Avista Corp (AVA) 2003 Q1 法說會逐字稿

Good morning and welcome to the Avista Corporation first quarter earnings conference call. At this time, your lines have been placed in a listen-only mode until the question and answer session of the conference. Today's call is being recorded. If you should have any objections, please disconnect at this time. I would now like to turn the conference over to Mr. Dave Brukardt, Vice President and Treasurer. Thank you sir, you may begin.

Thank you Laura. Good morning and welcome to Avista's first quarter 2003 earnings conference call. Avista's earnings were released pre-market this morning. With me here today in our offices in Spokane are Avista Corp. Chairman, President, and Chief Executive Officer, Gary Ely and our Senior Vice President and Chief Financial Officer, Malyn Malquist. As we begin this morning's conference call, I will caution you that during today's conversations we will be making forward-looking statements that involve risks and uncertainties, which are subject to change. I would direct you to Avista's latest form 10K filed with the SEC for reference to the various factors which could cause actual results to differ materially from those contemplated to the extent these factors are not discussed on the call. This morning Gary and Malyn will provide a progress report for the quarter and an outlook for the rest of 2003. At this time, I will turn the conference call over to Avista's Chairman, President and CEO, Gary Ely for his opening remarks.

Thanks Dave and good morning everyone. We are encouraged by the progress we've made during the quarter. Looking at first quarter of 2003, Avista reported net income of $0.32 per diluted share. Since the beginning of the year, we've made progress on several fronts. To look at all, we remained focused on improving cash flow and earnings and rebuilding our financial health. Avista Utilities and Avista Energy delivered solid earnings. Interest expense was reduced as Avista continues to reduce high-cost debt.

Our information and technology businesses are making progress in holding the line on cost with reduced losses quarter-over-quarter. On the regulatory front, we are still several weeks away from, what we call, will be another positive step towards resolving the Federal Energy Regulatory Commission's investigation into Avista Energy's trading practices. As we reported earlier this month, Avista proposed holding off certification of its agreement to resolve the pending FERC investigation to further address certain issues and remove potential uncertainty over a final resolution of the case. Chief Administrative Law Judge, Curtis L. Wagner Jr., agreed and has given the FERC's trial staff until May 15 to submit supplemental information explaining its conclusions and addressing three narrowly focused issues related to a March 26 FERC policy staff report on energy markets.

A further pre-hearing conference is scheduled for May 20 to discuss certification of the agreement in resolution of the case. In the mean time, FERC may issue additional show cause orders based on the March 26 policy staff report. Avista believes that the issues raised in the March 26 FERC policy staff report have already been addressed in an extensive investigation of Avista Utilities and Avista Energy. The company also believes that the findings of the FERC trial staff investigation remain sound and will ultimately be affirmed. We look forward to resolving this matter. Our core energy business, Avista Utilities, continues to regain financial strength. Several factors influenced its first quarter 2003 results. As expected, earnings were negatively impacted because Avista Utilities recognized the $9m of energy costs exceeding the amount included in base retail rates as part of the Washington's energy recovery mechanism. Weather also impacted this year's Q1 utility earnings. According to the National Weather Service, temperatures during the first quarter on average were nearly three degrees above normal. Warmer-than-normal temperatures resulted in reduced usage.

Electric loads were 4% below the projections for the quarter. Natural gas loads were impacted even more dramatically because many of our customers use natural gas as their heating source. Gas loads were 9% below, what we expected for the quarter. When compared to the same period last year, retail natural gas loads decreased 13%. These factors were offset by reduced interest expense resulting from continuing to re-purchase long-term debt. Malyn will discuss this in more detail in a minute. With the snow accumulation, season closing on April 1st, we have a better idea of how our hydro picture is shaping up for the balance of the year. Based on current projections we are forecasting stream flows for the 2003 calendar year to be approximately 90% of normal and we are expecting system hydro generation to be nearly 93% of normal. On the thermo generation of our business, I am happy to report, we remain on track by putting the cloudy springs to plan online mid year. The transformer repair has just been completed at the California facility and repair site testing that well.

