Avista Corp (AVA) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2007, Avista Corporation earnings conference call. I will be your coordinator for today. At this time, all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Jason Lang, Manager of Investor Relations. You may proceed.

Thank you. Good morning, everyone. Welcome to Avista's fourth quarter and fiscal year 2007 earnings conference call. Our earnings were released premarket this morning, and the release is available on our website at Avistacorp.com. Joining me this morning are Avista Corp. Chairman of the Board, President, and CEO, Scott Morris; Executive Vice President and CFO, Malyn Malquist; Vice President of Finance and Treasurer, Ann Wilson; Vice President, State and Federal Regulation, Kelly Norwood; and Vice President, Controller and Principal Accounting Officer, Christy Burmeister-Smith.

Before we begin, I would like to remind you that some of the statements that will be made today are forward-looking statements that involve risks and uncertainties which are subject to change. For reference to the various factors which could cause actual results to differ materially from those discussed in today's call, I would direct you to our Form 10-K for 2006, and Form 10-Q for the quarter ended September 30, 2007, which are available on our website. We will also be discussing our credit rating. It is important to note that these credit ratings are not recommendations to buy, sell, or hold securities. The ratings are subject to change, or withdrawal at any time by the respective credit rating agencies. Each credit rating should be evaluated independently of any other rating.

To begin this presentation, I would like to briefly recap the financial results presented in today's press release. Our consolidated earnings for the fourth quarter of 2007 were $0.26 per diluted share, compared with earnings of $0.35 per diluted share for the fourth quarter of 2006. For the full year of 2007, our consolidated earnings were $0.72 per diluted share, compared with $1.46 per diluted share for 2006. Now, I will turn the discussion over to Avista's Chairman of the Board, President and Chief Executive Officer, Scott Morris.

Thank you, Jason. Good morning, everyone. As we mentioned earlier in the year, 2007 was a year of repositioning our Company with a focus on the future of our utility operations. Our consolidated earnings for the full year of 2007 were lower than we originally forecasted, and we're not pleased with these results. This was due to both the performance of Avista Energy during the first half of the year, and certain variables that worked against us at the utility.

The Washington Commission's decision in late 2006 to deny our request for a more timely recovery of transmission and generation investments and to align our cost of power with market costs presented a significant challenge for us, without the rate relief we had anticipated. We also experienced lower than expected loads in 2007, which were largely weather related. Our challenge was compounded by below normal hydro generation, and higher purchased power and fuel costs than what was allowed in rates. This caused us to absorb higher electric resource costs under the energy recovery mechanism in Washington. However, I believe that we are well positioned to meet the complex challenges in the energy and utility sector in 2008 and beyond, thanks to the hard work of our employees and the guidance of Gary Ely who retired as Chairman of the Board and Chief Executive Officer at the end of 2007. Gary led our Company from the depths of the energy crisis, through the rebuilding of confidence and financial health, and now some seven years later Avista has regained an investment grade status from both Moody's and Standard & Poor's.

A significant event in 2007 was the sale of substantially all of Avista Energy's contracts and ongoing operations to Shell Energy. This transaction was completed on June 30. It lowers our corporate risk profile and should improve the stability of our earnings. The majority of the $169 million of proceeds from the Avista Energy transaction were deployed into our regulated utility operations. In Washington, we received some much-needed rate relief that should allow us to improve over 2007.

On January 1, 2008, electric rates for our Washington customers increased by an average of 9.4%, which is intended to increase annual revenues by $30.2 million. Also, natural gas rates increased by an average of 1.7% which is intended to increase annual revenues by $3.3 million. This is based on a rate of return of 8.2%, with a common equity ratio of 46%, and a 10.2% return on equity. We believe the outcome of this rate case strikes a fair balance between the interest of all parties and provides a reasonable outcome for our customers and our shareholders.

