Idacorp Inc (IDA) 2005 Q2 法說會逐字稿

Good day and welcome everyone to the IDACORP Second Quarter 2005 Conference Call. Today's call is being recorded and also being webcast live. A complete replay will also be available from the end of today for a period of 12 months on the Company's website at www.idacorpinc.com. [OPERATOR INSTRUCTIONS].

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

Good afternoon everyone and welcome to our August 4, 2005 Second Quarter Earnings Release Conference Call. We issued our earnings release before the markets opened today and filed our Form 10-Q with the SEC shortly afterwards. Both documents are now posted to our IDACORP website.

Included on the called today are LaMont Keen, IDACORP Executive Vice President and Idaho Power President and Chief Operating Officer and Darrel Anderson, IDACORP Senior Vice President, Administrative Services and Chief Financial Officer. Other officers are also available to help answer your questions during the Q&A period.

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 cost future results to differ materially can be found in our filings with the Securities and Exchange Commission. First on our call today is LaMont Keen.

Thank you Larry and good afternoon ladies and gentlemen. Today we reported second quarter net income of $9 million, or $0.22 per share compared to $13 million or $0.34 per share during 2004’s second quarter. Year-to-date, IDACORP has recorded $33 million in net income, the same as the first 6 months of 2004. Earnings per share fell by $0.13 per share for the quarter to $0.22 per share and $0.08 for the first 6 months to $0.77 per share. Results this year were impacted by the issuance of more than 4 million new shares of IDACORP common stock last December. Our second quarter earnings reflect a $0.30 per share result for Idaho Power Company, and an $0.08 per share loss at all non-regulated business units combined. So far this year, the utility has earned $0.81 per share while the non-regulated subsidiaries combined have registered a net $0.04 per share loss.

Turning now to Idaho Power Company, April May, and June were unusually mild and wet for us. June is normally a month of relatively high temperatures when we see heavy energy demand for air conditioning and irrigation. However, this year June temperatures were 3.2 degrees below average throughout the Snake River Basin. Cooling degree days were 27% below the June average and 50% below June of 2004. May precipitation was 323% of average, and June precipitation was 132% of average. This resulted in our irrigation customers operating their electric pumps much less often than usual or last year. Irrigation customer revenues were down $17.6 million, or 46% during the second quarter as compared with last year.

This year’s hot weather arrived in July, and we have seen record-breaking temperatures on some days, and overall temperatures throughout the Snake River Basin 2.5 degrees above average. On some days during July, our system peak loads approached all-time highs. Cooling degree days were 41% above the July average and 2% above last July. And this has us off to a good start with regard to third quarter energy sales.

And although the spring rains cut into our sales in May and June, they also had a positive impact on us from a power supply perspective. We had been expecting inflows into Brownlee Reservoir between April and July of only 2.4 million acre feet. Primarily as a result of the rain in May and June, we actually had inflows of 3.6 million acre feet during this period. However, that still remains well below the 6.3 million acre feet estimated by the National Weather Service, Northwest River Forecast Center in a normal water year.

Our annual estimated hydro-generation has increased from 5.6 million megawatt hours to 6.3 million megawatt hours; however, this too remains well below the average of 8.7 million megawatt hours in an average water year.

ON the regulatory front, our power cost adjustment filing with the Idaho PUC was successful. In our filing, we proposed keeping the PCA component of our Idaho customers’ rates at the same level as last year to reduce the impact of rising costs associated with the drought and other rate actions scheduled for June 1. We deferred $29 million of PCA related expenses with interest to be collected in the 2006/2007 PCA year. Our application was approved as filed and was discussed in our first quarter conference call.

The other regulatory actions were a Bennett Mountain rate increase to place the $58 million of construction costs into our Idaho rates and implementation of the income tax expense recovery approved by the Idaho PUC last year. Those 3 actions increased our Idaho’s customers’ rates an average of 6.3% on June 1.

The Oregon Public Utility Commission ruled last Friday on our application to increase the rates of our Oregon customers by $4.4 million. We are disappointed with the increase of only $597,000 and are reviewing the order in order to determine our next steps. I might add that $2.4 million of the reduction was related to the calculation they used of net power supply costs.

We are also in the process of reviewing information in anticipation of possibly filing new general rate case applications in both Idaho and Oregon. Because of the rapid growth on our system, we are making significant investments in new facilities every year. As a result, we expect to file general rate cases more often than we have in the past so as to stay current with the recovery of our investment.