The transformer is being loaded on a real car this week and will be transported to the site of our 280-megawatt gas-fired combustion turbine in Broadman, Oregon. It is expected to arrive by mid May. We've already prepared the site to receive the transformer and will begin the start up testing procedures once it arrives. Turning to our un-regulated businesses, first Avista Energy. Once again our Avista Energy team delivered another quarter of positive earnings. During the first quarter of 2003, Avista Energy netted internal earnings goal through ongoing operations and the asset-backed resource management activities that have proven so successful for this business.

Avista Energy's earnings were also positively impacted by the effects of an accounting for energy contracts under the Statement of Financial Accounting Standard No. 133 and a re-evaluation of a reserve related to a pending settlement under a bankruptcy proceeding. In a moment, Malyn will explain how FAS 133 could impact Avista Energy's earnings going forward. However, I'd like to point out that Avista Energy's experience and strategy to focus on the western region have played a significant role in the team's success. Avista Energy's asset-backed optimization of combined cycle combustion turbines and hydro assets, long-term electric supply contracts, natural gas storage, and electric and natural gas transmission and transportation arrangements collectively provide a strong base that contributes to the on-going performance of this business. Our information and Technology businesses continued to improve operating performance and reduce cost.

Our Facility Management business - Avista Advantage continues to improve operating revenues through customer growth and by reducing operating expenses through improved efficiencies. We expect that Avista Advantage to be consistently cash flow positive by midyear. We continue to make progress towards our goal of owning less than 20% of Avista Labs, our fuel cell business. We have had interest from a number of parties some of whom continue to conduct detailed due diligence with Avista Labs. We believe we are on track to meet this objective during the second quarter of the year. With the first quarter behind us, I am pleased with our progress. We are seeing the benefits of our focus on improving cash flows and earnings and rebuilding our financial help. We remain firmly committed to delivering results through the strategies that we laid off two years ago. Here to discuss our financial results in more detail is Malyn Malquist. Malyn.

Thanks Gary and good morning everyone. Today we are reporting first quarter, consolidated revenues of $311.9m and net income available for common stock of $15.6m were $0.32 per diluted share. We continue to steadily march forward in our efforts to improve the company's financial help. As Gary mentioned our operating cash flow is positive, thanks to solid performances from Avista Energy and Avista Utilities. During Q1 2003 Avista Utilities earned $0.16 per diluted share. Even after recognizing the $9m dead band (ph) or $0.12 per diluted share of energy costs exceeding the amount included in base retail rates as part of the Washington Energy Recovery Mechanism.

This compares to $0.27 per diluted share for the same period last year when the energy recovery mechanism or ERM was not in place. You recall how the ERM in Washington works. To the extent that our actual costs vary from the base costs set in the last rate case, we had a benefit from, or absorb the first $9m annually. Changes in the energy costs exceeding $9m annually are shared on a 90/10 basis. 90% of any variants beyond that level is deferred for future recovery or rebate to customers. And 10% is an expense or benefit to the company.

During the last conference call we eluded you that Avista expected to recognize the full $9m in increased energy costs during the first quarter, which would reduce earnings in Q1. And that's exactly what happened. The majority of this increased energy costs are related to fuel contracts we entered in 2001 for our gas turbine generators. These contracts expire in late 2004. For the remainder of 2003, 90% of the energy cost differences will be deferred for later recovery from our customers. And the remaining 10% will be an expense to the company. While the ERM will result in recognizing increased costs this year and next year, in the long run the mechanism provides recovery of the large majority of our cost and will provide increased stability to our financial results. For the first time since we acquired the Oregon Natural Gas business in 1991, this utility has filed a general rate case with the Oregon Public Utility Commission to address increased cost of operating our natural gas distribution system.

We are requesting an overall increase of 11.8% or $7.5m. The proposed return on equity in Oregon is 11.75%, up from the current authorized ROE of 11.2% on a smaller rate base. The request does not include any change in the rates charged for natural gas supplies, which are typically reset annually. During our 12 years of ownership of the Oregon property, we have reduced general rates three times due in part of the cost cutting and efficiency improvement. Even with the proposed increase, this would be the lowest cost natural gas supplier of the three natural gas utilities in Oregon. The commission has up to 10 months to review the Oregon general rate case. The Oregon filing is part of our strategy to file rate cases as necessary in order to move toward earning our allowed rates of return in all of the states we serve. We have continued to reduce our debt and subsequent interest expense by repurchasing $15.5m of debt during Q1 and an additional $10m in early April. When you add this amount to the $204m in debt we repurchased in 2002, you can appreciate the substantial progress we have made in this area.

