Idacorp Inc (IDA) 2004 Q3 法說會逐字稿

Good day and welcome, everyone, to the IDACORP's third-quarter 2004 conference call. Today's call is being recorded and is being webcast live. A complete replay will also be available from the end of the day for a period of 12 months on the Company's Web site at www.IDACORPInc.com. (Operator Instructions).

At this time, I would like to turn the call over to the Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead, sir.

Welcome to our third-quarter earnings release conference call.

We issued our earnings release before the markets opened today. We filed our Form 10-Q with the SEC shortly afterward. Both documents are at our corporate Web site.

Included on our call today are Jan Packwood, IDACORP President and Chief Executive Officer, LaMont Keen, Idaho Power President and Chief Operating Officer, and Darrel Anderson, IDACORP's Senior Vice President of Administrative Services and Chief Financial Officer. Other officers are also here to help answer your questions.

Our presentation today may 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.

First on our call today is Jan Packwood.

Hi, everybody. Thanks for fitting us in today.

IDACORP's third-quarter earnings were 68 cents per share, a little stronger than they would appear when you compare it with the $1.22 earned for the same period a year ago. I realize that comparing our third-quarter results this year to last year is not an easy task. I will try to help you with that a little bit. The current period includes the impacts of the settlement of our general rate case, the redemption of preferred stock in September, and the settlement of a legal dispute. In addition, operating expenses increased at Idaho Power Company due to increases in thermal operating and maintenance expenses and increased payroll expenses associated with our employee incentive program.

Last year's third-quarter results included the recognition of intra-period tax benefits, the gain on the sale of the IDACORP Energy trading book and a gain on the settlement of a contractual issue at IdaTech. Both LaMont and Darrel will talk a little more about the implications of some of these items in a few minutes.

On a year-to-date basis, earnings increased 42 cents per share over the 2003 levels to $1.54 per share. Our third-quarter results reflect the 23 cent per share improvement at Idaho Power, which posted earnings for the period of 63 cents. That improvement results from the general rate increase granted in Idaho in late May and the favorable settlement of that rate case on September 28. That case is now complete. Idaho Power received approximately 60 percent of the increase it requested. LaMont will fill you in with a clearer look at the major activities and operational considerations at Idaho Power.

Thank you, Jan, and good afternoon, everyone.

The 63 cents per share that Idaho Power contributed to IDACORP third-quarter earnings were 23 cents per share more than last year's third quarter. This year so far, the utility has earned $1.34 per share, compared to $1.06 in 2003.

As Jan mentioned, we are happy to report that all of the revenue requirement issues with regard to our general rate case filed last October with the Idaho Public Utilities Commission have been resolved. On September 28, the Idaho PUC issued orders approving two separate settlement agreements that we had reached earlier with the IPUC staff. The agreements resolved disagreements over various items with the main issued being, however, tax calculation methods.

We earlier had petitioned the Commission for reconsideration on these issues. The Commission consented and we worked out an agreement. As a result of the September 28th orders, the Company now will recover, through rates, 40 million of the 70 million requested.

Also in September, we filed a rate case application with the Oregon Public Utility Commission to increase Oregon customers' rates an average of 17.5 percent, or approximately $4 million annually. We have approximately 18,000 customers in Oregon and we have not filed a general rate case there since 1995.

Shifting gears a little, this has been another below-normal year for hydroelectric generation, unfortunately. This year's inflow into Brownlee during the critical April through July period was 3.2 million acre/feet. Last year, the inflow was 3.6 million acre/feet, and normal inflow is 6.3 million acre/feet.

The past four years have been four of the worst ten drought years since 1928 here in southern Idaho. Even with the below-normal streamflows, however, we expect to generate approximately 6 million MW hours from our hydroelectric facilities. That's comparable to what we generated in 2003. In a normal year, we would expect to generate approximately 9 million MW hours from hydro-production.

Given those challenges, however, we have met our customers' demand for power without great difficulty. Our thermal fleet has performed very well and when needed, we have purchased power to meet our customers’ needs from others. Our risk-management process has served us well this year.

