Idacorp Inc (IDA) 2002 Q3 法說會逐字稿

Good day, everyone, and welcome to the Idacorp Inc. third quarter 2002 earnings conference call. Today's conference is being recorded. At this time I would like to turn the call over to Idacorp's CFO and treasurer, Mr. Darrel Anderson. Please go ahead, sir.

Thank you, Jessica and thanks for the introduction and good afternoon, everyone. First of all, it's nice to be here this afternoon with all of you, and if you are here in Boise, it nice to see you. It's raining outside, and we have a little bit of snow in the hills, which is always a good start as we go into this first part of November.

Here with me this afternoon are Idacorp president and chief executive officer, Jan Packwood; and president and chief operating officer of Idaho Power, LaMont Keen; and there are other officers that are in the room today that will be available for questions a little later on in the program.

In a moment, I will turn this presentation over to Jan Packwood to recap the Idacorp's strategic highlights for the quarter. LaMont will follow with a review of Idaho Power, and then I will finish up with some discussion of our financing activities and earnings guidance. If you need assistance at any time during the presentation, please dial star, zero. During the Q&A session, 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 who wants to participate.

We are 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 this afternoon in this conference call may also contain forward-looking statements, and it is important to note 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.

With all that said, I would like now to turn the presentation over to Mr. Jan Packwood.

Thanks, Darrel, and good afternoon, everybody. In our release this morning, Idacorp reported third quarter earnings of 98 cents a share, which was a 7-cent-per-share increase over last year's third quarter earnings of 91 cents. Year-to-date we're at $1.72 per share, $1.08 per share less than the 2001 third quarter year-to-date earnings of $2.80. Net income for the third quarter 2002 was $37 million, $3 million more than the same period a year early, and on a nine-month year-to-date net income is $65 million compared to $105 million for last year.

Our quarterly results reflect the impacts of two significant events. First we booked a $34 million tax-related benefit that resulted from a change in our treatment of certain overhead expenses related to power generation at Idaho Power. That will be discussed in much more detail a little later in the call. Second, we expected $12 million in irrigation revenues, this allowed by the Idaho Public Utilities Commission, and a lot more details on that matter as well. You do the quick back-of-the-envelope math, factor in a tax benefit of 90 cents, we lost revenue right off of 20 cents per share and a few other minor adjustments, operating results for the third quarter, excluding those one-time items, are approximately 29 cents per share and $1.02 year-to-date.

Before we get deeper into the detail, I want to provide a quick update on a few of the developments that we've announced since our last conference call. On Tuesday of this week we advised the public of our decision to forgo a strategic option first discussed during our second quarter conference call on July 30th. At that time we said we wanted to look for opportunities to create a natural gas midstream asset platform. Since then our energy marketing subsidiary, Idacorp Energy, has taken preliminary steps to identify potential asset acquisition opportunities toward primarily gas-gathering and processing facilities.

During the same timeframe, we've completed our review of each of our businesses in light of current economic conditions. We have concluded that while there well may be opportunities in the natural gas midstream segment, our company at this time is not in a position to take advantage of them. That conclusion impacts our existing activities in natural gas trading. Without the prospect of assets going forward, commodity trading no longer offers a meaningful prospect for growth, so we are exiting that business.

That decision reflects our desire to continue to strengthen our balance sheet, adequately fund the capital requirements of Idaho power and share adequate liquidity and enhance our investment-grade credit rating. The winding down of Idacorp Energy's electricity trading operations continues ahead of schedule. We are seeing substantial decreases in working capital requirements, a reduction in average value at risk of 50% in comparison to last quarter, and staff cutbacks currently approach approximately 48% of that workforce.

The subsidiary's significant reduction in its contribution to earnings during the third quarter as well as year-to-date is also indicative of the decreased operating revenues due to declining volumes, also wholesale prices - price spreads and volatility.

In connection with the wind-down of power marketing in Idacorp Energy, we identified matters that required resolution with the FERC and the Idaho Public Utilities Commission, which we voluntarily disclosed on September 9th. The FERC requested certain documents and other information, most of which we have now supplied. We sep making additional filings with the FERC this month, which will include requests for approval of certain electricity transactions, the assignment of certain contracts between Idaho Power and Idacorp Energy, and the termination of the electricity supply management services agreement entered into between Idaho Power and Idacorp Energy in June of 2001.