Our debt ratio continues to come down. At the end of the first quarter of 2003, it was 52.8% compared to 54.3% at year-end 2002. So, we continue to make progress toward our goal of achieving a 50% debt-to-equity ratio. As we reduce our debt, we are also ensuring our bank lines are secure. Recently, we met with bankers to renegotiate our line of credit, which expires in May. We have already received commitments from our banks to renew our credit line at $245m, an increase from the previous $225m. Even though we do not anticipate the need to draw up on the additional credit, we consider this to be a positive sign, an indicative of their commitment to Avista and the progress we have made towards restoring our financial health. The increased credit line will improve our flexibility and financial security going forward. All of these actions demonstrate how we are delivering on our commitment to rebuild our financial strength.

I would like to briefly discuss Avista Energy's earnings. Avista Energy's reported earnings were $0.27 per diluted share, which included the effect of two items of about equal size which when combined resulted in approximately $0.20 per diluted share. The items were - the positive impact of accounting for contracts under SFAS 133 that are no longer considered derivates and the re-evaluation of a reserve related to a pending settlement under a bankruptcy proceeding. The accounting change from emerging issues task force no. 98/10 in which we accounted for all contracts on a mark-to-market basis to SFAS 133 results in certain contracts no longer being accounted for in market value. This creates a paper gain or loss on some of Avista Energy's transactions as market prices change. For example, Avista Energy might enter into two contracts simultaneously to take advantage of a discontinuity in the marketplace. As prices change overtime, if one contract is mark-to-market while the other is reflected in a cost, the company would report a gain or loss that does not reflect the economics of the original transaction. This paper gain or loss reverses over the life of the transaction. We are working to implement hedge accounting, which should allow us to match our accounting results more closely with the business economics of the transaction.

Avista Energy did continue to meet its internal earnings goal for the quarter from ongoing operations and transactions related to asset-backed resource management activities. Avista Energy is a good business with a strong balance sheet and positive cash flow. The business is on track to generate $0.20-$0.30 of earnings in 2003 and will continue to leverage our Avista Energy teams experience and knowledge to maximize the assets we manage to capture the full potential of the business. We continue to supplement our pension plan and expect pension cost for 2003 to be approximately $15m. We will expense about 70% of this amount, which will impact earnings. Cash flow will also be impacted because we plan to contribute $12m to the pension plan.

These costs and the cash requirements are already factored into our guidance for 2003. Given these significant pension expenses as well as increasing insurance costs, we continue to manage all costs that are within our control. I am pleased that our capital expenditures and operating and maintenance expenses were below budget for the quarter. In conclusion, we are re-affirming our financial outlook for 2003 and expect our consolidated corporate earnings to be in the range $0.80-1.00 per diluted share. This guidance is prior to any adjustment related to the cumulative effects of changes in accounting principles, and includes a range of $0.60 to $0.80 per share for Avista utilities.

A range of $0.20 to $0.30 per share for the energy trading and marketing segment, and a loss of between $0.10 and $0.15 per share for the information and technology businesses. This outlook is based on what we see today regarding the uncertainties with surrounding volatility in the wholesale energy markets, and the increased pension expenses just mentioned. Our unwavering focus remains on improving cash flow and earnings and strengthening our financial positions and working to restore our investment grade bond rating. As we told you, we expect, it will take a couple of years to accomplish these goals. I am encouraged by the remarkable progress we have made already, and we are gaining momentum. I believe the strategies are in place and I'm confident that Avista employees who are already executing on our strategies will deliver results. With that, I will hand things back to David Brukardt.

Thank you Malyn. We will now open this call to analyst and investor questions. I would like to remind any members of the media who may have questions to please contact Marine Zue (ph) at 509-495-4174. And Laura, we are now ready for our first question.

Thank you. And at this time if you would like to ask a question, please press star followed by one on your touchtone phone. You will be announced by name prior to asking your question. To withdraw your question, please press star followed by two. Once again, if you do wish to ask a question, please press star followed by one on your touchtone phone. Your first question comes from Sam Brothwell, and please state your company name.

Hi, Merrill Lynch. Good morning everyone.

Good morning Sam.

Couple of, I want the clarification, did I hear you right, you said that you took the entire [Inaudible] in the first quarter and that was $0.12?

