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IDAHO POWER CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Source: 
Edgar Glimpses

In Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in this report, the general financial condition and results of operations for IDACORP, Inc. and its subsidiaries (collectively, IDACORP) and Idaho Power Company and its subsidiary (collectively, Idaho Power) are discussed. While reading the MD&A, please refer to the accompanying condensed consolidated financial statements of IDACORP and Idaho Power. Also refer to "Cautionary Note Regarding Forward-Looking Statements" in this report for important information regarding forward-looking statements made in this MD&A and elsewhere in this report. This discussion updates the MD&A included in IDACORP's and Idaho Power's Annual Report on Form 10-K for the year ended December 31, 2019, (2019 Annual Report) and should also be read in conjunction with the information in that report. The results of operations for an interim period generally will not be indicative of results for the full year, particularly in light of the seasonality of Idaho Power's sales volumes, as discussed below.

INTRODUCTION

IDACORP is a holding company formed in 1998 whose principal operating subsidiary is Idaho Power. IDACORP's common stock is listed and trades on the New York Stock Exchange under the trading symbol "IDA". Idaho Power is an electric utility whose rates and other matters are regulated by the Idaho Public Utilities Commission (IPUC), Public Utility Commission of Oregon (OPUC), and Federal Energy Regulatory Commission (FERC). Idaho Power generates revenues and cash flows primarily from the sale and distribution of electricity to customers in its Idaho and Oregon service areas, as well as from the wholesale sale and transmission of electricity. Idaho Power experiences its highest retail energy sales during the summer irrigation and cooling season, with a lower peak in the winter that generally results from heating demand. Idaho Power is the parent of Idaho Energy Resources Co. (IERCo), a joint venturer in Bridger Coal Company (BCC), which mines and supplies coal to the Jim Bridger generating plant (Jim Bridger plant) owned in part by Idaho Power. IDACORP's other significant subsidiaries include IDACORP Financial Services, Inc., an investor in affordable housing and other real estate investments, and Ida-West Energy Company, an operator of small hydropower generation projects that satisfy the requirements of the Public Utility Regulatory Policies Act of 1978 (PURPA). EXECUTIVE OVERVIEW

Management's Outlook and Company Initiatives

In the 2019 Annual Report, IDACORP's and Idaho Power's management included a brief overview of their business strategies for the companies for 2020 and beyond, under the heading "Executive Overview" in the MD&A. As of the date of this report, management's outlook and strategy remain consistent with that discussion. Most notably: •Idaho Power continues to execute on its four strategic areas: growing financial strength, improving Idaho Power's core business, enhancing Idaho Power's brand, and focusing on safety and employee engagement. •Idaho Power continues to expect positive customer growth in its service area and continues to participate in and support state and local economic development initiatives aimed at responsible and sustainable growth. During the first nine months of 2020, Idaho Power's customer count grew by over 11,300 customers, and for the twelve months ended September 30, 2020, the customer growth rate was 2.6 percent. •Idaho Power anticipates substantial capital investments, with expected total capital expenditures of approximately $1.6 billion over the five-year period from 2020 (including the expenditures incurred so far in 2020) through 2024. •IDACORP increased its quarterly common stock dividend from $0.67 per share to $0.71 per share, as a part of a 137 percent increase in quarterly dividends approved over the last nine years, which moves IDACORP into its target payout ratio of between 60 and 70 percent of sustainable IDACORP earnings. •In April and June 2020, respectively, Idaho Power issued $230 million in principal amount of 4.20 percent first mortgage bonds due in 2048, and $80 million in principal amount of 1.90 percent first mortgage bonds due in 2030. Idaho Power used a portion of the bond proceeds to redeem outstanding debt. Idaho Power believes the issuances help maintain its strong liquidity position enabling it to fund its ongoing operations, capital expenditures, and dividend payments. •In October 2020, Idaho Power and the other co-owners of the coal-fired power plant in Boardman, Oregon, ceased operations at the plant in accordance with Idaho Power's planned path away from coal generation. •Idaho Power continues to focus on timely recovery of costs and earning a reasonable return on investment, including working to evaluate and ensure that its rate design and regulatory mechanisms more closely reflect the cost to provide electric service. 35 -------------------------------------------------------------------------------- Table of Contents Coronavirus (COVID-19) Response and Impacts In response to the COVID-19 public health crisis, in March 2020 Idaho Power implemented its emergency management, business continuity, and enterprise pandemic plans. Idaho Power's internal emergency management team responded in accordance with the plans in an effort to ensure Idaho Power continues to provide reliable service to its customers during the pandemic. Idaho Power's provision of electricity to customers through its power supply, transmission, and distribution operations, as of the date of this report, continues largely uninterrupted. Idaho Power has taken proactive steps during the crisis to protect employees, customers, the general public, and Idaho Power's electrical system. In March 2020, Idaho Power closed all of its operating facilities to the public, upgraded information technology capabilities to facilitate remote working for over half of its workforce, eliminated substantially all in-person meetings and non-essential work travel, reviewed its supply chain for critical items, continued monitoring of cyber and physical security threats, tested critical information technology systems for business continuity purposes, enhanced cleaning procedures at all facilities, and encouraged employees to practice responsible social distancing and other effective prevention and safety measures. Idaho Power has a small number of highly specialized employees who are trained to operate the power grid and critical generation facilities. Idaho Power has taken actions to help ensure the health and availability of those essential employees, including performing health screenings, alternating schedules, segregating employees into separate facilities, and limiting interaction. As of the date of this report, most of Idaho Power's office workforce continues to work remotely. Also in March 2020, in consideration of the COVID-19 public health crisis, Idaho Power temporarily suspended disconnections and late fees for late payment or non-payment. As approved by the IPUC in July 2020, Idaho Power resumed disconnections and accruing late fees for customers in its Idaho service area beginning in early August 2020. Commercial customers have been particularly affected by the economic impacts of the COVID-19 public health crisis, as the response to the crisis disrupted operations of many of those customers. As many of Idaho Power's larger commercial and industrial customers are in the agriculture and food-processing industry, COVID-19 has had a smaller impact on those customers given the importance of the food that they produce, and thus mitigated in part the overall energy usage decline from those customers. Irrigation customers have also been impacted to a lesser extent. While the COVID-19 crisis does not appear to have significantly affected wheeling revenues to date, to the extent economies of other states continue to be negatively affected by the COVID-19 crisis, transmission wheeling revenues could decrease due to overall decreases in energy loads in the western region of the U.S., impacting energy prices and overall market activity regionally. Overall, Idaho Power anticipates that the disruption of economic activities in its service area and global economic conditions created by the response to the COVID-19 public health crisis could continue to negatively affect energy usage and associated revenues from commercial and industrial customers and will continue to increase late payments and uncollectible account write-offs. In recognition of the economic impact, Idaho Power increased its allowance for uncollectible receivables from $1.4 million at December 31, 2019, to $3.9 million at September 30, 2020, based on Idaho Power's estimate of the impact of the crisis. In July 2020, the IPUC issued an order granting Idaho Power the authority to defer unanticipated, emergency-related expenses due to the COVID-19 public health crisis, net of any cost savings, for possible recovery through future rates. As of September 30, 2020, Idaho Power had recorded a $0.7 million regulatory asset for its estimate of unanticipated, emergency-related expenses, including higher bad debt expense, net of estimated savings. For additional information, see Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. As noted above, in April 2020 Idaho Power issued $230 million in principal amount of 4.20 percent first mortgage bonds due in 2048. The bonds were issued at a reoffer yield of 3.422 percent, which resulted in a net premium of 13.0 percent and net proceeds to Idaho Power of approximately $260 million. In June 2020, Idaho Power issued $80 million in principal amount of first mortgage bonds due in 2030. While Idaho Power expected to issue debt securities during 2020 unrelated and prior to the COVID-19 public health crisis, and has used some of the proceeds of the issuances for early retirement of debt, the net proceeds from the issuances provide Idaho Power with additional liquidity should the financial impacts of the COVID-19 public health crisis worsen in the coming months or be even further prolonged. As of the date of this report, Idaho Power is uncertain how long the COVID-19 public health crisis will last and how significantly it will ultimately impact its business operations, results of operations, cash flows, financial condition, or capital resources. For a discussion of certain risks IDACORP and Idaho Power are confronting as a result of the public health crisis, see Part II - Item 1A - "Risk Factors" in this report. 36 -------------------------------------------------------------------------------- Table of Contents Summary of Financial Results The following is a summary of Idaho Power's net income, net income attributable to IDACORP, and IDACORP's earnings per diluted share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except earnings per share amounts): Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Idaho Power net income $ 100,389 $ 87,979 $ 196,089 $ 180,740 Net income attributable to IDACORP, Inc. $ 102,031 $ 89,876 $ 199,910 $ 185,718 Average outstanding shares - diluted 50,576 50,558

50,554 50,528 IDACORP, Inc. earnings per diluted share $ 2.02 $ 1.78 $ 3.95 $ 3.68

The table below provides a reconciliation of net income attributable to IDACORP for the three and nine months ended September 30, 2020, from the same period in 2019 (items are in millions and are before related income tax impact unless otherwise noted). Three months ended Nine months ended

Net income attributable to IDACORP, Inc. - September 30, 2019

$ 89.9 $ 185.7

Increase (decrease) in Idaho Power net income: Customer growth, net of associated power supply costs and power cost adjustment mechanisms

3.9 10.8

Usage per retail customer, net of associated power supply costs and power cost adjustment mechanisms

