Idacorp Inc (IDA) 2002 Q2 法說會逐字稿

Welcome everyone to the IDACORP Incorporated Second Quarter 2002 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks, I would like to turn the call over to the Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead sir.

Thank you for the introduction and good afternoon. Here with me this afternoon are IDACORP President and Chief Executive Officer, Jan Packwood; President of IDACORP Energy, Rich Riazzi; President and Chief Operating Officer of Idaho Power, LaMont Keen; IDACORP Vice President, Chief Financial Officer and Treasurer, Darrel Anderson; and other officers who'll be available for Q&A. In a moment, I'll turn this presentation over to Jan Packwood to recap IDACORP's strategic highlights for the quarter. Rich will then discuss IDACORP Energy, LaMont will follow with the review of Idaho Power, and finally, Darrel will discuss our financing activities and earnings guidance. During Q&A, I would ask that you please identify yourself first before submitting your question and limit yourself to one or two questions so that everyone has an opportunity to participate. We're webcasting this conference call live. A complete replay will also be available at the end of today on our company's website for a period of 15 days at www.idacorpinc.com. The presentation you will hear during this conference call may also contain forward-looking statements and it is important to know that the corporation's future results could differ materially from those discussed. A full discussion of the factors that could cause future results to differ materially can be found in our filings with the Securities and Exchange Commission. Also the information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor Statement as of the date of this call and may continue to be used while this call remains in the active portion of the company's website. And with that said, I would now like to turn the presentation over to Mr. Jan Packwood.

Thanks Larry. Good afternoon everyone. Early -- earlier today, we reported second quarter earnings of 8 cents per share, an 88 cent per share decline from last year's second quarter. Year-to-date earnings per share were 74 cents, likewise much lower than last year's comparable results of $1.89 per share. Net income for the quarter was 3 million, 33 million less from the second quarter of '01, and year-to- date net income was 28 million compared to 71 million from the first six months last year. This has been a challenging quarter for IDACORP, but we're consciously optimistic about the progress we're making. Among the most significant events in May the Idaho Public Utilities Commission rendered a favorable decision on Idaho Power's PCA request allowing the utility to collect 244.5 million in excess power supply costs in a one-year period. In June, as we previously announced, we made the difficult decision to wind down wholesale electricity marketing with IDACORP Energy, and earlier this month, we concluded that the rapidly constricting capital markets made it prudent that we evaluate the feasibility of the Garnet Power Product -- Project as currently proposed. Our executive team will cover the specifics of area of interest as Larry indicated, Rich talking about IDACORP Energy, LaMont about Idaho Power and Darrel will finally summarize the financial perspective and give you some earnings guidance along with the status of our expected financing plan. But before we get to those specifics, I'm going to spend a little time talking about our most immediate challenges. For the past five years, our goal has been to grow earnings of 8 to 10 percent per year with up to 40 percent of that growth coming from nonregulated businesses. Based on current market conditions and our decision to writing down power marketing, we are reevaluating those targets and needless to say, they're going to be reduced from current levels. In the near term, our focus is on restoring Idaho Power Company to full financial health and the orderly flattening of IDACORP Energy's electricity book.

: We are also undergoing a detailed review of each of our businesses in light of the changing economic conditions and sure enough we're maximizing earnings and minimizing cash flow drains. We are continuing to reduce our risk profile as we assess the best opportunities to strengthen our balance sheet. Darrel will provide some more specifics on that later. Longer term, we're investigating non-regulated natural gas assets as a source of additional growth and Rich will discuss that in a little bit when we get to his presentation. And with that, I'll now let Rich talk about IDACORP Energy's progress and outlook.