That's correct Sam.

Okay. So, we should see only a very minimal impact of that for the rest of the year?

That's right.

And, can you quantify the earnings impact of weather on the utility?

A combination Sam, of weather and continued weak economy accounted for about $0.06 a share, which we were able to offset through lower expenses and lower interest costs.

Okay, and that lead to my next question, can you give us roughly what the interest cost savings, you are expecting this year? I guess relative to 2002.

Would you get it out Sam, just a second -- you can just remember because I have asked for it before. We're expecting to see about $12m savings in interest expense year-over-year Sam.

Okay. And then finally, at Avista Energy this $0.20, if I heard you right, roughly half of that is associated with going off of 98.10and the other half $0.10 would be this adjustment to your bad debt reserve?

That's correct.

Is that a -- can you give us any more information as to was that a -- what kind of a customer was that?

It was a fairly large customer who has been in the press a lot.

Enough said.

Sam, we can't say anything.

We were - what to say, we were fully reserved for what we considered our exposure and the settlement that we reached was -- it was positive versus what we had put on the books.

So, your basic, you said you've met your matured internal, your targeted results for Avista Energy on an ongoing basis, which if you took those two kind of one-time items that would be something in the order of $0.07 and that would -- I guess what I am trying to come to is with all of the increased volatility that we will see you've got an outlook of $0.20 to $0.30 for '03. We should be looking for something kind of in that range with obviously some seasonal volatility in each successive quarter?

I think you've done a pretty good deduction on that Sam.

Okay. All right. Thank you very much.

Thanks Sam.

Thanks.

Thank you. Your next question comes from James Bellessa and please state your company name.

D.A. Davidson & Company. Good morning.

Good morning Jim.

Congratulations on getting on track here. Temperatures, I heard that they were either 3 degrees warmer than normal or 3% warmer than normal. Which was it?

On average, it was 3 degrees warmer than normal.

You have had this FAS NO. 133 detract from reported earnings, but you were talking about a positive effect at the Avista Energy. Is that correct?

Well, there's two pieces there. The first is at the very beginning of the year, we had to take an adjustment for a cumulative change and that's at the end of the year and that's what we reflect as the negative $0.03 cumulative effect of the accounting change and then, the impact on the quarter itself was a positive impact on Avista Energy and we've combined that really with this bankruptcy settlements to indicate that was roughly $0.20 for the two items and they were about half-and-a-half if you will. We are trying to stay inline with Regulation G here. So you need to do the math on that, I am sorry about that.

The FAS number 133; will it impact you going forward?

: Very definitely.

: It will -- we are trying to minimize the impact by adopting hedging (ph) for these contracts that are not [Inaudible] market. And we hope to have that in place by the end of the second quarter. So there will be an impact on the second quarter. There will be ongoing, I think smaller impacts, but we are trying to really minimize the volatility. I will point out to you Jim it is a timing-only issue. We continue to enter into transactions that are very economic for the business, but this mismatch between some of the positions that are market-to-market and some that aren't causes us to have paper gains or losses and we are trying to minimize those on a going forward basis. But there will be some impact in the second quarter and you will see a fees that was written up this quarter reversed over the next three years as those contracts mature.

What issues would have prevented you from implementing the hedge accounting in the first quarter?

Jim it was our intent to work with that as quickly as we could and get it implemented. That is very complex because you have to take each single transaction and track it. You have to have the particular accounting system, different than our risk management system in such to track it. But actually put these contracts in and take that out with any changes that you make with those. And therefore we are working on to make sure that they are tracked in doing. They are a long way down the road in getting it done as this didn't get done in the first quarter.

Understood. Your goal of 50% debt-to-equity ratio is that total debt or is that just long-term debt-to-equity ratio.

Total debt.

In the 10-K you've indicated that what your quarterly revenues were, however, when you reported first quarter results for last year today they are up about almost $20m also resource cost, I believe are probably right other expenses are up by $20m. So there is no net of change. When accounting item caused your revenues to jump by $20m for year-ago's results?

Jim this is again a result of the change in accounting policies. Moving off 9810 (ph) and onto 133 and we want to state them on an equal basis if you will. So we had to, the change, the first quarter of 2002 as you say there was no debt margin impact. But, we will have a full reconciliation of that in the 10-Q under the energy commodity trading note that's in the queue. So, you'll be able to look at that and understand and see very clearly the impacts of that.