In October 2007, we filed a natural gas general rate case in Oregon. In this general rate case, we have requested to increase natural gas rates to our Oregon customers by an average of 2.3% which is designed to increase annual revenues by $3 million. In December 2007, we entered into a settlement agreement with all parties, including the staff of the Public Utility Commission of Oregon, the Citizen's Utility Board, and the Northwest Industrial Gas Users to resolve the cost of capital components of the rate case. In the settlement, the parties agreed to a rate of return of 8.2% with a common equity ratio of 50%, and a 10% return on equity. The settlement agreement does not concern any other revenue requirement or rate-related issue. We are currently in settlement discussions related to the remaining issues of the case. We will continue to request rate adjustments as necessary in the future to recover our capital and operating costs and to align earned returns with those authorized by regulators. We are planning to file general rate cases in both Washington and Idaho sometime in the next few months. Over the next few years, we're planning for significant growth in our utility infrastructure.

For 2007, our capital expenditures were approximately $206 million. For 2008, our capital budget will be approximately $200 million, and we are expecting our capital budgets to exceed $200 million in 2009 and 2010. The future investments we will be making are in traditional utility plants that will be used to provide service to our retail customers. We also anticipate upgrading some of our hydro projects and we will continue to reinforce and expand our natural gas and electric distribution systems. I'm pleased to report that we're close to completing the acquisition of a wind generation site. We expect to construct a 50-megawatt generation facility in 2010 or '11 at an estimated cost of approximately $120 million. This amount is not included in our estimate of capital expenditures in 2010.

As we reported in October 2007, we settled a lawsuit that the state of Montana had filed against us demanding lease payments for river beds underlying our hydroelectric projects on the Clark Fork River. We have agreed to pay Montana $4 million per year for the next ten years. These payments will be adjusted annually for inflation. After 10 years, we will work with the state of Montana to negotiate an appropriate lease payment for the remaining term of our FERC license which expires in 2046. We have asked our regulators to allow us to place these expenditures into a regulatory asset account for future recovery, including an appropriate carrying charge. The Washington Commission granted this request. The Idaho Commission approved the deferral for future recovery, but deferred ruling on a carrying charge until the next rate case.

For 2007, our hydroelectric generation was 96% of normal. Based on the most recent available snow pack data for the drainages that feed the Clark Fork and Spokane Rivers we're forecasting hydro generation to be slightly above normal for 2008. Improved hydro generation, coupled with the reset of base level of power supply costs and the ERM in our general rate case should improve results for 2008 as compared to 2007.

Many of have you probably heard that Eastern Washington and Northern Idaho received significant amounts of snowfall in January and early February. As you can see on the slide, the drainages feeding the Spokane River are well above average. The drainages feeding the Clark Fork River which feed our largest hydro facility are slightly above average for this time of year. In terms of snow/water equivalent, which is what we focus on, the Spokane River basin, including the Coeur d'Alene and the St. Joe's Rivers are about 125% of normal. The Clark Fork River basin has about 110% of normal snow/water equivalent so far this year. This is good news and certainly a vast improvement over last year, however, I will also offer a word of caution.

First, we still have several weeks of our important snow accumulation period to go. The forecast for that period is optimistic. But I will feel better when it becomes a reality. And second, how valuable that snow pack is in terms of electricity generated depends on when the snow melts. We're pleased with the position that we're in, but until we actually turn all that snow into electricity, we are going to be a bit cautious regarding the benefits of the situation. Our forecasts for 2008 generation will be revised based on precipitation, temperature and other variables during the year. We regularly update generation forecasts as snow pack and stream flow information is measured throughout the year.

And now I will turn this presentation over to Malyn Malquist for an update on the financial results for each segment of our business, our financing activities and our earnings guidance.

Well, thanks, Scott and good morning, everyone. Avista Utilities contributed $0.23 per diluted share for the fourth quarter of 2007, compared to $0.28 per diluted share for the fourth quarter of 2006. The decrease in results reflects an increase in other operating expenses and taxes other than income taxes. Depreciation and amortization also increased as compared to the prior year due to our investment in utility plant beyond the level that was being covered in rates. Our utility plant and service increased $193 million during 2007. For the full year of 2007, our utility operations contributed $0.82 per diluted share compared to a contribution of $1.16 per diluted share for 2006. The decline in our results for 2007, as compared to 2006 was primarily due to a decrease in electric gross margin. The decrease was also due to the disallowance of $3.8 million of unamortized debt repurchase costs in the Washington general rate case, and an increase in other operating expenses as well as depreciation and amortization.