On a related note, we've had a proceeding underway with the Idaho Public Utilities Commission since May of 2001 to determine the appropriate compensation to Idaho Power by Idacorp Energy as a result of transactions between the two. Issues related to transactions prior to February of 2001 have been resolved and formalized in the commission order that was issued on August 28th of this year. That order included a requirement of the companies to report by December 20, 2002, on the status or resolution of efforts to determine whether any additional compensation is due the utility.

Finally, as I mentioned previously, and as I mentioned in July, we have undergone a comprehensive review of each of our businesses in light of marketplace realities and the economic condition of our industry. We have confirmed what I said on the July call that our previous goal of annual earnings growth of between 8 to 10% per year with up to 40% of that growth coming from non-regulated businesses is not achievable. Our priorities remain unchanged and our first one is to restore Idaho Power Company to full financial health. We are making excellent progress but continuing drought, the increasing capital requirements associated with re-licensing our hydroelectric plants, serving the dramatic load growth on our service territory, and acquiring new resources require that we maintain our focus on our regulated business.

On the unregulated side, energy trading, the development of merchant generation, are no longer a part of our business strategy. The capital requirements risk and uncertainty surrounding those businesses are simply unacceptable at this time. We are limiting our 2003 unregulated investments to our power technology subsidiary, Idatech. That said, we anticipate that our earnings in 2003 will be relatively flat as compared to 2002. Assuming a return to more normal operations in 2004, we expect to grow earnings at 5% per year over the three years beyond that. By 2007 our unregulated businesses will once again have grown to the point where we believe they can contribute 15% of our overall earnings. We think, overall, that between growing from the 2002 level, we can grow at an average annual rate of about 10%, and Darrel will expand on that when he gives additional 2003 earnings guidance later in the call.

I'd now like to turn the call over to LaMont who, for his discussion of the factors impacting Idaho Power Company. LaMont.

Thank you, Jan. Compared with a year ago, Idaho Power is showing signs of financial recovery, both for the third quarter and year-to-date. The third quarter earnings per share were $1.02 per share, and year-to-date Idaho Power earnings per share were $1.93. As noted by Jan earlier, these results were influenced by a change in tax treatment, which Darrel will address and the disallowance of $12 million in irrigation demand reduction program costs by the Idaho Public Utilities Commission. When these factors are removed from the earnings calculation, Idaho Power's contribution to corporate earnings were 32 cents per share for the third quarter versus breakeven last year, and $1.23 per share year-to-date, up from 52 cents per share last year.

As previously noted, these results are a marked improvement from last year and indicate that Idaho Power is recovering. However, they are still below historic averages consistent with the ongoing drought we are experiencing.

With respect to the Idaho Public Utilities Commission cost allowance, this stems from an Idaho Commission order that denied recovery of a portion of last year's irrigation load reduction program costs. These are fixed costs related to providing service to the customers who took part in the program. On October 2, Idaho Power filed an appeal of that decision with the Idaho Supreme Court. This process is expected to take up to a year or more to complete. Such an appeal follows the natural path for resolution of disagreements between utilities and the Idaho Commission.

Changing tracks a little bit, discussion of Idaho Power's performance and its future outlook always starts with the weather, due to our extensive portfolio of hydroelectric generating resources. As you are all likely aware, we have been experiencing a negative weather cycle in that regard, and during three years of below-normal stream flows with last year and this year being extreme droughts. We have not yet had a normal month of precipitation in 2002. For the year-to-date, precipitation is down over 25% compared with the first nine months of last year, which, as I mentioned, was also a drought year and over 55% below normal. Fortunately, purchased power costs so far in 2002 are dramatically less than last year, primarily due to lower wholesale electricity prices and, after two successive years of record-high power cost adjustment rates, Idaho Power is expecting to see significant rate reductions across the board in May of 2003. Although there are five more months left in the PCA accounting year, the worst repercussions of the Western energy crisis have abated, and Idaho Power could reduce rates by $150 million to $200 million next May. This will, of course, depend on the actual power supply expenses incurred through the end of the PCA accounting year and this winter's snowpack in the Snake River drainage area.

The PCA, or our production cost adjustment clause, has been a valuable tool for Idaho Power to survive the energy crisis and its increased power supply costs, but it has not provided revenue recovery related to Idaho Power's other costs of serving its customers. Increased operating expenses and substantial demands for infrastructure improvements are required to provide Idaho Power's electronic customers with the reliable energy they expect.