0.3 0.3 Idaho fixed cost adjustment (FCA) revenues (1.6) (0.1) Retail revenues per megawatt-hour (MWh), net of associated power supply costs and power cost adjustment mechanisms (0.2) (3.2) Transmission wheeling-related revenues 4.4 (2.0) Other operations and maintenance (O&M) expenses 4.4 7.3 Other changes in operating revenues and expenses, net (0.4) (1.3) Increase in Idaho Power operating income 10.8 11.8 Non-operating income and expenses (0.8) 0.7 Income tax expense 2.4 2.8 Total increase in Idaho Power net income 12.4 15.3 Other IDACORP changes (net of tax) (0.3) (1.1) Net income attributable to IDACORP, Inc. - September 30, 2020 $ 102.0 $ 199.9 Net Income - Third Quarter 2020 IDACORP's net income increased $12.1 million for the third quarter of 2020 compared with the third quarter of 2019, primarily due to higher net income at Idaho Power. Customer growth increased operating income by $3.9 million in the third quarter of 2020 compared with the third quarter of 2019, as the number of Idaho Power customers grew by approximately 14,700, or 2.6 percent, during the twelve months ended September 30, 2020. Higher sales volumes on a per-customer basis increased operating income by $0.3 million in the third quarter of 2020 compared with the third quarter of 2019, as higher usage per residential and irrigation customer was mostly offset by decreased usage per commercial customer. Residential customers used more energy for cooling due to warmer weather in Idaho Power's service area and residential customers spending more time at home due to the COVID-19 public health crisis, which increased usage per residential customer by 3 percent in the third quarter of 2020 compared with the third quarter of 2019. Also, less precipitation in Idaho Power's service area during the third quarter of 2020 compared with the same quarter in 2019 led to a one percent increase in usage per irrigation customer for those periods. A decrease of 3 percent in usage per commercial customer in the third quarter of 2020 compared with the third quarter of 2019 was largely due to the economic impacts of COVID-19. The increase in sales volumes per residential customer was partially offset by the FCA mechanism (applicable to residential and small general service customers), which decreased revenues in the third quarter of 2020 by $1.6 million as compared with the third quarter of 2019. 37 -------------------------------------------------------------------------------- Table of Contents During the third quarter of 2020, transmission wheeling-related revenues increased $4.4 million compared with the third quarter of 2019. Warmer weather in the southwest U.S. and California led to higher wholesale energy prices in those areas that increased wholesale energy market activity and wheeling volumes in the third quarter of 2020 compared with the third quarter of 2019. The increase in wheeling volumes was partially offset by an approximate 13 percent decrease in Idaho Power's open access transmission tariff (OATT) rates during the period from October 1, 2019, to September 30, 2020, compared with the rates in effect from October 1, 2018, to September 30, 2019. Other O&M expenses were $4.4 million lower in the third quarter of 2020 compared with the third quarter of 2019, partially due to Idaho Power's December 2019 exit from unit 1 of its jointly-owned North Valmy coal-fired power plant (North Valmy). Also, other O&M expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 as a result of a decrease in labor-related costs from lower performance-based variable compensation accruals. The decrease in income tax expense for the third quarter of 2020, compared with the third quarter of 2019, was primarily due to the tax deduction for bond redemption costs incurred in the third quarter of 2020 and other plant-related income tax return adjustments, partially offset by statutory taxes on greater 2020 pre-tax income and lower excess deferred income tax reversal. Net Income - Year-to-Date 2020 IDACORP's net income increased $14.2 million for the first nine months of 2020 compared with the first nine months of 2019, primarily due to higher net income at Idaho Power. Customer growth increased operating income by $10.8 million in the first nine months of 2020 compared with the first nine months of 2019. Higher sales volumes on a per-customer basis increased operating income by $0.3 million in the first nine months of 2020 compared with the first nine months of 2019, as higher usage per irrigation and residential customer was offset by lower usage per commercial customer largely due to the impacts of the COVID-19 health crisis. Less precipitation in the Idaho Power service area during the first nine months of 2020 compared with the same period in 2019 contributed to a 10 percent increase in usage per irrigation customer. Also, usage per residential customer increased by 1 percent during the first nine months of 2020 compared with the first nine months of 2019. Compared with the same periods in 2019, an increase in usage by residential customer for cooling purposes in the second and third quarters of 2020 due to warmer weather and COVID-19 was partially offset by lower usage from the first quarter of 2020 caused by more moderate weather, which resulted in residential customers using less energy for heating during that period. The net decrease in retail revenues per MWh decreased operating income by $3.2 million due to Idaho Power's share of higher net power supply costs in the first nine months of 2020 compared with the first nine months of 2019. The Idaho-jurisdiction PCA mechanism includes a cost or benefit ratio that allocates the deviations in certain net power supply expenses between customers (95 percent) and Idaho Power (5 percent). In the first nine months of 2019, net power supply expenses were reduced by significant wholesale energy sales. Higher wholesale energy prices during the first nine months of 2019 led to greater wholesale energy sales by Idaho Power, of which 95 percent benefited customers and 5 percent benefited Idaho Power under the PCA mechanism and were the primary cause of the variance in net retail revenues per MWh between the comparison periods. During the first nine months of 2020, transmission wheeling-related revenues decreased $2.0 million compared with the first nine months of 2019, due mostly to Idaho Power's open access transmission tariff rates decreasing approximately 13 percent during the period from October 1, 2019, to September 30, 2020, as compared with the rates in effect from October 1, 2018, to September 30, 2019, and to a lesser extent due to lower transmission loss settlement rates in the first nine months of 2020 compared with the first nine months of 2019. These rate decreases were offset partially by an increase in wheeling volumes mostly from the higher regional wholesale market activity during the third quarter of 2020 noted above. Other O&M expenses were $7.3 million lower in the first nine months of 2020 compared with the first nine months of 2019, primarily due to the temporary deferral of certain maintenance projects at Idaho Power's jointly-owned thermal generation plants. The timing of these projects is discretionary, and Idaho Power expects these projects to be completed in 2021. Also, other O&M expenses decreased in the first nine months of 2020 compared with the first nine months of 2019 as a result of Idaho Power's December 2019 exit from participation in unit 1 of its North Valmy plant, and lower labor-related costs, as described above. As noted above, in July 2020, the IPUC issued an order granting Idaho Power the authority to defer unanticipated, emergency-related expenses due to the COVID-19 public health crisis, net of any cost savings, for possible recovery through future rates. As of September 30, 2020, Idaho Power had recorded a $0.7 million regulatory asset for its estimate of such costs, including higher bad debt expense, net of estimated savings in vehicle fuel, employee travel, and training. For additional information, see Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. 38 -------------------------------------------------------------------------------- Table of Contents The decrease in income tax expense for the nine months ended September 30, 2020, compared with the same period in 2019, was primarily due to the tax deduction for bond redemption costs incurred in the third quarter of 2020 and other plant-related income tax return adjustments, partially offset by statutory taxes on greater 2020 pre-tax income and lower excess deferred income tax reversal.

Overview of General Factors and Trends Affecting Results of Operations and Financial Condition

IDACORP's and Idaho Power's results of operations and financial condition are affected by a number of factors, and the impact of those factors is discussed in more detail below in this MD&A. To provide context for the discussion elsewhere in this report, some of the more notable factors are as follows: •Regulation of Rates and Cost Recovery: The prices that Idaho Power is authorized to charge for its electric and transmission service is a critical factor in determining IDACORP's and Idaho Power's results of operations and financial condition. Those rates are established by state regulatory commissions and the FERC and are intended to allow Idaho Power an opportunity to recover its expenses and earn a reasonable return on investment. Idaho Power focuses on timely recovery of its costs through filings with its regulators, working to put in place innovative regulatory mechanisms, and on the prudent management of expenses and investments. Idaho Power has a regulatory settlement stipulation in Idaho that includes provisions for the accelerated amortization of certain tax credits to help achieve a minimum 9.4 percent Idaho-jurisdiction return on year-end equity (Idaho ROE). The settlement stipulation also provides for the potential sharing between Idaho Power and its Idaho customers of Idaho-jurisdictional earnings in excess of 10.0 percent of Idaho ROE. The settlement stipulation has no expiration date but the minimum Idaho ROE would revert back to 95 percent of the allowed return on equity in the next rate case. The specific terms of the settlement stipulation are described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2019 Annual Report. Idaho Power will continue to assess the need to file a general rate case to reset base rates but does not anticipate filing a rate case in the next twelve months. •Economic Conditions and Loads: Economic conditions impact consumer demand for energy, revenues, collectability of accounts, the volume of wholesale energy sales, and the need to construct and improve infrastructure, purchase power, and implement programs to meet customer load demands. In recent years, Idaho Power has seen growth in the number of customers in its service area. Over the twelve months ended September 30, 2020, Idaho Power's customer count grew by 2.6 percent. Idaho Power expects its number of customers to continue to increase in the foreseeable future. As noted above, Idaho Power's provision of electricity to customers through its power supply, transmission, and distribution operations continues largely uninterrupted despite the COVID-19 crisis, other than lower usage by commercial customers during the first nine months of 2020 compared with the first nine months of 2019. In June 2019, Idaho Power released its 2019 Integrated Resource Plan (IRP), which was amended in October 2020. The load forecast assumptions Idaho Power used in the 2019 IRP are included in the table below. For comparison purposes, the analogous average annual growth rates used in the prior two IRPs are included. 5-Year Forecasted Annual Growth Rate 20-Year Forecasted Annual Growth Rate Retail Sales Annual Peak Retail Sales Annual Peak (Billed MWh) (Peak Demand) (Billed MWh) (Peak Demand) 2019 IRP 1.3% 1.4% 1.0% 1.2% 2017 IRP 1.1% 1.6% 0.9% 1.4% 2015 IRP 1.5% 1.8% 1.2% 1.5% •Weather Conditions: Weather and agricultural growing conditions have a significant impact on Idaho Power's energy sales. Relatively low and high temperatures result in greater energy use for heating and cooling, respectively. During the agricultural growing season, which in large part occurs during the second and third quarters, irrigation customers use electricity to operate irrigation pumps, and weather conditions can impact the timing and extent of use of those pumps. Idaho Power also has tiered rates and seasonal rates, which contribute to increased revenues during higher-load periods, most notably during the third quarter of each year when overall customer demand is highest. Much of the adverse or favorable impact of weather on sales of energy to residential and small commercial customers is mitigated through the Idaho FCA mechanism, which is described in Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. 39 -------------------------------------------------------------------------------- Table of Contents Further, as Idaho Power's hydropower facilities comprise over one-half of Idaho Power's nameplate generation capacity, precipitation levels impact the mix of Idaho Power's generation resources. When hydropower generation is reduced, Idaho Power must rely on more expensive generation sources and purchased power. When favorable hydropower generating conditions exist for Idaho Power, they also may exist for other Pacific Northwest hydropower facility operators, lowering regional wholesale market prices and impacting the revenue Idaho Power receives from wholesale energy sales. Much of the adverse or favorable impact of this volatility is addressed through the Idaho and Oregon power cost adjustment mechanisms. For 2020, Idaho Power expects generation from its hydropower resources to be in the range of 6.5 to 7.0 million MWh, compared with 20-year average annual hydropower generation of 7.3 million MWh. •Rate Base Growth and Infrastructure Investment: As noted above, the rates established by the IPUC and OPUC are determined with the intent to provide an opportunity for Idaho Power to recover authorized operating expenses and depreciation and earn a reasonable return on "rate base." Rate base is generally determined by reference to the original cost (net of accumulated depreciation) of utility plant in service and certain other assets, subject to various adjustments for deferred taxes and other items. Over time, rate base is increased by additions to utility plant in service and reduced by depreciation and retirement of utility plant and write-offs as authorized by the IPUC and OPUC. In recent years, Idaho Power has been pursuing significant enhancements to its utility infrastructure in an effort to maintain system reliability, ensure an adequate supply of electricity, and to provide service to new customers, including major ongoing transmission projects such as the Boardman-to-Hemingway and Gateway West projects. Idaho Power's existing hydropower and thermal generation facilities also require continuing upgrades and equipment replacement, and the company is undertaking a significant relicensing effort for the Hells Canyon Complex (HCC), its largest hydropower generation resource. Idaho Power intends to pursue timely inclusion of any significant completed capital projects into rate base as part of a future general rate case or other appropriate regulatory proceeding. •Mitigation of Impact of Fuel and Purchased Power Expense: In addition to hydropower generation, Idaho Power relies significantly on natural gas and coal to fuel its generation facilities and on power purchases in the wholesale markets. Fuel costs are impacted by electricity sales volumes, the terms and conditions of contracts for fuel, Idaho Power's generation capacity, the availability of hydropower generation resources, transmission capacity, energy market prices, and Idaho Power's hedging program for managing fuel costs. Purchased power costs are impacted by the terms and conditions of contracts for purchased power, the rate of expansion of alternative energy generation sources such as wind or solar energy, and wholesale energy market prices. The Idaho and Oregon power cost adjustment mechanisms mitigate in large part the potential adverse impacts to Idaho Power of fluctuations in power supply costs. •Regulatory and Environmental Compliance Costs: Idaho Power is subject to extensive federal and state laws, policies, and regulations, as well as regulatory actions and audits by agencies and quasi-governmental agencies, including the FERC, the North American Electric Reliability Corporation, and the Western Electricity Coordinating Council. Compliance with these requirements directly influences Idaho Power's operating environment and affects Idaho Power's operating costs. Recently, energy industry regulators have issued substantial penalties for utilities alleged to have violated reliability and critical infrastructure protection requirements. Moreover, environmental laws and regulations, in particular, may increase the cost of constructing new facilities, may increase the cost of operating generation plants, including Idaho Power's jointly-owned coal-fired generating plants, may require that Idaho Power install additional pollution control devices at existing generating plants, or may require that Idaho Power cease operating certain generation plants. Idaho Power expects to spend significant amounts on environmental compliance and controls in the next decade. Due to economic factors in part associated with the costs of compliance with environmental regulation, Idaho Power has accelerated the retirement dates of two of its jointly-owned coal-fired generating plants, including the plant in Boardman, Oregon, which ceased operations as planned in October 2020. •Water Management and Relicensing of Hydropower Projects: Because of Idaho Power's reliance on stream flow in the Snake River and its tributaries, Idaho Power participates in numerous proceedings and venues that may affect its water rights, seeking to preserve the long-term availability of its rights for its hydropower projects. Also, Idaho Power is involved in renewing its long-term federal licenses for the HCC, its largest hydropower generation source, and for American Falls, its second largest hydropower generation source. Given the number of parties involved, Idaho Power's relicensing costs have been and are expected to continue to be substantial. Idaho Power cannot currently determine the ultimate terms of, and costs associated with, any resulting long-term licenses. •Wildfire Mitigation Efforts: In recent years, the Western United States, particularly California, has experienced an increased frequency of destructive wildland fires (wildfires). A variety of factors have contributed in varying degrees to this trend including climate change, increased wildland-urban interfaces, historical land management practices, and overall wildland and forest health. While Idaho Power has not experienced the type of catastrophic wildfires within its 40 -------------------------------------------------------------------------------- Table of Contents service area that have occurred in California, Idaho Power is taking a proactive approach to wildfire threat relative to its service area. Idaho Power has drafted a Wildfire Mitigation Plan (WMP) that outlines actions Idaho Power is taking or is working to implement in the future to reduce wildfire risk and to strengthen the resiliency of its transmission and distribution system to wildfires. Idaho Power's approach to achieve these objectives includes identifying areas subject to elevated risk; system hardening programs, vegetation management, and field personnel practices to mitigate wildfire risk; incorporating current and forecasted weather and field conditions into operational practices; evaluating whether public safety shutoffs are currently a reasonable mitigation approach; and evaluating the performance and effectiveness of the strategies identified in the WMP through metrics and monitoring.

