Avista Corp (AVA) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2010 Avista Corporation earnings conference call. My name is Keith, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jason Lang, Investor Relations Manager. Please proceed, sir.

Thanks, Keith. Good morning, everyone. Welcome to Avista's fourth-quarter and fiscal year 2010 earnings conference call. Our earnings were released pre-market this morning, and the release is available on our website at www.AvistaCorp.com.

Joining me this morning are Avista Corp. Chairman of the Board, President and CEO, Scott Morris; Senior Vice President and CFO, Mark Thies; Senior Vice President and the President of Avista Utilities, Dennis Vermillion; Vice President of Finance, Jason Thackston; Vice President State and Federal Regulation, Kelly Norwood; and the Vice President, Controller and Principal Accounting Officer, Christy Burmeister-Smith.

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, please refer to our Form 10-K for 2009, and Form 10-Q for the third quarter of 2010, which are available on our website. To begin this presentation, I would like to recap the financial results presented in today's press release. Our consolidated earnings were $1.65 per diluted share for 2010, compared to $1.58 for 2009. For the fourth quarter of 2010, our consolidated earnings were $0.45 per diluted share, compared to $0.40 per diluted share for the fourth quarter of 2009. Now, I will turn the discussion over to Scott Morris.

Thank you, Jason, and good morning, everyone.

We had a solid year in 2010. The modest growth in our consolidated earnings, as compared to 2009, was primarily due to an increase in earnings in Advantage IQ, and a decrease in the net loss from our other businesses. In our utility operations, we met our guidance through power supply costs that were below the amount included in base rates in Washington, and through the diligent management of our operating expenses. This mostly offset one of the warmest January to March periods on record in our service territory.

We continue to execute on a regulatory strategy to improve the recovery of utility operating costs and capital investments in retail rates. We filed general rate increase requests in each of our jurisdictions in 2010, and we reached settlements in each rate case. New electric and natural gas rates went into effect in Idaho on October 1, and in Washington in December 1. Earlier this month, we filed an all-party settlement in our Oregon general rate case. If approved by the Oregon Commission, the overall general rate increase would be 3.1%, with part of the increase effective March 15, and the remaining increase effective June 1. The settlement is designed to increase annual revenues by $3 million. We believe that all of the settlements provide a fair and reasonable outcome for customers and shareholders.

Economic growth in the region we serve has slowed dramatically in the last couple of years. However, we continue to have customer growth, although this growth is less than we had been experiencing in recent years prior to the economic downturn. Employment in most of our service areas appears to have turned the corner, and is once again growing after enduring big cutbacks in construction, forest products, mining and manufacturing. Non-farm employment grew slightly in 2010 in both Coeur d'Alene and Medford. It was flat in Spokane, with positive trends in the retail trade and health sectors, offset by weakness in state and local government jobs. The Spokane unemployment rate was 9.2% in December 2010; Coeur d'Alene was 11.3%; and in Medford, 11.5%, compared to the national average of 9.1%.

Although showing modest improvement during 2010, the housing markets in Coeur d'Alene and Medford have higher foreclosure rates than the national average; however, the housing market in Spokane has a foreclosure rate well below the national average. Slight load growth in our residential and commercial sectors is reflected in our 2011 guidance. To assist our customer in these very challenging economic times, we increased our donations by over $2 million, as compared to the prior year. We made donations to help local non-profit organizations assist their qualifying clients into the Avista Foundation to support future charitable donation opportunities. We remain committed to investing in our utility infrastructure with a focus on increasing capacity and maintaining or improving our reliability.

Utility CapEx was about $202 million for 2010. We expect CapEx to be about $250 million for 2011, and between $230 million and $240 million for each of 2012 and '13. The increase in capital expenditures from 2010 to 2011 is primarily due to upgrades at our hydroelectric generation plants, smart grid projects, and a slight increase in anticipated customer growth. We continue to be pleased with the results from Advantage IQ, a leading provider of strategic energy management solutions. In December 2010, Advantage IQ completed the acquisition of the Loyalton Group, a Minneapolis-based energy management firm known for its energy procurement and price-risk management services. And in January 2011, Advantage IQ completed the acquisition of Building Knowledge Networks, a Seattle-based real-time building energy management service provider.

The earnings contribution from Advantage IQ grew significantly in 2010, as compared to 2009. Advantage IQ is executing on a strategy to extend the business from a focus on expense management, to delivery of energy management services to both utility and commercial industrial marketplaces. The business continues to show long-term growth potential.