The increased budgets and capital projects spending we expect in 2003 will drive Idaho Power to seek general rate reliefs next year. Although the increased revenue needed to properly fund our ongoing electronic operations is material, the overall general rate request is anticipated to be substantially less than the rate decreases expected in May. It is likely that Idaho Power will follow general rate case requests in the fall of next year.

We have not done so since 1994, and the time has come for us to begin recovery of those investments we've made in our system since that time as well as to recognize the growth in capital expenditures. Since 1994, our customer numbers have grown by nearly 25%, or approximately 80,000 customers. We have been experiencing a period of steady and often robust economic growth in our service area. Investment in generation, transmission, and distribution infrastructure has been ongoing during that time.

Additionally, we see more needs looming. We expect increased capital costs for the protection, mitigation, and enhancement requirements of new licenses for some of our hydroelectric projects. Our integrated resource plan recognizes the need for new sources of power generation and the need to continue the expansion of our transmission and distribution network is unrelenting. This does drive the need for the general rate case that I mentioned earlier, but it also provides the opportunity to grow our regulated operations. Through all of this, we're confident our customers' rates will remain among the lowest in the nation.

I just mentioned increased costs associated with re-licensing our hydro plants, and this is an area where I can also report progress. In September we filed our draft license application for the cornerstone of our hydro-system, the three-dam Hell's Canyon complex. We developed our draft license application with the assistance of a collaborative team made up of individuals representing state and federal agencies and business and environmental tribal customer, local government, and local landowner interests. The draft is now out for review by the public and government agencies, and this phase concludes in late December this year and the final application will be filed with the Federal Energy Regulatory Commission in July of 2003.

Also, we anticipate receiving new federal licenses in the near future for four of our projects - the [Bliss], Upper Salmon Falls, Lower Salmon Falls, and Shoshone Falls projects, and we expect the Federal Energy Regulatory Commission to issue a new license for our [C.J. Strike] project early next year. While the actual environmental and operational costs are not fully known at this time, we do expect to incur increased costs associated with fulfilling the new license requirements of these projects.

Another major regulatory action of note during the third quarter was the filing on October 30th of a report to the Idaho Commission concerning the status of the Garnet Energy Project. The report explained that due to dramatic changes in the capital markets for financing such plants, that IdaWest had found financing under the existing power purchase agreement impractical, although IdaWest offered three scenarios under which Idaho Power could purchase the project and obtain its benefits. The report also indicated that other lower-cost options to the capacity and energy intended to be supplied by the Garnet Plant now appeared available in the marketplace. Those alternatives include wholesale power purchases, seasonal energy exchanges with other utilities, obtaining firm transmission rights for constructing or purchasing capacity from new generating resources cited in the company's service area. Consideration of the IdaWest proposals for Idaho Power ownership of all or part of the Garnet Project will occur in conjunction with pursuit of the other alternatives.

We anticipate bringing this matter to closure through the utilities integrated resource planning process. That is now before the Idaho Commission, and they may either acknowledge the 2002 integrated resource plan as filed in June of this year and modified by the Garnet Report or the Commission may seek additional information before acting.

That concludes my remarks, and I'll now turn the call over to Darrel and let him address our financing activities and earnings guidance.

Thanks, LaMont. As both Jan and LaMont mentioned, it's fairly obvious that the third quarter earnings were driven in large part by the impact of change in our tax method that we will talk about. It came in actually higher than our original estimate. We believe that it is important, however, to note that after making the adjustments for the last revenue write-off and the difference between our original estimates for the effect of the tax method change that we were within the range of the quarterly guidance that we provided in the last quarter.

With that said, I want to review with you a number of additional areas with you today, but I wanted to first shed some additional light on the tax method change that we recorded in the third quarter. The tax method change in its simplest form follows the concept of capitalizing costs that have an indirect relationship to the creation of inventory. Under this concept, electricity is treated as inventory for tax purposes, and indirect costs associated with the production of the commodity are capitalized into inventory. At the end of the year, there is no ending inventory and, therefore, these costs are all expensed for tax purposes.

While the concept of capitalizing costs and inventory has been around for some time, there are there key changes in the tax rules this year that enhance the benefits and making the method change in our company. The first of these changes was an IRS announcement in January 2002 that this method change qualifies for the automatic change procedures, which allows for the change to be processed with its filing of the tax return. The second change was brought about by the signing of Economic Stimulus Bill in March 2002, that expanded the loss carry back period from two years to five years. This allowed the company to carry back two years, 1996 to 1998, and take advantage of amounts paid during those years.