That reconciliation will be for the first quarter of last year, how about for the other quarters, so that we can get our earnings models on the same footing or do we have to wait for each quarter would be reported before we will know those items.

We are going to keep it consistent. But, I will tell you, we weren't planning to do those until this quarter rolled out to do that, we'll have to look at that internally.

Thank you.

Thank you. Your next question comes from Paul Zabaas(ph) and please state your company name.

ValueLine(ph) . A couple of questions. What are you're financing plans for the rest of the year, including you know, how much that you expect to pay down. And also, what other rate cases, besides the one in Oregon that you are planning to file?

I'll let Malyn touch on the debt and then we'll talk about the other.

Okay Paul, good morning. We have no plans to issue any securities for the remainder of the year. However I'm going to put a caveat on that to the extent that we can continue to re-purchase debt on an economic fashion. At some point we might decide to, to do additional small debt issue or two if any not on success there. Our plan, our business plan would have us buy back $50m worth of debt this year of which we've already re-purchased $25m. And we have some issues maturity maturing in September of this year. And, so obviously those won't be called out at that point of time. To the extent we could do more than the $50m of open market purchases. Then we might, you might see us do a $50m debt issue at some point.

How much is the issue that matures in September?

There are two issues. And they amount to about $57m. I'm sorry; I'm looking at the quarterly numbers. They amount to $73m.

Thank you.

Thank you. Your next question comes from Doug Fischer and please states your company name.

Yes, AG Edwards. I apologize, too many conference calls today. I missed the first part of your call. But, could you just rehash for me what you've been saying about trading about Avista energy trading and marketing, as I understand that you have the one-time accounting loss of $0.03, you had the sort of moved to accrual, which added quite a bit. There was two ten sensings (ph) , I apologize but repeat that for me.

Yes we will be glad to do that but I think Paul had one-second question that hasn't been answered. I just wanted to touch on that before we do it. First of the question was that do we plan any rate cases later this year. Right now we have no specific plans this time. Our [Inaudible] are analyzing the various jurisdictions and we will be making those decision as we move forward. So with that we will move on then to your question Doug and Malyn do you want to run through that [Inaudible] ?

Doug the second item that positively impacted [Inaudible] earnings was related to a settlement we have reached, bankruptcy proceeding for which we had reserved satisfied certain reserves to cover our position there and the settlement was more positive than what we had reserved. And so, we have taken that affect in the first quarter.

That was $0.10?

Roughly.

And then the other $0.10 was that just the switch in accounting and that was the first quarter impact versus the mark-to-market or what was the other $0.10?

That's correct, it was the first quarter impact of changing the - from the one accounting system to the, policy to the second.

Okay, your guidance I assume excludes the $0.03 accounting change, cumulative effect. Does it also exclude, I guess you called that up, does it also exclude the $0.10 reduction of this reserve for the bankruptcy entity or is that in your $0.82 to a dollar?

Dough, the bankruptcy settlement pieces is not in there and as you all appreciate there is a lot of ups and downs in these things. We are reaffirming the $0.80 to a dollar or for the overall company. And, the $0.20 to $0.30 at Avista Energy from their normal operations.

Tough, we would exclude the $0.03 loss and that would exclude the $0.10 apart from the $0.10 settlement from the bankruptcy issue.

Yes that's right. Thank you. Sorry to repeat that.

Thank you sorry have you repeat that.

Thank you and once again to ask a question, please press star followed by one on your touchtone phone. Your next question comes from Janet Clay and please state your company name.

Peachtree (ph) Research. Could you just go over to the balance sheet items [Inaudible] please to give the total debt at quarter end?

Good morning Janet. Yes I will have Malyn do that.

Thanks. And the other items. Did you disclose the CAPEX for the quarter, if I missed out?

I pardon. I missed hearing what you said.

Could you disclose the CAPEX for the quarter?

The CAPEX for the quarter?

We didn't, but we can get that to you.

Thank you. And then just from a liquidity standpoint, cash availability?

Let me start with the last one first because I have that one on the top of my head. We had no borrowing at the end of the quarter other than our normal account receivable factoring that we do. We weren't drawn on the bank line at all and so we continue to be in very good shape in that regard.

Okay.

