Avista Corp (AVA) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2008 Avista Corporation earnings conference call. My name is Erica, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions).

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

Thank you, Erica. Good morning, everyone. Welcome to Avista's fourth-quarter and fiscal-year 2008 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, Malyn Malquist; Senior Vice President and CFO, Mark Thies; Vice President of Finance and Treasurer, Ann Wilson; Vice President State and Federal Regulation, Kelly Norwood; Vice President, Controller and Principal Accounting Officer, Christy Burmeister-Smith; and the President and CEO of Advantage IQ, Stu Stiles.

Before we begin, I'd 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 2007 and Form 10-Q for the quarter ended September 30, 2008, which are available on our website.

To begin this presentation, I would like to recap the financial results presented in today's press release. For the fourth quarter of 2008, our consolidated net income was $0.32 per diluted share compared to net income of $0.26 per diluted share for the fourth quarter of 2007. For the year ended December 31, 2008, our earnings were $1.36 per diluted share compared to $0.72 per diluted share for the year ended December 31, 2007.

Now I will turn the discussion over to Avista's Chairman of the Board, President and Chief Executive Officer, Scott Morris.

Thank you, Jason, and good morning, everyone. Overall, we are pleased with our results for the fourth quarter and year ended December 31, 2008. We expect continued improvement in our financial results for 2009, due to the implementation of a general rate increase in Idaho that became effective October 1, and the implementation of a general rate increase in Washington effective January 1, 2009.

A previous general rate increase in Washington implemented at the beginning of 2008 partially contributed to the improvement in our utility results, as well as lower interest costs. Avista Utilities also had weak earnings in 2007. In addition to the improvement at the utility, our consolidated results improved as compared to 2007, which were lower due to the net loss at Avista Energy in 2007.

Despite a good winter snowpack in early 2008, the late spring runoff resulted in excess water being spilled, which yielded lower than normal hydroelectric generation for the first half of the year. Purchase power costs were higher than expected, due in part to colder than normal temperatures during the first-quarter heating season, and an increase in the price of wholesale power. Therefore, for fiscal year 2008, we absorbed $7.4 million of costs under the Energy Recovery Mechanism in Washington compared to $8.5 million in 2007.

Also contributing to the increase in net income for 2008 was $5.7 million of interest income related to the Company's 2001 through 2003 tax years, and the resulting refund received from the Internal Revenue Service which included the settlement of the indirect overhead cost issue. This was partially offset by $1.4 million of interest expense related to the 2004 and 2005 tax years. Both amounts were recorded during the third quarter of 2008.

As approved by the Idaho Public Utility Commission, electric rates for Idaho customers increased by 12%, and natural gas rates increased by 4.7% effective October 1. Combined, these rate changes are designed to increase annual revenues by $27.1 million.

Effective January 6, 2009, natural gas rates decreased 4.7% in Idaho reflect an adjustment to the Purchased Gas Adjustment Mechanism, a decrease in 2009 revenues of $3.1 million. As you know, PGAs are designed to pass through changes in natural gas costs to our customers with no change in gross margin or net income.

As approved by the Washington Utilities and Transportation Commission, base electric rates for Washington customers increased by an average of 9.1%, and base natural gas rates increased by an average of 2.4% effective on January 1, 2009. Combined, these rate changes are designed to increase annual revenues by $37.3 million.

In January 2009, the Office of Public Counsel filed a petition for judicial review of the Washington Commission's recent order approving the Company's multiparty settlement. Public Counsel raised a number of issues that were previously argued before the Commission. The appeal itself does not prevent the new rates from continuing to be in effect.

The appeals process may take several months, and a decision is not expected until later this year. The settlement agreement approved by the Washington Commission was supported by the Commission's staff and other parties, including the low-income advocacy group. New rates were approved by the Commission only after a thorough 10-month review by all parties of all the issues presented in the case.

We believe the Commission's decision approving the settlement was based on sound and sufficient evidence, and was consistent with the law. The court will either affirm the decision of the Washington Commission in its entirety or reverse the decision in whole or in part and remand the matter back to the Commission for possible refund.

Also effective January 16, 2009, natural gas rates decreased 3% in Washington to reflect an adjustment to the Purchased Gas Adjustment Mechanism, a decrease in 2009 revenues of $4.2 million. As we continue to invest in the growth and upgrade of our company's generation, transmission and distribution infrastructure, we will continue the timely filing of general rate cases to recover our cost of doing business and to more closely align our rates of return with those allowed by regulators.

At the same time, we understand these are tough economic times, and we are diligently managing our operating costs and finding additional efficiencies to help reduce costs. Such cost-saving measures include, but are not limited to, officers foregoing salary increases in 2009 and canceling plans to construct additional office space, instead purchasing an existing office building for a savings of over $9 million in capital construction costs.