We're confirming our 2011 earnings guidance, which shows improvement over 2010 results, and Mark will talk more about this in a few minutes. And as a reflection of their confidence in our progress towards achieving our goals, on February 4, the Board of Directors raised the quarterly common stock dividend by 10%, to $0.275 per share. This was the ninth consecutive year the Board has raised our dividend.

Now, I'll turn the presentation over to Mark, and Mark will provide details on the performance of our businesses, liquidity, financing activities, and detailed earnings guidance.

Thank you, Scott, and good morning, everyone.

For 2010, our utility operations contributed $1.55 per diluted share compared to $1.58 in 2009. The decrease in our earnings contribution was primarily due to the dilution from the issuance of our common stock in 2010. Net income from our utility operations was consistent with the prior year. Our earnings were positively impacted by an increase in gross margin, primarily due to general rate increases, and power supply costs that were below the amount included in base retail rates in Washington. This amount was partially offset by lower retail loads, primarily caused by warmer weather during the heating season, which Scott previously mentioned. The increase in gross margin was offset by an increase in interest expense, other operating expenses, and depreciation and amortization.

For the fourth quarter, Avista Utilities contributed $0.45 per diluted share, compared to $0.43 per diluted share for the fourth quarter of last year. The increase in our quarterly utility earnings was primarily due to an increase in gross margin, partially offset by an increase in operating expenses, depreciation and amortization, and taxes other than income taxes. The gross margin increase was primarily due to the rate increases in Idaho and Washington.

In the Washington rate case settlement, the parties agreed that deferred net costs associated with the Lancaster plant will be limited to $6.8 million for 2010, and there would not be any deferrals under the Energy Recovery Mechanism for 2010. We received all of the benefit from the amount of power supply costs being below the level in retail rates, and the effects of the settlement for the Lancaster plant deferrals, and the Energy Recovery Mechanism were slightly positive to 2010 earnings. As Scott mentioned, Advantage IQ's net income attributable to Avista for 2010 increased significantly as compared to last year, with earnings of $0.13 per diluted share, compared to $0.09 per diluted share in 2009.

Revenues for the year increased 32%, to a total of $102 million in 2010. The increase in revenues is primarily due to the third-quarter acquisition of Ecos in 2009, as well as moderate organic growth in expense management and energy management services. Advantage IQ's earnings potential continues to be moderated by the low short-term interest rate environment that we're experiencing. We had a $0.03 per share net loss from our other businesses in the fourth quarter and for the full year of 2010. This was primarily due to a $2.2 million impairment of our investment in a fuel cell company. At the end of 2010, we had a combined $268 million of available liquidity under our $395 million committed lines of credit.

Last Friday, we entered into new four-year committed line of credit, in a total amount of $400 million that replaced those facilities that were expiring in April. The new credit facility reinforces the financial health of the Company, and the strong relationship we have with our banking partners. In December 2010, we elected to terminate our $50 million accounts receivable facility financing, prior to its termination scheduled in March 2011, based on our forecasted liquidity needs. We do not borrow any funds under this facility in 2010. Also in December 2010, we completed several new financings. We issued $87 million of First Mortgage bonds, at very favorable interest rates, and used the proceeds to redeem $75 million of higher-cost First Mortgage bonds, scheduled to mature in 2013.

And we also issued $50 million of 1.68% First Mortgage bonds due in 2013, and used the net proceeds to repay a portion of our borrowings under our credit facility. We are planning, subject to market conditions, to cause the redemption of $83.7 million of dilution control bonds, and refunding them with new bonds in 2011. In 2010, we issued $46 million of common stock; $43 million of that coming from our Sales Agency Agreement. We expect in 2011, to issue up to $25 million of common stock, to maintain our capital structure at an appropriate level. We have 1 million shares currently available to be issued under the Sales Agency Agreement.

We are confirming, as Scott mentioned, our 2011 consolidated earnings guidance to be in the range of $1.60 to $1.80 per diluted share. We expect Avista Utilities to contribute in the range of $1.47 to $1.62 per diluted share for 2011. We expect our 2011 utility earnings be positively impacted by a return to normal weather conditions, and the effects of general rate increases. We expect our 2011 earnings growth be limited by several factors, including slow load growth, due to the economic conditions, continued lag in the recovery of our operating expenses and capital investments, and increased O&M costs, including scheduled general major maintenance at one of our plants, pension, increase pension, and medical costs.

