Idacorp Inc (IDA) 2006 Q1 法說會逐字稿

Good day, and welcome, everyone, to the IDACORP first quarter 2006 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 website 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.

Thank you, Jennifer, and good afternoon, everyone. Welcome to our May 9th first quarter earnings release conference call. We issued our earnings release before the markets opened today, and that document is now posted to our Corporate website. We also filed our Form 10-Q with the SEC, and that document has been posted to our IDACORP website. Included on the call today are LaMont Keen, Idaho Power President and CEO, and IDACORP President and CEO elect, along with Darrel Anderson, IDACORP and Idaho Power Senior Vice President of Administrative Services and CFO. We also have other officers here today 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 cause future results to differ materially can be found in our filings with the Securities and Exchange Commission. Now I would like to turn the presentation over to LaMont.

Thanks, Larry, and good afternoon, everyone. This morning in a press release before the markets opened, IDACORP reported first quarter net income of $25.5 million, or $0.60 per share, as compared with $23.1 million, or $0.55 per share in last year's first quarter. Our chief subsidiary, Idaho Power, earned $0.59 per share compared to $0.51 last year. The first quarter was an eventful one for us. Most notably Mother Nature blessed us with a lot of snow. The latest hydroelectric survey of the Snake River Basin shows snow pack levels 12% above average. The Northwest River Forecast Center is projecting stream flows of 9.0 million acre feet into Brownlee Reservoir between April 1st and July 31st. The 30 year average for that time by comparison is 6.3 million acre feet, and in 2005 inflows were only 3.6 million acre feet. Obviously, this is good news for us and our customers, because it will dramatically increase our hydroelectric generation and reduce our net power supply costs and customers' rates.

We have submitted our annual power cost adjustment filing to the Idaho Public Utilities Commission, or IPUC. If approved, it will result in a 123 million, or 19%, reduction in the prices our Idaho customers will pay beginning June 1st. When offset with our proposed $18.1 million, or 3.2% general rate increase, the overall rate decrease for our customers will be right around 16%. The general rate increase I mentioned is an agreement we negotiated with the parties involved with the general rate case we filed last October. We think it's a fair result and a good example of cooperation by all parties, including our customer groups, and the staff of the IPUC. An order from the IPUC regarding this settlement is pending.

Another settlement we negotiated this spring was the formula for sharing excess sulfur dioxide emission allowance sale proceeds with customers. Over the past 7 months, we sold 78,000 such allowances. After transaction fees, taxes, and customer benefit, this will allow us to record a $4.7 million gain in the second quarter. This agreement also awaits regulatory approval by the IPUC.

Changing tracks a little bit, there was a legislative challenge to our water rights this session in Idaho. Certain legislators proposed a bill that would have subordinated hydroelectric generation to aquifer recharge, but that bill was defeated in the state Senate. Thus far in 2006, customer growth has continued at a very rapid rate. We added more than 3,350 new customer accounts in the first quarter, and that compares with 3,050 new customers in last year's first quarter. We welcome this growth, but it does require significant capital investment to build new infrastructure, and maintain and upgrade aging plant and equipment. With that, I'll now turn it over to Darrel, who will talk about our financial results.

Thanks, LaMont, and good afternoon, everyone. I will spend a few minutes reviewing the primary drivers of the first quarter results, and then briefly discuss cash flow, liquidity, and the 2006 key operating and financial metrics. We will then respond to your questions. The earnings per share for each business unit have been included in our earnings release issued earlier today.

As expected, the regulated utility earnings drove the overall results. Idaho Power's earnings increased quarter-over-quarter by $0.08 per share, which is largely the result of the improved hydroelectric generating conditions LaMont pointed out earlier. The improved hydro conditions reduced net power supply costs, that resulted in a lift of $0.07 per share after considering the impacts of the power cost adjustment mechanism, changing from a $0.05 per share loss in last year's first quarter, to a $0.02 per share positive benefit in the first quarter of 2006. Idaho Power's results also reflect the benefits of growth in general business customers, cooler temperatures, and rate increases that went into effect in June, 2005. These increases were partially offset by increased operating expenses associated with third party transmission of almost $2 million, an additional $2 million of labor-related expenses, and approximately $1 million related to increased thermal operating and maintenance expenses.