On August 27, we filed our 2004 integrated resource plan with the Idaho and Oregon Public Utility Commissions. The IRP is a comprehensive, ten-year look ahead at Idaho Power's future demands for electricity, as well as a plan for meeting those demands. We produce it every two years for the Idaho and Oregon Public Utility Commissions. The plan places greater emphasis on conservation and demand-reduction than past plans. It also outlines plans for equal amounts of generation from renewable and thermal resources. The Idaho Public Utility Commission is now accepting public comment on the document until December 3.

Changing gears again a little bit, through the first nine months of this year, we have already added 9,776 new customers. By comparison, the Company gained 8,245 new accounts during the first three quarters of 2003. Over the past ten years, Idaho Power has gained an average of about 10,000 new customers annually. The additions bring our total number of customers in all categories, residential, commercial, industrial and irrigation, to just over 436,000. Our greatest one-year increase was 12,536 customers in 1994, but it appears we make top that this year.

We have also received new licenses in August from the Federal Energy Regulatory Commission for our Shoshone Falls, Upper Salmon (ph), Lower Salmon (ph), Bliss, and C.J. Strike power plants. Together, the five projects can generate nearly 260 MW of electricity. We continue to move forward on our efforts to realize, since the Hells Canyon complex, a process that will take several more years.

With that, I will now turn it over to Darrel Anderson for the financial update.

Thanks, LaMont. Good afternoon to everyone.

I'm going to briefly discuss four topics. I'm going to talk a little bit about the income statement impacts of the rate settlement and the income taxes, talk a little bit about construction and liquidity, talk about our future financing plans, and then also lastly talk a little bit about earnings guidance for the balance of '04 and into 2005.

The first item I want to talk about is regarding the rate settlement. As a result of the two Idaho rate case settlements that Lemont discussed, the Company recorded a $19 million regulatory liability and a corresponding charge to PUC expense -- recorded a $12 million regulatory asset, of which $4 million was recorded in September 2004 as other operating revenue, and reversed a $16 million regulatory tax liability by reducing income tax expense. The effect on third-quarter 2004 earnings from these settlements was to record an increase in net income of approximately $8 million, or 21 cents a share.

The third-quarter results, combined with recording of the settlement, but the Company into the payout range under the employee incentive program. Consequently, the Company recorded an increase in expense of approximately $4 million, or 6 cents per share, in the third quarter, to take into account the impact of the potential incentive payout.

Turning to income taxes, IDACORP's effective tax rate was a -50 percent for the nine months ended September 30, 2004, compared to an effective rate of -41 percent for the same period last year. In 2003, it was expected that available benefits from tax credits and favorable audit settlements would exceed tax expense on pre-taxable income, resulting in a negative effective rate. The current-year negative rate is primarily the result of the reversal of the $16 million regulatory tax liability during the third quarter and the $15 million of tax benefits generated by the IDACORP Financial tax credits.

Moving to construction and a little bit of discussion about where we stand on liquidity, at Idaho Power, construction expenditures were $137 million for the nine-month period of 2004, compared to $97 million for the same period in 2003. Increases are due to construction on the Bennett Mountain power plant and increases in the relicensing expenditures. We now expect the capital spending at Idaho Power will approximate $207 million for 2004, excluding the allowance for funds used during construction, all of which approximates out original budgeted levels.

Total debt-to-total cap at IDACORP increased slightly in the third quarter, after we redeemed the outstanding preferred stock and issued long-term debt. At the end of December 2003, we had 55 percent total debt-to-cap and now, at the end of September, this ratio is 56 percent despite the refinancing of preferred stock to long-term debt. Total equity increased from 43 percent to 44 percent of total cap. Our consolidated short-term debt decreased from $94 million at December 31, '03 to $82 million at September 30 of this year. Of that, the outstanding short-term, $60 million is at IDACORP and $22 million is at Idaho Power.

On the financing front, we are considering issuing new shares of common equity in support of the ongoing capital efforts at Idaho Power and reducing the level of outstanding commercial paper at IDACORP. The new shares of common stock may be a combination of one-time equity issuances, along with the ongoing use of original share issuance in conjunction with the dividend reinvestment program. In addition, Idaho Power Company will be considering the issuance of new debt to refinance currently maturing debt as well as to support the capital program.