Finally, the IRS allowed the method change to be recognized in a single year where historically this type of method change would be required to be spread over four years. These new rules provided sufficient incentive to the company to adopt a method change with its 2001 tax return, which was filed in September of 2002. The company performed the necessary analysis during the summer to claim the benefit and record the flow-through benefit consistent with our past regulatory practices. As we discussed in the press release, the one-time benefit of $31 million and the 2002 year-to-date benefit of $3 million were recognized in the third quarter. The company received approximately $14 million in cash in September, and an initial $24 million in October of this year for a total of $30 million primarily related to this method change.

Now I kind of want to move on and talk a little bit about cash flows and the related areas there. Free cash flow for the first nine months of the year has increased by over $250 million of the prior year, driven primarily by collections of our outstanding PCA amounts discussed by LaMont earlier, reduce power supply costs, and the receipt of the tax refunds I just talked about. Capital spending is approximately 68% of our budget amount, and the companies expect to come in under the original budget level of $200 million. The company has reduced its current-year investments in Idaho Financial by approximately $15 million, or 26%, and is currently under budget at Idaho Power by $15 million, or 16%. The company is on track to reduce its capital spending in the current year by the 10 to 20% that we announced last quarter.

As it relates to liquidity, at September 30th, Idacorp had approximately $200 million in short-term debt outstanding of its $490 million available credit facility. Included in this amount is $100 million that Idacorp loaned to Idaho Power to fund the September 2002 maturity of Idaho Power's short-term floating rate notes. The $100 million borrowed by Idaho Power from Idacorp will be refinanced either through Idacorp or through outside financing. Idaho Power had approximately $133 million in short-term commercial paper outstanding of its $200 million available credit facility, excluding the amount it owed to Idacorp, noted earlier. In August 2002, Idaho Power Company redeemed $50 million of option ready preferred stock with this commercial paper.

As of September 7th, Idaho Power short-term commercial paper borrowing balance has been reduced to approximately $100 million from the $130 million previously mentioned, which also includes the impact of redeeming $27 million of First Mortgage bonds on October 1st.

With respect to financing activities, as we have previously discussed, Idacorp has been considering the issuance of common stock or equity link securities. We are continuing to review the need for such a financing in light of our recent decision to wind down Idacorp Energy. We do not anticipated issuing new common stock or equity link securities during the balance of 2002. We will, however, continue to issue common stock under the employee stock purchase plan and dividend reinvestment plan.

Now on to 2002 earnings guidance - our earnings guidance for the balance of the year is expected to be in the range of $1.45 to $1.75. This range could be impacted somewhat by the effect of restructuring charges to be recorded at Idacorp Energy as a result of our decision to exit that business. We have included in our 2002 estimate the charges expected to be recorded in the fourth quarter of between $ 8 million and $13 million or 13 to 20 cents a share related to the plan to exit Idacorp Energy.

The charges relate to, among other matters, severance benefits, non-cancelable liabilities, and asset impairment. These estimates exclude any charges that may arise as a result of any [inaudible] or IPC issues discussed by Jan and LaMont earlier.

For 2002, we expect the contribution from Idaho Power will be between $2.15 and $2.25 per share. We expect Idacorp Energy to incur losses of between 50 cents and 60 cents a share, which includes the impact of the restructuring charges that we had previously discussed, and all the other entities combined to record somewhere between a breakeven performance and a 10-cent-per-share loss.

Looking forward to 2003 - with the company's recently announced exit of the marketing and trading business, the 2003 earnings contributions will be heavily dependent on the results of Idaho Power Company. The utility company is dependent on hydro conditions within its service territory they can vary dramatically from year to year and from median conditions. Forecasting earnings contributions is therefore heavily dependent upon assumptions regarding water conditions. Idaho Power is now concluding its third consecutive below-normal water year, as LaMont mentioned earlier, and as we enter the 2002-2003 snow accumulation season period, above-normal [precip] is now needed for hydro conditions to return to a more normal level.

Given a normal snowpack accumulation, Idacorp anticipates the earnings for 2003 could be in the range of $1.50 to $1.70 per share, providing for possibly a small amount of growth over 2002 levels. If you factor out the one-time benefits from the tax method change, the write-off of lost irrigation revenues, and the estimated impact of the restructuring charges, substantial improvement over 2002 earnings should be noted.

Free cash flow during this period is expected to be positive based on a capital spending program of just over $150 million, primarily directed to utility spending. Cash flow continues to be buoyed by ongoing collections of our past PCA deferrals. Our goal is to work through 2003, strengthening the company's balance sheet with an eye to 2004, where we believe that a combination of general rate relief, a potential return to more normal water conditions combined with continued customer growth will provide the base for a healthy Idaho Power and a strong Idacorp.