In January 2009, we filed requests for additional general rate increases in both Washington and Idaho. In the Washington general rate case filing, we have requested a net electric rate increase of 8.6%. The net electric rate increase is based on a requested 16% increase in billed rates with an offsetting 7.4% reduction in the current ERM surcharge.

We are also requesting a 2.4% increase in natural gas rates. The filing is designed to increase annual base electric revenues by $69.8 million, $37.5 million net after considering the reduction in the current ERM surcharge, and increase natural gas service revenues by $4.9 million. Our request is based on a proposed rate of return on the rate base of 8.68%, with a common equity ratio of 47.5% and an 11% return on equity.

In the Idaho general rate case filing, we have requested a net electric rate increase of 7.8%. A net electric rate increase is based on a requested 12.8% increase in billed rates, with an offsetting 5% reduction in the current power cost adjustment surcharge.

We are also requesting a 3% increase in natural gas rates. The filing is designed to increase annual base electric service revenues by $31.2 million, $18.9 million net after considering the reduction in the current PCA surcharge, and increase natural gas service revenues by $2.7 million. Our request is based on a proposed rate of return on the rate base of 8.8%, with a common equity ratio of 50% and an 11% return on equity.

The Washington Commission has up to 11 months and the Idaho Commission has up to seven months to review the respected filing. Requested electric rate increases in both states are primarily driven by increased power supply costs due to the expiration of low-cost contracts, an increase in retail loads, investments made to expand and upgrade the Company's generating resources in other facilities, and the cost to comply with environmental and legal requirements associated with relicensing the Spokane River hydroelectric facilities and compensation to the Coeur d'Alene Tribe.

The costs for generating and purchasing power have increased over the last year, due in part to the need to replace expiring low-cost power contracts and to require new resources to serve customer energy needs.

I would like to make a few more comments about our settlement with the Coeur d'Alene Tribe. In December, we reached a comprehensive agreement with the tribe over Avista's past and future use of the tribal lands and water in the operations of our Spokane River hydroelectric projects, including the Post Falls Dam. The settlement is the result of a collaborative effort by the tribe, the United States Department of Interior, and Avista. This represents a major step in relicensing our Spokane River hydro projects.

Pursuant to the settlement, we will compensate the tribe a total of $39 million for past storage of water from the period from 1907 through 2007. We paid $25 million in December 2008, with remaining payments of $10 million in 2009 and $4 million in 2010. We will compensate the tribe for future storage of water through payments of $400,000 per year beginning in 2008, and continuing through the first 20 years of a new license, and $700,000 per year through the remaining term of the license.

In addition to past and future storage payments, the agreement provides for annual payments to fund a variety of protection, mitigation, and enhancement measures on the Coeur d'Alene reservation that would be implemented over the life of a new FERC license. This will be accomplished through the creation of a Coeur d'Alene resource protection trust fund.

Annual payments from Avista to the trust fund for protection, mitigation, and enhancement measurements would commence with the issuance of the new FERC license, and are expected to total approximately $100 million over an assumed 50-year license term.

Overall, we are very pleased to be resolving these long-standing resource issues that are so important to our region. We highly value our continuing partnership with the Coeur d'Alene Tribe.

I would also like to comment about the economy in our service territory. Over the last several years, our regional economies taken as a whole have grown faster than the nation when measured by job and population growth. Although our service territory appears to be faring better than certain other parts of the country, we are not immune from the turbulence affecting the national and international economy financial markets.

We're observing modest declines in employment throughout our service area due to cutbacks in the construction, forest products, mining and manufacturing sectors. However, agriculture, healthcare, higher education, and governmental sectors continue to perform well. Overall, non-farm employment contraction from 2007 to 2008 was 2.3% in Spokane, 4.1% in Coeur d'Alene, and 2.1% in Medford compared to the national average of 2.1%.

Unemployment rates are much higher than a year ago, having moved above the national average in our Eastern Washington, Northern Idaho and Southern Oregon service area. The unemployment rate for December was 7.6% in Spokane, 7.3% in Coeur d'Alene, and 9.9% in Medford, compared to the national average of 7.2%.

The housing market has remained relatively balanced with stable prices keeping foreclosures in check. The foreclosure rates in Spokane, Coeur d'Alene and Medford were all below 0.5% in 2008 compared to the national average of 1.85%.

Now I would like to turn this presentation over to Mark Thies. Mark will provide a review of our capital budget, further details on the performance of Avista Utilities, liquidity in our financing activities.

Thanks, Scott, and good morning everyone. For 2008, our capital expenditures were approximately $220 million. Our capital expenditures are expected to be approximately $210 million in 2009 and 2010, and we expect our rate base to grow by 5% to 7% per year in 2009, 2010, and 2011. We are planning to upgrade certain hydro projects, and we will continue to enhance our natural gas and electric distribution system.