RESULTS OF OPERATIONS

This section of MD&A takes a closer look at the significant factors that affected IDACORP's and Idaho Power's earnings during the three and nine months ended September 30, 2020. In this analysis, the results for the three and nine months ended September 30, 2020, are compared with the same period in 2019.

The table below presents Idaho Power's energy sales and supply (in thousands of MWh) for the three and nine months ended September 30, 2020 and 2019.

Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Retail energy sales 4,475 4,394 11,388 11,173 Wholesale energy sales 298 148 969 2,050 Bundled energy sales 275 307 547 453 Total energy sales 5,048 4,849 12,904 13,676 Hydropower generation 1,774 1,840 5,655 6,972 Coal generation 1,365 789 2,637 2,342 Natural gas and other generation 794 950 1,520 1,514 Total system generation 3,933 3,579 9,812 10,828 Purchased power 1,444 1,559 3,971 3,815 Line losses (329) (289) (879) (967) Total energy supply 5,048 4,849 12,904 13,676 Weather-related information for Boise, Idaho for the three and nine months ended September 30, 2020 and 2019, is presented in the table below. While Boise, Idaho weather conditions are not necessarily representative of weather conditions throughout Idaho Power's service area, the greater Boise area has the majority of Idaho Power's customers and is included for illustrative purposes. Three months ended Nine months ended September 30, September 30, 2020 2019 Normal (2) 2020 2019 Normal (2) Heating degree-days(1) 32 112 122 2,934 3,132 3,321 Cooling degree-days(1) 879 861 750 1,074 1,020 933 Precipitation (inches) 0.2 0.9 1.2 11.8 13.1 8.1 (1) Heating and cooling degree-days are common measures used in the utility industry to analyze the demand for electricity and indicate when a customer would use electricity for heating and cooling. A degree-day measures how much the average daily temperature varies from 65 degrees. Each degree of temperature above 65 degrees is counted as one cooling degree-day, and each degree of temperature below 65 degrees is counted as one heating degree-day. (2) Normal heating degree-days and cooling degree-days elements are, by convention, the arithmetic mean of the elements computed over 30 consecutive years. The normal amounts are the sum of the monthly normal amounts. These normal amounts are computed by the National Oceanic and Atmospheric Administration. Sales Volume and Generation: Retail sales volumes increased 2 percent in both the third quarter and first nine months of 2020 compared with the same periods of 2019. Less precipitation in the Idaho Power service area during the three and nine months ended September 30, 2020, increased usage by irrigation customers by approximately 1 percent and 10 percent, respectively, compared with the same periods in 2019. During the third quarter of 2020, usage per residential customer was approximately 3 41 -------------------------------------------------------------------------------- Table of Contents percent higher than the third quarter of 2019, primarily due to residential customers spending more time at home due to the COVID-19 public health crisis combined with warmer weather that caused residential customers to use more energy at home for cooling. Cooling degree-days in Boise, Idaho were 2 percent higher during the three months ended September 30, 2020, compared with the three months ended September 30, 2019, and 17 percent above normal. For the third quarter of 2020, the increases in sales volumes per irrigation and residential customer were only partially offset by decreases of 3 percent and 4 percent in usage per commercial customer for the third quarter and first nine months of 2020, respectively, compared with the same periods of 2019. The decreases in usage per commercial customer during the third quarter and first nine months of 2020 were largely due to the economic impacts of the COVID-19 crisis. Customer growth increased sales volumes during the three and nine months ended September 30, 2020, compared with the same periods in 2019, with the number of Idaho Power's customers growing by 2.6 percent over the prior twelve months. Total system generation increased 10 percent in the third quarter of 2020 compared with the third quarter of 2019. Hydropower and natural gas generation during the third quarter of 2020 decreased 4 percent and 16 percent, respectively, compared with the third quarter of 2019, due primarily to decreased wholesale energy sales, higher purchased power, and economic-, operations-, and reliability-based decisions to use more coal generation. During the third quarter of 2020, coal generation increased 73 percent compared with the third quarter of 2019. Purchased power decreased 7 percent in the third quarter of 2020 compared with the same period of 2019, due to higher regional wholesale energy market prices. Total system generation decreased 9 percent during the first nine months of 2020 compared with the first nine months of 2019. During the first nine months of 2019, regional wholesale energy prices were elevated due to below-normal temperatures in the northwest region, lack of energy imports due to equipment maintenance, limited production from the federal hydropower system due to freezing temperatures and low water flow, and reduced capacity of Pacific Northwest and Western Canada region natural gas pipelines due to a natural gas pipeline that ruptured in British Columbia, Canada, during the fourth quarter of 2018. The higher regional wholesale energy prices during the first nine months of 2019 led to higher Idaho Power opportunistic wholesale energy sales during that period.

The financial impacts of fluctuations in wholesale energy sales, purchased power, fuel expense, and other power supply-related expenses are addressed in Idaho Power's Idaho and Oregon power cost adjustment mechanisms, which are described later in this MD&A.

42 -------------------------------------------------------------------------------- Table of Contents Operating Revenues

Retail Revenues: The table below presents Idaho Power's retail revenues (in thousands) and MWh sales volumes (in thousands) for the three and nine months ended September 30, 2020 and 2019, and the number of customers as of September 30, 2020 and 2019.

Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Retail revenues:

Residential (includes $4,896, $6,446, $24,740, and $24,988, respectively, related to the FCA)(1)

$ 143,822

$ 133,550 $ 398,180 $ 388,566

Commercial (includes $330, $330, $1,211, and $1,022, respectively, related to the FCA)(1)

82,279 80,304 219,006 224,382 Industrial 50,154 47,122 136,001 138,222 Irrigation 88,188 82,659 149,711 132,613

Deferred revenue related to HCC relicensing AFUDC(2) (2,815)

(2,815) (6,861) (6,861) Total retail revenues $ 361,628

$ 340,820 $ 896,037 $ 876,922 Volume of retail sales (MWh)

Residential 1,404 1,332 3,979 3,854 Commercial 1,082 1,098 2,980 3,062 Industrial 859 859 2,512 2,541 Irrigation 1,130 1,105 1,917 1,716 Total retail MWh sales 4,475 4,394 11,388 11,173

Number of retail customers at period end

Residential 487,261 474,210 Commercial 74,086 72,647 Industrial 126 127 Irrigation 21,606 21,382 Total customers 583,079 568,366 (1) The FCA mechanism is an alternative revenue program and does not represent revenue from contracts with customers. (2) As part of its January 30, 2009, general rate case order, the IPUC is allowing Idaho Power to recover a portion of the allowance for funds used during construction (AFUDC) on construction work in progress related to the HCC relicensing process, even though the relicensing process is not yet complete and the costs have not been moved to electric plant in service. Idaho Power is collecting approximately $8.8 million annually in the Idaho jurisdiction but is deferring revenue recognition of the amounts collected until the license is issued and the accumulated license costs approved for recovery are placed in service. Changes in rates, changes in customer demand, and changes in FCA mechanism revenues are the primary reasons for fluctuations in retail revenues from period to period. The primary influences on customer demand for electricity are weather, economic conditions, and energy efficiency. Extreme temperatures increase sales to customers who use electricity for cooling and heating, while moderate temperatures decrease sales. Precipitation levels and the timing of precipitation during the agricultural growing season also affect sales to customers who use electricity to operate irrigation pumps. Rates are also seasonally adjusted, providing for higher rates during peak load periods, and residential customer rates are tiered, providing for higher rates based on higher levels of usage. The seasonal and tiered rate structures contribute to seasonal fluctuations in revenues and earnings. Retail revenues increased $20.8 million during the third quarter of 2020 and increased $19.1 million during first nine months of 2020, compared with the same periods in 2019. The factors affecting retail revenues during the period are discussed below. •Rates: Customer rates, excluding collections of amounts related to the power cost adjustment mechanism, decreased revenues by approximately $0.1 million and $0.8 million for both the three and nine months ended September 30, 2020, respectively, compared with the same periods in 2019. Customer rates also include the return to customers of amounts related to the power cost adjustment mechanism, which increased revenues by $14.7 million and $1.4 million in the third quarter and first nine months of 2020, respectively, compared with the same periods of 2019. The amount returned to customers in rates under the power cost adjustment mechanism has relatively little effect on operating income as a corresponding amount is recorded as a reduction of expense in the same period it is returned through rates. 43 -------------------------------------------------------------------------------- Table of Contents •Customers: Customer growth of 2.6 percent during the twelve months ended September 30, 2020, increased retail revenues by $5.2 million and $14.7 million in the third quarter and first nine months of 2020, respectively, compared with the same periods of 2019. •Usage: Higher usage (on a per customer basis), primarily by residential customers, increased retail revenues by $2.5 million and $3.8 million in the third quarter and first nine months of 2020, respectively, compared with the same periods of 2019. During the third quarter of 2020, usage per residential customer was approximately 3 percent higher than the third quarter of 2019, primarily due to residential customers spending more time at home due to the COVID-19 public health crisis, combined with warmer weather that caused residential customers to use more energy at home for cooling. Cooling degree-days in Boise, Idaho were 2 percent higher during the three months ended September 30, 2020, compared with the three months ended September 30, 2019, and 17 percent above normal. Less precipitation in Idaho Power's service area during the three and nine months ended September 30, 2020, increased usage by irrigation customers by approximately 1 percent and 10 percent, respectively, compared with the same periods in 2019. For the third quarter of 2020, the increases in sales volumes per residential and irrigation customer were only partially offset by decreases of 3 percent usage per commercial customer, compared with the third quarter of 2019. For the first nine months of 2020, the increase in sales volumes per residential and irrigation customer was partially offset by a decrease of 4 percent in usage per commercial customer. The decrease in usage per commercial customer during the third quarter and first nine months of 2020 were largely due to the economic impacts of the COVID-19 crisis. •Idaho FCA Revenue: The FCA mechanism, applicable to Idaho residential and small commercial customers, adjusts revenue each year to accrue, or defer, the difference between the authorized fixed-cost recovery amount per customer and the actual fixed costs per customer recovered by Idaho Power through volume-based rates during the year. Higher usage (on a per customer basis) by residential and small general service customers during the three and nine months ended September 30, 2020, decreased the amount of FCA accrued by $1.6 million and $0.1 million, respectively, compared with the same period in 2019. Wholesale Energy Sales: Wholesale energy sales consist primarily of opportunistic sales of surplus system energy and sales into the energy imbalance market implemented in the western United States (Western EIM), and do not include derivative transactions. The table below presents Idaho Power's wholesale energy sales for the three and nine months ended September 30, 2020 and 2019 (in thousands, except for per MWh amounts). Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Wholesale energy revenues $ 12,178 $ 5,321 $ 22,952 $ 68,693 Wholesale MWh sold 298 148 969 2,050 Average wholesale energy revenues per MWh $ 40.87 $ 35.95