Thank you, Jan. As Jan mentioned, IDACORP Energy announced June 21st that its taking steps to wind down its electricity marketing activities. On August 1st, Idaho Power will reintegrate buying and selling capabilities within the utility. So IDACORP Energy will no longer act as Idaho Power's agent for wholesale transactions. We are in the process of flattening out our book of business to reduce overall exposure to market and credit risk as we continue to service existing contractual commitments. This wind-down process should be essentially completed in the next 18 to 24 months. As a result, we have given layoff notices to approximately 50 employees. Our remaining employees are needed to help along that wind down of the power marketing activities, serve existing customers, and to focus on the natural gas side of our business. The infrastructure we have built at IDACORP Energy continues to be a valuable asset to IDACORP. In today's tumultuous environment, IDACORP Energy has consistently managed the risks associated with power and natural gas trading and marketing in a prudent fashion. Our disciplined approach to risk management led us to the decision to wind down the power side of our business. The strength of our risk management infrastructure remains intact, however, and we're confident we can continue to grow the natural gas side of our business. We plan to accomplish this growth by looking for opportunities to create a natural gas midstream asset platform from which we can create value. In the current environment, many companies are announcing plans to divest natural gas assets. We are evaluating these assets for a potential fit with our business structure and our financial parameters. Our second quarter results include an EPS loss of 32 cents per share compared to 83 cent per share gain in the second quarter of 2001. Gross revenue including intrasegment revenues for the quarter were 415 million compared to 1.4 billion second quarter of last year. Operating income was a negative 20.3 million compared to a positive 51.3 million for the same quarter last year. These results include a one-time restructuring cost of approximately $1 million related to the wind down of our power marketing business. Included in the operating income for the second quarter, were realized gains of 21.7 million and unrealized losses of 36.5 million.

: The unrealized loss was driven primarily by positioning [indiscernible] in the second quarter that were unrealized as of the end of the first quarter. Additional unrealized losses was attributable to a reduction in the value evaluation of certain forward positions due to the continued deterioration of credit quality in the industry. On a cumulative basis, we expect about 27 percent of the unrealized power positions as of June 30th 2002 to be realized by the end of this year, 54 percent by 2003 and 68 percent by 2004. I'll now turn the presentation over to LaMont Keen.

Thank you, Rich. And as you all know from our press release this morning, Idaho Power reported much improved financial results in the second quarter versus last year. EPS was up from 16 cents to 33 cents per share. The increase is primarily attributable to much lower wholesale energy purchase prices this year. Year-to-date, the earnings per share of Idaho Power Company are 91 cents per share, well above the results for the first six months of 2001 of 53 cents per share. Beginning with system operations, we are purchasing nearly as much energy this year but at much lower prices. This year our average purchase price through June has been approximately $28 per megawatt hour versus $178 per megawatt hour last year. This has dramatically reduced our power supply costs and taken pressure off of our PCA mechanism. General business revenues were up nearly 32 million for the quarter and 84 million for the first six months. This primarily results from the PCA increases being in effect all of the time this year versus only part of the period last year and the impact on irrigation revenues of last year's Irrigation Load Reduction Program. Off-system sales revenues fell, however, by 48 million for the second quarter and 83 million for the first six months as a result of the lower wholesale prices that I discussed earlier. Moving on to weather factors on our system, we have not had a normal month of precipitation this year, and the second quarter was more than 40 percent lower than last year. For the year-to-date, precipitation is down more than 25 percent compared with last year's first six months and more than 50 percent below normal.

: Temperatures in Southern Idaho soared in late June and well into July. This drove our air-conditioning or cooling loads and our irrigation loads to record highs, and on July 12th, Idaho Power set a new system peak record at 2,963 megawatts. Fortunately, as I mentioned earlier, we have been able to purchase off-system power from the region at reasonable prices to supplement our own resources that have been diminished by the drought conditions. I'd now like to move on to a regulatory update in several components to that. I'll begin with lost revenues. The Idaho Public Utilities Commission is considering our appeal of the lost revenues portion of the 2001 Irrigation Load Reduction Program that the commission denied on April 18th of this year. We should have a final order from them by the end of the month. If we are unsuccessful in our efforts to get them to reverse the earlier decision, we will write off that amount. The estimated amount is $12 million. Moving on to the Garnet Energy Facility; on July 22nd, Idaho Power filed a motion for continuance asking the Idaho Commission to vacate a scheduled hearing because Garnet Energy, a subsidiary of Ida-West Energy who is a subsidiary of IDACORP, as you know, had advised Idaho Power that there was a substantial likelihood that Garnet would be unable to obtain the financing at acceptable terms necessary to construct the planned 273 megawatt generating facility. The subject of the hearing, where we made the motion, was to be the Idaho -- was to review the purchase agreement between Idaho Power Company and Garnet. On the 24th, two days later, following oral argument, the commission decided to close the docket in which Idaho Power's application was being processed.