The second quarter of 2008, we completed the opposition of a wind generation site. We expected to construct a 50-megawatt generation facility at an estimated cost of over $125 million. To help reduce costs and resulting rate pressure, we have recently decided to delay this project until 2013. Delay is partly because of the Company's ability to meet its renewable resource requirements and growing customer demand, with ongoing upgrades at the Company's hydroelectric facilities and by acquiring renewable energy credits.

We remain committed to the project, but believe that the current economic environment warrants pushing the project out a few years. As we mentioned in the third-quarter call, we are participating in planning activities for the development of a proposed 3000-megawatt transmission project that would extend from British Columbia, Canada to Northern California.

Other participants include Pacific Gas & Electric Company, PacifiCorp, and British Columbia Transmission Corporation. We have executed an agreement with the other participants in order to perform preliminary studies and assessments for the project, including electrical system studies and resource mapping of possible transmission line corridors. Under the agreement, we have committed to contribute $600,000 or 12% of the total preliminary cost of the project.

Avista Utilities contributed $0.33 per diluted share for the fourth quarter of 2008, compared to $0.23 per diluted share for the fourth quarter of last year. For the full year of 2008, our electric utility operations -- or our utility operation, excuse me -- contributed $1.30 per diluted share, a significant improvement from $0.82 per diluted share in 2007.

As Scott mentioned, the improvement in results was partially due to the Washington general rate case implementation at the beginning of 2008, as well as the implementation of the Idaho general rate case effective October 1. In addition, there was a slight increase in energy usage by our customers, primarily as a result of colder weather during the first quarter of 2008.

Utility revenues increased $284 million, as a result of increases in natural gas revenues of $157 million and electric revenues of $127 million. The increase in natural gas revenues is primarily the result of increased wholesale revenues. Wholesale natural gas sales reflect the balancing of loads and resources, and the sale of resources in excess of load requirements is part of the natural gas procurement process.

Variances between the revenues and costs of the sale of resources in excess of load requirements are accounted for through the PGA mechanisms, and do not have a significant effect on net income. The increase for 2008 was primarily a result of increased volumes and the optimization of underutilized interstate pipeline transportation and natural gas storage assets, as we continue to look for ways to keep customer costs down.

The increase in electric revenues was primarily due to increased retail revenues of $59 million, wholesale revenues of $36 million, and sales of fuel of $32 million. The increase in wholesale revenues and sales of fuel reflect an increase in electric resource optimization activities.

The increase in utility net income for both the fourth quarter and full year of 2008 was also partially due to a decrease in interest expense. The decrease in interest expense was due to refinancing maturing higher-cost debt with lower-cost debt issuances. The increase in utility net income was also due to the impairment of a turbine of $2.3 million, as well as the disallowance of $3.8 million of unamortized debt purchase costs, both of which were recorded third quarter of 2007.

Utility, other operating expenses increased $7.8 million for 2008 as compared to 2007. This was primarily due to an increase of $4 million in electric generation operation and maintenance expenses, as well as a $3.4 million increase in electric distribution expenses. We are committed to maintaining adequate liquidity, and will continue to utilize cash flows from operations, long-term debt and common stock issuances to fund our capital expenditures and maturing debt, and use short-term debt for these purposes on an interim basis.

2008 debt maturities were $404 million, the majority being $273 million of a 9.75% unsecured senior notes that matured in June 2008. In 2008, we issued $250 million of 5.95% first-mortgage bonds to fund a significant portion of this debt that matured.

In December 2008, we issued $30 million of 7.25% first-mortgage bonds due in 2013, and refinanced $17 million of pollution control bonds. The proceeds from the $30 million issuance, together with funds borrowed under the $320 million committed line of credit, were used to fund $25 million of medium-term notes that matured in December 2008, and to purchase $66.7 million of pollution control bonds in December of 2008 that we will hold until refunded at a later date.

We had $250 million of cash borrowings and $24.3 million in letters of credit outstanding as of December 31, 2008, under our $320 million committed line of credit.

In November 2008, we entered into a new committed line of credit in the amount of $200 million that expires in November 2009. We had no borrowings outstanding at the end of 2008 under this committed line of credit.

We sold $17 million of accounts receivable under our $85 million revolving accounts receivable sales facility as of December 31, 2008. And as of the end of the year, we had a combined $313.7 million of available liquidity under our $320 million committed line of credit, $200 million committed line of credit, and $85 million revolving accounts receivable sales facility.

We have a sales agency agreement to issue up to 2 million shares of common stock from time to time. We issued 750,000 shares and received net proceeds of $16.6 million in the third quarter of 2008. We will continue to evaluate issuing common stock, and may issue common stock in future periods.

Due to market conditions and a decline in the fair value of pension plan assets, we are planning to contribute $48 million to the pension plan in 2009, a significant increase compared to the $28 million we contributed in 2008, and the $15 million we contributed in both 2007 and 2006. We have adequate liquidity to meet our pension plan funding obligations for 2009.

Now I will turn this presentation over to Stu Stiles to review the operations of Advantage IQ.