Turning now to liquidity and cash flow. At the end of March, 2006, IDACORP's short-term debt balance was $60 million, approximately the same as at the end of December, 2005. Idaho Power had no short-term borrowings at the end of March.

Cash flow from operations increased $23 million from the first quarter of 2005. This is due to an increase in Idaho Power's net income, increases in wholesale electricity sales, offset by an increase in income taxes paid. The key operating and financial metrics for 2006 remain the same as presented in our February 9th fourth quarter earnings release, and are also presented in our first quarter earnings release sent out this morning. Our current estimates for operation and maintenance expenses still remain in the range of $250 million to $260 million, and capital expenditures are still expected to come within the range of $190 million to $200 million. We are evaluating the possibility of accelerating some of the capital expenditures associated with our new peaking resource, that we would otherwise incur in 2007. This prepayment of expenditures would be done to reduce the total cost of the project, and is not expected to increase the expected 3-year capital spending estimates.

Our 2006 hydro generation through the first quarter of 2.8 million megawatt hours was double the amount recorded in last year's first quarter, and represents between 27% to 33% of our range of annual estimated hydroelectric generation. The contribution from nonregulated businesses continued to be in the range of $0.05 per share loss to break even. We are continuing to evaluate strategic alternatives at IdaTech and IDACOMM that would reduce negative earnings impacts, as well as reduce or eliminate future cash flow requirements. Alternatives being considered include the possible sale or merger of the companies. IDACORP expects to substantially complete these processes by the end of 2006. Any potential financial impact of these actions are not included in our current nonregulated guidance. The IDACORP estimated tax rate for the first quarter is currently at 20%, in the lower end of our range. We will continue to review this estimate in light of existing business conditions and will update you on any changes in the range at the second quarter conference call. That now concludes our prepared remarks. And we would now like to respond to your questions.

[OPERATOR INSTRUCTIONS] Paul Ridzon, KeyBanc.

I had 2 questions. 1 was, the release mentions some intra-period tax issues. I was wondering if you could kind of talk about the first quarter of '06 relative to '05. And then secondly, just kind of where the strategic process for Tech and IDACOMM, how far along that process is, and just if you can give us any more flavor on progress there?

Sure, Paul. This is Darrel. I'm going to flip your questions around. I'm going to take the first one, and then I will have Gene Marchioro, our Tax Director, take the second one on the intra-period tax question. As it relates to IdaTech and IDACOMM, as we have previously discussed, we have been continuing to look for alternative capital providers for each of those businesses. And the best thing I can tell you right now is that we are in the middle of that process, and as we indicated in my prepared remarks, we are looking to have that process complete by no later than the end of 2006. So I can't give you any more specific information than that at this time, but that's what our target is. And then I'll ask Gene to address the question of the intra-period tax question. Gene?

Yes. In the first quarter last year, obviously quarter-to-quarter, we have recorded -- we had recorded that adjustment in both periods. And of course, with different operating results in both years, we had different amounts of that adjustment. So while it's reflected in the Holding Company numbers, obviously, it's a different amount by year.

Can you kind of talk about how that should flow through the rest of the year?

Well, it will adjust as operating conditions and potential tax adjustments change over the course of the year, but by the end of the year, the adjustment will reverse in its entirety. So it moves each quarter.

Paul, right now our best estimate today, is that our estimated annual rate is right around the 20% number. And that's why you see where the rate is. But as conditions move during the year, that could change. But our best estimate today is where -- is what we've set it at.

Okay. Thank you very much.

[OPERATOR INSTRUCTIONS] Lilly Wu, TGRA Capital.

I was wondering, could we get some business color on what's going on at IdaTech? I know -- I think at the last call you mentioned that 2006 might be a pivotal year looking for some U.S. certifications for some of the power units, for example, for telecom backup applications. Could we talk a bit about how that's progressing? Also, what's going on in Europe?