Electric resource costs were higher than the amount included in base rates in 2007. This was largely driven by higher purchase power costs and fuel costs, and greater use of our thermal generating resources to meet demand in the early part of the year. Also hydro generation was well below normal -- was below normal and we experienced some unexpected outages at our generating plants in the second quarter. We recognized $8.5 million of expense under the ERM during 2007, as compared to $2.6 million benefit recognized during 2006. This change from the prior year reduced our earnings by $0.14 per diluted share. The ERM is only the Washington fuel recovery mechanism. We also under recovered in Idaho.

In addition to the effect of the ERM, our electric and natural gas loads were below our expectations. This was due to warmer than normal weather during the heating season, lower than expected customer growth and customer response to price increases, particularly with respect to natural gas. Also contributing to the year-to-date decline in utility earnings was an increase in other operating expenses. A variety of factors contributed to this increase, most notably the impairment of a turbine in the third quarter as well as increased maintenance costs, regulatory commission fees, and outside services. On the favorable side, our 2007 interest expense was lower than 2006. This was due to our issuance in the fourth quarter of 2006, of fixed rate long-term debt that replaced maturing debt with higher interest rates and a decrease in interest expense on short-term borrowings under our committed line of credit. The decrease in short-term borrowing interest was due in part to the availability of funds from the Avista Energy transaction.

The Energy Marketing and Resource Management segment which was substantially comprised of Avista Energy had a net loss of $0.22 per diluted share for 2007, compared to a contribution of $0.23 per diluted share for 2006. These lower than expected results from Avista Energy were primarily due to under performance on the power side of the business, and the loss on the sale of substantially all of Avista Energy's contracts and ongoing operations to Shell Energy.

Turning to Advantage IQ, the Company's net income for the fourth quarter and 2007, was slightly higher than the respective periods of 2006, due to an increase in operating revenues as a result of customer growth, and an increase in interest earnings on funds held for customers. This was partially offset by increased operating costs which included expenses for consulting services related to long-term strategic planning for the business incurred during the second and third quarters of 2007. As previously mentioned, we brought in advisors to examine current and future markets and the best way to grow the business to maximize our shareholder value. This additional work is designed to enhance the long-term profit potential of Advantage IQ.

In our other businesses, our results improved over the prior year as measured on both a quarterly and year-to-date basis. This was due in part to net gains on certain legacy venture fund investments in 2007, compared to net losses in 2006. Over time, as opportunities arise, we plan to dispose of assets and phase out operations that do not fit with our overall corporate strategy. However, we may invest incremental funds to protect our existing investments and invest in new businesses that fit with our overall corporate strategy.

With respect to cash flows during 2007, positive cash flows from operating activities and proceeds from the Avista Energy transaction were used to fund our cash requirements. These cash requirements included utility capital expenditures of $206 million, mandatory preferred stock redemptions of $26 million, debt maturities of $27 million, and dividends of $31 million. We have long-term debt maturities of $318 million in 2008. This includes over $270 million of 9.75% notes that mature on June 1 of 2008. We will issue new securities to fund a significant portion of these requirements; however, the new debt should be issued at a substantially lower rate.

We continue to make progress in strengthening our financial health. This progress was recognized by the credit rating agencies who have all upgraded one or more components of our debt over the past nine months. Importantly, Moody's and Standard & Poor's recently upgraded our corporate credit rating to investment grade. Although we are pleased with this accomplishment, it is important to note that we are at the lower end of the investment grade category and will continue to work towards improving our ratings.

As we have indicated in past calls, management intends to recommend that the Board consider gradually increasing the dividend payout ratio to become more in line with the average payout ratio for the utility industry, which currently is approximately 60 to 70% of earnings. Based upon an annual dividend rate of $0.60 per share, and our current earnings guidance for 2008, our payout ratio would be about 40 to 45%. We are pleased to announce that at our Board meeting last Friday, the Board voted to raise the quarterly dividend from $0.15 to $0.165, or 10%, effective with our next dividend payment. This action is indicative of our significant progress and our confidence in the results that we will produce in 2008 and beyond. The Board also believes that it is important to recognize our shareholders loyalty to the Company, despite poor returns during 2007. Management intends to recommend that the Board further view our dividend level during the second half of 2008. The Board considers the level of dividends on a regular basis, taking into account numerous factors, including financial results, business strategies and economic and competitive conditions. The declaration of dividends is within the sole discretion of the Board.