Our range for Avista Utilities encompasses an expected variability in power supply costs, and the application of the ERM to that power supply cost variability. The midpoint of our utility guidance and our corporate guidance does not include any benefit or expense under the ERM. However, we are currently expecting a benefit under the ERM in 2011 within the 90% customer and 10% company sharing band. It is important to note that the forecast of our position in the ERM can vary significantly, due to a variety of factors, including the level of hydroelectric generation and retail loads, as well as changes in purchased power and natural gas fuel prices.

Our outlook for Avista Utilities assumes, among other variables, normal precipitation, normal temperatures, and normal hydroelectric generation. We expect Advantage IQ to contribute in the range of $0.13 to $0.16 per diluted share for 2011, and our other businesses to be between a breakeven and a contribution of $0.02 per diluted share.

Now, I'll turn the call back over to Jason.

Thanks, Mark. We'd now like to open this call up for questions.

(Operator Instructions)

Your first question is from the line of Paul Ridzon with KeyBanc. Please proceed.

Good morning, guys.

Hello Paul.

The Oregon settlement, you said, is designed to deliver $3 million annually. What would the impact be in '11 or was that the '11 impact? It is a partial year, so I'm just trying to get a handle on that.

This is Kelly. You'll have $2 million that goes in March 15 and another $1 million going in, in June, plus, there's a one-time deferred tax reversal of $900,000. And so, it's going to be in the neighborhood of $2.5 million.

Thank you. And is Lancaster behind us now or can any of these things roll into '11?

No, Lancaster is now behind us and in base rates.

Great. And, any estimate of how much of a weather hurt you absorbed in '10?

No, we didn't. We just said it was one warmest and driest periods in the first quarter, and we didn't come out with an actual number. It did impact us negatively. One thing, too, we landed at $1.65, Paul, for the year, and there were a few other things in there included, but if you look at the utility earnings, we had about $0.08 in total relative to the ERM. So, that helped us come back from the poorer weather. Just to give you a gauge of some level of the impact.

So, those two are probably comparable?

I'm just saying, that'll just give you a gauge as to where we are. There are a few other things in there, Paul, to hit the number. We also had a negative on other, so, in the fourth quarter, that $0.03 related to an impairment, and we did have increased donations in the utility, as Scott mentioned, of $2 million, to help out during this tough economy.

Right. How is the early lead on hydro conditions?

Yes, this is Dennis. Currently, the Northwest River Forecast Center has the runoff projected on our cabinet projects -- or our Hartford Project, at 108% of normal, and on the Spokane River, at 101% of normal.

And then lastly, how should we think about the potential impacts of EPA regulations, and what's your view of which end of the spectrum EPA leans toward? Do you think they'll be more lenient and flexible, or do you think they're going to come down pretty hard?

Well, Paul, I think the nice thing for us at Avista is that the EPA regulations really won't have a material impact on our operations. As you know, we only have 15% ownership in Colstrip. We've done a significant amount of work already on Colstrip with our clean energy, our hydro and our natural gas profile of our generation facilities, while we take a look at that impact on coal for the rest of utility industry. For us, we really don't see, we've already done the work on mercury; we have already done a significant amount of work on NOx-SOx and other pollutants, so we feel we're in really good shape.

Okay. Thank you very much.

Thank you, Paul.

Your next question is from the line Brian Russo with Ladenburg Thalmann. Please proceed.

Good morning, guys.

Morning, Brian.

Could you elaborate on the regulatory lag that you expect in 2011, and what type of earned ROEs get you to your midpoint? I think in the past, you guys have lagged about 150 basis points off of your allowed ROEs, due to the historical test year and so forth. It just seems that, I would imagine that the weak load forecast that you're expecting in '11 might fall short of what is embedded in rates currently.

Well, I think, to me there are two questions in there Brian, so I'll address them as two. From the perspective of our lag, we do expect to continue to experience lag that we have historically experienced, and what we have said historically I think remains true, which is, there is a component of lag that is just non-recoverable costs, and that is approximately 70 to 90 basis points from a range of an ROE impact. And then, there is the lag on timing from a capital perspective, as well as increasing O&M costs, which we are still experiencing, and that is in the range of 60 to 80 basis points. We expect to continue to experience that level lag in 2011, and we'll continue to look at our recovery of those costs, and try to match the recovery of our increasing costs in our retail rates with filing of cases.