$ 23.69 $ 33.51

In the third quarter of 2020, wholesale energy revenues increased $6.9 million compared with the same period of 2019, as wholesale energy sales volumes increased 101 percent. The average wholesale energy revenues per MWh for the third quarter of 2020 were 14 percent higher compared with the same period in 2019. The higher prices and sales volumes in the third quarter of 2020 were partially due to a heat wave in the Southwest U.S. and California that contributed to significant higher prices and demand for energy in that region. In the first nine months of 2020, wholesale energy revenues decreased $45.7 million compared with the same period of 2019, as wholesale energy sales volumes decreased 53 percent in the first nine months of 2020 compared with the same period of 2019. The average wholesale energy revenues per MWh for the first nine months of 2020 were 29 percent lower compared with the same period in 2019. The higher prices and sales volumes in the first nine months of 2019 were due to below-normal temperatures in the Northwest U.S., lack of energy imports due to equipment maintenance, limited production from the federal hydropower system due to freezing temperatures and low water flow, and reduced capacity of Northwest U.S. and Western Canada region natural gas pipelines due to a natural gas pipeline rupture in British Columbia, Canada during the fourth quarter of 2018. The higher regional wholesale energy prices during the first nine months of 2019 led to higher Idaho Power opportunity wholesale energy sales volumes. Transmission Wheeling-Related Revenues: Transmission wheeling-related revenues increased $4.4 million, or 35 percent, during the third quarter of 2020 compared with the third quarter of 2019. Warmer weather in the Southwest U.S. and California led to higher wholesale energy prices in those areas which increased wholesale energy market activity and wheeling volumes in the third quarter of 2020 compared with the third quarter of 2019. The increase in wheeling volumes was partially offset by an 44 -------------------------------------------------------------------------------- Table of Contents approximate 13 percent decrease in Idaho Power's OATT rates during the period from October 1, 2019, to September 30, 2020, compared with the rates in effect from October 1, 2018, to September 30, 2019. Transmission wheeling-related revenues decreased $2.0 million, or 5 percent, during first nine months of 2020 compared with the first nine months of 2019, primarily due to Idaho Power's OATT rates decreasing approximately 13 percent during the period from October 1, 2019, to September 30, 2020, compared with the rates in effect from October 1, 2018, to September 30, 2019, and to a lesser extent due to lower transmission loss settlement rates in the first nine months of 2020 compared with the first nine months of 2019. These rate decreases were offset partially by an increase in wheeling volumes, mostly from the higher regional wholesale market activity during the third quarter of 2020 noted above. Idaho Power's most recent transmission rate went into effect on October 1, 2020, reflecting approximately a 10 percent increase for the period from October 1, 2020, to September 30, 2021, as described below in "Regulatory Matters" in this MD&A. Energy Efficiency Program Revenues: In both Idaho and Oregon, energy efficiency riders fund energy efficiency program expenditures. Expenditures funded through the riders are reported as an operating expense with an equal amount recorded in revenues, resulting in no net impact on earnings. The cumulative variance between expenditures and amounts collected through the rider is recorded as a regulatory asset or liability. A liability balance indicates that Idaho Power has collected more than it has spent and an asset balance indicates that Idaho Power has spent more than it has collected. At September 30, 2020, Idaho Power's energy efficiency rider balances were a $8.5 million regulatory asset in the Idaho jurisdiction and a $1.0 million regulatory asset in the Oregon jurisdiction.

Operating Expenses

Purchased Power: The table below presents Idaho Power's purchased power expenses and volumes for the three and nine months ended September 30, 2020 and 2019 (in thousands, except for per MWh amounts). Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Expense PURPA contracts $ 59,314 $ 56,848 $ 148,990 $ 143,837 Other purchased power (including wheeling) 44,799 36,770 78,098 70,675 Total purchased power expense $ 104,113 $ 93,618 $ 227,088 $ 214,512 MWh purchased PURPA contracts 848 825 2,469 2,385 Other purchased power 596 734 1,502 1,430 Total MWh purchased 1,444 1,559 3,971 3,815 Average cost per MWh from PURPA contracts $ 69.95 $ 68.91 $ 60.34 $ 60.31 Average cost per MWh from other sources $ 75.17 $ 50.10 $ 52.00 $ 49.42 Weighted average - all sources $ 72.10 $ 60.05

$ 57.19 $ 56.23

Purchased power expense increased $10.5 million, or 11 percent, and $12.6 million, or 6 percent during the third quarter and first nine months of 2020 compared with the same periods of 2019. Higher regional wholesale energy market prices led to higher purchased power expense as well as higher generation of projects under PURPA contracts during the third quarter and first nine months of 2020 compared with the same periods of 2019. 45 -------------------------------------------------------------------------------- Table of Contents Fuel Expense: The table below presents Idaho Power's fuel expenses and thermal generation for the three and nine months ended September 30, 2020 and 2019 (in thousands, except for per MWh amounts). Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Expense Coal $ 43,126 $ 27,309 $ 86,314 $ 82,620 Natural gas 16,619 19,572 34,860 36,957 Total fuel expense $ 59,745 $ 46,881 $ 121,174 $ 119,577 MWh generated Coal 1,365 788 2,637 2,342 Natural gas 794 950 1,521 1,514 Total MWh generated 2,159 1,738 4,158 3,856 Average cost per MWh - Coal $ 31.59 $ 34.66 $ 32.73 $ 35.28 Average cost per MWh - Natural gas $ 20.93 $ 20.60 $ 22.92 $ 24.41 Weighted average, all sources $ 27.67 $ 26.97 $

29.14 $ 31.01

The majority of the fuel for Idaho Power's jointly-owned coal-fired plants is purchased through long-term contracts, including purchases from BCC, a one-third owned joint venture of IERCo. The price of coal from BCC is subject to fluctuations in mine operating expenses, geologic conditions, and production levels. BCC supplies up to two-thirds of the coal used by the Jim Bridger plant. Natural gas is mainly purchased on the regional wholesale spot market at published index prices. In addition to commodity (variable) costs, both natural gas and coal expenses include costs that are more fixed in nature for items such as capacity charges, transportation, and fuel handling. Period to period variances in fuel expense per MWh are noticeably impacted by these fixed charges when generation output is substantially different between the periods. Fuel expense increased $12.9 million, or 27 percent, and $1.6 million, or 1 percent, during the third quarter and in the first nine months of 2020 compared with the same periods of 2019. The increase in fuel expense in both periods of 2020 compared with the same periods of 2019 was primarily due to economic-, operations-, and reliability-based decisions to utilize more coal generation. Included in fuel expense are losses and gains on settled financial gas hedges entered into in accordance with Idaho Power's energy, risk management policies. In the first nine months of 2020 losses on financial gas hedges of $4.0 million increased natural gas fuel expense, while in the first nine months of 2019, gains on financial gas hedges of $11.6 million reduced natural gas expense. Most of these realized hedging gains and losses are passed on to customers through the power cost adjustment mechanisms described below. Power Cost Adjustment Mechanisms: Idaho Power's power supply costs (primarily purchased power and fuel expense, less wholesale energy sales) can vary significantly from year to year. Volatility of power supply costs arises from factors such as weather conditions, wholesale market prices, volumes of power purchased and sold in the wholesale markets, Idaho Power's hydropower and thermal generation volumes and fuel costs, generation plant availability, and retail loads. To address the volatility of power supply costs, Idaho Power's power cost adjustment mechanisms in the Idaho and Oregon jurisdictions allow Idaho Power to recover from customers, or refund to customers, most of the fluctuations in power supply costs. In the Idaho jurisdiction, the PCA includes a cost or benefit sharing ratio that allocates the deviations in net power supply expenses between customers (95 percent) and Idaho Power (5 percent), with the exception of PURPA power purchases and demand response program incentives, which are allocated 100 percent to customers. The Idaho deferral period, or PCA year, runs from April 1 through March 31. Amounts deferred or accrued during the PCA year are primarily recovered or refunded during the subsequent June 1 through May 31 period. Because of the power cost adjustment mechanisms, one of the primary financial impacts of power supply cost variations is that cash is paid out but recovery from customers does not occur until a future period, or cash that is collected is refunded to customers in a future period, resulting in fluctuations in operating cash flows from year to year. 46 -------------------------------------------------------------------------------- Table of Contents The table that follows presents the components of the Idaho and Oregon power cost adjustment mechanisms for the three and nine months ended September 30, 2020 and 2019 (in thousands). Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Power supply cost accrual $ 3,290

$ 2,844 $ 26,237 $ 58,596

Amortization of prior year authorized balances (12,823) (19,256) (40,697) (32,661) Total power cost adjustment expense $ (9,533)

$ (16,412) $ (14,460) $ 25,935

The power supply accruals represent the portion of the power supply cost fluctuations accrued under the power cost adjustment mechanisms. When actual power supply costs are lower than the amount forecasted in power cost adjustment rates, which was the case for all periods presented, most of the difference is accrued. When actual power supply costs are higher than the amount forecasted in power cost adjustment rates, most of the difference is deferred. The amortization of the prior year's balances represents the offset to the amounts being collected or refunded in the current power cost adjustment year that were deferred or accrued in the prior power cost adjustment year (the true-up component of the power cost adjustment mechanism). Other O&M Expenses: Other O&M expenses decreased $4.4 million, or 5 percent, in the third quarter of 2020 compared with the third quarter of 2019, partially due to Idaho Power's December 2019 exit from unit 1 of its North Valmy plant. Also, other O&M expenses decreased in the third quarter of 2020 compared with the third quarter of 2019 as a result of a decrease in labor-related costs from lower performance-based variable compensation accruals. Other O&M expenses decreased $7.3 million, or 3 percent, during the first nine months of 2020 compared with the same period of 2019, primarily due to the temporary deferral of certain maintenance projects at Idaho Power's jointly-owned thermal generation plants. The timing of these projects is discretionary and Idaho Power expects these projects to be completed in 2021. Also, other O&M expenses decreased in the first nine months of 2020 compared with the first nine months of 2019 as a result of Idaho Power's December 2019 exit from participation in unit 1 of its North Valmy plant, and lower labor-related costs, as described above.

Income Taxes

IDACORP's income tax expense decreased $2.8 million and $3.3 million for the three and nine months ended September 30, 2020, respectively, when compared with the same periods in 2019. The decreases in income tax expense were primarily due to the tax deduction for bond redemption costs incurred in the third quarter of 2020 and other plant-related income tax return adjustments, partially offset by statutory taxes on greater 2020 pre-tax income and lower excess deferred income tax reversal. For information relating to IDACORP's and Idaho Power's computation of income tax expense effective income tax rates, see Note 2 - "Income Taxes" to the condensed consolidated financial statements included in this report.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Idaho Power has been pursuing significant enhancements to its utility infrastructure in an effort to ensure an adequate supply of electricity, to provide service to new customers, and to maintain system reliability. Idaho Power's existing hydropower and thermal generation facilities also require continuing upgrades and component replacement. Idaho Power anticipates these substantial capital expenditures will continue, with expected total capital expenditures of approximately $1.6 billion over the five-year period from 2020 (including expenditures incurred to-date in 2020) through 2024. Idaho Power funds its liquidity needs for capital expenditures through cash flows from operations, debt offerings, commercial paper markets, credit facilities, and capital contributions from IDACORP. Idaho Power periodically files for rate adjustments for recovery of operating costs and capital investments to provide the opportunity to align Idaho Power's earned returns with those allowed by regulators. Idaho Power uses operating and capital budgets to control operating costs and capital expenditures. During the first nine months of 2020, Idaho Power continued its efforts to optimize operations, control costs, and generate operating cash inflows to meet operating expenditures, contribute to capital expenditure requirements, and pay dividends to shareholders. 47 -------------------------------------------------------------------------------- Table of Contents As of October 23, 2020, IDACORP's and Idaho Power's access to debt, equity, and credit arrangements included: •their respective $100 million and $300 million revolving credit facilities; •IDACORP's shelf registration statement filed with the U.S. Securities and Exchange Commission (SEC) on May 17, 2019, which may be used for the issuance of debt securities and common stock; •Idaho Power's shelf registration statement filed with the SEC on May 17, 2019, which may be used for the issuance of first mortgage bonds and debt securities; $190 million remains available for issuance pursuant to state regulatory authority; and •IDACORP's and Idaho Power's commercial paper, which may be issued up to an amount equal to the available credit capacity under their respective credit facilities. IDACORP and Idaho Power monitor capital markets with a view toward opportunistic debt and equity transactions, taking into account current and potential future long-term needs. As a result, IDACORP may issue debt securities or common stock, and Idaho Power may issue debt securities or first mortgage bonds, if the companies believe terms available in the capital markets are favorable and that issuances would be financially prudent. In April 2020, Idaho Power issued $230 million in principal amount of 4.20 percent first mortgage bonds, secured medium term notes, Series K, maturing March 1, 2048. The bonds were issued at a reoffer yield of 3.422 percent, which resulted in a net premium of 13.0 percent and net proceeds to Idaho Power of $259.9 million. After this offering, the aggregate principal amount of the 4.20 percent first mortgage bonds is $450 million. In June 2020, Idaho Power issued $80 million in principal amount of 1.90 percent first mortgage bonds, secured medium term notes, Series L, maturing July 15, 2030. In July 2020, Idaho Power redeemed, prior to maturity, $75 million in principal amount of 2.95 percent first mortgage bonds, medium-term notes, Series H due in April 2022. In accordance with the redemption provisions of the notes, the redemption included Idaho Power's payment of a make-whole premium to the holders of the redeemed notes in the aggregate amount of $3.3 million.