Turning to earnings guidance, based on our results through September, we've raised the lower end of our 2004 earnings guidance to $1.80 from $1.70 and have left the upper end of the range at $2. Our range continues to include the expectation that we will receive timely regulatory approval to include the final resolution of the $12 million lost revenue case in the fourth quarter of 2004. The estimated net impact of the settlement included in our earnings guidance is approximately 11 cents per share, which includes the estimated impact of employee incentives associated with the gain.

After considering the lost revenue case, we estimate that Idaho Power will earn between $1.65 and $1.75 for 2004 with the nonregulated businesses contributing between 20 to 25 cents per share.

Looking to 2005, Idaho Power Company is expected to be the principle earnings contributor as well as the primary generator and consumer of cash. Idaho Power Company's 2005 topline results will include a full year of the effects of the 2003 Idaho general rate case and the estimated benefits from an Oregon general rate case. The Company should also benefit from continued strong customer growth that we estimate to the between 2.5 to 3 percent.

In looking at the resource side of the business, Idaho Power continues to be dependent on weather and water conditions to provide low-cost hydro generation. Given that we're just now in the snowpack-accumulation period and that this component of our operations can vary significantly, we're not in a position to provide a meaningful earnings range for Idaho Power Company.

On the non-utility side of our business, we believe we have a little more predictability. We expect that contributions from IDACORP Financial, Ida-West Energy and IDACOMM will offset continued investment in IdaTech and expenses at the holding company to provide a net benefit of between 5 to 10 cents per share in 2005.

That now concludes our formal comments. We would now like to respond to your questions.

Ladies and gentlemen, we will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Vedula Murti with Zimmer Lucas.

Good afternoon. I want to make sure I understand, in terms of this year's outlook both for the utility and nonreg as well as the nonreg outlook for '05, what we should consider as ongoing operational versus one-time items, since there were several one-time items thus far in 2004. I'm wondering if, for Idaho Power, I think you indicated you're looking at 165 to 175. Can you tell us whether that excludes items such as the rate case settlement items, the irrigation revenue items? It sounds like it includes those and I'm wondering if you can help us reconcile the guidance to what would probably consider ongoing operational earnings (sic).

Let me kind of walk you through what I can tell you from a standpoint of what is included and excluded. First of all, that range includes our entire what we forecast for the year; it includes all items. We have not excluded any-one time or nonrecurring, whatever you might want to call it. That just includes what we believe the operations will do. I will just I think remind everyone that a couple of things that are included in that range that I think is important understand -- first of all, we did have a write-off earlier in the year as a result of the regulatory process; that was approximately 15 cents per share. That is included in that number. We also -- included in that number is 5 cents related to the redemption of the preferred stock program that we -- additional premium we paid in the third quarter.

It also does include the impact of the regulatory settlement that we did discuss and it will also -- does also include the amounts, the 11 cents that we estimate for the estimated lost revenue case. All of those items are included in there. It also includes the (indiscernible) a below-normal water situation that we have seen now and we are in the fifth year of that. So it really includes everything in those numbers.

I think you had indicated that the nonregulated for this year was going to be I think 20 to 25 cents, and I think you said, for 2005, it with be 5 to 10. If that's correct, can you explain to us where the differential lies as to why we're going to see a difference there?

If you recall, during the year, we've had a couple of transactions that we would not expect to repeat in the normal course of business. One of those, IDACORP Financial sold its investment in the El Cortez property. Included, we have a nickel gain included in that nine-month number. At Ida-West, we had a refinancing of some project debt that added about another nickel, and so we would not expect those to be recurring either. So if you take those two items out of there, that's one way to kid of get back to kind of where we are at today.

All right. If I have other questions, I'll get back in queue. Thank you.

(OPERATOR INSTRUCTIONS). Andrew Levy (ph) with Bear Wagner.

I'm not as familiar with the Company, so can we just go over the one-timers again? I guess year-to-date?