And finally our robust customer growth continues unabated here in Southern Idaho. In the first 6 months of this year we added 7,428 new customers to our system. That compares to 5,900 news customers gained during the first 6 months of 2004. We are on pace to eclipse last year’s record annual growth when we gain 13,809 new customers. At the end of June, the Company’s total number of customers in both Idaho and Oregon was nearly 448,000.

And with that, I will turn it over to Darrel Anderson who will discuss the corporate financial activities.

Thanks LaMont and good afternoon everyone. Today I’ll take a few minutes to review our second quarter results and then spend the remainder of the time along with the other officers here today responding to your questions.

The earnings per share for each subsidiary have been included in our earnings release, so I will not repeat them. However, it is important to note that the second quarter 2004 results include $0.14 per share in gains from a series of transaction from non-regulated activities that did not recur in 2005 that were offset by the impact that disallowed costs related to the 2003 Idaho general rate case at Idaho Power.

As LaMont mentioned, the story this quarter is really weather and water. Continued strong customer growth and the positive impact of last year’s general rate case helped mitigate some of the weather-related challenges we are facing this year. Temperatures in the second quarter were especially mild, 31% cooler than normal and 46% cooler than last year’s second quarter. This along with receiving over 3 times the normal amount of precipitation in May accounted for the drop in irrigation energy sales. The decrease in irrigation revenues in the second quarter of $17.6 million as compared to the same period in 2004 reduced earnings per share by approximately $0.15. As LaMont noted, the significant increase in precipitation in May helped lower the power supply cost impact by allowing the Company to make fewer spot market purchases.

For the quarter, general business revenue rate increases in effect for one month and the growth in our customers combined to increase revenues by $12 million, while usage factors including the irrigation impact, decreased revenues by over $20 million. This resulted in a net decrease for the quarter of $8 million when compared to last year. On a year-to-date basis, rate increases and customer growth accounted for a $20 million increase while usage related factors decreased revenues by $27 million for a net decrease of $7 million over the comparable period last year.

The portion of net power supply cost not recovered through the PCA or the Oregon excess power cost mechanism was $1.5 million, or $0.02 per share in the second quarter compared with last year’s $5 million or $0.08 per share. For the year-to-date 2005, the amount not recovered was $5.6 million or $0.08 per share compared to $7.1 million or $0.11 per share over the same period a year ago.

With respect to current liquidity, the ODACORP short-term debt at June 30 was $53.7 million, an increase of $4.9 million from the end of March. Idaho Power had no short-term borrowing at the end of June 2005.

Internally-generated cash after dividends is expected to provide approximately 70% of 2005 capital requirement, an increase on the 70% reported last quarter. This increase is largely due to the reduction in net power supply cost due to increased precipitation. At this time, the only planned long-term debt financing in 2005 is the refinancing of the $60 million 5.83% First Mortgage bonds at Idaho Power, which mature in September.

I will briefly review changes to our key operating metrics. The increase in the expected hydroelectric generation from 5.6 million megawatt hours to 6.3 million megawatt hours is due to the increased precipitation in May and June of this year. The majority of this benefit will flow through to our customers in the form of reduced net power supply costs through our power cost adjustment mechanism. The slight decrease in the estimate of capital expenditures at Idaho Power of between $190 million to $200 million is primarily due to the timing of certain expenditures over the balance of the year. Contributions from the non-regulated businesses are being revised to between a break-even and $0.05 per share.

The decrease in expected contributions is largely due to anticipated increases in losses at IdaTech over the balance of the year. IdaTech has been increasing its focus and efforts to early market opportunities including backup power and portable power applications. Markets such as combined heat and power are seen as longer-term applications. This strategic focus reduces the emphasis on seeking out project-based funding and increases investments in product development, and therefore the increase in expected loss for the year.

On the top of income taxes, we continue to estimate that the 2005 annual consolidated effective rate is expected to be approximately 5% at IDACORP and between 35% and 40% at Idaho Power Company. In accordance with interim reporting requirements IDACORP estimates its consolidated group effective income tax rate for the annual period. The estimated annual rate is used in determining the effective rate for the quarter and may result in an inter-[inaudible] allocation of income tax expenses. Such an allocation was made for the second quarter and was recorded at the Holding Company as an income tax expense. For the year-to-date period, the tax revision reflects the estimated effective tax rate of approximately 5%.