In August 2020, Idaho Power redeemed $100 million in principal amount of 3.40 percent first mortgage bonds due in November 2020.

As of the date of this report, Idaho Power is uncertain how significantly the COVID-19 public health crisis will ultimately impact Idaho Power's operations, results of operations, cash flows, financial condition, or capital resources. The net proceeds from the debt issuances, noted above, provided Idaho Power with additional liquidity should the financial impacts of the COVID-19 public health crisis worsen in the coming months or be prolonged. Based on planned capital expenditures and other O&M expenses, the companies believe they will be able to meet capital and debt service requirements and fund corporate expenses during at least the next twelve months with a combination of existing cash, operating cash flows generated by Idaho Power's utility business, availability under existing credit facilities, and access to commercial paper and long-term debt markets.

IDACORP and Idaho Power seek to maintain capital structures of approximately 50 percent debt and 50 percent equity, and maintaining this ratio influences IDACORP's and Idaho Power's debt and equity issuance decisions. As of September 30, 2020, IDACORP's and Idaho Power's capital structures, as calculated for purposes of applicable debt covenants, were as follows:

IDACORP Idaho Power Debt 44% 46% Equity 56% 54% IDACORP and Idaho Power generally maintain their cash and cash equivalents in highly liquid investments, such as U.S. Treasury Bills, money market funds, and bank deposits. Operating Cash Flows IDACORP's and Idaho Power's operating cash inflows for the nine months ended September 30, 2020, were $284 million and $285 million, respectively, a decrease of $3 million for IDACORP and an increase of $20 million for Idaho Power, compared with the same period in 2019. With the exception of cash flows related to income taxes, IDACORP's operating cash flows are principally derived from the operating cash flow of Idaho Power. Significant items that affected the comparability of the companies' operating cash flows in the first nine months of 2020 compared with the same period in 2019 were as follows:

•increased net income;

48 -------------------------------------------------------------------------------- Table of Contents •changes in regulatory assets and liabilities, mostly related to the relative amounts of costs deferred and collected under the Idaho PCA mechanism, decreased operating cash flows by $34 million; •Idaho Power received $7 million in 2020 and $18 million in 2019 of distributions from IERCo's investment in BCC; changes in distributions from year to year are primarily driven by changes in the timing of cash needs associated with BCC; and •changes in working capital balances due primarily to timing, including fluctuations in accounts payable and other current liabilities, as follows: •timing of accounts payable payments increased operating cash flows by $12 million for IDACORP and $34 million for Idaho Power, of which $23 million of the difference between IDACORP and Idaho Power related to intercompany estimated tax payments; and •the changes in other current liabilities, which includes non-incentive compensation, customer deposits, accrued interest, and other miscellaneous liabilities, increased operating cash flows by $9 million for IDACORP and Idaho Power. Investing Cash Flows Investing activities consist primarily of capital expenditures related to new construction and improvements to Idaho Power's generation, transmission, and distribution facilities. IDACORP's and Idaho Power's net investing cash outflows for the nine months ended September 30, 2020, were $242 million and $206 million, respectively. Investing cash outflows for 2020 and 2019 were primarily for construction of utility infrastructure needed to address Idaho Power's aging plant and equipment, customer growth, and environmental and regulatory compliance requirements. During the nine months ended September 30, 2020, IDACORP's investing cash outflows also included $25 million of purchases of short-term investments and $12 million of investments in affordable housing, which provide a return principally by reducing federal and state income taxes through tax credits and accelerated tax depreciation benefits.

Financing Cash Flows

Financing activities provide supplemental cash for both day-to-day operations and capital requirements, as needed. Idaho Power funds liquidity needs for capital investment, working capital, managing commodity price risk, and other financial commitments through cash flows from operations, debt offerings, commercial paper markets, credit facilities, and capital contributions from IDACORP. IDACORP funds its cash requirements, such as payment of taxes, capital contributions to Idaho Power, and non-utility expenses allocated to IDACORP, through cash flows from operations, commercial paper markets, sales of common stock, and credit facilities. IDACORP's and Idaho Power's net financing cash inflows for the nine months ended September 30, 2020, were $53 million and $58 million, respectively. The following are significant items and transactions that affected financing cash flows in 2020: •in April 2020, Idaho Power issued $230 million in principal amount of its 4.20 percent first mortgage bonds, secured medium term notes, Series K, maturing March 1, 2048. The bonds were issued at a reoffer yield of 3.422 percent, which resulted in a net premium of 13.0 percent and net proceeds to Idaho Power of $260 million; •in June 2020, Idaho Power issued $80 million in principal amount of its 1.90 percent first mortgage bonds, secured medium term notes, Series L, maturing July 15, 2030; •in July 2020, Idaho Power redeemed, prior to maturity, $75 million in principal amount of 2.95 percent first mortgage bonds, medium-term notes, Series H due in April 2022. In accordance with the redemption provisions of the notes, the redemption included Idaho Power's payment of a make-whole premium to the holders of the redeemed notes in the aggregate amount of $3 million; •in August 2020, Idaho Power redeemed $100 million in principal amount of 3.40 percent first mortgage bonds due in November 2020; and •IDACORP and Idaho Power paid dividends of approximately $102 million.

Financing Programs and Available Liquidity

IDACORP Equity Programs: In recent years, IDACORP has entered into sales agency agreements under which it could offer and sell shares of its common stock from time to time through a third-party agent. The most recent sales agency agreement terminated in May 2016. IDACORP has no current plans to issue equity securities other than under its equity compensation plans during 2020, and as of the date of this report, IDACORP has not pursued the execution of a new sales agency agreement. Idaho Power First Mortgage Bonds: Idaho Power's issuance of long-term indebtedness is subject to the approval of the IPUC, OPUC, and Wyoming Public Service Commission (WPSC). In April and May 2019, Idaho Power received orders from the IPUC, OPUC, and WPSC authorizing the company to issue and sell from time to time of up to $500 million in aggregate 49 -------------------------------------------------------------------------------- Table of Contents principal amount of debt securities and first mortgage bonds, subject to conditions specified in the orders. Following the June 2020 issuance of Series L medium-term notes and the April 2020 issuance of Series K medium-term notes described above, $190 million of debt securities remains available for issuance under the orders. Authority from the IPUC is effective through May 31, 2022, subject to extension upon request to the IPUC. The OPUC's and WPSC's orders do not impose a time limitation for issuances, but the OPUC order does impose a number of other conditions, including a requirement that the interest rates for the debt securities or first mortgage bonds fall within either (a) designated spreads over comparable U.S. Treasury rates or (b) a maximum interest rate limit of seven percent. In May 2019, Idaho Power filed a shelf registration statement with the SEC, which became effective upon filing, for the offer and sale of an unspecified principal amount of its first mortgage bonds. The issuance of first mortgage bonds requires that Idaho Power meet interest coverage and security provisions set forth in Idaho Power's Indenture of Mortgage and Deed of Trust, dated as of October 1, 1937, as amended and supplemented from time to time (Indenture). Future issuances of first mortgage bonds are subject to satisfaction of covenants and security provisions set forth in the Indenture, market conditions, regulatory authorizations, and covenants contained in other financing agreements. In June 2020, Idaho Power entered into a selling agency agreement with six banks named in the agreement in connection with the potential issuance and sale from time to time of up to $500 million aggregate principal amount of first mortgage bonds, secured medium term notes, Series L (Series L Notes), under Idaho Power's Indenture of Mortgage and Deed of Trust, dated as of October 1, 1937, as amended and supplemented (Indenture). Also in June 2020, Idaho Power entered into the Forty-ninth Supplemental Indenture, dated effective as of June 5, 2020, to the Indenture (Forty-ninth Supplemental Indenture). The Forty-ninth Supplemental Indenture provides for, among other items the issuance of up to $500 million in aggregate principal amount of Series L Notes pursuant to the Indenture. The Indenture limits the amount of first mortgage bonds at any one time outstanding to $2.5 billion, and as a result, the maximum amount of additional first mortgage bonds Idaho Power could issue as of September 30, 2020, was limited to approximately $534 million. Separately, the Indenture also limits the amount of additional first mortgage bonds that Idaho Power may issue to the sum of (a) the principal amount of retired first mortgage bonds and (b) 60 percent of total unfunded property additions, as defined in the Indenture. As of September 30, 2020, Idaho Power could issue approximately $1.8 billion of additional first mortgage bonds based on retired first mortgage bonds and total unfunded property additions. IDACORP and Idaho Power Credit Facilities: In December 2019, IDACORP and Idaho Power entered into Credit Agreements for $100 million and $300 million credit facilities, respectively, replacing prior credit agreements. Each of the credit facilities may be used for general corporate purposes and commercial paper back-up. IDACORP's facility permits borrowings under a revolving line of credit of up to $100 million at any one time outstanding, including swingline loans not to exceed $10 million at any one time and letters of credit not to exceed $50 million at any one time. IDACORP's facility may be increased, subject to specified conditions, to $150 million. Idaho Power's facility permits borrowings through the issuance of loans and standby letters of credit of up to $300 million at any one time outstanding, including swingline loans not to exceed $30 million at any one time and letters of credit not to exceed $50 million at any one time outstanding. Idaho Power's facility may be increased, subject to specified conditions, to $450 million. The credit facilities currently provide for a maturity date of December 6, 2024, though IDACORP and Idaho Power may request up to two-one-year extensions of the credit agreements, subject to certain conditions. Other terms and conditions of the credit facilities are described in the 2019 Annual Report, in Part II, Item 7 - "MD&A - Liquidity and Capital Resources." Each facility contains a covenant requiring each company to maintain a leverage ratio of consolidated indebtedness to consolidated total capitalization equal to or less than 65 percent as of the end of each fiscal quarter. In determining the leverage ratio, "consolidated indebtedness" broadly includes all indebtedness of the respective borrower and its subsidiaries, including, in some instances, indebtedness evidenced by certain hybrid securities (as defined in the credit agreement). "Consolidated total capitalization" is calculated as the sum of all consolidated indebtedness, consolidated stockholders' equity of the borrower and its subsidiaries, and the aggregate value of outstanding hybrid securities. At September 30, 2020, the leverage ratios for IDACORP and Idaho Power were 44 percent and 46 percent, respectively. IDACORP's and Idaho Power's ability to utilize the credit facilities is conditioned upon their continued compliance with the leverage ratio covenants included in the credit facilities. There are additional covenants, subject to exceptions, that prohibit certain mergers, acquisitions, and investments, restrict the creation of certain liens, and prohibit entering into any agreements restricting dividend payments from any material subsidiary. At September 30, 2020, IDACORP and Idaho Power believed they were in compliance with all facility covenants. Further, IDACORP and Idaho Power do not anticipate they will be in violation or breach of their respective debt covenants during 2020. 50 -------------------------------------------------------------------------------- Table of Contents Without additional approval from the IPUC, the OPUC, and the WPSC, the aggregate amount of short-term borrowings by Idaho Power at any one time outstanding may not exceed $450 million. Idaho Power has obtained approval of the IPUC, the OPUC, and the WPSC for the issuance of short-term borrowings through December 2026. IDACORP and Idaho Power Commercial Paper: IDACORP and Idaho Power have commercial paper programs under which they issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time not to exceed the available capacity under their respective credit facilities, described above. IDACORP's and Idaho Power's credit facilities are available to the companies to support borrowings under their commercial paper programs. The commercial paper issuances are used to provide an additional financing source for the companies' short-term liquidity needs. The maturities of the commercial paper issuances will vary but may not exceed 270 days from the date of issue. Individual instruments carry a fixed rate during their respective terms, although the interest rates are reflective of current market conditions, subjecting the companies to fluctuations in interest rates.

Available Short-Term Borrowing Liquidity

The table below outlines available short-term borrowing liquidity as of the dates specified (in thousands).