Thanks, Mark, and good morning. Advantage IQ's net income for the fourth-quarter and fiscal-year 2008 were slightly below the comparable periods of 2007. This was primarily due to the decrease in our ownership percentage in the business as a result of the acquisition of Cadence Network effective July 2, 2008, and the amortization of intangible assets related to the Cadence acquisition. However, our contribution of $0.11 per diluted share still met our expectations for 2008.

For 2008, total revenues increased 25% from service revenues that increased 40%, partially offset by a 37% decrease in interest revenue. In 2008, we processed bills totaling $16.7 billion, an increase of $4.2 billion or 34% as compared to 2007. The acquisition of Cadence Network added $2.1 billion in energy dollars managed for 2008.

During 2009, we are expecting slower internal growth than had been expected, as some of our customers are experiencing bankruptcies and store closures in these tough economic times. Additionally, interest revenue is expected to be lower in 2009, due to the historic low, short-term interest rate environment that we are currently experiencing, and that is expected to continue throughout 2009.

However, the overall services provided by Advantage IQ are considered valuable to current and potential customers, as Advantage IQ is able to assist them in reducing costs in these difficult economic times. We are pleased with the way the business has started in 2009.

Our parent company plans to monetize at least a portion of its investment in Advantage IQ during the next two to four years. The potential monetization could be contemplated through an initial public offering or sale of the business, depending on future market conditions, growth of the business and other factors.

Under the transaction agreement, the previous owners of Cadence Network can exercise the right to redeem their shares of Advantage IQ stock during July 2011 or July 2012, if Advantage IQ is not monetized through either an initial public offering or sale of the business to a third party.

The redemption rights expire on July 31, 2012. The redemption price would be determined based on the fair market value of Advantage IQ at the time of the redemption election, as determined by certain independent parties.

The consolidation of the two companies continues to go very well. We have met all major integration milestones and have substantially met financial goals with the combined companies. Therefore, we remain optimistic about the future of the business.

Now I will turn this presentation back over to Mark Thies to review our other businesses, dividend information, and earnings guidance.

Thanks, Stu. In other businesses for 2008, our results improved over 2007, primarily because of the net loss from Avista Energy in the prior year. The remaining activities of Avista Energy are no longer a reportable business segment and are included in Other for segment reporting purposes.

The fourth quarter of 2008, we absorbed some market losses on venture fund investments due to overall economic conditions, and we incurred some litigation costs. These were the primary drivers of the net loss of $2.2 million in our other businesses.

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.

As we have indicated in past calls, management intends to recommend that the Board consider gradually increasing the dividend payout ratio, become more in line with the average payout ratio of the utility industry, which is currently approximately 60% to 70% of earnings. 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. Last week the Board approved a quarterly dividend of $0.18 per share.

We are confirming our 2009 guidance for consolidated earnings to be in the range of $1.40 to $1.60 per diluted share. We expect Avista Utilities to contribute in the range of $1.30 to $1.45 per diluted share for 2009.

Our outlook for Avista Utilities assumes, among other variables, normal precipitation, temperatures, and hydroelectric generation. We expect Advantage IQ to contribute in the range of $0.12 to $0.14 per diluted share, and the other businesses to be between a loss of $0.02 and a contribution of $0.01 per diluted share.

The recent general rate case increases implemented in Idaho and Washington are expected to provide incremental progress in recovery of utility costs. However, we will still experience regulatory lag in 2009. Even though we filed new general rate cases in both Washington and Idaho in January 2009, we expect this regulatory lag to continue. This lag is driven in part by a delay in recovery of incremental capital investments, and increased operation and maintenance, and administrative and general expenses caused by an increasing cost environment.

The current regulatory process does not provide timely recovery of these costs, which is currently estimated to impact return on equity in the range of 60 to 80 basis points. However, we plan to continue working with regulators to reduce regulatory lag.

In addition, there are certain other costs that are not recovered in retail rates that impact return on equity by approximately 70 to 90 basis points. These costs include expenses such as executive, incentive and supplemental retirement compensation, dues and charitable donations, amortization of premium related to the Oregon natural gas properties, and a portion of advertising.

During 2009, we are anticipating slower internal growth at Advantage IQ and lower interest revenue, as Stu mentioned. However, the overall services provided by Advantage IQ are considered valuable to current and potential customers of Advantage IQ, and Advantage IQ is able to assist them in reducing costs in these difficult economic times.

Now I will turn this presentation back over to Scott Morris.

Thank you, Mark. Last Friday, Malyn Malquist announced that he will retire from the Company effective March 31. Malyn has been an invaluable member of our senior leadership team since 2002. As you know, Malyn was our CFO from 2002 through September of 2008. His extensive background in the utilities sector finance and management has been instrumental in strengthening our Company's financial health, and helping us attain important goals, including regaining our investment grade credit rating.