With respect to the load, we do expect to continue to have an increased load. It is just a slightly increasing load. It's not significantly increasing, but we do expect to increase from 0.7% to 1% in our load, so that is -- so I don't think we'll have a drag from that perspective, relative, because we are a historical test year in our rates, so that increased load will continue to be there.

Are there any initiatives that you guys are undertaking, or anything at the legislature that could help close that ROE gap, other than just filing annual rate cases?

Brian, this is Kelly. There are a number of things that we've done in this last case to try to reduce the lag on capital and O&M especially. Martin gave you the range on the O&M and capital, and I think we're moving toward the low-end of that range. Just as a couple of examples in this last case, in the settlement agreement, they gave us the future labor adjustment that they didn't give us the year before. They gave us half of our [IS IT] increased cost, which they didn't give us before. They gave us a working capital adjustment this round, which they didn't give us in the prior case. So, we made some pretty good progress in Washington in improving cost recovery. I think the big difference in this year versus the prior year is the slower load growth, which is making a bigger difference.

Okay, and just hydro conditions in the first quarter of '11. It seemed like you had some warmer wet weather, I guess, in late January, which created quite a bit of unusual runoff, I would guess, early on in the hydro season. Did you guys benefit from that at all? In terms of your ERM or power costs?

All of the improved hydro does run through the ERM, and we do have our expectations -- we continue to expect to be in the 9010, but yes, we saw -- we did see some additional water coming through to-date, and that has helped our hydro generation, but we also saw, as there was water throughout the region, some of the prices come off pretty hard too. So, the impacts of that, while positive, I don't think will be material, and especially since we are where we are with respect to our expectations in the ERM, I don't think it will materially impact us based on what we've seen today.

Okay, so just when we look at the ERM for the full year, will the seasonality of that ERM in 2011 be comparable with the seasonality of the ERM in 2010, meaning the benefit in the ERM will likely come in the fourth quarter?

Well, there are a number of things, and the seasonality of that can be challenging because we reset our rates every year with our rate cases, and as Kelly mentioned -- or Scott mentioned, that we did just get new rates in Washington in December, so that has reset. And that impacts us largely due to -- primarily early in the year in hydro conditions through the first six months, and then the last six months are more natural gas prices. So, what we have seen in the past has been consistently low natural gas prices, and declining natural gas prices, so that has caused us in the fourth quarter -- or the third and fourth quarters, to increase that benefit under the ERM.

This year as -- and we have a long way to go, Brian, it's just February, right? And we're calling the hydro year already; that's too early to tell. There are a lot of things that can happen, but where we see it today, as Dennis mentioned, the hydro looks pretty good. So that, and as we've talked about earlier, we have seen some early melt in January and February, so we would expect that to have some positive impact in the first quarter, but it's too early to call that.We've got to get through the first quarter, but indications would be, that would be better.

Understood. And then, just switching gears a little bit on Advantage IQ. It looks like you guys are continuing to pursue a roll-up strategy of diversifying your service and your services and revenue stream, albeit very small-type acquisitions, but you are now above that $100 million in sales, Mark, and I just wondering if you could comment on, which I think is a summer of 2011 strategic review or valuation analysis of that segment?

Well, let me just say this about Advantage IQ. We're really excited about where the business is going and our strategic vision for Advantage to continue to execute around making Advantage go from an expense management company, which it traditionally has been, to an energy management company. The acquisitions we've been making have supported that strategy with Loyalton, with Ecos the year before, and now with the Building Knowledge Networks Company that we just acquired, that we can now start doing real-time building management. It is all part of a strategy that we can diversify, and continue to sell a variety of products and services to our commercial and industrial customers as well as our utility customers. So, we see lots of continued opportunity and growth in this business. It's a business that, as you know, with the increase of demand around energy efficiency and energy management in the utility space, as well as a lot of focus on that in the commercial industrial space, and with the relationships and information that we have, we really see this business as an opportunity to continue to grow. So, we'll continue look at the market. We are doing, I think, some very smart tuck-in acquisitions. The acquisitions have been accretive, and we'll continue to look for opportunities, both accretive and strategic, to really be able to advance our overall strategy to make us the leader in energy management in this space, and we really think we can do that.

