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Idaho Power (NYSE: IDA ) delivers greater than average operating margins, reasonable dividend yields, and stable earnings. It just increased its quarterly dividend by over 13% with a 43% accumulated increase since 2011.
Water, water everywhere
Idaho Power owns over 1.7 gigawatts of hydroelectric capacity (almost 50% of a total of 3.5 gigawatts capacity) across 17 projects in three states.
Idaho Power has long been an electrical bridge between Northwest and Midwest power pools. Its recent participation in the Gateway West (220 and 500 kV through Wyoming) and Boardman-Hemingway (500kV into Oregon) transmission projects will reinforce the marketability and tradable value of Idaho Power's generation.
Both transmission projects are with Pacificorp, which is a subsidiary of MidAmerican Energy Holdings, mostly owned by Warren Buffett's Berkshire Hathaway (NYSE: BRK-B ) . Pacificorp generates over 7% of its 9 gigawatts capacity with hydro.
Strong financial position
Idaho Power has no near-term pressure to refinance, a respectable 48% debt-to-equity ratio, and strong interest coverage. Hydropower has been Idaho Power's natural physical-financial hedge against highly volatile natural gas and electricity prices.
Piling onto these positive attributes is the fact that Idaho Power's customer base continues to grow. Idaho is a highly ranked place to do business with its tax incentives, a low-cost high standard of living, skilled workforce, and good schools.
Integrated utilities love to have access to hydro in their generation fleets.
Hydroelectric running costs to about $0.007/kWh versus $0.021/kWh for coal and $0.042/kWh for natural gas. On top of that hydro is 90% efficient relative to fossil at about 50%-60%.
System operators transmit hydro generation during peak hours to cut down on relatively high-cost fossil fuel plants. Hydro is the only large-scale method to optimize day and night power shifts through pumped storage.
Hydroelectric power technology is simple: Build a dam with a turbine to convert the flow into electrical current. Plants can generate anywhere from under 1 megawatt to the over 22,000 megawatts at Three Gorges.
Hydro-plants last decades with annual maintenance. The energy source is plentiful and renewable when dams and reservoirs are well-placed.
As the Dow climbs...
The bulls in the stock market will be looking for stocks with long-term value to bolster their short-term gains in today's markets. They would do well to look hard at the likes of Idaho Power and its hydro-relatives. More on the hydro utility scene to come...
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