I'm just going to give you those items, those types of transactions that we have included -- that are included in the current year's results, just so everybody is reminded as to what -- (multiple speakers).

Yes, if you could just tell us what's plus, what's minus.

You bet. I will walk you through some of those. In September, we did redeem preferred stock. As a result of the redemption of the preferred stock, the premium is included as a reduction to earnings of about 5 cents a share. Earlier in the year, we were required -- we have a write-off associated with our rate case, which amounted to approximately 15 cents a share.

The first 5 cents, that was a third-quarter item, you said?

That was a third-quarter item. Let me think through here, what else -- there was a reg settlement. We had the regulatory settlement that we reviewed or that we recorded this quarter; that number was about $8 million.

Pretax or after-tax?

That's an after-tax number.

That was a benefit to you?

That was a benefit but the other thing I would caution you on, I mean, it's a settlement items but that also put us into our employee incentive program, so we ended up incurring additional costs there. That number is about $4 million pretax.

4 million, okay, for employees. Then you said there was 11 -- (multiple speakers).

We are projecting -- this is subject to getting approval through the regulatory folks in the fourth quarter -- the settlement of our lost revenue case, which we estimate, on a net basis, around 11 cents.

Okay. There was a tax item too? I mean, do you -- (multiple speakers)?

That was part of the settlement that we just recorded in the third quarter.

Okay, because looking at the income statement, I guess you had an income tax benefit; it says about 20, $21 million. (multiple speakers) -- you had that I guess last year you had about $12 million. What was that from?

IDACORP Financial, part of its earnings come through the recognition of tax credit, and so those tax credits show up as a credit in our income tax provision. So that's back. This year, that combined with the reversal of a regulatory tax liability, which is another credit to the tax expense lien, creates a significant negative tax rate for this year.

Is that something that would be expected for next year, or not?

We would not expect that to roll into 2005.

One last question and I will let someone else go. You mentioned I guess that you might start your DRIP in ESOP again (sic) and also possibly issue some common shares through secondary. How much money are we talking about here, as far as needed to infuse new equity into the business?

We haven't shared, right now at this point in time, an amount of equity. What we're doing is continuing to evaluate that in connection with our ongoing capital program in an effort to maintain an appropriate capital structure.

What is, in your eyes, appropriate capital structure?

we would like to -- (technical difficulty) -- (indiscernible) capital structure is today in order to maintain and/or improve our current credit quality.

What's your debt-to-total capital right now?

Our debt-to-total capital at IDACORP is about 56 percent.

Where would you like to be?

We would like to be little bit better; we would like to be between 50 and 56.

What do you think the timing is on making this decision?

It is an ongoing discussion that we're having as we review our ongoing capital program. We are right now in the middle of our three-year cycle that we will be reviewing with our Board in November, and it's just an ongoing process.

Can you tell us when that Board meeting is in November?

It's November 18.

Do you have an active shelf or you would have to file a new shelf?

We do have an active shelf.

(OPERATOR INSTRUCTIONS). Jim Bellessa with D&A Davidson & Company.

Good afternoon. The fourth-quarter 11 cent net benefit from the lost revenue case is really reduced by what you are calling these incentive program benefits?

Yes, it's reduced, Jim, by what we would expect, assuming that income comes in, that then adds to incentives and the fact that we are in the incentive range for the employee incentive program.

Well, when you took the charge in 2002, was there a disincentive for employees?

No, there was an incentive program in place at that time which reduced the incentive program in 2002.

So there was an offset, so they deserve to get the reversal then?

That's exactly right.

Okay. Do you think you'll have a positive tax rate in the fourth quarter? How about 2005?

Jim, with the impact of the tax-liability reversal in the third quarter, we do not expect to have a positive tax rate in the fourth quarter.

Looking forward, as we look forward to 2005, we do believe we would, as it stands today, we would have a positive effective tax rate at the utility of somewhere in the 35 to 40 percent range and at the holding company, we think, because of the benefits of IDACORP Financial, somewhere in the 15 to 20 percent effective tax rate.