As you will recall in December of 2006, we entered into a sales agency agreement to issue up to 2 million shares of our common stock from time to time. During the second half of 2008, we are planning to issue common stock under this sales agency agreement in order to maintain our equity ratio at an appropriate level. The issuance of common stock should also help us maintain or improve upon certain financial metrics necessary to maintain or improve our credit ratings. These planned issuances were incorporated into our 2008 earnings guidance.

Also at their meeting last Friday, the Board promoted Ann Wilson to Vice President of Finance for the Company. She will retain her current role as Treasurer for the Company. Ann brings exceptional knowledge and talent to this position. She's very well qualified to take on this kind of leadership role as we continue to focus on improving the financial strength of our Company.

I would like to make a few comments about our service territory economy. Our regional economies continue to grow faster than the national average, when measured by job and population growth. Although the growth rate has slowed down a bit in our Oregon service territory, Eastern Washington and North Idaho are adding workers at a rapid clip. In fact, the Coeur d'Alene Kootenai County area was the fastest growing metro area last year and is the sixth fastest growing state in the country.

A few decades ago, commodities like lumber, agriculture, and mining were the primary industries in our service areas. Recent strong prices for wheat and metals have led to a resurgence of those industries although lumber activity is soft due to the national housing slowdown. Speaking of housing, our service territory is not suffering as much as other parts of the country, because our job growth has kept the housing market in balance and foreclosures in check.

Our service area economies are well diversified today with healthcare, education, finance, and tourism providing an important balance and our regional manufacturers are seeing strong sales to the Seattle area and exports to Canada, Mexico, plus Europe and Asia.

We are confirming guidance for consolidated earnings for 2008 to be in the range of $1.35 to $1.55 per diluted share. The Company expects Avista Utilities to contribute in the range of $1.20 to $1.40 per diluted share for 2008. The outlook for the utility assumes, among other variables normal precipitation, temperatures and slightly above normal hydroelectric generation. These factors combined with resetting the ERM in the Washington general rate case are expected to result in a benefit under the ERM in 2008.

As we did last quarter, I want to lead you through the changes in earnings levels we anticipate from 2007 to 2008 that are allowing us to reaffirm our guidance for Avista Utilities for 2008 to be in the range of $1.20 to $1.40. It's important to note that these are rough, broad estimates that allow us to confirm our guidance in an appropriate range but, of course, things can happen that cause variances in all of these categories.

Let's start with 2007 utility earnings of $0.82.

Start by adding back $0.08 for the combined write-down of the turbine and the disallowance of the debt repurchase costs.

Next, we're expecting approximately a $0.50 increase at the gross margin level in 2008. This increase is driven by a number of items including the Washington general rate case, the assumption of slightly above normal hydro, and a year-over-year increase in our loads. Remember in 2007, we absorbed $8.5 million or $0.10 related to the Washington ERM. With slightly above normal hydro and the resetting of the authorized power supply costs in 2008, we do not expect to have this expense. In fact, we are expecting a benefit.

Additionally we are assuming a decrease in interest expense of approximately $0.15 in 2008, primarily based on the retirement of high-cost debt.

And finally, we are expecting approximately $0.25 of increased operating and maintenance costs, including depreciation and taxes.

The final result of all the pluses and minuses leads us to $1.30, the midpoint of our earnings guidance for 2008.

We are revising our guidance for Advantage IQ downward to a range of $0.10 to $0.12 per diluted share from a range of $0.13 to $0.15. When we prepared our budget for 2008, which is the source of our original guidance, the Fed Funds rate had just been reduced to 4.75% from 5.25%. Our budget assumed that the Fed Funds rate would be lowered during 2008, another 25 basis points to 4.5%. Obviously the Fed has become much more aggressive and our assumption was incorrect. Lower short-term interest rates decreased Advantage IQ's interest earnings on funds held for customers. Our new earnings guidance assumes that the Fed Funds rate will be lowered to 2.5% in March, and held there the balance of the year. This results in a much lower average float yield in 2008 as compared to our average yield of 5% in 2007. We are not revising our consolidated guidance. We expect the Other businesses to be between break even and a loss of $0.03 per diluted share. Now, with that, I will turn the call back to Jason.

