asset management, verify payroll, and financial reporting. compliance is complete. Customer This system is used to bill In-house Information customers, log calls from customers system has System and create service or work requests been and track them through completion, repaired; among other things. At this time, testing is the Company uses an in-house underway, developed, mainframe-based Customer with a Information System to accomplish projected these tasks. July 1999 completion date. Energy The most critical function the The packages Management Company offers is the delivery of comprising System electricity from the source to the the EMS are consumer. This must be done with fully minimal interruption in the midst of compliant high demand, weather anomalies and with the equipment failures. To accomplish latest this, the Company relies on a server- releases. based energy management system Testing and provided by Landis & Gyr. This rollout are system monitors and directs the over 50% delivery of electricity throughout complete and the Company's service area. will be completed in the second quarter of 1999. Metering The Company relies on several In-house Systems processes for metering electricity code has usage, including some hand-held been devices with embedded chips. It is repaired and critical for metering systems to tested. operate without interruption so as Vendor not to jeopardize the Company's packages are revenue stream. being upgraded. Testing is underway with completion scheduled for the second quarter of 1999. Embedded There is a category of systems on Testing is Systems which the Company is highly reliant about 90% called embedded systems. These are complete. typically computer chips that provide for automated operations within some device other than a computer such as a relay or a security system. The Company is highly reliant on these systems throughout its generation and delivery systems to monitor and allow manual or automatic adjustments to the desired devices. Those devices with chips that were not Year 2000 compliant, where the chip affected the application of the device, were replaced. Other The Company also relies on a number In various Systems of other important systems to stages of support engineering, human repair and resources, safety and regulatory testing. compliance, etc. Regarding third parties, the plan methodology has required us to identify those third parties with which we have a material relationship. We have identified as material (1) our ownership interest in thermal generating facilities which are operated and maintained by third party electric utilities; (2) our fuel suppliers for those thermal generating facilities; and (3) our telecommunication providers. In addition, we have identified 93 key manufacturers that provide materials and supplies to us. With respect to the thermal plants, fuel suppliers and telecommunication providers, the plan methodology includes a process wherein some members of the Year 2000 team meet periodically with the third parties to assess the status of their efforts. This is an ongoing process and will continue until such time as the third party has completed compliance testing and certified to us that they are compliant. Regarding the 93 key manufacturers we have contacted all via mail and requested they complete a survey indicating the extent and status of their Year 2000 efforts. The survey is followed up with contact by telephone if necessary. We are over 90% complete with that effort. Finally, we are connected to an electric grid that connects utilities throughout the western portion of North America. This interconnection is essential to the reliability and operational integrity of each connected utility. This also means that failure of one electric utility in the interconnected grid could cause the failure of others. In the context of the Year 2000 problem, this interconnectivity compounds the challenge faced by the electric utility industry. Our Company could do a very thorough and effective job of becoming Year 2000 compliant and yet encounter difficulties supplying services and energy because another utility in the interconnected grid failed to achieve Year 2000 compliance. In this regard, we are working closely with other electric industry organizations concerned with reliability issues and technical collaboration. As part of this collaboration we participated and successfully completed our roles in a nationwide Y2K drill for electric utilities, held on April 9, 1999. Our estimate of the cost of our Year 2000 plan remains at approximately $5.3 million. This includes costs incurred to date of approximately $2.3 million and estimated costs through the year 2000. This level of expenditure is not expected to have any material effect on our operations or our financial position. Funds to cover Year 2000 costs in 1999 have been budgeted by business entity and within the Information Services Department with approximately 10 percent of the Information Services budget used for remediation. No information services department projects have been deferred due to the Company's