We greatly appreciate Malyn's knowledgeable insight, his leadership, and his service to our stakeholders. I also appreciate all of Malyn's efforts and commitment to assure that the CFO transition went very smoothly.

Now I would like to turn the call over to Malyn.

Thanks, Scott, for your kind words. Good morning, everyone. You can't see me, but I am smiling quite broadly this morning. Most of you know that we've been planning for my retirement for the past year. Well, actually, I've been planning for this for over 30 years.

We've worked to have a very smooth transition from my tenure as the Company's CFO to Mark Thies, our new CFO. This is now complete. Mark is doing a great job and has proven to all of us that we made a wise choice. So it is time for me to move on to the next phase of my life.

I want to thank everyone at Avista for giving me the opportunity to be a part of this fine team. I particularly appreciate Gary Ely for not taking no for an answer in 2001 and 2002, as he spent a year trying to convince Georgia and me to leave Reno.

The officers and employees of Avista are outstanding professionals. I appreciate the support they've given me, as well as the constant support that I've received from our Board of Directors. I have enjoyed my time here immensely.

One of my favorite parts of my job has been working with the financial community. I appreciate the support and the opportunity to work with many analysts and bankers whom I've come to know over the past 30 years. I want to wish each of you continued success and all the best in your careers and in your personal life. Thank you for all that you've done for me.

Now I would like to turn the call back over to Jason.

Thanks, Malyn. Now we will open the call up for questions.

(Operator Instructions) Paul Ridzon, KeyBanc.

I had a few questions. First, what is the embedded price of natural gas in your Washington electric rates?

Currently, the embedded cost in existing rates is $8.30 per decatherm for the unhedged portion.

And that will change with the next rate order?

Yes, it will.

What is the current -- I know it can change pretty quickly, but what are you seeing as far as the snowpack?

Paul, right now snowpack is a little bit below normal. We caught up, but it has been dry. However, I think a couple things to remember about that, you are right, it can catch up pretty quickly. I think if we get normal precipitation, we are not too worried.

The other thing to remember is that natural gas prices are quite low right now, as you know, and wholesale power prices are very low for the region. So overall, I like our position.

Are you aggressively trying to lock in some of those low prices?

We are aggressively executing on our hedging strategies, and yes, we are make some purchases to take advantage of the market.

And just in the fourth quarter, Other segment had kind of a wide swing of $0.04. Can you just give a little bit more detail about what happened with these venture funds and litigation?

Well, the venture funds, they are small investments that we have, and we mark those to market. And as the economy has come off significantly in the fourth quarter, their performance -- well, actually throughout 2008, their performance had suffered, so we did take impairment. About half of that amount was related to a couple of the venture fund investments that we have.

The other side of the litigation, we don't really comment on ongoing litigation. We had some litigation costs related to one of our subsidiaries, and we incurred those costs of about $1 million in the fourth quarter.

And just -- you gave Washington and Idaho rate case parameters. What was the rate base in each of those jurisdictions you filed for?

I don't have the exact rate base numbers. We may have to circle back on that.

And then the 150 basis points of potential under-earning you kind of highlighted for the various reasons, what is that in the net income?

Again, you'd look at the rate base and the equity. We have approximately $1 billion of equity.

Okay, that is --.

So from a return on equity perspective, you'd do the math on that.

I'll jump back in queue with some further questions. Thank you.

Brian Russo, Ladenburg Thalmann.

Good morning. Can you tell us what your actual ROE was in 2008, and then remind us of the allowed ROEs in your jurisdictions that have been approved with the new rates effective for '09?

I'll start with the allow ROEs for '09. In Washington, we have a 10.2% allowed ROE. In Idaho, it is also 10.2%. In Oregon, it's 10%.

Then on an actual overall for our utility was 7.95%, and then consolidated for the entire company 7.71%.

Okay, so I guess what you're kind of insinuating in your press release and earlier comments is that you almost need to haircut that 10.2% by nearly 150 basis points to kind of fit into your earnings guidance?

That's what we are saying, with the expectation of continued regulatory lag, as well as certain costs that we're not currently allowed recovery for. So we are trying to set the expectation building off that allowed return. That is correct.

Okay. What load growth assumptions are embedded in the 2009 guidance? And then maybe you could talk a little bit about the various customer class sales in the fourth quarter of '08.

We've got embedded in growth about 1.5% roughly, and as far as growth by sectors, I don't have that in front of me, Brian.

Could you kind of qualitatively talk about what you're seeing on the industrial side?

Sure, we have seen some reduction in industrial loads, primarily in forest products and mining. However, we have not seen significant reduction in our residential and commercial classes. As a matter of fact, we've continued to see those strong usage by our customers in those areas.

So while in certain sectors we've seen reductions, we are not seeing reductions in other parts of our industrial load growth. It is primarily mining and timber.