In closing, I want to follow up on an 8K that we filed the week before last. Beginning on September 12 and continuing until November 7, Lori Smith will be Acting Chief Financial Officer while I’m away attending an Advanced Management Program. Lori, who is currently our Vice President of Finance and Chief Risk Officer, and with us here today, will retain these duties as well as those of Chief Financial Officer in my absence. That now concludes our prepared remarks, and we would now like to respond to your questions.

Thank you. [OPERATOR INSTRUCTIONS]. Mitchell Moss [ph].

Hey guys, I just had a couple of questions. It looks like the CapEx for the 6 months is running a little bit lower versus sort of the trend from last year in terms of the total CapEx for the year. Do you guys expect that to kind of pick up in third quarter, or is this going to be more of a fourth quarter type of spend when the bulk of it comes in?

This is Darrel. The, traditionally from a capital program standpoint and with the projects that we have in place today, they will be heavily weighed to the second half of the year, and so a lot of it is timing on the completion of projects through the balance of the year, and some of those probably will carry over into 2006. But we still, in our revision of the $190 million to $200 million, we still do anticipate spending in that range, and there are projects that are in process or on the table that we would expect to complete between now and the end of the year.

Okay, between the third and fourth quarter?

A lot of it depends -- we do a lot of construction in the third quarter and a lot of it is weather-related, and so there’s generally a fair amount of activity in the third quarter. And so a lot of depends on what happens in the fourth quarter as it relates to weather; if we get held up with some of the weather issues in the fourth quarter, that can push some of those costs into ’06.

Okay, and then looking at IdaTech, I mean given where you’re saying results are a little bit lower, it sounds like just some more investments that you’re doing. Do we sort of view this that next year’s result, in ’06 could be somewhat, this is somewhat more of a longer-term thing where next year’s results are also going to somewhat poor from IdaTech?

As it relates to results beyond 2005, we will update you as that progresses, and I think as we move into the third quarter and into the fourth, we’ll have I think a better sense because as I indicated their focus today is really on near-term market opportunities in both the backup power and the portable power applications, and so as that works its way through, we will have a better feel for you towards the end of this year to be able to give you what the impact might be on 2006 and beyond.

Okay, so that’s the third quarter you’re saying?

I think we’ll be able to update you, have more information available for you in the third quarter.

Okay, but IdaTech and IdaCom still remain sort of core holdings of the business, of IDACORP? You’re not evaluating it from any strategic alternative to get rid of it or anything like that?

You know, IdaCom and IdaTech both are part of our, the Electricity Plus component in both energy-related activities and related to the electricity side of things. What we are inclined to do, and we’ve mentioned this in the past that on the IdaCom side of things, we will look to manage that business without putting any new IDACORP capital into that business. And on the IdaTech side, we continue to look for strategic investors to partner to move that business forward.

Okay, and finally just looking at the cash flow statement, the accounts payable looks like it was significant cash for the 6 months, $1 million more than last year at the same time. Just wanted to find out if that’s just kind of a temporary thing, just kind of smooth itself out over the year, or if it look like it will kind of stay at that kind of higher negative cash?

You know Mitchell, that’s kind of a timing issue; there’s nothing specific in there that relates to accounts payable, it’s really just a timing of cash from period-to-period. I would say there’s no real trend really in the APP of there one way or the other. So it’s really just timing of cash as of the period’s time where we are.

Okay, thank you very much.

Resa [ph] Hatasi [ph].

Yes thank you. Could you please expand a little bit on the relationship between rainfall and your hydrogenation versus your irrigation load I guess going up and down?

This is LaMont and I guess I can take a stab at that. Obviously, rainfall is more or less valuable -- and I’d say precipitation versus rainfall. From our perspective we’d prefer to get snow in the winter and then it melts and thaws and we get it sort of uniformly over a period of time. The rain that comes like it did in May gives us a pretty significant flush of water while it’s raining, but it’s fairly short term and not as lasting as a snow pack would be. So this year it happened to hit at the time as the farmers have just planted their fields and would have been heavily irrigating but they didn’t need to run their pumps and irrigate that fashion because as we said rainfall over 300% of normal in the spring is our weather time of the year. Unless you were growing rice, they really didn’t have to irrigate a lot. And it helped us some with the runoff; it probably would have helped us more this year if the Federal Reservoir System had not been as low as it was. We were in pretty good shape with our Hell’s Canyon Complex as far as having the reservoir full. But the Federal Reservoir System was pretty depleted so it captured a significant amount of the rainfall that made its way into the river. And the probably good thing long term for Idaho but it prevented us seeing maybe the sharper uptick in stream flows, and there hydrogenation that we would have had in another year.