I'd like to conclude the formal comments with a discussion on dividends. We certainly recognize the importance of the dividend to our shareholders and particularly our large retail customer base. As we have discussed before, the dividend is a function of what the company earns and what it can afford to pay to its owners. The sustainability of the dividend, long term, is dependent on the full financial health of Idaho Power Company. Based on our current year's performance and our projected 2003 performance, we will be incurring two consecutive years where we will not have earned our dividend. There have been times in the past when the company has not earned its dividend in consecutive years and has not adjusted its dividend, and a couple of years - 1991 and 1992 and 1987 and 1988 - are representative periods there. The company will continue to monitor its ability to pay while still maintaining a healthy balance sheet. The ultimate decision regarding the dividend rests with the company's board of directors who review this decision quarterly.

With that, we would now like to respond to any questions that you may have.

Thank you. Today's question-and-answer session will be conducted electronically. To ask a question, please press the star key followed by the digit 1 on your touchtone telephone. Also, if you're listening over a speakerphone, you may want to disengage your mute button to ensure that your signal can reach our equipment. Once again, that's star, 1 to ask a question, and we'll take our first question from Rick Schobin with Duchesne Capital. Please go ahead.

Hi, it's Zack Schreiber from Duchesne Capital Management. Can you hear me?

You bet.

When is the next board of directors' meeting? When's the next time that the board would have an opportunity to evaluate or consider the common stock evaluate or consider the common stock dividend?

November 21st is our next board meeting.

Okay, great. Thank you so much.

Our next question comes from Paul Rigden with McDonnell Investments. Please go ahead.

Good afternoon. I wanted a clarification on your assumptions for your 2003 guidance with regards to snow pack in terms of normal snow pack or enough to get you to normal hydro conditions with some of the catch up?

We are not assuming that we will end up with normal water. We are planning a below-normal assumption at this point in time.

Because of that catch-up effect?

Because of the prior three years of below-normal precipitation.

What is your assumption on a percentage of normal bases?

Right now we are --- I think the number right now is probably in the 75, 80% of normal.

Okay, thank you very much.

Our next question comes from David Pickens with Deephaven Capital Management. Go ahead, please.

Hello. I just want to make sure I've got the various different one-time items that we're looking at for this year correct and make sure I haven't missed any. In the $1.45 to $1.75 you're talking about this year, plus 90-cent benefit from the tax changes minus 20 cents from the disallowance and minus 13 to 20-cent range for the wind-down of the gas trading, was there anything else earlier in the year?

No, those are the primary one-time items that we expect to be in the year-end results.

And with the range of earnings guidance that you gave for next year, $1.50 to $1.70, assuming - making the weather assumptions we just spoke about - you also talked about 5% growth off of the '03 number in '04. That would most likely imply a third year of composite earnings below the dividend. Am I correct in that?

I think the - when you have to take a look at the - what we believe, at least, is the earnings contribution - if the utility can be on track to get back to health, we believe that number isn't necessarily a linear growth line, because we see a substantial ramp up between '03 and '04.

Okay, and when we look at dividend coverage, we should be looking, in your mind, more at the contribution of the utility, not at Idacorp total, assuming there's a continued drag from some of the other businesses?

We think the emphasis needs to be on the utility as the ability to continue to continue with the dividend.

Okay. My last question is - can you give us some sense of how much wetter than normal it would need to be this winter or how much more snow we would need versus normal to get you to a position where you could have normal hydro conditions this coming year? Is that a sensitivity you've looked at?

This is LaMont Keen. I'm not sure we have any exact number on that. As Darrel mentioned, the reservoir system on the Snake River is quite depleted at this point in time versus normal levels, and you're never sure, as far as how much impact multiple years of dry conditions have had on spring flows and then natural flows that feed into the river system, but it would be my guess that if our expectation for water is 75, 80% or normal, we're going to have be at least the flip side of that above normal in order to get to normal, which says we're probably going to have to be in the 125% range in order to have any expectation of normal stream flows next year.

Great, thank you.

We'll take our next question from Philip Adams with Banc One Capital Markets. Please go ahead.