Okay. Your reported nine-months EPS of $1.54, of which $1.34 is related to the utility and 20 cents is related to the nonregulated businesses -- is that right?

That's correct.

Then you are saying that the total-year nonregulated earnings could be in the order of 20 to 25 cents, so they could be 0 to 5 cents for the fourth quarter. Is that correct?

That's fair, Jim.

Of the 2004 EPS guidance of $1.80 to $2, then we have 20 to 25 cents for the nonregulated. Then did I hear it was $1.65 to $1.75 for the regulated?

That's right.

Okay. Do you think that earnings will be above this year's results next year? Would you be surprised if they would be down?

Jim, I can't really respond to that question because it's pretty early in the game from the standpoint of the utility. We do think the utility will be the key driver to earnings next year, and a lot of that will be dependent on water. However, as I mentioned in my comments, we will have a full year of the Idaho general rate case in play. We would also expect to have some benefits coming from the Oregon general rate case, and we also expect to continue to grow customers but because we don't have the resource question answer because we don't know where Hydro is, it's difficult to let you know that but there are obviously positive indicators.

Do you get a 2005 benefit from Bennett Mountain coming online?

As it stands today, it would come online on June 1 and we do not yet have that; that is not guaranteed to be in-rate starting June 1.

Well, do you think that you might get some benefit, or is it something that gets pushed into 2006?

I'm going to have Rick Gale kind of talk about the regulatory approach to Bennett Mountain.

Jim, this is Rick. We, in the past, have followed one general rate case with a production plant the following year and handle it as a one-item where we are exploring that option with Bennett Mountain.

Thank you very much.

A follow-up question from Vedula Murti with Zimmer Lucas.

I'm wondering, in terms of below-normal water as part of this year's results, how much are you estimating that, for 2004, that will have hurt your by versus I think it was like 40 cents or something like that in '03?

We can tell you our estimate today, as it relates to the estimated impact of below-normal water through the first nine months, is somewhere around 20 cents.

Okay, but you don't have a number for the estimate full year at this point?

No, mainly because we don't run that calculation. We always do that on a look-back basis (indiscernible) comparing actuals an the impacts to the PCA, so we can tell you what the estimate is through the first nine months but I don't have a number for the balance of the year.

Okay. I'm wondering, can you, in terms of the nonregulated outlook for '05, can you kind of walk through a little bit in terms of the various business lines and perhaps the ranges that we might be expecting? Because obviously IdaTech and the holding company will have losses. IDACORP Financial usually tends to be somewhere in the 25 to 30 cent range, and everything else is -- I mean, IdaTech is somewhere like a 15 cent loss and I think the holding company tends to be like 10 to 15. Is that about the way to think about it or -- (multiple speakers) -- a little bit?

You know what? We expect that positive contributions coming out of IDACORP Financial, Ida-West and Idaho -- we expect positive contributions from each of those entities that will be offset by the contribution -- by the continued investment into IdaTech, and then the ongoing costs of the holding company. So from the standpoint of IDACORP Financial, we don't see a lot of variability in that business as it stands today, maybe a little bit less because we did have a gain on the El Cortez this year, so we would not expect that to repeat, so it will fall off somewhat. We still believe -- and that's why the range has changed from where we expect it to be at the end '04 versus where we think it's going to be in '05. It's fair to say Ida-West is not -- shouldn't vary much; it will be slightly positive. IDACOMM we expect to be slightly positive and IDACORP Financial would be the primary contributor on the positive side. IdaTech should -- we would expect to record losses consistent with what we're seeing in 2004.

Thank you very much.

(OPERATOR INSTRUCTIONS). A follow-up question from Andrew Levy (ph) with Bear Wagner.

I'm all set. Thanks.

We have no further questions in the queue. That will conclude today's question-and-answer session. Mr. Spencer, I will turn the conference back over to you for closing comments.

Thank you, Cynthia. I'd like to thank all of the participants for their interest in IDACORP and our third-quarter earnings.

Thanks, everybody. I appreciate it.

Ladies and gentlemen, that will conclude today's conference call. We do thank you for your participation, and you may disconnect at this time.