With respect to, Brian, your comment on the strategic re view in July, I think what your were for into there is our minority shareholders have the first of their two put options available to them in July. We continue to analyze that. That is puttable to Advantage IQ and, we continue to monitor that and have had conversations with that minority shareholder. So, we don't believe that will have a negative impact on the Company or its ability to meet its opportunities going forward.

Okay. Just one quick follow-up on, the favorable hydro conditions that you saw in late January. I would imagine that the warm weather that created incremental runoff also probably hurt you on the sales side, right?

Our weather, when you looked at it, was, it was just slightly, it was much more normal, and again, it is still early. We cannot really comment on the impact to the load. But it was not, it was a much more normal period. We did have some periods of cold and we had some periods of warm weather that did provide that melt.So, I don't think it was, last year at this time, it was very much a mild and dry period. We are much more near normal, maybe slightly below. It is very close to normal.

Okay, great. Thanks a lot.

Thank you.

Your next question comes from the line of Jennifer Sireklove with McAdams Wright Ragen. Please proceed.

Good morning.

Hello. Jennifer. Good morning.

Can you just remind me how sales of fuel contribute to the utility margin or if they do?

How sales of fuel contribute -- what happens is, we can fuel up our plants as we are prepared for load and if that load doesn't come to pass or, we have opportunities in the market to purchase that power at a more economic basis, we will then, we'll do that, and then we will sell the fuel out into the market. That all runs through our Energy Recovery Mechanism and power supply costs.

Okay. It just seems like a much higher figure than we have seen before in the combined wholesale and retail deliveries is very strong. So I'm just, maybe, hydro is quite strong, but is anything else going on that drove such a large number this year?

This is Dennis. We did see, obviously, much lower loads, which freed up a lot of capacity, if you will, in our pipeline infrastructure. More sales, more optimization around those assets but then we also an addition of Lancaster to our portfolio, which is a pretty large generating facility and that gave us opportunity to optimize around those assets as well.

Okay. Great. Going forward, you wouldn't necessarily see a continuation, a new trend there, what we saw this year?

We are always trying to optimize our assets, so depending on what happens in the market going forward, if we can, if we can purchase it cheaper and we have those plants fueled, we will do that. It is economic then we could have some additional sales of fuel. If not, and we fueled our plants, we will continue to run them and you won't see that.So it's not necessarily something that would not be a trend. It is our ability to optimize, as Dennis said, optimize our assets, reacting to what the market does. So, if the market says we should purchase in the market and sell our fuel, we will do that. If it doesn't, then we will burn it in our plants and serve that electricity or sell that electricity.

Yes certainly.And the addition of Lancaster is a good point. I have been overlooking that. So on the wholesale side, we haven't seen dollar volume levels like that for quite a while. But that was also perhaps due to the addition of Lancaster? I'm just curious, also about the dynamics you might seeing in the wholesale market in terms of demand and pricing.

Well, a number things that have been impacted the wholesale market in the first quarter was the stronger hydro. Throughout, it is not just our system. Throughout the west or the Northwest. There has been some earlier run off, so we did see, as I mentioned earlier, some pretty low incremental power prices in the market. You could purchase that and then sell off your gas.

Also, just the natural gas prices themselves, the shale gas, that is coming into the market has put downward pressure on gas prices. So the trend, over the last few years along with the economy, has been down wholesale prices.

Right. I just want to make sure when you say slower load growth, that the 0.7% to 1%? That is the slower growth?

Yes.

To normalize, what sort of range is your idea of normal?

It just depends. In the past years, when the economy was really going, the growth was probably over 2%. In a normal, and I can't even say a normal year, other historical growths have maybe been in the 1.5% to 2% range.

If you look at some of our past IRPs, our load growth was around 2%, roughly in those IRPs.

Okay, great. Thank you.

(Operator Instructions).And next question comes from James Bellessa with DA Davidson & Co. These proceed.

Good morning Jim .

Hello Jim.

Several of my questions have been answered, but here is one. The impairment that you took in the most recent quarter. On a fuel-cell company investment. That must go back at least 10 or 15 years. Why have you still held onto that investment and finally recognized that it was impaired?

Jim, as you know, when we had Avista Labs, which is now called ReliOn, we got out of that business in 2004. However, part of the transaction of selling the business, we have maintained about a 7% ownership in that business. And have continued along that line. That was part of the deal, when we sold the business, that we maintained a very small ownership in it. That was part of the structure of the deal, so that's where we have been. We have been actively engaged in the business as far as from a very minor part of it, being a 7% owner. So, we continue to have that investment and look to exit that as soon as ReliOn can have a monetization event.