Thank you. I wonder if you'd help me with a cash flow estimate for 2002 for Idaho Power. The press release had its contribution - I think you mentioned 215 to 225, which I'm assuming is $81 to $85 million of net income, and depreciation and amortization is, I think, around $94 million for the year. And I wonder if you have - of the CAPEX number you mentioned, how much would be Idaho Power. In other words - and then I think that the last 12 months the dividend to the parent is, like, $75 million. I'm coming up with a number that's possibly negative $20 million to $27 million. Is that about right? Or is that -

Can you go through that again? You're looking at Idaho Power -

- I'm looking at Idaho Power, I'm looking at net income plus depreciation, my net income number is in a range from $81 to $85 million, I think my D&A is around $94, $95 million. I think my CAPEX number, LTM, is something like 121 or 125, I don't know, I didn't get the queue printed out yet here. And then I see on LTM - I think it was LTM through June the dividend to the parent was 75. So adding it all up, I was coming up with a negative free cash flow number at the Idaho Power levels. Is that right?

I think the big piece, I think - you're starting with net income - a big piece that you're missing is the PCA collections, which, for nine months, I believe, the number is around $128 million.

Okay.

So that's a big piece of the cash flow piece that you're missing.

And that will continue in the fourth quarter as well?

That would continue into the fourth quarter into May.

Okay, so - but on an annualized basis, when we look back at 2002, do you have an estimate for what the collection might be in the fourth quarter on the PCA? In other words, what the 12-month number would be - 128-plus something?

We don't have it here in front of us here. Let me tell you what the - I'll tell you what the balance in the PCA at the end of September - the amount that we collect through the balance of September - through May - is $125 million, and that's not necessary collectable ratably, because that's all based on how much energy we will sell, but that's the balance through September. So we would have - that's how much we would anticipate collecting under the PCA through May.

Okay, all right. So if my number before the PCA is a minus 20, then net-net it's going to be over 100 positive.

Yes.

Okay, excellent, thank you very much.

You bet.

We'll take our next question from James Bellessa with D.A. Davidson. Please go ahead.

Good afternoon.

Hi, Jim.

I heard Jan say that 2003 earnings would be relatively flat to 2002, and then I look at your press release, and you say that those earnings will be in the range of 215 to 225. Then I heard Darrel say that utility would earn $1.50 to $1.75 next year. Should I be looking at the aggregate earnings for 2003 in the 215 to 225 range next year? Or are they down to $1.50, $1.75.

Let me attempt - let me go back and start over and see if I can - let me tell you what we talked about with respect to the earnings guidance and let me see if I can clarify where you're at. Jan's comment, from the standpoint of being flat, was based on what we - you know, the range that we're estimating today from a consolidated level with the one-time items with everything in there as compared to where we would - the range that I provided for Idacorp for 2003. So that's Jan's reference to "flat."

Now, what we're saying then is once you factor out some of those one-time items, then we would see an increase between '02 and '03. If we go back to the comments - let me find my numbers here, Jim - we thought that Idacorp anticipates that their earnings will be - Idacorp consolidated would be a buck-fifty to a buck-seventy.

Okay, in the fourth quarter that we're in right now - your total year guidance is given $1.45 to $1.75, and you have nine months reported results of $1.72. That means the fourth quarter will be between a minus 27 cents and a positive 3 cents according to your estimates. We know that you've also indicated that the loss at the - exiting the natural gas business would be somewhere between 13-cent loss and a 20-cent loss. So why such a poor fourth quarter after excluding that? We're talking about somewhere between 7 cents - minus 7 cents and a positive 16 cents in the fourth quarter. What else is holding back results in the fourth quarter?

Well, the results that we provide to you, when you take into account, add back in the 13 to the 20 cent potential restructuring charges, we would expect that you would have a consolidated level of a 25 to 27 cent range, I believe, is the number we would estimate - kind of in that range, and then that's going to be predicated, depending on what the ending amount that will come out of restructuring number. So the utility is still - is not going to be completely back to health, at least at this point in time as it forecasts.

So did I just hear that in the fourth quarter on an operating basis you believe you're going to have 25 to 27 cents a share?

That would be some number close to where the utility should be.

Oh, that's the utility. So the utility is going to have some positive results, but there must be other activities, barring the - or excluding the write-down for the natural gas exit. There must be something else that's dragging down results.

We are continuing to forecast potential losses coming out of the trading business above and beyond the restructuring charges.

Okay. That hit home, then. But in the third quarter you had a positive result from the trading activity. So why are you going from positive in the third quarter swinging back into negative territory in the fourth quarter?