September 30, 2020 December 31, 2019 IDACORP(2) Idaho Power IDACORP(2) Idaho Power Revolving credit facility $ 100,000 $ 300,000 $ 100,000 $ 300,000 Commercial paper outstanding - - - - Identified for other use(1) - (24,245) - (24,245) Net balance available $ 100,000 $ 275,755 $ 100,000 $ 275,755 (1) Port of Morrow and American Falls bonds that Idaho Power could be required to purchase prior to maturity under the optional or mandatory purchase provisions of the bonds, if the remarketing agent for the bonds is unable to sell the bonds to third parties. (2) Holding company only. At October 23, 2020, IDACORP had no loans outstanding under its credit facilities and had no commercial paper outstanding. Idaho Power had no loans outstanding under its credit facilities and no commercial paper outstanding. During the three and nine months ended September 30, 2020, IDACORP and Idaho Power borrowed no short-term commercial paper.

Impact of Credit Ratings on Liquidity and Collateral Obligations

IDACORP's and Idaho Power's access to capital markets, including the commercial paper market, and their respective financing costs in those markets, depend in part on their respective credit ratings. There have been no changes to IDACORP's or Idaho Power's ratings or ratings outlook by Standard & Poor's Ratings Services or Moody's Investors Service from those included in the 2019 Annual Report. However, any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant the change. Idaho Power maintains margin agreements relating to its wholesale commodity contracts that allow performance assurance collateral to be requested of and/or posted with certain counterparties. As of September 30, 2020, Idaho Power had posted no cash performance assurance collateral related to these contracts. Should Idaho Power experience a reduction in its credit rating on its unsecured debt to below investment grade, Idaho Power could be subject to requests by its wholesale counterparties to post additional performance assurance collateral, and counterparties to derivative instruments and other forward contracts could request immediate payment or demand immediate ongoing full daily collateralization on derivative instruments and contracts in net liability positions. Based upon Idaho Power's current energy and fuel portfolio and market conditions as of September 30, 2020, the amount of additional collateral that could be requested upon a downgrade to below investment grade is approximately $12.9 million. To minimize capital requirements, Idaho Power actively monitors its portfolio exposure and the potential exposure to additional requests for performance assurance collateral through sensitivity analysis. 51 -------------------------------------------------------------------------------- Table of Contents Capital Requirements Idaho Power's construction expenditures, excluding AFUDC, were $205 million during the nine months ended September 30, 2020. The cash expenditure amount excludes net costs of removing assets from service. The table below presents Idaho Power's estimated accrual-basis additions to electric plant for 2020 (including amounts incurred to-date) through 2024 (in millions of dollars). The amounts in the table exclude AFUDC but include net costs of removing assets from service that Idaho Power expects would be eligible to include in rate base in future rate case proceedings. However, given the uncertainty associated with the timing of infrastructure projects and associated expenditures, actual expenditures and their timing could deviate substantially from those set forth in the table. 2020 2021 2022-2024 Expected capital expenditures (excluding AFUDC) $300-$310 $305-$315 $1,000-$1,050 Major Infrastructure Projects: Idaho Power is engaged in the development of a number of significant projects and has entered into arrangements with third parties concerning joint infrastructure development. The discussion below provides a summary of developments in certain of those projects since the discussion of these matters included in Part II, Item 7 - "MD&A - Capital Requirements" in the 2019 Annual Report. The discussion below should be read in conjunction with that report. Boardman-to-Hemingway Transmission Line: The Boardman-to-Hemingway line, a proposed 300-mile, high-voltage transmission project between a substation near Boardman, Oregon, and the Hemingway substation near Boise, Idaho, would provide transmission service to meet future resource needs. In January 2012, Idaho Power entered into a joint funding agreement with PacifiCorp and the Bonneville Power Administration (BPA) to pursue permitting of the project. The joint funding agreement provides that Idaho Power's interest in the permitting phase of the project would be approximately 21 percent. Total cost estimates for the project are between $1.0 billion and $1.2 billion, including Idaho Power's AFUDC. This cost estimate is preliminary and excludes the impacts of inflation and price changes of materials and labor resources that may occur following the date of the estimate. Approximately $111 million, including AFUDC, has been expended on the Boardman-to-Hemingway project through September 30, 2020. Pursuant to the terms of the joint funding arrangements, Idaho Power has received $75 million in reimbursement as of September 30, 2020, from project co-participants for their share of costs. As of the date of this report, no material co-participant reimbursements are outstanding. Joint permitting participants are obligated to reimburse Idaho Power for their share of any future project permitting expenditures or agreed upon early construction expenditures incurred by Idaho Power under the terms of the joint funding agreement. The permitting phase of the Boardman-to-Hemingway project is subject to federal review and approval by the U.S. Bureau of Land Management (BLM), the U.S. Forest Service, the Department of the Navy, and certain other federal agencies. The BLM issued its record of decision for the project in November 2017, approving a right-of-way grant for the project to cross approximately 86 miles of BLM-administered land. The U.S. Forest Service issued its record of decision in November 2018 authorizing the project to cross approximately seven miles of National Forest lands. In September 2019, the Department of the Navy issued its record of decision authorizing the project to cross approximately seven miles of Department of the Navy lands. In November 2019, third parties filed a lawsuit in the federal district court of Oregon challenging the BLM and U.S. Forest Service records of decision for the Boardman-to-Hemingway project. In February 2020, Idaho Power filed a motion to intervene in the legal proceeding, and the motion was granted in April 2020. The litigation is in its initial phases and remains pending as of the date of this report. In the separate Oregon state permitting process, the Oregon Department of Energy (ODOE) issued a Proposed Order in July 2020, that recommends approval of the project to the state's Energy Facility Siting Council (EFSC). Idaho Power currently expects the EFSC to issue a final order and site certificate in the second half of 2021. Given the status of ongoing permitting activities and the construction period, Idaho Power expects the in-service date for the transmission line will be no earlier than 2026. As the current joint funding agreement covers primarily permitting activities, which are nearing completion, Idaho Power and its co-participants are exploring several scenarios of ownership, asset, and service arrangements aimed at maximizing the value of the project to each of the co-participants' customers. One option includes Idaho Power acquiring BPA's ownership share and providing long-term transmission service to BPA in lieu of BPA ownership. Under the current joint funding agreement, BPA has approximately 24 percent interest in the permitting phase. Discussions are preliminary, and any changes would be addressed through amended or new funding agreements for the design and construction phases of the project and would be subject to regulatory approval. 52

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Gateway West Transmission Line: Idaho Power and PacifiCorp are pursuing the joint development of the Gateway West project, a high-voltage transmission lines project between a substation located near Douglas, Wyoming, and the Hemingway substation located near Boise, Idaho. In January 2012, Idaho Power and PacifiCorp entered a joint funding agreement for permitting of the project. Idaho Power has expended approximately $44 million, including Idaho Power's AFUDC, for its share of the permitting phase of the project through September 30, 2020. As of the date of this report, Idaho Power estimates the total cost for its share of the project (including both permitting and construction) to be between $250 million and $450 million, including AFUDC. Idaho Power and PacifiCorp continue to coordinate the timing of next steps to best meet customer and system needs.

Defined Benefit Pension Plan Contributions

Idaho Power contributed $40 million to its defined benefit pension plan during the first nine months of 2020. Idaho Power has no further minimum required contributions to be made to its defined benefit pension plan during 2020 and does not expect to make any additional contributions. Idaho Power's contributions are made in a continued effort to balance the regulatory collection of these expenditures with the amount and timing of contributions and to mitigate the cost of being in an underfunded position. The primary impact of pension contributions is on the timing of cash flows, as the timing of cost recovery lags behind contributions.

Contractual Obligations

During the nine months ended September 30, 2020, IDACORP's and Idaho Power's contractual obligations, outside the ordinary course of business, did not change materially from the amounts disclosed in the 2019 Annual Report, except that Idaho Power entered into one new contract with a hydropower PURPA-qualifying facility and ten new replacement contracts for expiring power purchase agreements with hydropower and cogeneration PURPA-qualifying facilities, which increased Idaho Power's contractual purchase obligations by approximately $28 million over the 20-year terms of the contracts.

Off-Balance Sheet Arrangements

IDACORP's and Idaho Power's off-balance sheet arrangements have not changed materially from those reported in MD&A in the 2019 Annual Report.

REGULATORY MATTERS

Introduction

Idaho Power is under the jurisdiction (as to rates, service, accounting, and other general matters of utility operation) of the IPUC, the OPUC, and the FERC. The IPUC and OPUC determine the rates that Idaho Power is authorized to charge to its retail customers. Idaho Power is also under the regulatory jurisdiction of the IPUC, the OPUC, and the WPSC as to the issuance of debt and equity securities. As a public utility under the Federal Power Act (FPA), Idaho Power has authority to charge market-based rates for wholesale energy sales under its FERC tariff and to provide transmission services under its OATT. Additionally, the FERC has jurisdiction over Idaho Power's sales of transmission capacity and wholesale electricity, hydropower project relicensing, and system reliability, among other items. Idaho Power's development of regulatory filings takes into consideration short-term and long-term needs for rate relief and involves several factors that can affect the timing of these regulatory filings. These factors include, among others, in-service dates of major capital investments, the timing and magnitude of changes in major revenue and expense items, and customer growth rates. Idaho Power's most recent general rate cases in Idaho and Oregon were filed during 2011. In 2012, large single-issue rate cases for the Langley Gulch power plant in Idaho and Oregon resulted in the resetting of base rates in both Idaho and Oregon. Idaho Power also reset its base-rate power supply expenses in the Idaho jurisdiction for purposes of updating the collection of costs through retail rates in 2014 but without a resulting net increase in rates. The IPUC and OPUC have also approved base rate changes in single issue cases subsequent to 2014. Between general rate cases, Idaho Power relies upon customer growth, a fixed cost adjustment mechanism, power cost adjustment mechanisms, tariff riders, and other mechanisms to mitigate the impact of regulatory lag, which refers to the period of time between making an investment or incurring an expense and recovering that investment or expense and earning a return. Management's regulatory focus in recent years has been largely on regulatory settlement stipulations and the design of rate mechanisms. Idaho Power continues to assess the need and timing of filing a general rate case in its two retail jurisdictions, based on its consideration of factors such as those described above, but does not anticipate filing a general rate case in the next twelve months. 53 -------------------------------------------------------------------------------- Table of Contents The outcomes of significant proceedings are described in part in this report and further in the 2019 Annual Report. In addition to the discussion below, which includes notable regulatory developments since the discussion of these matters in the 2019 Annual Report, refer to Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report for additional information relating to Idaho Power's regulatory matters and recent regulatory filings and orders.

Notable Retail Rate Changes and Pending Rate Changes During 2020

During 2020, Idaho Power filed rate change applications and received orders in notable regulatory matters summarized in the table below.

Estimated Annual Description Status Rate Impact(1)

Notes

Power Cost Adjustment New PCA rate became $58.7 million PCA

The potential revenue impact of rate increases and Mechanism - Idaho

effective June 1, 2020 increase for the decreases associated with the Idaho PCA mechanism period from June is largely offset by associated increases and 1, 2020, to May decreases in actual power supply costs and 31, 2021 amortization of deferred power supply costs. The increase reflects the return to a more normal level of power supply costs as wholesale market prices have come down from unusually high levels reflected in last year's PCA. Fixed Cost Adjustment New FCA rate became $0.7 million FCA

The FCA is designed to remove a portion of Idaho Mechanism - Idaho

effective June 1, 2020 increase for the Power's financial disincentive to invest in energy period from June efficiency programs by partially separating (or 1, 2020, to May decoupling) the recovery of fixed costs from the 31, 2021 volumetric kilowatt-hour charge and instead linking it to a set amount per customer. Boardman Power Plant Filed August 21, 2020; $3.9 million

In August 2020, Idaho Power filed an application (Boardman) Investment Pending

decrease

with the IPUC requesting an order to find that Expenditures - Idaho

Idaho Power prudently incurred all actual Boardman investments made through June 30, 2020, and to decrease customer rates $3.9 million to reflect full depreciation of all Boardman investments, effective January 1, 2021, an overall decrease of 0.33%.

Boardman Power Plant Approved; Effective $0.3 million

In October 2020, the OPUC approved Idaho Power's (Boardman) Investment November 1, 2020

decrease

application requesting a decrease in customer Expenditures - Oregon

rates by $0.3 million, effective November 1, 2020, to reflect that operations at Boardman ceased in October 2020, an overall decrease of 0.52%. Langley Gulch Power Approved; Effective $0.4 million

In October 2020, the OPUC approved Idaho Power's Plant Revenue

November 1, 2020 annual increase

application requesting an annual increase in Requirement-Oregon

customer rates by $0.4 million, effective November 1, 2020, to reflect the revenue requirement variance related to the Langley Gulch Power Plant, an overall increase of 0.69%.