On our CAPEX Janet, we had expanded about $16m which falls within our $100m target that we have for the year.

And total long-term debt at quarter end was $888m.

$888m, and then should I add those two December maturities estimates (ph) on short-term debt?

Yes [Gap In Audio] . We are actually reflecting those in the long-term debts.

You are reflecting, okay. So it's a total debt number then.

It is.

And then what did you say cash was again, could you mention it?

Cash and equivalence were $222m.

Okay. Then the only other question I had was, you had said you had a target for cash flow for the, fixed accruals(ph) for the year of about I think it was $110m. Did you disclose how much cash flow was generated in Q1?

We haven't disclosed that.

Okay, so it will be, okay. All right thanks.

Thank you.

Bye.

Thank you, your next question comes from Paul Ridzon and please say your company name.

McDonald Investments. I was just hoping to get a quick update on hydro conditions?

Good morning Paul.

Good morning.

Actually they are pretty good. We came a long way if you remember back. Earlier in the quarter they got down as low as in the 60% range, but we are forecasting for the year now that the run off will be in the 90% range for the entire 2003 year and our generation will actually be higher than that because our snow packs fell on the right parts and we'll be, we're forecasting at least 93% abnormal for the full calendar year 2003.

Just a geographic, where the snow happen to fall, that's the benefit. Is it?

That's the benefit, so are on our greenish areas and that's good. In fact it's snowing and look out past this morning. So, those numbers could change again.

Okay, thank you very much.

Thank you Paul.

Thank you. Your next question comes from Peter Hark and please state your company name.

Good Morning, Talon Capital.

Hi, Peter.

Good morning. Just to clarify the energy trading and marketing again, I want to make sure I have this right. You reported $0.27 but in that is a net $0.07 gain so the operating number is $0.20, is that right?

It's actually the reverse of that Peter. The $0.27 included two items that we wanted to single out for you. One is the change in accounting policies; the second is the reversal of the reserves that we have taken for the bankruptcy settlement.

Right, I thought that they netted out to a --- I thought it was plus 10 and then minus 3 so a net plus seven. I think that would come out.....

That's a different issue.

There are two pieces -- the two pieces are that I just mentioned were a positive $0.20 impact.

Okay.

And then there is an extraordinary item that we singled out in the table on the earnings release as accumulative effect of accounting change, which was the change; basically it was the January 1 accounting policy change versus our December 31statement. And that was the $0.03 negative at that time.

Okay, great. So, what do you guys considering to be the operating number for the first quarter for that segment?

Think if you take the 27 and back out the $0.20, the two items worth $0.20 and then you come to the operating.

Oh I see. Okay and that's $0.07. So, in your guidance for the full year of $0.20 to $0.30, you still are suggesting that there will be $0.13 to $0.23 of positive earnings out of energy trading and marketing over the remaining three quarters?

I think that you are looking at it the right way. Our guidance is $0.20 to $0.30 and if you do the math then we are right on track with what we had in the first quarter and would expect to continue to produce those kinds of quarters in quarter two, three and four.

Great. Thank you and separate item [Inaudible]

Peter maybe just one additional comment first just so you understand. We have a good base business there that optimizes resources that led to the kind of earnings you saw in Q1 going forward on an operating basis for the year. And that's how we come up with the $0.20 to $0.30 range.

Okay. Thank you Gary for clarifying that. I appreciate that also Malyn. A separate item was what are your expectations for the FERC meeting on May 20; I guess it's our understanding that Judge Wagner is going to review the additional information that has been filed. But I was wondering what you think the outcome of that meeting might be or does it lead to further investigations or some closure?

Peter. As I said in my remarks, I am hoping it leads to closure. We are fairly confident, we are confident that the trial staff has looked at everything. They are going back and re-looking at everything, we are confident that their findings will be sound and they will present that to the Judge and of course we would hope that would then get certified and line up to the commission and put in end to this and take that [Inaudible] off. One of the reasons we would ask them to hold up in certifying it earlier is because of this March 26 policy report from FERC, that kind of let a cloud, put a cloud over our settlement and so the law Judge agreed with that and sent FERC back to re-look at three narrowly focused items as well as a little more detail on the broadened and deep research they did on the company and file that on the 15th of May. We are expecting that he would review that and on the 20th of May, come to the same conclusion that the trail staff did as well as where we said we have been all along and that would be that they can certify us clean and move that on up to the commission.