That continues to be a function of the trading business and there still are assumptions, as the book winds down, there are still assumptions on liquidity, still mark-to-market adjustments that run through there as those transactions settle out. So there's still some variability there. We have reduced that variability significantly as the book has continued to flatten out, but there still is some variability included in the book as it continues to wind down.

Now, you're talking about the dividend, and really it's the utility that pays the dividend, and you talked about this year and next year being lower than the dividend. Really, wasn't 2001 for the utility below the dividend, too, at 60 cents, and then this year we're going to have somewhere in the neighborhood of on an operating basis $1.25 to $1.35 after [exing] out the tax benefit on the utility? Still will be $1.86 dividend? And next year still - isn't it really three years in a row then?

At the utility level, Jim, that's correct. I think in 2001 we felt, at that point in time, the strategy in looking at all the businesses to support the overall growth of the company, and now the goal is, as Jan mentioned, we're going to focus on getting the utility back to health. LaMont mentioned some of the pieces that we're going to do that. One of those is focused on increasing the top line at the utility. And so there is an emphasis to get the utility back to health.

And then that leads to my next question about the general rate relief request that you're going to ask for next year. Did I hear correctly that the increase that you're going to ask for is less than the expected drop in rates that the PCA adjustment is likely to bring forth?

Yes. This is Lamont, Jim, and we expect it to be much lower.

So are we talking about - without the rate relief being requested, would your rates drop somewhere in the neighborhood of 30% next year?

I think that's pretty close to the number, Jim.

And are you giving any inkling here on how much the general rate relief request will be?

I don't know that we have a final - or can have - a final termination of that number now, Jim, but if the other is in the range of $150 to $200 million, I think we're probably talking 25% to maybe a third of that would be what we'd be looking for in general rate relief.

Thank you very much.

Jim, I just want to follow up on your earlier question on the - how do we get to those numbers. One of the things that you need to at least think about is we recorded basically a 19 cent loss at Idacorp Energy on a year-to-date basis, and we gave guidance that we see for the year, of 50 or 60 cents. And then we also then provided what we think the restructuring charges are. You can then kind of use those numbers to determine what we think might happen in the fourth quarter for trading business.

Thanks for that help.

Our next question comes from Bob Waren with Bear Wagner. Please go ahead.

I'm sorry, just one moment, please. Your line is open now, sir. Please go ahead.

How ya doin', guys, can you hear me?

You bet.

I've just got a quick question. I was just curious, after you guys had gone through all the numbers and seen what you've seen and, given the guidance that you've given for the rest of this year and ongoing - if management had reached a consensus as to what they felt they would recommend at the next board meeting on the 21st in regards to your dividend?

Let's clarify that dividend discussion a little bit, too. Our next board meeting is November 21st, and, generally speaking, we'll probably address the dividend in the following January board meeting.

Okay, thank you.

We'll take our next question from Rick Schobin. Go ahead, please.

Hello, everyone. I wanted to ask a couple of questions. The first one was just regarding the balance sheet and what you see the year-end '02 balance sheet being? And then if you can kind of extrapolate that out into '03. And then also, just, in regards to that - you talked about equity issuance being a possibility. Not in '02, but maybe in '03, and I was just wondering if you could talk about what maybe the drivers that would - where you would say, "Yes, I think we need to do equity," and basically what could push you to that point?

Well, Rick, you kind of left that balance sheet question wide open, so I'm not sure where you wanted to go with that question.

Well, I just wanted to know what you're targeting - what the balance sheet you expect to be year-end of '02? And then, '03 would be - equity issuance aside. And then why you would do an equity issuance.

Well, let me talk a little bit about part of the balance sheet. Our role, obviously, as Jan mentioned, is to focus on a healthy balance sheet and so we are focused on ensuring that our cap structure gets in balance, and as it sits today, our focus is we'd like to be somewhere in the area of a 50-50 type cap structure. We're not quite there at the time, so we're going to work diligently towards that. And as we continue to collect cash on the PCA, we'll continue to focus on paying down debt and help funding in some of the construction as that comes through. So we are targeting some reduction in our debt balance by the end of the year. We are in the process of looking to refinance some of the debt. For instance, we have at Idacorp Financial Services that will help pay down some of the short-term balances that we have out there and make that, hopefully, non-recourse back to the parent, which will help those ratios with the credit agency.

As it relates to an equity offering out in '03, I don't think at this point in time that we're really going to comment on that - that we will continue to focus on the balance sheet and, if necessary, if we would have to issue equity for balance sheet purposes for credit agencies, we would consider that, but I think we believe we're on the path to getting the balance sheet healthy without necessarily having to issue equity.