All right. And then you're assuming normal hydro conditions. Is that based off of an NOAA forecast? And if so, maybe you could talk about specifically what forecast you are based off of, or if there is some sort of internal type of forecast you guys use as well.

Brian, we usually forecast around normal hydro. And as you know, it is very challenging for us to predict the weather. So we look at our snowpack predictions, and let me just give you December as an example of why we predict normal. First, going into the first two weeks of December 2008, our snowpack was really roughly about 30% of normal at that point, and we were quite concerned.

Over the next two weeks, we received over 80 inches of snow, and our snowpack went up to over 100% of normal in less than a little over two weeks. We've dried out in January and a little bit of February, so now we are kind of again below normal. But if we get normal precipitation over the next two or three months, we are not too concerned.

So it is really challenging for us to try to peg it exactly, so the best thing that we can do at this point this early in the snow year is to predict normal precipitation. And at this point, I don't have any reason to believe that that's not going to happen.

If you look at all of the NOAA information, right now it basically says they are predicting normal precipitation for the year. They are not predicting below normal precipitation. Some services are actually predicting above normal precipitation. So given all of that information, we feel that a normal precipitation forecast is the proper thing to do.

Right, understood. So I guess the next eight weeks are critical for the 2009 hydro conditions, and on your next quarterly conference call you will have more certainty as to what those conditions are like?

Absolutely. By late April or early May, we will certainly know what our hydro conditions are.

Okay, just real quickly. On Advantage IQ, you are forecasting slower internal growth, yet you are maintaining your $0.12 to $0.14 range. And I'm just curious why you are not seeing more pressure on margin or earnings, given your outlook.

Brian, we are still very bullish about our business. We have a strong value proposition, and so we continue to see good results on the sales front. So we maintained our guidance for that reason, and we expect our business to grow as projected. So as stated, we do have pressures on our business, and we are continuing to look at cost reductions and ways for us to be more efficient, mitigate our costs. But with all of that, we continue to be very optimistic about the business.

Okay, thank you.

James Bellessa, D.A. Davidson & Co.

Did you tell us what the utility's equity position is? I heard book value of about $1 billion. That is overall business. What is the equity in the utility?

A little over $900 million.

So that would be something like $16.50 a share or something like that, something in that magnitude?

You can do the calculation, yes.

$16.5, $17. So here we have a stock at or below that level of your overall book value and then your utility. Would you be issuing stock under your issuance plans at below book value?

Our intention, Jim, would be not to issue stock below our book value. So we will continue to watch market -- yes, currently we are just below that number, but our expectations would not be to issue stock below that level.

You indicated that you had this litigation at one of your subsidiaries. I would assume that that is not your utility or your Advantage IQ subsidiaries.

That would be correct.

Are there any subsidiaries that are large enough to have $1 million litigation? It sounds like -- what are the sizes of those subsidiaries that you have?

It is a legacy case left over from Avista Energy.

Okay. And then you indicated you had a lot of snow at the end of the year and first of January. It's melted, it sounds like, and perhaps does not allow good runoff in the first quarter and helps your first-quarter results?

You know, Jim, I think it was drier than normal in January, as you well know, and we did have some extra water running both in the Clark Fork and the Spokane River.

In your Washington decision that went into effect in January 1st of 2008, it was both electric and natural gas $33.5 million. Now you have had a whole year under those rates. Did you collect the $33.5 million, or was there something that helped you have more than that or less than that?

Jim, we don't track what the change, specific change in revenue is from a single rate adjustment. As you know, there are changes in revenues related to weather and other changes in revenue. Also, we have expense changes, too, so it's pretty difficult to track a single change in rates.

And your 10-K, when will that be filed?

(inaudible question - microphone inaccessible)

I'm sorry. I didn't hear that very clearly.

February 27.

Thank you very much.

Hasan Doza, Luminus Management.

Good morning, guys. A couple of quick questions. First on pension, can you refresh us as to what is the pension expense for '09, and whether or not it had any EPS impact?

The pension expense and we filed in our request for a rate case totaled $22.5 million, of which about two-thirds of that will be expense and one-third of that goes to capital in our labor loadings. That would be the anticipated amount that we would expect, and that is included in our expectations and our guidance.

Okay, and was there a cash contribution in '09 in your pension plan? And if there was, do you have the amount?

What we have said was the expected contribution -- we have not made the contribution yet in '09, but the expected contribution we expect to be approximately $48 million, and that compares to a $28 million contribution that we made in 2008. So it is an increase.

Okay, second question on Advantage IQ. You guys mentioned some of the store closings and bankruptcies in your client base. Can you give a qualitative idea as to what types of businesses are having those issues?

And secondly, when you kind of sign on new customers, given the general weakness are you being flexible in your terms when you sign up new customers right now versus, say, six or eight months ago?

Yes, first of all when we look at kind of signing on new customers, we are always working very closely with our clients about terms and pricing, etc. So we've always maintained that posture and continue to maintain that posture. As I said, we actually started out the year very strong, and so we are bullish about our business.