So it sounds like snowfall is obviously highly positive, but an untimely I guess wet season such as you had could hurt kind of the short-term earnings.

Well it could, and again May was a month when we were into our irrigation season. Had it been rainfall in March or April, probably would have had much the same effect hydrologically but wouldn’t have had the same effect on retail sales because the irrigation community wouldn’t have been fired up as much in those months historically.

So May is the irrigation season; is there another particular month or 2 where in the fall I guess would be a month that a lot of irrigation -- ?

Well the irrigation period as a who essentially runs sort of May through September, but there are a number of crops that the water starts to come off as soon as the middle of July. But there are some crops where they need the water on them longer, into the early fall. So I think if you look kind of back at our -- I don’t have it in front of me today, our irrigation sales. I don’t know if we give that out monthly, but by quarter, it starts in the second quarter; pretty much is concluded by the end of the third quarter, and in Idaho I think we’re more likely to get that level of rainfall in the spring than we are in the summer. Normal for us is not very much in July and August.

That sounds like kind of the downside earnings this quarter was sort of, I guess a one-time blip almost in a sense because of the untimely wet May weather.

We certainly view rainfall as I say 300% of normal for a month as being an abnormal event. And then it had an impact on irrigation sales I don’t think we expect to occur next year or in the years after that.

Great, thank you very much.

[OPERATOR INSTRUCTIONS]. Kathleen Lali [ph], Angelo Gordon Co.

Hi good afternoon. With regard to your policy on seeking rate relief more often, 2 things, could you give us an idea of how much net investment is reflected in rate base right now, and should I assume that when you file, you’d want ’05 as a test year for the next round of rate cases you’d be seeking to make?

Right, Kathleen this is Darrel. Let me, I’m going to start and I think we’ll probably have Rick address the latter part of your question. As you know, our last test year was 2003. We also just recently completed getting the Bennett Mountain included in the rates effective June 1 of this year. I don’t have a specific number available today for you as to what that amount that’s not included today. But just to give you a sense of timing as to from where we’ve been in 2003 versus getting the Bennett Mountain project into rates and then we’ve spent somewhere around I want to say $300 plus million over the, if you looked at ’04 and ’05, so you can kind of use those numbers as some broad guidance, but I don’t have a specific number for you today. And then I think Rick can comment on the timing of those types of things.

Kathleen this is Rick. Our plan this year is to file in the same manner as we did in 2w003 and use 2005 as the test year. We would start with about half of the year in actual and half in a forecast budget-type mode. You file in late fall, and then as the hearings progress, the actuals become known for the second half of the year. It gives the commission a comfort level when they make their decision around May.

Okay, thanks very much. And then just as a follow on, could you give us a sense of what you’re earning relative to what you’ve been allowed the last go around? Is this case going to be about cap structure or just getting the additional capital spending recognized in rte base or a combination of the two?

Well Kathleen, the last time we -- well recently our general rate cases in Idaho and Oregon were catching up after 10 years, and I think we learned a little bit of a lesson in waiting that long. So our idea is to come in more frequently, probably in smaller increments and just keep up as we have a growing business, growing capital budget, and a growing OEM budget.

And the capital spending going forward, should that remain in that $200 million to $225 million level?

Kathleen we’ve indicated that we $600 plus million between the ’05 to ’07 period and so as we see that period right now, we see the $200 plus million capital budget through ’07 at least. And then we’ll continue to evaluate that beyond that.

Okay, thanks very much.

[OPERATOR INSTRUCTIONS]. And that does conclude the question-and-answer session for today. We have no further questions in the queue. Mr. Spencer I’ll turn things back to you.

Okay, thank you Audrey. I would like to thank everyone for your interest in IDACORP and our second quarter earnings, so good bye. Thanks everybody.

And that does conclude today’s conference. Thank you for your participation.