The commission emphasized that its decision to close the Docket should not be interpreted as indicating how it would rule on the merits of the power purchase agreement if the case were reopened in the future. Idaho Power is to file a report with the commission within 90 days regarding whether the Garnet project can be financed. If Idaho Power concludes that the project cannot be financed with acceptable terms, then it must file a report to the commission on our plans to replace the energy in capacity, which was to be supplied by Garnet. And on a related matter, [that's] our integrated resource plan Idaho filed -- Idaho Power filed it's -- biannual -- excuse me -- integrated resource plan, which is a 10-year look forward at our loads and resources with the Idaho commission in late June after a fairly lengthy public process. The plan assumed the availability of the Garnet plant in June 2005. The company is reviewing its power supply options in light of the developments with regard to the Garnet facility and will file a report ordered by the commission in the Garnet proceeding with the IPUC in October. Moving on to the re-licensing arena, the company made its final FERC license application for the Malad projects this month and expects to have the draft of the Hells Canyon complex FERC license application available in September this year. My final point under this section and in my presentation deals with PCA costs, and we've been giving you updates on the deferred balance of those costs, and I would like to do that again. As of June 30th, Idaho Power had $226 million of deferred PCA costs and the major components of that are as follows: By far the largest piece $188 million stems from this most recent PCA increase on May 16th and it is simply the amount of that increase that we have yet to collect.

The next largest piece is $15 million, which is our deferred excess power cost in Oregon that we will collect over a number of years. There are two components of $12 million each; one of those is the last revenue component which I discussed earlier, and another one is -- relates to our irrigation and industrial customers, this is also 12 million. The Idaho commission, in granting the increase on May 16th, elected not to put through a rate increase to those two classes of customers, but to defer the amount that would have been collected through a rate increase into the next PCA year. So it will be collected in the 2003-2004 time frame. And the balance in the account is about $5 million, the largest piece of that would be some cost related to the [staff's] voluntary load reduction program that also fell into the 2002-2003 PCA year and will be collected beginning May 16th of next year. So that makes up the components of the PCA account. As you can see, most of that is either in the process of being collected or already approved charges. And that concludes my prepared remarks of this afternoon, and I'll now turn it over to Darrel Anderson to address our financing activities and earnings guidance.

Thanks LaMont. Before I get to the financing discussion, I'd like to expand a little bit on our discussion in the earnings release related to company's income tax provision. Based on our revised earnings guidance that we provided in June and considering the current level of existing tax credit, we are anticipating a tax provision of zero for the year. In accordance with general accepted accounting principles, we are required to report a tax provision on an interim basis that reflects what we believe the annual effective rate will be. In the second quarter, we have adjusted our tax provision to reflect the appropriate tax rate for the first six months of the year. Now, let me go back and talk little bit about some of the financing related activities. As Jan mentioned earlier, we are committed to maintaining a strong balance sheet and maximizing our cash flow. For the six months -- for the first six months of this year, cash flow from operations increased by over $130 million over 2001 level. The increase is driven principally by improved cash flow from Idaho Power's PCA rate increase previously discussed by LaMont. For the balance of the year, IDACORP is focused on minimizing non-essential capital expenditures and operating expenses at all of our business units. We have targeted a reduction in the IDACORP capital spending program of between 10 to 20 percent from our overall $200 million capital budget. Emphasis will be in the areas of non-essential expenditures that will not negatively impact reliability of our system or our customers. Short-term borrowing increased $47 million from the beginning of the year. Included in the increase is the yearly redemption of $50 million of Idaho Power Company; 8.75 percent gross mortgage bond that we financed with short-term debt. On June 25th of this year, Idaho Power Company notified holders that the $50 million of auctionary preferred stock, that it would redeem those securities effective on August 15th.

We currently anticipate funding this redemption with short-term debt. At June 30th, IDACORP has $320 million remaining on its $490 million credit facility, and Idaho Power Company had $60 million remaining on its $200 million credit facility. In past calls, we have discussed plans to issue equity or Equity Linked Securities. We are currently reviewing our options in light of the decision to wind down the wholesale power marketing function and a reassessment of capital needs at all of our businesses. We are reviewing options to balance the company's capital structure while minimizing the need for new equity in the current environment. As we complete our analysis, we will review the plan with rating agencies, which will assist in the determination of the right mix of securities. As we set the course of our investment in all of our businesses, maintaining the proper capital structural will be critical for the long-term success of our business. To the degree that an investment opportunity presents itself, we will consider the appropriate financing strategy in light of our capital structure goal that could include equity or equity-like securities. Moving on to earnings guidance, in our press release, we affirmed our June 4th earnings guidance for 2002 in the range of between $1.35 and $1.70 per share. This forecast assumes [water] conditions previously discussed by LaMont and lowered earnings contributions from IDACORP Energy. We currently estimate that Idaho Power will contribute between $1.70 and $1.90 per share. We anticipate IDACORP Energy will be in the range of a loss of 10 cents to a loss of 35 cents. These estimates include the flow through tax benefits related to changes and how we account for indirect overhead expenses, and how we treat those for tax purposes. This benefit, which we estimate to be between 30 and 35 cents, is expected to be recorded in the third quarter of 2002; that's a change from our prior call where we indicated that maybe included in the fourth quarter.