In terms of store closings and bankruptcies, maybe a couple of the most notable might be Circuit City, for instance, is going through a liquidation. We've got a pretty strong retail client base, 500 clients, 82 Fortune 500 clients. So you've got companies like a Circuit City, like a Linens 'n Things, for instance, where you do see liquidation and going out of business. So we are just trying to understand what those impacts might look like through '09 and into 2010, and prepare for it.

Thank you.

Chris Shelton, Millennium Partners.

Good morning, guys. Wanted to ask a couple of odds and ends. On the dribble program, I thought that you said you did 750,000 shares, I guess in fourth quarter. How much do you have left on that program to do?

It is a 2 million share program. We did 750,000, but that was in the third quarter of 2008.

Third quarter. And the 750 is all you've done?

Correct. So we have 1,250,000 shares remaining under that plan.

So you've got some room left on there, okay. And I guess the leftover amount, should we kind of expect you, assuming the markets are conducive to doing equity, assume you kind of keep using that program to access the equity markets for your '09 plan?

To the extent -- yes, again, there's a lot of factors that go into that. To the extent that the market comes back and we determine that that makes sense, yes, we would anticipate using that plan to meet our needs.

Okay, and as you said in the release, the other option is you can use short-term debt in the meantime.

Yes, we have plenty of liquidity to be able to meet our needs through 2009.

Okay, and then a quick follow-up on the pension. You said $48 million. Does that have to be done by a certain point in '09, or do you have some discretion on can you kind of do piecemeal?

By September 15 is when we have to make our contributions by if we want the tax deduction on it, so that is our expectation.

Okay, and finally I just wanted to ask one question on the Attorney General appeal. I guess how would the refund be determined if there were -- if they ruled that some should be refunded?

Chris, I'll let Kelly answer that. But again, I want to emphasize that we are confident in the process that was fully looked at. We had, as we've talked about, agreement from the staff, low-income advocates, and we are confident. However, if there is refunds, and I don't want you to solely focus on that, but if there were to be --.

Right, if the court were to rule in Public Counsel's favor, it would be remanded back to the Commission. The Commission would further consider the issues, and they would make a decision and that would be on a going-forward basis. But as Scott mentioned, we are pretty confident that the Commission made the right decision. They had a sound basis for their decisions.

Okay, so this case is in the courts, not in front of the Commission at this point?

That's correct.

Okay, so you are saying the court decision would be maybe midyear, and then post that it would be remanded back to the Commission if anything was to develop?

Yes, and our expectation is it would be at least midyear before we receive anything from the courts.

Okay. And have you reserved anything for that case yet, or it sounds like you are pretty confident around it?

We have not reserved anything.

Okay. Thanks a lot, guys. I appreciate it.

Patrick McGlinchey, Sidoti & Co.

Good morning, everybody. Just could you remind us on your -- the forest product and mining you were speaking of earlier, what portion of the business is that on the utility side?

I would -- it is not a portion. As you know, we have a very well-diversified economy here in the region. I would say 25 years ago, it would have been a much more devastating hit to our revenues. But today, I would say mining and forest products make up less than 10% of our industrial revenues, if that.

Okay, and then just industrial on a whole then as a portion of the business.

Less than 20.

Okay. And then just further with the economic conditions in the service areas, on the industrial side have you heard of anyone in the forest products or mining or any other industrial customers then that have planned to suspend their business for any period of time in the near future, or is there any risk of that in 2009?

Well, as you know with forest products, with the housing starts being what they are, yes, we've seen significant amount of our mills and our service territory have laid off most of their workers at this point in time. And while we do have some mining that has been affected, particularly a couple in our Northern Idaho area, we do still have very strong growth happening at the Lucky Friday Mine and some other mines.

So I think it really depends on the commodity that they are mining, and so we are seeing some weakness in some areas but continuing usage by others.

Okay, and then just quickly on the Advantage IQ side then, you sort of qualitatively spoke of the type of customers that you were seeing going through bankruptcy procedures and whatnot. But is there any quantitative numbers that you could give us, a percentage of the customer base that you've lost?

It is really early in the year, and we are trying to, Patrick, get a handle on as we watch kind of the retail industry, especially as we watch developments, we are trying to understand how that might impact our business.

The couple I cited were what we know about as we start out the year. I think what we will do is watch very closely through '09, continue to monitor events and work closely with our customers. So as we have indicated, we have maintained guidance at $0.12 to $0.14, and we are bullish and excited about the biz.

Okay, great. Thank you.

Patrick, by the way, our industrial revenues are 10.2% of our overall revenues.

All right, great. Thank you.

Paul Ridzon, KeyBanc.

What kind of initial capital outlay do you have at IQ project? Is that -- I wouldn't imagine it's a whole lot of equipment or anything, but is there any risk there?