That's great Gary. I'm sorry if you addressed that also in the opening, I joined late. But thanks for clarifying that and congratulations.

Thank you Hark.

Thank you. Your next question comes from James Bellessa, and please state your company name.

D.A. Davidson & Co. Lets ask if you got to show cause order as early as today, what would you do?

Probably nothing other than what we have done before Jim, and that would need to take and cooperate in any way we can to get whatever information we need to, so that they can do it. If you remember in the order that the chief ALJ put out in our order when he held this over, he said some thing to the effect that he believes the settlement or the hearing in this proceeding, meaning our first 206 show cause order will cover all the issues raised by the final report of the commission's investigative staff as well as all matters relating to this in the commissions August 13, 2002 order instituting this proceeding. So, in his mind it covers everything, and anything that might be put out. I think if you read the transcript of what was there, he would assume that anything that might be raised would get rolled into this to be looked at. And I think the Judge is very clear, there were three areas that he wanted to have looked at. They were very narrowly focused, I believe trial staff is in the process of going through and re-looking at those and that they will be filing their findings on the 15th. We do not expect any change from what their findings were before. But, that's where it's at.

You previously gave out the cash and equivalents at the end of the quarter, I didn't hear quite clearly, what was that amount and can you give us the common shareholders equity amount?

Sure. Cash equivalent came over $222m and common equity $725m.

On the press release there's an item called other electric revenues which have a nice jump over $12m from first quarter last year to this first quarter. What attributed that, what is that attributed to?

Yeah one of the things, Jim, is you remember my stated goal two years ago was to take and get us long power so we have sufficient [Inaudible] and not only have we done that but then we had actually fairly strong run off in the first quarter despite the overall annual numbers being below 100%. First quarter's stream flow was over 100% for our drainage systems. So we had power to sell into the market, which we did do, and that's part of that.

And how does those office and sales different from wholesale electric revenues, although it's termed sales?

It's part of the same. I'm not sure which numbers you're looking at, but it basically is part of the same piece. I don't know that I have it here and maybe we can cover it off-line if it is to be clarified with you.

Okay. And then you have this other business, just other, and there was a pretty sizeable drop almost $2m drop in the loss (ph) . What would have attributed?

Jim it would help us if you could tell us where you're looking at and then maybe we - -

This is the very last line item of your press release.

The last line of our press release? Okay. Just a minute.

Just Jim $0.05 loss on the other, let me just go through that with you. This reflects Q1 adjustments related to our various venture capital investments the company has invested in; three different venture capital funds over the last several years and we essentially mark those to market once a year and those investments have not done as well as we have hoped that they would do. It also includes some legal expenses, it includes a small earnings drag related to some legacy businesses from Penzer (ph). Right now we're in the process of reviewing and assessing all of the various items in this segments and it includes the smattering of real state holdings of the one remaining metal fabrication business we intend to sell when the markets improve. And going forward our intent is to minimize the impact earnings within this segment and I'm not entirely pleased with what we're at but we're making progress and kind of cleaning these things up and we'll continue to do so. The first quarter losses in others were unexpected and they have been reflected in our previous earnings guidance. But we hope to minimize that going into future.

Thank you very much.

Thank you. Your next question comes from Paul Ridzon, and please state your company name.

McDonald Investments. Just a clarification on the $0.10 from the 98.10 recession. When will that be recognized? Will that flow back all in 2003 or is that kind of...?

No, Paul it's actually, probably over a three-year period. It may be a little lumpy but basically if you are now into two contracts, and once mark-to-market over a three year period and one is mark-to-market and the other one is not, then you will see those lumps but it'll actually, as the timing issue and it's not over one year it's more like over three years.

And can you just give an update on labs and, kind of, the outlook there what the latest thinking is?

Well, as I had mentioned we have had a lot of interest in labs as far as coming in and being a part of that. We have been doing a lot of due diligence in that area. But one of the things that we are doing is we are further cutting back our cash spin in those, in labs. They are putting out product; in fact, we just dedicated one at Kohl (ph) air force base. We've got several other units that are going out. That being said there is interest and we do expect during the second quarter to be up or below 20% ownership in labs.

Okay. If you had gone over that, I apologize. I did join the call late. Thank you.

No problem.