We estimate that IDACORP will earn, for the third quarter, a range of between 50 and 60 cents per share that includes the adjustment I just referred to, and between 20 to 30 cents for the fourth quarter of 2002. There are a number of factors that can impact our guidance that we have previously noted. One specific factor that is excluded from the above estimates is the effect of any potential write-offs related to the irrigation loss revenue issue of approximately $12 million that was previously noted by LaMont. With the wind down of our power marketing effort, 2003 earnings guidance will be heavily dependent on the results of the regulated business, Idaho Power Company. Because of the impact of weather and regulatory considerations on this business, we are not in a position to provide meaningful 2003 guidance at this time. With that, we'd like to turn it over now for -- to respond to your questions.

And thank you. Today's question and answer session will be conducted electronically. If you'd like to ask a question, you may signal us by pressing the "*" key followed by the digit "1" on your touchtone telephone. Again, to ask a question, it's "*" "1" on your touchtone telephone. Now, we'll pause just a moment to assemble our question roster. We'll take our first question from Rick [Sheldon] with Zimmer Lucas. Please go ahead.

Hi. How are you guys doing?

Good, how are you doing?

I just had a question on the utility; I missed what you had said. What was your annualized guidance for what the 2002 would be at Idaho Power?

This is Mr. Darrel. We are anticipating that the earnings contribution from Idaho Power will be between the range of $1.70 and $1.90.

And that's for 2002?

That's for 2002.

Okay. And if given that hydro conditions are, you know, persisting this year as they were somewhat like last year without the spike in energy prices, should we look at '03 if hydro conditions remain something -- somewhat similar that we would have earnings of $1.70 to $1.90 at the utility again. I mean is that how you look at it?

Well, I think first of all, you need to realize that the tax change that we referred to, the 30 to 35 cents, is included in the $1.70 and $1.90 first of all. So you need to recognize the fact in there.

Okay. So we just backed up at 30 cents, and we just look at $1.40 -- just say it's a $1.40; then would that be a better run rate?

I think it -- there's a number of variables that are out there obviously. If we had a quarter that was comparable to this year and you had market prices comparable to where we are today, the issue is how much run up we would continue to expect to get and that's obviously dependent upon the timing of when that waterfall comes off the mountain. But I think, realistically, that number is probably in the ballpark without any additional cost controls or expense management programs.

Okay. And just -- my final question is, given that you've been seeing record high temperatures and exorbitant demand for power under this scenario that we are seeing today, what would -- how many megawatt hours do you need to purchase at these times in the open market?

Well, it's more in terms of hour by hour in terms of megawatts rather than megawatt hours. But when our peak load is in the 3000-megawatt ranges as I mentioned and our hydro system is operating at 50 percent of capacity, we made significant purchases. I don't know the exact amount but the thermal fleet does about 1000 megawatts when it's operating at full capacity; the hydro fleet probably about that on a normal basis too. So I would suspect in the neighborhood of a third of our energy was being purchased at peak.

Okay. Thank you.

We'll take our next question from Paul Ridzon with McDonald Investments. Please go ahead.

Darrel, could you repeat those liquidity numbers. I just missed them?

Sure. Sure. Let me get back to it. At June 30th, IDACORP had $320 million remaining on its $490 million facility and Idaho Power Company had 60 million remaining on its 200 million-credit facility. And, I think I will just add to that, while at June 30, Idaho Power had 60 million remaining, since June 30th that number -- we have continued to pay that balance down with the continued cash proceeds coming in on the PCA soar down about another $20 million or so. So, we have got another $80 million of capacity.

Are you still seeing elasticity issues on the industrial side?