Thanks, Malyn. And now at this time we will open the call up for questions.

(OPERATOR INSTRUCTIONS) Your first question is from the line of Paul Ridzon with KeyBanc. Please proceed.

Hi, Paul.

Hi, Paul.

Just wanted a little more detail. I guess one of the places I got caught by surprise was the tax timing issues at the utility for other taxes. What was driving that year-over-year discrepancy? I guess at the end of the year it all makes sense and we probably should have seen it coming.

Paul, we are going to ask Christy Burmeister-Smith to answer that question.

In the fourth quarter of 2006, we had an unusual reduction in property tax. It was primarily in Idaho and it related to the Idaho state law changing. They rolled back sales tax, and -- they rolled back property tax and replaced it with a sales tax. What that did is caused us in 2006 to adjust our accrual downward. There was also a small impact in Montana. So in 2006, we have about $3 million pretax adjustment in the fourth quarter. Year-over-year, our property taxes are the same, at about $20 million.

Pretax would be the same as after tax in this case?

Because it's property tax, it would be tax effected at about 65%. So about $2 million after tax.

And Malyn, we had kind of a surprise dividend hike this quarter, I'm sure shareholders appreciate that. But going forward, should we think about the August board meeting as a time when they will visit this every year?

I think that -- that it will be done in the second half of the year, and what we are shooting for, as you will recall, was getting the investment grade credit rating back and refinancing the 9.75 notes, and of course the 9.75 notes are going to happen in the second quarter. So I won't predict which quarter the Board will do that in, Paul, but I think that they'll be in a position to look pretty hard at it in August.

And certainly other -- other industrial sectors are having troubles in the debt markets. What are you seeing out there? How are the spreads? And what is your outlook for the refi on the 9.75?

It's certainly a lot more volatile than we would like it to be and we are hoping that things will calm down a bit. The spreads have blown out pretty significantly for us, but we're still going -- we're still anticipating we are going to see a very substantial savings versus the 9.75 that we have. We are looking at probably doing $250 million of debt sometime in the March to May time frame. And we are looking at rates still I think that are lower than 7%, if we went really long and probably in the low 6s if we -- if we went with 10-year which is what we are leaning towards at this point. Ann, would you add anything to that?

No, I think that we are trying to go with as plain vanilla as possible. So that's why we are looking at first mortgage bonds, secured first mortgage bonds.

You said your ERM was reset. What is the embedded power price in '08 versus that which was in '07?

Paul, I think we are going to have to get back to you with that. We don't have that right off the top. Kelly?

Yes, this is Kelly. We don't really set a specific rate for kilowatt hour for power supply. What we do is reflect in our base rates the known contract, fuel costs, levels of hydro and wholesale market prices in our base rate. So it is a combination of numbers that make up that base set of numbers. So there isn't a specific rate per kilowatt hour that is separately determined.

And just lastly, one of the things that surprised me was with 96% normal hydro -- we still incurred $8.6 million of ERM costs. Is that disproportionate? Was there something unusual about this year that let the ERM get so high even with water that close to normal?

I think that there were a couple of things. First, we did have some outages at our hydro facilities in the May/June time frame. I think that that was harmful to us. Also we knew and what we were trying to do with the PCORC was reset the natural gas price, and the purchase power price to be closer to market. And I -- I don't recall what those were, but I do remember that we were -- that that was a fairly significant piece of things -- something that we needed from the commission so that our prices really reflected the market and we obviously weren't able to true those up. So I think it was a lot more than just the hydro. I think it was the natural gas price, maybe even more than the -- the lower than normal hydro.

And Paul, we did have an outage at Coyote Springs unexpectedly for two or three weeks in the spring that added to the expense as well.

And just -- I'm sorry. I just have one more question. It's at IQ, you have got a lot of intellectual property at that business. It looks as though efficiency and DSM markets are probably going to be kind of attractive. What do you see as your opportunities to kind of take your market leading position and potentially pursue other strategic opportunities around that business and growing it in that way?

Paul, as you know, we have been very focused on not only growing our core business of the bill pay operation, but also really focused on consulting services. And we currently have a pretty aggressive plan around increasing those services to our customers. We did very well in 2007; had a significant increase in revenues in consulting services and see some vast opportunities and exciting opportunities for us in 2008, so you are exactly right. We will get pretty aggressive in the DSM and green initiatives that are opportunities for to us expand into. So you can look forward to that.