No, there really isn't, Paul. It is minimal.

Okay, and just again at IQ, with 25% revenue growth we don't seem to be observing a whole lot of operating leverage. Can you kind of just drill down a little deeper as to really kind of some more detail about what is happening?

You know, we continue to drive efficiencies in our business and continue to manage costs very closely and very well. As we grow revenues, I think we've seen a lot of downward pressure on our business with the interest rate environment. Goodness sake, you had December 16, you had fed funds rates go to in effect zero. So I think that has put some downward pressure on the business, but in the face of that, our value proposition is strong. We've continued to grow the business, and continue to add clients and customers. So again, we are pleased with that.

Paul, this is Malyn. I can't help but jump in with one last answer here. I think what you are seeing really is the fact that the reduction in interest revenue, which really flows right down to the bottom line that is a very profitable piece of our business, that has dropped significantly. The profitability on the customers that we are signing as new customers continues at about the same rate that it has historically.

We are making good margins on those customers. It is competitive, but we are being pretty selective and I think doing a good job, Stu and his team, of selling profitable business. So that side continues to be strong. We just have seen a real reduction in margins as a result of the interest rate environment, and that is going to come back at some point.

It will, and as Malyn mentioned, we are real pleased that we've maintained really a 96% retention rate on our clients over the last several years, and so we are heads down. We are going to keep growing the business, adding clients, which will grow our daily balance. And then when and if the interest rate environment comes back in a couple of years, then we will be poised to move forward.

How much of the pressure is related to commodity prices coming off and, therefore, overnight balances being down?

Our daily balances are really up, because we are adding clients. So it is much more very specific interest rate pressure.

Okay, so falling gas prices aren't really hurting you that much?

No, our electricity expense is a much greater portion of our business.

Then just one last question on the appeal by OPC. If it were remanded back to the Commission, would any Commission action be prospective or could it be retroactive? I was a little unclear on that.

My understanding is that they could go back to, if the court were to remand it back, there could be some refund. But bear in mind that of the issues that were raised, the dollar amounts built-in rates on the issues that were raised are pretty small.

And OPC's proven to be pretty aggressive on tracing things that have been pretty fully vetted from what we've seen recently; would that be fair?

Again, this is in Washington, Paul, not Oregon.

He is referring to Office of Public Counsel.

Oh, Office of Public Counsel, I apologize.

If you look at the Commission's order, what you will see, I think, is the Commission was pretty thorough in reviewing all of these issues. As we've stated before, we think the Commission made the right decision based on solid evidence that they had in the records. So we are, as I said before, pretty confident that we are in good shape here.

Thank you very much, and Malyn, if we don't speak again, certainly enjoy your retirement.

Thank you, Paul. All the best to you, too.

Brian Russo, Ladenburg Thalmann.

Thank you for taking my follow-up. Just on IQ, can you give us kind of a sales mix breakdown of what is exposed to the interest rate and the carrying side of the business versus service revenues?

Well, really our entire business is exposed to the interest rate environment, because we process and pay bills on behalf of our clients. As we look at our business, we have a pretty significant retail base of customers. That is the base that we are watching most closely as we look at kind of organic growth, bankruptcies, closing stores, etc. But our entire base of business we basically pay the bills for.

Okay. Can you confirm that the following are customers of IQ; Starbucks, Movie Gallery, Pier 1 Imports, and Home Depot?

No, really our customers really ask us not to identify them publicly, and most of those, and so I'd just as soon not.

One last question on IQ. You had mentioned kind of a target of $100 million in revenue as kind of like the critical mass you may need to effectively monetize that business. I just want to know if that is still kind of the target.

And then number two, are there any other rollup opportunities out there with any other privately-held companies, kind of like your acquisition of Cadence earlier of last year?

We continue to -- good questions -- we continue to look at ways to potentially monetize our business, as we've said, over the next two to four years. That $100 million target is definitely still our target, and over the next couple of years we are going to continue to pursue that. That would give us the flexibility as the market turns around to take this business public if we decided to go that avenue.

And then secondly, we are always looking at opportunities to grow our business and always looking for ways to augment our services and provide more value to our customer. So we are going to continue to do that through '09.

Thank you very much.

Thank you, Brian.

James Bellessa, D.A. Davidson & Co.

Taxes, other than income taxes, went down about $2 million. Was there unusual about the year-ago's fourth quarter or unusual about the fourth quarter of '08?

We did some property tax true-ups in the fourth quarter, and we used a consultant, and they were able to help us lower our property taxes.

Will this change the pattern for the future, or is it just the fourth-quarter benefit?

We would anticipate that we would have stable -- we've got to a level where we expect that that will be stable going forward. We don't expect continued reductions as we go forward.

Thank you.

This concludes the question-and-answer portion of the call. I would now like to turn it over to Mr. Jason Lang for closing remarks.

I want to thank everyone 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. You may now disconnect, and have a wonderful day.