This is LaMont, you know, the non-consumption meters are hard to get but it's our belief that yes, we are seeing a conservation price induced across most of our customer categories. The weather has been a factor; it was colder than normal in the winter, it's been hotter than the normal thus far in the summer which I think have been mitigating factors to that, primarily for the irrigation and residential lows. But we do believe, we are seeing a price elasticity as a factor across our customer classification.

Thank you very much.

We'll take our next question from [Teresa Hoe] from Banc of America.

Hi. Yes, I have the two separate questions. First of all on the IDA Energies, besides that you're flattening your book, could you talk about, you know, what the cost has been in terms of winding down, and how much you expect going forward? And then second, separately, actually on the CAPEX; I guess Darrel you put that in percentage terms but do you have the absolute levels for 2003 and partially 2002 and 2003?

I'll let Rich go ahead, and then I'll follow up with the CAPEX question.

Teresa this is Rich. If you recall from the earlier part of the presentation, I indicated that we had realized gains of 21.7 million, unrealized losses of 36.5 for a net difference there was about 15 million operating -- gross margin operating loss for the quarter. That can really be broken down into two primary areas; basically we had a reduction and evaluation in certain forward positions due to the continued deterioration of credit quality, and as we are flattening out our books, we had some price movements that impacted us as well. We've made significant progress in flattening out our book, basically, its 70 percent towards being flattened out, and we don't anticipate that we would incur those same level of costs on a go forward basis. I'll turn it over to Darrel.

Teresa first of all, the -- our focus right now is our overall CAPEX spending. If we take a look at IDACORP consolidated just right at approximately $200 million, of which $124 million have added the [facility] level. Other CAPEX costs included in that number include our investment at IDACORP Financial of about 60 million and then another 10 million or 15 million included at Ida-West and IDACORP Energy capital cost. We -- our number that we have focused on is the 10 to 20 percent, given where we stand today; a part of that investment will come out of reduced spending at IDACORP Financial for the balance of this year, and as a continued focus and maintaining the fact that we are running under budget at the utility level. And so, those are two areas of emphasis today in trying to control our current cash spending.

Actually I have another question, it's just -- I was going through, when you were talking about looking at, I guess, the natural -- excuse me -- the CAPEX and then, you were talking about perhaps creating a natural gas platform. Could you talk about whether this CAPEX numbers actually reflect any kind of flexibility for purchasing gas asset? And then, if you could elaborate on the gas assets, you mentioned that you'll look at things that would, I guess, make business sense or operational sense for you. Could you elaborate on the type of assets; are you referring to midstream or distribution?

Teresa, I'll start on the overall CAPEX. First of all, the CAPEX numbers that I provided to you do not include any expenditures for the midstream gas program that Rich referred to you, and that we are treating as really a project that was not originally budgeted for in these numbers. So those will presented on a case-by-case basis as Rich is [grouping] those forward. So, with that, I'll turn it over to Rich, and he can talk about of the type of assets that he is looking at.

Teresa, Rich. We've spent a considerable amount of time over the last six to eight months evaluating potential entry strategy into the natural gas market to build the platform. Over that course of time, obviously, timing becomes everything; and as I mentioned earlier, we are seeing a lot of asset divestitures going on right now which interest us. The midstream sector that we're targeting basically, we're looking at a mid continent fairway. Basically, we would be looking at, as I mentioned, the mid-continent basins as far North as the Williston basin, as far as South as the Permian basin, as far west as [Green River] and east as [Anadarko] basin; so basically, kind of from North Dakota on down to West Texas. The type of assets, we're looking at primarily are gathering and processing type assets, and we're looking for assets that have certain characteristics that meet our criteria. Some of the characteristics that we're looking for is assets that the primarily fee based services, where basically they are under contract on a forward fee basis to reduce the amount of risk embedded in those assets. We're also looking for assets to provide the ability for us to provide value added services; some of those services including scheduling and balancing a third party gas, optimizing the assets' excess capacity, and the ability to take advantage of any arbitrage opportunity, central or regional. Our primary emphasis, on the assets side, really is focused on finding the right asset at the right price, focusing on assets operations with the light commodity services overlay. So, there will be less emphasis on trading and more on the commodity services side.

Okay, okay thank you very much.

We'll take our next question from Phillip Adams with Bank One Capital Markets.

Thank you. Refresh my memory; the Garnet Energy project, why was it being done in a sub of Ida-West; and if part of your filing follow-up with the regulators is to discuss how that output capacity will be replaced for Idaho Power, I mean, is that not a project that could be done on the books of Idaho Power and built into the rate structure?