Is there a lot of capital that you are going to need to do that?

No. It's -- we have got great, as you said intellectual capital. We have got tremendous IS/IT capability. It's just being able to repackage and work closely with our customers. We know what their needs are and are looking at ways to help them reduce their carbon footprint and offer other new products into the market.

Paul, we do have about 6 million to $7 million of CapEx which -- at Advantage IQ which will be funded from their operations. There's no requirement to put additional dollars in there. That's really aimed at trying to -- we are basically rebuilding our processing engine, which is our own proprietary engine and frankly, we are trying to get ready to process hundreds of thousands more bills per month than we are currently processing, as well as help us to bring some additional efficiencies in the long term there. So all of those things, in addition to the growth in other areas like consulting and telecom that Scott talked about should really help us to take this business to the next level.

Thank you again.

Thank you.

Your next question comes from the line of James Bellessa with D.A. Davidson & Company. You may proceed.

Hi, Jim.

Hi, Jim, are you there.

Yes, I am. On the fourth quarter, you say that the utility came in lower than you originally forecasted. Was that just exclusively the tax timing issues or were there other items? You talked about the ERM, more absorption about $0.5 million more of absorption than you thought. Are there other items than those two things?

Yes, there were a couple additional items. We had some increased maintenance costs partly related to an outage at Coalstrip, we had a little bit increased tree trimming expense, that had been included in our rate case that we should up the level of tree trimming. Also in 2006, in operating expenses we had a settlement related to our Northeast turbine still, which had reduced 2006 operating expenses by approximately $1 million pretax. So those are the primary items of that. That's the difference between 2007, 2006.

Now, is this tax issue a one-time adjustment or is it going to go forward somehow?

Property tax 2007 to 2006 is approximately the same level at $20 million. We anticipate that it will be a similar amount in 2008. There can be a little bit of difference in the timing of when adjustments are made, depending on when we get information from the taxing authorities, but it shouldn't be as significant as it was in 2006.

And the sales tax figure for this year of '07 will be the same in '08?

When you think of tax are you talking about taxes associated with our revenue?

I thought you said that in Idaho they convert -- they decreased the property taxes and replaced it with a sales tax?

Correct. And property tax has a much greater impact on us than sales tax does in Idaho.

Jim, this is Malyn. I guess I would just maybe try to frame up the 2007 fourth quarter was a continuation of really our rates -- our rates not reflecting the -- our costs. And so with the Washington general rate case, we expect that that is behind us now because our rates now really are much more indicative of what our costs are.

In the fourth quarter, the ERM absorption, was that $0.01 or $0.02 a share?

It would have been approximately $0.01 per share.

And that's about flat with the year, even though the dollar amount is up it's still about $0.01 versus $0.01?

Correct.

And in the delta that you were explaining about earnings levels in 2008 versus 2007, did you say the debt and turbine write-down was $0.10 in '07?

It was $0.08.

$0.08.

$0.08.

Thank you very much.

You're welcome. Thank you.

(OPERATOR INSTRUCTIONS) Your next question is from the line of Brian Russo with Ladenburg Thalmann. You may proceed.

What income tax rate are you assuming in the 2008 earnings per share guidance?

Off the top of my head, I think it's around 37%.

Okay. And any more details on the upcoming Washington rate case filings? I think you mentioned a few months from now. Any way to narrow that time frame down? And then also any expectations on the reinstatement of the PCORC?

This is Kelly. We do plan to file, or expect to file in Washington by the end of the first quarter. We haven't set a date but that's our expectation at this point in time. In terms of the PCORC, in this last filing with rates effective January 1 of '08, as Malyn mentioned, we did reset the base power supply cost. That was one of our objectives in proposing a PCORC was to be able to keep that base power supply cost updated on a regular basis. With the filings in the first quarter of this year, it should allow us to reset the base for '09, and as long as we can keep that base updated, there's less of a need for a PCORC. So there's no plan at this point to continue to pursue that PCORC.

Okay. So you would hope in terms of reaching a settlement or an outcome on the upcoming Washington filing, you would hope to have new rates in effect in early 2009; is that correct?