(1) The annual amount collected in rates is typically not recovered on a straight-line basis (i.e., 1/12th per month), and is instead recovered in proportion to retail sales volumes.

Idaho Earnings Support and Sharing from Idaho Settlement Stipulation

In October 2014, the IPUC issued an order approving the October 2014 Idaho Earnings Support and Sharing Settlement Stipulation extending, with modifications, the terms of a December 2011 Idaho settlement stipulation for the period from 2015 through 2019. A May 2018 Idaho settlement stipulation related to tax reform (May 2018 Idaho Tax Reform Settlement Stipulation) provides for the extension of the October 2014 Idaho Earnings Support and Sharing Settlement Stipulation beyond the initial termination date of December 31, 2019, with modified terms related to the ADITC and revenue sharing mechanism that became effective beginning January 1, 2020. The more specific terms and conditions of the October 2014 Idaho Earnings Support and Sharing Settlement Stipulation and the May 2018 Idaho Tax Reform Settlement Stipulation are described in Note 3 - "Regulatory Matters" to the consolidated financial statements included in the 2019 Annual Report. IDACORP and Idaho Power believe that the terms allowing additional amortization of ADITC in the settlement stipulations provide the companies with a greater degree of earnings stability than would be possible without the terms of the stipulations in effect. Based on its estimate of full-year 2020 Idaho ROE, in both the third quarter and first nine months of 2020, Idaho Power recorded no additional ADITC amortization or provision against current revenues for sharing of earnings with customers for 2020 under the May 2018 Idaho Tax Reform Settlement Stipulation. Accordingly, at September 30, 2020, the full $45 million of additional ADITC remained available for future use. Idaho Power also recorded no additional ADITC amortization 54 -------------------------------------------------------------------------------- Table of Contents or provision against revenues for sharing of earnings with customers during the third quarter and first nine months of 2019, based on its then-current estimate of full-year 2019 Idaho ROE.

Change in Deferred Net Power Supply Costs and the Power Cost Adjustment Mechanisms

Deferred (accrued) power supply costs represent certain differences between Idaho Power's actual net power supply costs and the costs included in its retail rates, the latter being based on annual forecasts of power supply costs. Deferred (accrued) power supply costs are recorded on the balance sheets for future recovery or refund through customer rates.

The table that follows summarizes the change in deferred (accrued) net power supply costs during the nine months ended September 30, 2020 (in millions).

Idaho Oregon Total

Deferred (accrued) net power supply costs at December $ (48.2)

$ (0.3) $ (48.5) 31, 2019 Current period net power supply costs deferred (accrued) (26.2) - (26.2) Prior amounts refunded through rates 42.7 0.1 42.8 SO2 allowance and renewable energy certificate sales (3.4) (0.1) (3.5) Interest and other 1.8 - 1.8 Deferred (accrued) net power supply costs at September 30, 2020 $ (33.3) $ (0.3) $ (33.6) Idaho Power's power cost adjustment mechanisms in its Idaho and Oregon jurisdictions address the volatility of power supply costs and provide for annual adjustments to the rates charged to retail customers. The power cost adjustment mechanisms and associated financial impacts are described in "Results of Operations" in this MD&A and in Note 3 - "Regulatory Matters" to the condensed consolidated financial statements included in this report. With the exception of power supply expenses incurred under PURPA and certain demand response program costs that are passed through to customers substantially in full, the Idaho PCA mechanism allows Idaho Power to pass through to customers 95 percent of the differences in actual net power supply expenses as compared with base net power supply expenses, whether positive or negative. Thus, the primary financial statement impact of power supply cost deferrals or accruals is that the timing of when cash is paid out for power supply expenses differs from when those costs are recovered from customers, impacting operating cash flows from year to year.

Deferred Costs for COVID-19 Public Health Crisis

Idaho Power has incurred, and expects to continue to incur, costs associated with its response to the COVID-19 public health crisis, including information technology expenditures for remote work, higher than average levels of bad debt expense related to uncollectible accounts associated in part with its temporary suspension of disconnects and late payment fees. Accordingly, in March and April 2020, Idaho Power submitted applications to the OPUC and IPUC, respectively, requesting authorization to defer incremental costs associated with its response to the COVID-19 public health crisis. Idaho Power requested authorization to establish a new regulatory asset to record the deferral of incremental costs and, in the Idaho jurisdiction, unrecovered costs associated with the COVID-19 response. Both applications requested only the authority to defer these costs and to determine ratemaking treatment at a later date. Subsequent to Idaho Power's application, the IPUC opened a general docket to address the issue. In July 2020, the IPUC issued an order authorizing Idaho Power and other utilities to account for unanticipated, emergency-related expenses incurred due to the COVID-19 public health crisis by recording the expenses as regulatory assets for possible recovery through future rates. The order also requires utilities to account for the decreases in expenses resulting from the COVID-19 public health crisis, such as reduced employee travel and training, and apply these reductions in expenses to offset the deferral account balance. Additionally, the order addressed potential reductions in revenue due to the COVID-19 public health crisis, allowing utilities to track reduced revenues from customer classes not included in an FCA-type mechanism for possible movement to the regulatory asset account at a later date. Idaho Power resumed assessing late fees and disconnections in early August 2020 in its Idaho service area. As of September 30, 2020, Idaho Power had recorded a $0.7 million regulatory asset for its estimate of unanticipated, emergency-related expenses, net of estimated savings. On October 20, 2020, the OPUC issued an order authorizing Idaho Power to defer certain COVID-19-related costs for the 12-month period beginning March 24, 2020.

Alternative AFUDC Calculation Formula

In June 2020, the FERC issued an order allowing jurisdictional utilities the option to apply an alternative AFUDC calculation formula for March 2020 through February 2021 to reflect conditions that arose as a result of responses to the COVID-19 pandemic. The optional alternative AFUDC calculation recomputes AFUDC each month by substituting average short-term debt outstanding in 2019 for the actual amounts in March 2020 through February 2021. The order does not propose any other 55 -------------------------------------------------------------------------------- Table of Contents changes to the formula. As of the date of this report, Idaho Power does not believe its AFUDC rate would be affected by the alternative calculation formula, and thus far, has not elected to apply the option.

Open Access Transmission Tariff

Idaho Power uses a formula rate for transmission service provided under its OATT, which allows transmission rates to be updated annually based primarily on financial and operational data Idaho Power files with the FERC. In September 2020, Idaho Power filed its 2020 final transmission rate with the FERC, reflecting a transmission rate of $29.95 per "kW-year," effective for the period from October 1, 2020, to September 30, 2021. A "kW-year" is a unit of electrical capacity equivalent to 1 kilowatt of power used for 8,760 hours. Idaho Power's final rate was based on a net annual transmission revenue requirement of $117.7 million. The OATT rate in effect from October 1, 2019, to September 30, 2020, was $27.32 per kW-year based on a net annual transmission revenue requirement of $107.0 million. The increase in the OATT rate is largely attributable to decreased short-term firm and non-firm transmission revenues in 2019, which serve as an offset to the transmission revenue requirement.

2019 Integrated Resource Plan

Idaho Power filed its most recent IRP with the IPUC and OPUC in June 2019 and filed an amended 2019 IRP with additional information and modeling results in January 2020, as described in Part 1, Item 1 - "Resource Planning and Renewable Energy Projects" in the 2019 Annual Report. Subsequent to the January 2020 filing, Idaho Power noted further complications with its modeling approach. In July 2020, the OPUC granted Idaho Power's motion to suspend the procedural schedule for the Oregon 2019 IRP case, and the IPUC issued an order vacating the comment deadline previously established in the Idaho 2019 IRP case. In October 2020, Idaho Power filed its Second Amended 2019 IRP with the IPUC and OPUC after completing its review of certain inputs to the model the company uses for the IRP, such as operational constraints and financial assumptions, and the modeling system's logic. As a result of Idaho Power's review of the IRP, it made only one change to its near-term IRP action plan to potentially end its participation in unit 2 of its North Valmy plant as early as 2022, as opposed to 2025. However, as noted in the 2019 IRP, there is considerable uncertainty surrounding the resource sufficiency estimates and project completion dates, including uncertainty around the timing and extent of third-party development of renewable resources, fuel commodity prices, the actual completion date of the Boardman-to-Hemingway transmission project, and the economics and logistics of plant retirements. Over time, these uncertainties, as well as others, will likely result in changes to the desirability of the preferred portfolio and adjustments to the timing and nature of anticipated and actual actions. As of the date of this report, the proceedings relating to the Second Amended 2019 IRP are pending at the IPUC and OPUC.

Renewable and Other Energy Contracts

Idaho Power has contracts for the purchase of electricity produced by third-party owned generation facilities, most of which produce energy with the use of renewable generation sources such as wind, solar, biomass, small hydropower, and geothermal. The majority of these contracts are entered into as mandatory purchases under PURPA. As of September 30, 2020, Idaho Power had contracts to purchase energy from 131 on-line PURPA projects. An additional three contracts are with on-line non-PURPA projects, including the Elkhorn Valley wind project with a 101-MW nameplate capacity. 56

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The following table sets forth, as of September 30, 2020, the resource type and nameplate capacity of Idaho Power's signed agreements for power purchases from PURPA and non-PURPA generating facilities. These agreements have original contract terms ranging from one to 35 years. Under Contract but Total Projects under Resource Type On-line megawatts (MW) not yet On-line (MW) Contract (MW) PURPA: Wind 627 - 627 Solar 316 3 319 Hydropower 147 3 150 Other 52 - 52 Total 1,142 6 1,148 Non-PURPA: Wind 101 - 101 Geothermal 35 - 35 Solar - 120 120 Total 136 120 256

The projects not yet on-line include two PURPA-qualifying facility hydropower projects that are scheduled to be on-line in 2021 and one PURPA-qualifying facility solar project scheduled to be on-line in 2022. The non-PURPA solar project is scheduled to be on-line in 2022.

In July 2020, the FERC issued Order No. 872 that could affect how states determine PURPA project avoided cost rates for purchases of power generated from qualifying facilities (QF), which facilities are eligible for QF status, whether and when certain QFs can enter into purchase agreements with utilities, and how parties can contest the eligibility of a generation facility seeking QF status. As of the date of this report, Idaho Power is unable to determine the impact of these potential changes on the company's future obligations for new PURPA power purchase contracts. Further action by the state public utility commissions is required to implement many of the changes. While the ultimate impact of implementation of those changes is yet to be determined, taken as a whole, Idaho Power believes that the changes could reduce the number of future PURPA generation projects or the amount paid to the projects for power. Substantially all PURPA power purchase costs are recovered through base rates and Idaho Power's power cost adjustment mechanisms.