This is Jan Packwood. I would try to address most of that question; it's got a couple of parts to it. Don't know if you recall but when we did our resource planning process in 2000, it showed some deficits on Idaho Power system beginning to occur in peak summer time and a little bit in the winter in 2005; Idaho Power issued an RFP at that time and evaluated competitive bids from, I guess, about a handful of developers, is best I recall. And Ida-West had the most compelling bid and they entered into a letter of [indiscernible] again, a negotiation of a purchase power agreement. Obviously, over the intervening months, the prospects and the requirements for financings plans that have emerging components to them have changed dramatically. And so, certainly among the options that you look at now is whether there are some developers better suited to step into Ida-West's shoes, whether a partner would enhance that partnership and make the financing more attractive or at the end of the day, whether the utility really does need to look at a return to a rate based asset. We do have an asset in a fully permitted site located strategically on the system, and so, that's what the added time that we asked for will be used for to [determine] the best way and to meet those future loads for the utility.

I mean, it just seems to me we're in the third season of drought conditions. You are adding customers and are adding load. This, sort of, seems as though that's the right way to go, doesn't it?

Yes, it certainly feels that way. You got to remember that our planning criteria historically has been based on medium water, which if you think about that, by definition means you're planning not to meet your load about half the time. You're going to meet it from the marketplace. Well, as we've seen over the last two and half years, the marketplace is not that reliable and as you try to assess what it will look like going forward, it's even more difficult and so that drives you towards a strategy that says you need to be a little more self sufficient, a little less market dependant and, I think, we're probably not alone in that outlook. So in essence, I'm agreeing with your last observation.

Thanks. And the price tag on the 273 megawatts?

The overlying cost is roughly 220 million.

Thank you very much.

We'll go next to James Bellessa from D.A. Davidson and Company.

Good afternoon.

Hi, Jim.

I apologize I am on the road and don't have access to your press release, and while I listened to the conference call, I was cut out in the middle of Rich's presentation. So my questions may be done in the [end run sir]. The IDACORP ENERGY guidance of 10-cent loss to 35-cent loss, if I'm heard correctly earlier, you had a 32-cent loss already this quarter?

You are right.

Correct. And year to date...

21.

21 cents.

21 cent positive or 21 cent negative.

21 cent negative year to date.

Okay. So it's possible that you could make some money or could be slightly negative for the rest of the half -- second half of the year.

That's correct.

That's correct, I think, Darrel gave the guidance of minus 10 cents to minus 35 cents for the year.

And the third quarter guidance was again what?

We provided for the third quarter that we would anticipate that IDACORP will earn between 50 and 60 cents per share which include potential 30 to 35 cents for the tax adjustment.

And that's utility tax benefit, is that correct?

That's correct.

And this is for Jan. From a top-down view, and the principle of sticking with your knitting -- you're going -- if I heard right, considering some natural gas asset acquisitions. What are the risks there, Jan?

It's Jim. Jan had to step out to use the restroom. He'll be right back in about 30 seconds, all right.

Well, he -- somebody else could answer that?

He's right here.

He is actually here and, Jim, can you just paraphrase that question again for Jan?

Yes. It's a top-down question and the principal of sticking with your knitting and getting into the natural gas area seems a little far field from hydroelectric utility business that you've been in for decades. What are the risks of getting into the natural gas business?

We don't see the risk as that great, and we do see it as a natural extension of the growth component of the business we've been working on for about the last five years, Jim. If you think about the contractual transmission network that we were able to put together on the electricity side, there's some analogies on the gas side. I think the one thing that gas has going for it today is that electricity does not, at least in the western interconnection, is that the businesses are pretty mature, the rules are fairly well known, the players are pretty well established, and we have considerable expertise in IDACORP Energy to explore this opportunity. It's not that it's something we thought of at the last minute and turned to because electricity turned down; gas was always on the agenda. As you may recall, we built a direct gas trading capability right from the very beginning, but it clearly sat on the back burner when the western markets heated up in 2000, 2001 and became as wild and obscurely as they were. So by necessity, our focus was primarily on the electricity side, but in the business development area, we've continued to investigate that, and we see a lot of benefit in attempting to further diversify in that area. As I have mentioned, and you may not have heard in the introduction, we have not given up on having a component of future growth come from the non-regulated businesses. All we said was it's not clear that up to 40 percent can come from there nor is it clear that we can achieve the growth rates that were previously, I think, expected of a company like our own; but we do see opportunity, and we're going to continue to try to explore and investigate in those that do make sense for us. So, I guess, from our perspective, we do see it as an extension, although I'd certainly agree natural gas gathering system is a long way from a hydroelectric dam.