We just had just under $5 million in our basis prior to our impairment, and we took a $2.2 million impairment.

And was told you, or what indicated to you that there was an impairment? What was happening at ReliOn?

As we look at the results of that, their results have lagged. They did see increasing revenues. A lot of it to do some federal stimulus products but the revenues were short of their forecast and their estimates of what they can do on the future as well as market values of the types of companies in that space, in the clean tech space, and discussions with management of the Company, led us to do a calculation, cause a trigger to calculation to evaluate that asset, and we did determine that we needed to take that $2.2 million charge. So it was just under $5 million, so 45% roughly of our investment.

And then a housekeeping item. Last year's fourth quarter you reported $403 million of operating revenues by segment, and all of the utility different contributions, the number was the same on the back page of your press release. But this year, you reported $374 million in the fourth quarter, but the total is $70 million higher on the back page. What explains the difference between your various categories our revenues and what you actually reported?

Jim, this is Christy. It relates to intercompany transactions. We had significantly more intercompany transactions this year than we did last year. We also missed a few of them in earlier quarters, so we adjusted in the fourth quarter . No impact of the gross margin level and there is a table that reconciled within the 10-K that we will file on the

What is the magnitude of the intersegment elimination or adjustments line item?

$65 million.

In the most recent quarter?

Correct.

$65 million?

Correct.

Thank you very much.

Thanks, Jim.

Your next question is from the line of Eric McCarthy with Praesidis Asset Management.Please proceed.

Good morning.

Good morning Eric.

I apologize if the question has already been asked, but I was hoping you could elaborate a little on what was behind the increase in capital expenditures for 2011, and then also, if, any expenditures that are being made are going to be eligible for bonus depreciation with reduced rate base anyway.

Well, on the capital expenditures, the difference, we tried to highlight certain of those going from $202 million to the $250 million level. We do have some additional upgrades on our hydro plants. We are always doing these things. This is just additional capital to go in for our hydro plants. The smart grid investments, previously we had not talked about the smart grid as part of our overall capital. We did begin to spend money in 2010 and we expect to spend approximately $20 million in 2011 with respect to our two smart grid projects in both Spokane and in Pullman, Washington.

Then the third, we do expect, we had a very slight customer growth. We do expect a little bit more in customer growth. That really depends on what we see. That capital is more variable. If we get the customer growth, we have to spend it. We do forecast that additional customer growth. That's really the difference between the two years. But we continue to expect, this, our capital projects really are just designed to have a safe, reliable energy system on both electric and natural gas. So it's transmission, distribution, assets to continue to upgrade our system. I don't know, Dennis?

Eric, I would just remind you that we did get two smart grid grants from the stimulus package. So it is our contribution, which is approximately half of the cost of the smart grid projects is ours and the other half is from the stimulus program.

Okay. So part of the $250 million that is being spent then comes from the stimulus grants and won't be eligible for rate base?

No, the $250 million is our portion of the stimulus grants. But we are not counting as a part we are getting from the federal government.

And then on the bonus depreciation question. Anything on the capital budget that won't be reflected in rate base for future rate-making?

As we do capital investment, to the extent that bonus depreciation is available for us, it will be reflected through deferred taxes, as a rate base reduction. And, to the extent we are spending dollars on the stimulus projects, the dollars we spend will go into rate base, but obviously the money we get from DOE will not.

Okay. And then, looking forward into the future. Is $200 million a good run rate to assume for future capital spending?

Well, what I would just say Eric, as we continue evaluate our opportunities, to meet our renewable portfolio standard in Washington, by 2016, we will need to think about future investments in renewable resources by that date. So, if we do choose to build it ourselves, that number would increase to me the demand, if we won another round, it might not, but I think you could probably assume an increase in capital expenditures going forward as we get closer to 14.20, 15.20, 16 range.

Okay.

We actually believe in 2012 or 2013, between $230 million and $240 million are expected run rate in those years, absent, not including what Scott mentioned on the potential for additional wind expenditures.

Okay. Good stuff. Thank you, guys.

Thank you.

There are no other questions at this time. So I would like to turn it back over to Mr. Jason Lang.

I want to thank you all for joining us today. We certainly appreciate your interest in our Company. Have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for participating with us today. You may now disconnect. Everyone have a great day.