Customer-Owned Generation Filings

Customer-owned generation allows customers to install solar panels or other on-site energy-generating resources and connect them to Idaho Power's grid. If a customer requires more energy than its system generates, it utilizes energy supplied by Idaho Power's grid. If its system generates more energy than the customer uses, the energy goes back to the grid and Idaho Power applies a corresponding kWh credit to the customer's bill. In May 2018, the IPUC issued an order authorizing the creation of two new customer classes for residential and small commercial customers who install their own on-site generation, with no change to pricing or compensation. Since October 2018, Idaho Power has initiated cases with the IPUC related to studying the costs and benefits of customer-owned generation on Idaho Power's system, and exploring whether, and to what extent, there should be modifications to the customer-owned generation pricing structure for residential and small general service customers, and large commercial, industrial, and irrigation customers. The IPUC issued orders in one of the residential and small commercial cases during December 2019 and February 2020 directing Idaho Power to (1) complete additional studies related to the costs and benefits of customer generation before changes to the compensation structure are implemented, and (2) continue to allow customers with on-site generation prior to December 20, 2019, to be subject to the billing terms in place on that date until December 20, 2045. In June 2020, Idaho Power filed an application with the IPUC seeking authority to remove the existing two-meter requirement for new large commercial, industrial, and irrigation (CI&I) customers with on-site generation and to establish a ten-year grandfathering term for existing CI&I customers with on-site generation. In July 2020, Idaho Power filed an application with the IPUC seeking to establish a smart inverter requirement for all customers with on-site generation. As of the date of this report, Idaho Power does not expect the pending cases relating to customer-owned generation matters to materially affect its financial condition or results of operations. 57 -------------------------------------------------------------------------------- Table of Contents Relicensing of Hydropower Projects HCC Relicensing: In connection with Idaho Power's efforts to relicense the HCC, Idaho Power's largest hydropower complex and a major relicensing effort, as described in more detail in the 2019 Annual Report in Part II, Item 7 - "Regulatory Matters," Idaho Power filed water quality certification applications, required under Section 401 of the Clean Water Act (CWA), with the states of Idaho and Oregon requesting that each state certify that any discharges from the project comply with applicable state water quality standards. Idaho Power has been working with the states to identify measures that will provide reasonable assurance that discharges from the HCC will adequately address applicable water quality standards. In April 2019, the states of Idaho and Oregon, along with Idaho Power, reached a settlement pertaining to the CWA Section 401 certification that requires Idaho Power to increase the number of Chinook salmon it releases each year through expanded hatchery production. Additionally, Idaho Power is required to fund a total of $12 million of research and water quality improvements in the HCC over a 20-year period following the issuance of the license. Idaho Power estimates that the combined cost of the mandated water quality improvements and expanded hatchery production is $20 million over the first 20 years of the new license term. In May 2019, Oregon and Idaho issued final CWA Section 401 certifications. These certifications have been submitted to the FERC as part of the relicensing process. In July 2019, three third-parties filed lawsuits against the Oregon Department of Environmental Quality in Oregon state court challenging the Oregon CWA Section 401 certification based on fish passage, water temperature, and mercury issues associated with the Snake River and the HCC. Two of the lawsuits were consolidated, and Idaho Power has intervened in that lawsuit. Idaho Power is closely monitoring the other pending lawsuit. No parties challenged the Idaho CWA 401 certification. In December 2019, Idaho Power filed an Offer of Settlement with the FERC requesting specific language be included in the new HCC license based upon the settlement among Idaho, Oregon, and Idaho Power. During the first quarter of 2020, the FERC received several comments opposing the Offer of Settlement and its decision relating to the Offer of Settlement is pending as of the date of this report. In July 2020, Idaho Power submitted to the FERC its supplement to the final license application that incorporated the settlement agreement reached between Idaho and Oregon on the CWA Section 401 certifications, and provided feedback on proposed modification of the 2007 final environmental impact statement for the HCC. The July 2020 filing also contained an updated cost analysis of the HCC and a request for the FERC to issue a 50-year license and initiate a supplemental National Environmental Policy Act (NEPA) process at the FERC. Idaho Power prepared draft biological assessments in consultation with the U.S. Fish and Wildlife Service (USFWS) and the National Marine Fisheries Service (NMFS) and filed those with the FERC in October 2020. The draft biological assessments provide the necessary information to the USFWS and the NMFS to issue their biological opinion as required under the Endangered Species Act (ESA). Once the biological assessments are finalized, Idaho Power expects the FERC to initiate formal ESA consultation with the USFWS and the NMFS. Idaho Power continues to expect the FERC to issue a license for the HCC no earlier than 2022. Costs for the relicensing of Idaho Power's hydropower projects are recorded in construction work in progress until new multi-year licenses are issued by the FERC, at which time the charges are transferred to electric plant in service. Idaho Power expects to seek timely recovery of relicensing costs and costs related to a new long-term license through the ratemaking process. Relicensing costs of $346 million (including AFUDC) for the HCC were included in construction work in progress at September 30, 2020. As of the date of this report, the IPUC authorizes Idaho Power to include in its Idaho jurisdiction rates $8.8 million of AFUDC annually relating to the HCC relicensing project. Collecting these amounts currently will reduce future collections when HCC relicensing costs are approved for recovery in base rates. As of September 30, 2020, Idaho Power's regulatory liability for collection of AFUDC relating to the HCC was approximately $165 million. When the FERC issues a new long-term license, Idaho Power will begin operating under the requirements contained in the new license. Idaho Power expects those requirements to increase both O&M expenditures and capital expenditures. Because Idaho Power is uncertain when the FERC will issue a new license, it has not included the expected capital expenditure increases in the "Capital Requirements" section of "Liquidity and Capital Resources" of this MD&A. Idaho Power is unable to predict the exact timing of issuance of a new license for the HCC, or the ultimate financial or operational requirements of a new license. American Falls Relicensing: In April 2020, the FERC formally initiated the relicensing proceeding for the American Falls hydropower facility, which is Idaho Power's largest hydropower facility outside of the HCC, with a generating capacity of 92.3 MW. Idaho Power owns the generation facility but not the structural dam itself, which is owned by the U.S. Bureau of Reclamation. The FERC recognized Idaho Power's pre-application document, including a proposed process plan and schedule, and recognized Idaho Power's intent to file an application for a license. The relicensing proceeding will begin the process of informal ESA Section 7 consultation with Fish and Wildlife Service and Section 106 of the National Historic Preservation Act consultation with the Idaho State Historic Preservation Office. American Falls' current license expires in 2025, and as of the date of this report, Idaho Power expects the FERC to issue a license for this facility prior to the expiration. 58 --------------------------------------------------------------------------------

Table of Contents ENVIRONMENTAL MATTERS Overview Idaho Power is subject to a broad range of federal, state, regional, and local laws and regulations designed to protect, restore, and enhance the environment, including the Affordable Clean Energy (ACE) rule and other Clean Air Act (CAA) requirements, the CWA, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act, and the ESA, among other laws. These laws are administered by various federal, state, and local agencies. In addition to imposing continuing compliance obligations and associated costs, these laws and regulations provide authority to regulators to levy substantial penalties for noncompliance, injunctive relief, and other sanctions. Idaho Power's three jointly-owned coal-fired power plants and three wholly-owned natural gas-fired combustion turbine power plants are subject to many of these regulations. Idaho Power's 17 hydropower projects are also subject to numerous water discharge standards and other environmental requirements.

Compliance with current and future environmental laws and regulations may:

•increase the operating costs of generating plants; •increase the construction costs and lead time for new facilities; •require the modification of existing generation plants, which could result in additional costs; •require the curtailment or shut-down of existing generating plants; or •reduce the output from current generating facilities. Current and future environmental laws and regulations may increase the cost of operating fossil fuel-fired generation plants and constructing new generation and transmission facilities, in large part through the substantial cost of permitting activities and the required installation of additional pollution control devices. In many parts of the United States, some higher-cost, high-emission coal-fired plants have ceased operation or the plant owners have announced a near-term cessation of operation, as the cost of compliance makes the plants uneconomical to operate. Beyond increasing costs generally, these environmental laws and regulations could affect IDACORP's and Idaho Power's results of operations and financial condition if the costs associated with these environmental requirements and early plant retirements cannot be fully recovered in rates on a timely basis. Part I - "Business - Environmental Regulation and Costs" in the 2019 Annual Report, includes a summary of Idaho Power's expected capital and operating expenditures for environmental matters during the period from 2020 to 2022. Given the uncertainty of future environmental regulations, Idaho Power is unable to predict its environmental-related expenditures beyond that time, though they could be substantial.

A summary of notable environmental matters impacting, or expected to potentially impact, IDACORP and Idaho Power, is included in Part II, Item 7 - "MD&A - Environmental Issues" and "MD&A - Liquidity and Capital Resources - Capital Requirements - Environmental Regulation Costs" in the 2019 Annual Report. Developments in certain environmental matters relevant to Idaho Power are described below.

Endangered Species Act Matters

The listing of a species of fish, wildlife, or plants as threatened or endangered under the ESA may have an adverse impact on Idaho Power's ability to construct generation, transmission, or distribution facilities or relicense or operate its hydropower facilities. When a species is added to the federal list of threatened and endangered species, it is protected from "take," which is defined to include harming the species. The ESA directs that, concurrent with a designation of a threatened or endangered species, and where prudent and determinable, the applicable agencies also designate "any habitat of such species which is then considered to be critical habitat." The ESA also provides that each federal agency must ensure that any action they authorize, fund, or carry out is not likely to jeopardize the continued existence of a listed species or result in the destruction or adverse modification of its critical habitat. If an action is determined to result in adverse modification of critical habitat, the federal agency must adopt changes to the proposed action to avoid the adverse modification. These changes are often quite extensive and can affect the size, scope, and even the feasibility of a project moving forward. Gateway West Transmission Project and Other Infrastructure - Slickspot Peppergrass Designation: In August 2016, the USFWS re-instated the threatened species status of slickspot peppergrass under the ESA. In July 2020, the USFWS published a revised proposed rule designating critical habitat for the species, most of which are located on federal land. Idaho Power expects the listing of the slickspot peppergrass and its existence within or near the proposed route for the Gateway West transmission line project and other transmission and distribution lines to increase the cost and timing of permitting and construction of the projects, as it requires an ESA Section 7 consultation and potential mitigation. As of the date of this report, Idaho Power is uncertain whether such increases will be significant. 59

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Lower Snake River Hydroelectric Projects: In May 2016, the United States District Court for the District of Oregon issued an opinion finding that in the context of hydropower facilities owned and operated by the U.S. Army Corps of Engineers (USACE) and located on the lower Snake River, National Oceanic and Atmospheric Administration's National Marine Fisheries Service (NOAA Fisheries) violated the ESA by using improper standards, failing to consider adequately the impact of climate change on habitat conditions, and placing undue reliance on unproven, future federal habitat conservation measures, particularly to the degree that the success of the measures could be undermined by climate change. The court also found that other federal agencies violated the NEPA by failing to prepare a comprehensive environmental impact statement on implementation of the conservation measures ordered by NOAA Fisheries, including analysis of the measures directed by NOAA Fisheries and other reasonable alternatives. The court's opinion and its emphasis on a climate change-driven analysis element, if generalized to other situations, could require ESA-driven avoidance, minimization, and compensatory mitigation efforts to incorporate surplus measures to ensure species' protection, which could result in considerable increases in cost beyond the cost of additional analysis in the NEPA process. In September 2016, federal agencies initiated an environmental impact statement (EIS) process to examine hydropower dams on the lower Snake River. In September 2020, the federal agencies signed a record of decision on the EIS that will guide the operation of those dams. None of Idaho Power's hydropower facilities were included in the studies. Changes to NEPA: In July 2020, the Presidential Administration's Council on Environmental Quality announced its final rule to narrow federal agencies' NEPA obligations. NEPA applies to Idaho Power's transmission and distribution lines that are located on federal land, as well as other company activities involving federal actions. While Idaho Power believes the changes to NEPA will be subject to legal challenge, if upheld they may expedite and make less costly Idaho Power's permitting and right-of-way processes for those projects.

Clean Water Act Matters

Definition of "Waters of the United States" Under the CWA: In August 2015, the EPA and the USACE's final rule defining the phrase "waters of the United States" (WOTUS) under the CWA became effective (WOTUS Rule). Idaho Power believes that the 2015 rule potentially expanded federal jurisdiction under the CWA beyond traditional navigable waters, interstate waters, territorial seas, tributaries, and adjacent wetlands, to a number of other waters, including waters with a "significant nexus" to those traditional waters. The WOTUS Rule was widely challenged in both federal district and circuit courts. In January 2020, the EPA and USACE finalized the first of a two-part rule to repeal the WOTUS Rule and set new and more expansive standards for determining which waters are subject to the CWA, which substantially restored the definitions and guidance used prior to the WOTUS Rule. In April 2020, the EPA and USACE published the second part of the final rule to replace the WOTUS Rule with the "Navigable Waters Protection Rule" that provides a final definition of "waters of the United States," which ultimately narrows the scope of waters subject to federal regulation under the CWA. The Navigable Waters Protection Rule became effective in June 2020. Idaho Power believes the repeal rule, the WOTUS Rule, and the Navigable Waters Protection Rule will continue to be challenged in court, but expects that, even if the WOTUS Rule is reinstated in Idaho and should the revised definition take effect in Idaho, while it may cause Idaho Power to incur additional permitting, regulatory requirements, and other costs associated with the rule, the aggregate amount of increased costs is unlikely to have a material adverse effect on Idaho Power's operations or financial condition, in part due to the relatively arid climate of Idaho Power's service area. Similarly, because the CWA, as interpreted even prior to the WOTUS Rule, applies to most of Idaho Power's facilities, including its hydropower plants, Idaho Power does not expect reinstatement would have a material impact on Idaho Power's operations or financial condition.

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