Thanks.

And we'll take our next question from [Andrea Feinstein] with [Angela Gordon]. Please go ahead.

Hi, I just have a few questions. First one, I just want to make sure I understand correctly, the utility of this year absent the tax benefit would be earning above 40 to about 60, is that right?

That's a good range.

Okay. And I just want to be able to understand that in context that how bad the drought currently is. Can you just give me as a percent of normal, what the hydro conditions are?

Yes, this is LaMont. Physically on our system, as I mentioned, hydro's running about 60 percent of normal.

I apologize. I understood, but as an [echo], I don't need that [indiscernible].

Okay, that's fine. The hydro's about 50 percent in normal and that's both in terms of the runoff into the Hells Canyon Complex in April through July, and normal year is six, six and half million acre fee. We're going to do about half of that, 3.2 this year as opposed to 2.4 last year. So it's turned out to be a little better than last year but a lot more like last year than normal, and that's the actual flows we're sort of seeing for the year as well; and that we just have not had anything close to normal precipitation, had a reasonable snow pack, but the precipitation hasn't been there. So, we're purchasing nearly as much energy as we did last year...

Okay.

...wholesale market, but we're just paying about a sixth as much for it.

And if I remember from the last conference call you had, you had given a range of - if we were to get back to something that was closer to normal, hydro of about $2 may be 2.1 at the utility, if memory serves me. Is that right?

I think that's what we'd say as a pretty normal year for Idaho Power Company assuming that rates were at the right level, and we had medium water conditions.

And to the -- to Rick's earlier point, you know, as far as next year is concerned, I should only -- I should be looking at that [above] 50 at the utility only if we have the same hydro conditions as we do this year, which, you know, obviously is a possibility.

Andrea, this is Darrel. Let me expand on that a little bit because, I think, there is another change in there that you need to be aware of, and added the fact that we forecasted this year. Originally, it was based on the fact that we were going through a PCA period that -- where we would spread that cost over three years and in this particular case, we ended up, which we're very fortunate, of getting recovery in majority of those dollars in this year. And so, what we are seeing is some level of elasticity impact on the earnings of the utility. And so, you know, if we're to look to next year where we hope to have a rate decrease and then hopefully some of that elasticity comes back to us, really, I think, there is re-opportunity to -even, given the same water conditions, to do better than the numbers that you're talking about.

Okay. And then, that's very helpful. I appreciate it. Okay. And then I -- one thing we hadn't mentioned was what your expectations are or what the current environment is for IdaTech and the kind of [buzz] you expect to carry on a go-forward basis there and, you know, at what point, you know, you guys, you know, take a look at that business and say we haven't been able to find a strategic partner, and I don't know if you're going to be able to, I mean, and kind of how you think about continuing to put money into that business?

Well, it's something certainly that we look at closely and continue to look at. We have not entered into any kind of strategic relationship with a partner at this time, although the search for that and the discussions about potential partnerships continue. At this point in time, we're really, I guess, really excited about what Claude and his team have been able to do in terms of constraining their capital expenditures and giving the technology a refined and reliability of the reformer, improved to the point that there is extraordinary interest in the technology we now have. But that said, on a going forward basis, if substantial additional investment is required in the business, as we believe it may well be, we'd be comfortable doing that only with some strategic partners that added the kind of the delivery in [certain] service channel dimension to the business that we think, is essential to moving forward. So it's continues to be a work in progress with a little longer horizon than the other things that we have but we continue to evaluate it, you know, kind of the tradeoff of it's long-term potential against it's short-term cash requirements.

Should I still be looking for about 35 to 40 cent drag on earnings?

No, that seems extraordinarily high from that, I don't know...

It was 40 cents in '01.

Andrea, this is Darrel. I think, you know, the numbers although, we really haven't given specific guidance by those entities but we would not anticipate that level of drag, [its probably] something closer to half of that number if we were to continue as the 100 percent owners of that -- a majority owners of that operation.