year 2000 efforts. The Year 2000 issue poses risks to our internal operations due to the potential inability to carry on our business activities and from external sources due to the potential impact on the ability of our customers to continue their business activities. The major applications that pose the greatest risks internally are those systems, embedded or otherwise, which impact the generation, transmission and distribution of energy and the metering and billing systems. The potential risks related to these systems are electric service interruptions to customers and associated reduction in loads and revenue and interrupted data gathering and billing and the resultant delay in receipt of revenues. All of this would negatively impact our relationship with our customers that may enhance the likelihood of losing customers in a restructured industry. Externally, those customers that inadequately prepare for the Year 2000 issue may be unable to continue their business activities. This would affect us in a number of ways. Our loads and revenue would be reduced because of the lost load from discontinued business activities, and customers which lose jobs because of discontinued business activities may face difficulties in paying their power bills. The impact of this on us is dependent upon the number and the size of those businesses that are forced to discontinue business activities because of the Year 2000 issue. As part of our Year 2000 plan, we are in the process of developing contingency plans and expect to complete this process on or before July 1999. New Accounting Pronouncement In June 1998 the FASB issued SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative financial instruments and other similar instruments and for hedging activities. It is effective for fiscal years beginning after June 15, 1999. We are reviewing this statement to determine its effects on our financial position and results of operations. 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(b) 33-41166 4(b) Waiver resolution to Restated Articles of Incorporation of IPC adopted by Shareholders on May 1, 1991. *3(c) 33-00440 4(a)(xiv) By-laws of IPC amended on June 30, 1989, and presently in effect. *3(d) 33-56071 3(d) Articles of Share Exchange of IDACORP, Inc. as filed with the Secretary of State of Idaho on September 29, 1998. *3(e) 333-64737 3.1 Articles of Incorporation of IDACORP, Inc. *3(f) 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(g) 333-00139 3(b) Articles of Amendment to Restated 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(h) 333-48031 3(c) Amended Bylaws of IDACORP, Inc. as of September 10, 1998. *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: IPC 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 16, 1993 1-3198 4 Thirty-fourth December 1, 1993 Form 8-K Dated 12/17/93 *4(b) 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) 33-65720 4(e) Rights Agreement dated January 11, 1990, between IPC and First Chicago Trust Company of New York, as Rights Agent (The Bank of New York, successor Rights Agent). *4(e)(i) 1-3198 4(e)(i) Agreement dated as of January 30, Form 10-K 1998, related to agreement filed as for 1997 Exhibit 4(e). *4(f) 1-14465 4 Rights Agreement, dated as of Form 8-K September 10, 1998, between dated IDACORP, Inc. and the Bank of New September York as Rights Agent. 15, 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 1-3198 10(n)(i) The Revised Security Plan for Form 10-K Senior Management Employees - a non- for 1994 qualified, deferred compensation plan effective August 1, 1996. *10(h)(ii) 1 1-3198 10(n)(ii) The Executive Annual Incentive Plan Form 10-K for senior management employees of for 1994 IPC effective January 1, 1995. *10(h)(iii) 1 1-3198 10(n)(iii) The 1994 Restricted Stock Plan for Form 10-K officers and key executives of for 1994 IDACORP, Inc. and IPC effective July 1, 1994. *10(h)(iv) 1 1-14465 10(h)(iv) The Revised Security Plan for Board 1-3198 of Directors - a non-qualified, Form 10-K deferred compensation plan For 1998 effective August 1, 1996, revised March 2, 1999. *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. *10(k) 1-3198 10(y) Executive Employment Agreement Form 10-K dated November 20, 1996 between IPC for 1997 and Richard R. Riazzi. 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. 27(a) Financial Data Schedule for IDACORP, Inc. 27(b) Financial Data Schedule for IPC. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the three month period ended March 31, 1999. *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 May 10, 1999 By: /s/ J LaMont Keen J LaMont Keen Senior Vice President Administration and Chief Financial Officer (Principal Financial Officer) Date May 10, 1999 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 May 10, 1999 By: /s/ J LaMont Keen J LaMont Keen Senior Vice President Administration and Chief Financial Officer (Principal Financial Officer) Date May 10, 1999 By: /s/ Darrel T. Anderson Darrel T. Anderson Vice President Finance and Treasurer (Principal Accounting Officer) _______________________________ 1 Compensatory plan