Thank you. Your next question comes from Doug Fischer and please state your company name.

A.G. Edwards. The $0.27 that you reported from trading and marketing which includes the two $0.10 items. Wouldn't it be fair to say that the $0.10 related to the bankruptcy is the only non-operating (audio gap) and the $0.10 - the other $0.10 that we've been discussing is a operating but how be it a volatile number? In other words, really on an operating basis we are talking about $0.17 versus $0.17.

Doug, I guess, what I would say is, and I probably will get into trouble for saying this is that, I don't know that GAAP accounting accurately effects - reflects the economic numbers that we are doing because you are picking up parts of contracts that aren't matched with the other, that's why we need to get the hedge accounting. So, GAAP accounting and the economics of the business basically equate to one another, I mean, that's where we are trying to go. Right now...

You are saying the economics of the business. What are you for a $0.07 operating number?

That is correct.

Okay, I have got you.

Yeah.

I guess Doug, if could just tag on to the other piece of your question however, you know, we evaluate our reserve positions on a monthly basis. We reevaluate the credit of all of our counter parties on a monthly basis and we do make changes for that. This one was significant enough that we needed to spell it out and really was the result of this settlement that we have, so it isn't something you would characterize as obviously ongoing. But we do -- it is not going to be -- yeah, well it is nonrecurring if you will, but I wouldn't expect to see it again and that $0.06 disturbs (ph) at this time.

God help us in this business. Right.

Yes.

Thanks guys.

Okay, thank you.

Thank you, and your final question comes from Sam Brothwell and please state your company name.

Merrill Lynch. Malyn, I am sorry to keep slogging this force but, there is one other issue with all these one timers in energy. The $0.03 charge that you took for adoption of FAS 133 also needs to be steered (ph) into that, does it not?

Let me take a shot at it and Malyn can correct me when I am wrong, Okay. When we closed the books on December 31 we are on market-to-market for all the contract. When we opened the books on January 1 and put it under GAAP accounting there was a $0.03 difference. That's basically the difference of that $0.03 non-reoccurring thing it's going from one accounting procedure to another. Then what we are saying is that during the quarter, GAAP accounting showed more earnings than what we believe the economic business actually was and so we are trying to explain that so nobody thinks that manner (ph) really doing really great. When you look at the economics and get the timing of the contracts together it would look differently than under the GAAP accounting. Now, the GAAP accounting will reverse itself so next quarter you will see it may be less than what would I that be, economic earnings as we go forward but it's over a three year period. Okay correct me Malyn.

Okay.

The only thing I would add to that Gary and Sam is that the $0.03 itself, the negative 3 also reverses itself over time we believe, because we think that the books at December 31 really reflected the economics of the business and we will earn that $0.03 back over the next 3 years.

Okay. So if you took all of that away (ph) . It would have - we would have been [Inaudible] and the bad debt reserve adjustment. We would have been something on the order of $0.07?

We're inline with what we've been suggesting to that --

Yeah. So, we come back around to that now. The only other question I had was respect to adjusting that bad debt reserve, is that based upon money that you have received or is that based upon expectations, can you just give a little bit more there?

It is very definitely based on expectations. It's a settlement that we have reached with this particular firm and it has been accepted by the creditors committee. It has [Inaudible] should be stamped by the judge, but we are highly confident that it will be approved by the judge. The judge has approved 75 of 75 that the creditors committee had forward additions (ph) , so, we are pretty confident about this.

Thank you very much.

Thanks Ian (ph) .

This does concludes today's question and answer session, I'd now like to turn the call back over to Mr. Dave Brukardt for closing remarks.

Thank you. And, ladies and gentlemen thank you or joining us today. An instant replay of today's conference call will be available soon and remain accessible through 8 PM Eastern Time this Friday. If interested you can call 402-220-5090 to listen to the instant replay. The web cast of today's call also will be archived for one week to 8 PM Eastern Time on May 7. You can access that on our web site. And several of you have asked, when we will be New York again. For those of you who may be interested Gary and Malyn will be New York for business update on May 22 at 7:30 AM before breakfast and joining them will be Scott Morris, the President of our Augusta Utilities unit and Dennis Fermilian who is President of Avista Energy. And again, thank you all for joining us. Have a great day.

Thank you. This does concludes today's conference call. We thank you for your participation.