And I just have two more questions, I apologize. Last one on this topic; if you, you know, if there are these, continued in the future, capital requirements, as you mentioned and you are unable to find a partner to share that burden. I mean is it the -- is the follow-on conclusion from that discussion that you would, you know, just have to exit the business and potentially write some of that off or, you know, is finding a partner isn't as feasible option and the only way to continue down the road is to plough more money into it. You know, how do you react to something like that?

Well that's kind of the old cost-benefit analysis that we would have to do that I mentioned earlier, the tradeoff of long-term gain...

Right.

...with a short-term pain. We believe nothing in the business that we will do everything we can to make sure it proceeds on its path. You know, a doomsday scenario obviously would require us to reassess whether we have the staying power to do -- to put into the business what it requires to be successful. And I guess, if it ever came to a point where we didn't think we could get it where it needed to go, we certainly would consider letting that go to someone who could. And, you know, there is significant interest in that technology, such that I would be cautiously optimistic that that would be an option if we ever had to exit it.

Okay and the last question, I apologize. With regard to your asset acquisition interests, would you also be looking at corporate M&A as a way to get you through the midstream gas business in a quicker and broader fashion, you know, any other smaller opportunities in that area?

Well, I think the answer to that would be, surely, we would be open to really any combinations whether its a specific asset being spun off or whether its an entity, you know, that has an asset or a family of assets that makes sense. What we like about the opportunity we see in midstream is that the increments of investments and the corresponding risk are much more modest than what we were seeing in the merchant generation side, for example, you know a modestly sized 500 megawatt combined cycle combustion turbine, you'll probably look at it anywhere from 1,200 million to a $0.5 billion. And for you to have any kind of optionality around some combination of those it'll need more than one, and so that's pretty steep entry for a company with a balance sheet of our size. But on the midstream gas asset side, there are opportunities, probably begin around $30 million and go up from there that allow a more modest entrance into the marketplace. So, I say, we share these analogies very comparative -- comparable to the network we build through contracts on the electric side. We are very much attracted to the asset nature that, we think, will be available in the gas side. So, those are the primary differences.

Okay great, thank you.

And just a reminder, to ask a question its "*" "1" on your touchtone telephone. We'll return to Paul Ridzon with McDonald Investments.

Actually, my question has been answered. Thank you.

And we'll move on to Phillip Adams with Bank One Capital Markets.

Actually, you started to answer my question; 30 million gets you in the business, what multiple of that do you have to spend to really have some kind of a critical mass?

Hi, this is Rich. We're at the very preliminary stage of evaluations of looking at the assets that are starting to come into the market, but in terms of getting critical mass, where we are analytically that's looking somewhere, that on a cumulative basis, you would be a $150 million to $200 million.

Okay, Okay. So -- and just going back on my earlier question, if it's a 150 to 200 to get into the natural gas midstream business and 220 to build the power plant within the utility, I guess, at that point the Equity Linked Security idea is back on the table?

Yes, this is Darrel. We -- obviously at those levels, we would have look to our financing alternatives in order -- and with the emphasis on obviously keeping our cap structure where it needs to be, which would require some level of equity funding.

Okay thank you.

And just a reminder, that's "*" "1" for questions. And we'll take our next question from Bob [Warren] with Bear Wagner.

Hi, I was just curious if you guys could comment on your current dividend, and where -- at what level you saw it continuing in the future?

Yes, as you may recall if you were on an earlier call when this subject came up, you know, our reply was, we certainly recognize the importance of the dividend to our current investor base, and history continues to demonstrate that we can support it during occasional down years. You know, that said, its sustainability long-term's really dependent on the return to full financial health of the regulated utility. And as we've discussed today, we're making good progress in that area. Dividend's really a function of the regulated business, we need to see payout ratios in the much more reasonable range; but overtime, we have endured years where we've earned below the dividend and yet sustained it. But obviously you can't do that indefinitely or in a year-over-year basis.

Okay thanks a lot.

And we'll take our next question from Rick [Sheldon] with [Zimmer Lucas].

All my questions have been answered.

And Mr. Spencer, it appears there are no further questions. Therefore, I'd like to turn the call back over to you for any additional or closing remarks.

Okay. Well, I'd like to thank you all for your interest in IDACORP, their second quarter earnings, and we will give you further updates as situation progresses, and I would just like to thank you all for your time and attention.

And ladies and gentlemen, this does conclude our conference today. We do thank you for your participation. You may now disconnect.