That's correct, yes.

And then lastly, how long was the Coalstrip outage and how much expense did you incur on that?

Brian, we will have to get back to you. It was not significant as far as length or expense as far as -- but I need to get back to you on the number because I don't have it off the top of my head.

Okay. Thank you very much.

Thanks, Brian.

You have a follow-up question from the line of Paul Ridzon with KeyBanc. Please proceed.

Do we have any sense of a timeline on Oregon, when we could get those rates implemented?

Yes. This is Kelly. We right now are in the middle of discussions with the commission staff and the other parties on resolving that case. As we indicated, we do have an all party settlement on the cost of money. The staff testimony is due -- I'm looking for a date. On the 28th of -- of this month, in that Oregon case. So we are hopeful that we'll be able to resolve those issues with the parties. The settlement discussions are ongoing there.

What you have agreed on is capital structure, ROE, have you agreed on rate base?

Have not. Just the cost of money components, cap structure and the cost of those components.

Thank you again.

You have another follow-up question from the line of James Bellessa, D.A. Davidson & Company. Please proceed.

In your guidance, you use the assumption of slightly above normal hydro electric generation, and you went through a description of what the water content was. It sounded above normal, well above normal, not just slightly above. Why is hydroelectric generation just slightly above?

Well, Jim, a couple of things, just to refresh your memory. On the Spokane River, it's run of the river. We don't have significant reservoirs. So we really get the water whenever it runs off. A lot of the Spokane snowpack is in some lower elevations as well. So while it's 125% of normal, you can only get so much through the Spokane River dam system. On the Clark Fork system, again we are optimistic. It's above normal. The snow water equivalent is 110% so a lot of it is going to depend on how it melts, when it melts, and how the runoff forms. And as you know, it really depends on do we have a cool wet spring, or does it get warm fast? So as you know, in a La Nina, as we said, we are optimistic, the long-term weather reports say that it's supposed to continue to be wetter than normal and average normal temperatures. So assuming we don't get a real hot streak and things proceed as usual, we are hopeful that that runoff on the Clark Fork, hopefully extends into June/July, but we don't know that until we get there.

Your Advantage IQ guidance went down, and you talk about lower short-term interest rates. Do you have something that can give us some help about what your average realized interest return was on the float during '07 and what your assumption is for '08?

Well, during '07, our average return on our daily balances was around 5%, and while we are off to a decent start this year, because we had our investments locked in at the end of the year so January looked pretty good, but we are expecting that starting with the second quarter we are going to basically be yielding about 2.5%. So for nine months of the year we're going to basically see a float rate about half of what we saw last year. Now, the good news is we're adding more customers and so the balances go up for that. Also most utilities are seeing their rates increase, so our balances are going up for that. So there's a little bit of an offset there, but a significant reduction from 5 to 2.5% really -- and that pretty much flows right to the bottom line. So that's definitely going to hurt us for the year. That's why we felt like we had to lower guidance, even though we still feel very, very positive about this business.

Does the float show up in your cash item, in your assets and your balance sheet?

We do have a line that is--.

Funds held for customers.

Funds held for customers, thanks, Ann.

And I'm looking down. I'm not seeing that immediately. How far down do I have to go?

It's -- oh, it's not. I'm sorry, it's -- on this balance sheet, I have to see where that's included. This is truncated a little bit. Let me look here for a second, Jim, and I will find it.

Can you characterize the magnitude of the size of that -- those funds held for customers?

I think it's in the 70 million to $80 million?

Well, our average -- our average daily balances can be well above $100 million. Our customers fund the money and we immediately write a check or wire transfer, but -- but we still nevertheless have significant amounts of funds, especially this time of year.

And can you give us a picture of how those funds may have increased over the last couple of years? Any picture? Is it increasing about the same as your revenues or?

The answer is yes. Perhaps even a little bit above the revenues because of the fact that utility rates have been going up.

Thank you very much.

Jim, that amount is included with other current assets on the balance sheet that's in front of you.

Okay.

And it's roughly $90 million.

Thank you.

That concludes the Q&A session. I would now like to turn the call back to Jason Lang for closing.

Thank you all for joining us today. We certainly appreciate your interest in our company. Have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.