So it would really be - the equity issuance would really be a function of what the rating agencies say to you, you know, if they - rather than being downgraded, just do some equity? That's really what the function of the equity offering would be?

Our focus is maintaining and improving our existing credit, and we'll do what we need to do there.

Okay, and I have one final question - with regards to the trading business and the way the change in the accounting for the trading assets and liabilities, have you guys assessed what kind of impact that change would have on the balance sheet and made that assessment this quarter or will that be something that will be in the fourth quarter year-end conference call?

That is so new, we're in the process of analyzing that. There seems to be a new interpretation of that - the [recision] of 9810 and so we are continuing to review that, and we will be able to update people, come our next conference call.

Thank you very much.

Just a reminder, to ask a question, please press star, 1. And we'll go again to Philip Adams with Banc One Capital Markets. Please go ahead.

Hi, thanks for the follow-up. Just on the tax method change - what kinds of indirect costs are we talking about that are related to electricity?

The focus of these types of costs are what we would call "shared services" type costs where we have individuals that, on an indirect basis, support service types that may participate indirectly in the generation of electricity, and some things people like contract employees, independent contractor type costs, data processing services, engineering design service type areas, and G&A services. We went through an in-depth analysis and review of all of those activities this summer to determine which of those costs potentially qualify as an indirect cost into the generation of electricity. So these are not the direct costs associated with that, but these are specifically indirect costs.

And conceptually you sign a contract for an extended period of time related to the generation of electricity and therefore you are able to capitalize that cost. Is that how that works?

No, we're talking about where you may have, like, a security service, for instance, where we have security services that maybe support our generating facilities. There may be portions of those costs that we can capitalize as part of the generation of electricity - those types of things. There may be legal services that, on an indirect basis, help support the generation of electricity. Those are the types of costs that we looked at and examined to determine whether or not they qualify as part of the indirect method.

So they get capitalized, but the cash actually has gone out the door? Is that right?

In the case of - if we've incurred those costs, whether they're payroll costs or other services costs, yeah, we pay cash out the door for those services.

And so then how long - over what period of time do they get written off? Or are they amortized?

They'll come back, basically, over the life of the asset.

Oh, okay - so over the life of a generating asset? A very long lived -

- yes.

Oh, okay.

They'll turn them back around over a period of time - a long period of time.

Okay, thank you.

You bet.

Our next question comes from Theresa Ho with Banc of America Securities. Please go ahead.

Yes. I just have a general question regarding the Regulatory Commission. I understand that Commissioner Smith's term is going to end this year. I'm just wondering what you see - or actually in the field there - what are the potential candidates for that spot and do you anticipate much change at the Commission in terms of their view of, say, the PCA as well as your upcoming rate filing?

Theresa, this is Jan - a little early to speculate too much on that. Marsha's has been quite clear that she'll step down after 12 years in January, and our hopes are high that she may go on to become a FERC commissioner. As far as backfilling her in Idaho, some preliminary discussions have started about potential candidates for that, but they're not very far along, and it would be premature to link anyone's name with it. I certainly wouldn't anticipate that the philosophy towards our cost adjustment methods or regulation would change materially with Marsha's departure. I would think anyone replacing would be of a similar philosophy and outlook. She certainly has done a good job and, like I say, our hope is she goes on to serve at the federal level.

Okay, and that position - that has to be replaced by a Democrat candidate, is that correct?

That's correct. There's three appointed. We have a sitting Republican governor, so there's two Republicans and one Democrat make up the Commission.

And the appointment is made by the governor, so you don't expect much, really - I understand Governor Kempthorne, he had elected, I guess, Commissioner - I can't pronounce his last name - Kjellander?

Kjellander.

So, I guess, it would not be surprising to sort of look at a candidate similar to Kjellander?

It's hard to say. We like to hope that we can surface or recommend or suggest candidates that have some experience with the industry or at least with energy, in general, and that's normally how the process has worked, but in the case of Paul Kjellander and Dennis Hansen both, they are former legislators in Idaho.

Okay, thank you.

There are no further questions in the queue. I'll turn the call back over to our speakers for any additional or closing remarks.

Well, we'd like to thank everybody for joining us this afternoon, and we appreciate your continued interest in Idacorp and looking forward to talking to you at the end of the year. Thanks for your interest.

Thank you. That does conclude today's conference call. We appreciate your participation, and you may now disconnect your line.