Sure. This is Darrel, Lilly. First of all, as you may have noted recently, IdaTech did announce the fact that they did receive their FC1 certification. Secondly, the next major milestone that they are focused on is there [NEB] certification, which is for the telecom industry for their backup power application. And that is expected over the next couple of months as they continue to work through the certification process. As it relates to European activities, they continue to work with various telecom providers, and other power company -- or I should say, backup entities that require backup power, and they continue to work with those folks. They did just recently return from the Hannover Fair in Germany, and so they continue to pursue various contacts in the European community. I don't want to -- I don't think it's appropriate at this point to share who some of those folks are at this point. But they continue to work with some of those entities.

Okay. Continue to work with them in the sense of being an equipment supplier to them? Or having partner channels for distribution, or what?

Lilly, actually it's all of the above. They are working both on the distribution side, as well as being equipment suppliers for entities in Europe.

Okay. So we're basically still looking at the -- we're on track to do commercial product shipments this year? It sounds like all the pieces are falling in place?

Well, I think we would expect to see some commercialization of the product. But not in, I think, in a large scale application at this time.

Okay. Great. Thanks.

[OPERATOR INSTRUCTIONS] James Bellessa, D.A. Davidson.

Regarding this tax issue that you're talking about, you're giving guidance for the overall Corporation's taxes at 20% to 25%. Conceptually, when you sell this emissions allowance, could your tax rate for that quarter go up, due to that sale, and booking that you've indicated would probably be a second quarter event? And then on average, still be 20% to 25% for the year?

Jim, this is Darrel. Right now, we anticipate that as we project through the balance of the year. And so take that into account in determining what the appropriate effective rate would be. So as we have discussed, at what we estimate the potential gain on the sale of those allowances, that has been included in determining that estimate.

There's a line item called power cost adjustment. I can never predict it. It was quite a large sum in the first quarter. Can you go over the explanation why that was an expense for the first quarter? And what is the likely pattern that one might expect, given the above average hydro generation conditions that you have?

Jim, Lori Smith is going to address that question for you.

Hi, Jim, this is Lori. Yes, what you'll see in the first quarter is the -- last year we were deferring expenses because of low water. This year we are accruing expenses because of high water. Our PCA really gets us back to a base power supply cost, and then we defer into the future that difference. So this year, you will see a large swing because of drought versus the much better hydro generation and benefit in net power supply costs flowing through that line.

Does it change on June 1st because you true it up, or the PCA gets reset, or -- ?

Right. Well, 2 components of -- in our June 1st filing that's before the commission right now. It would be the forecast water that really sets what we'll collect currently. And then the true up balance from our '05 through '06 activity will be the combination, as we change rates in June of 2006.

If everything stayed constant after the PCA amount is set for the rest of the year, in terms of weather, and outlook, and all -- everything, does the PCA line item go to zero? Or does it continue to fluctuate one way or the other?

It would continue to fluctuate, based on our actuals.

But if the actuals were based on just your expectations, just like you're setting forth your anticipations in setting the PCA in the first place, would it go to zero? Or would it still fluctuate?

I guess the way I would answer that is that in the river forecast number, we would be collecting currently some assumed net power supply costs. And if that was exactly right on, then our expenses would reflect what that assumption was.

Thank you.

Paul Ridzon, KeyBanc.

I know you've just kind of wrapped up 1 rate case, but once we think about when you might want to file again, and how that dovetails with resource planning?

Yes, hi, Paul, this is LaMont. We're in the process of wrapping up that case, but it is not wrapped up. As we indicated, we've reached settlement with the other parties to the case. We're awaiting an order from the Idaho Public Utilities Commission. And we're very reluctant to comment on some future case before we have concluded the one that we're working on now. The one thing we would say going forward, as we've indicated before, is we intend to minimize to the extent we can, the lag between when we make capital investments or increase operating costs, and when we get recovery from our customers. So you can expect us to be diligent about that. But we have no comment on any future filing until we get this one behind us, and then we'll assess from there.

And how are we thinking about the need for resources, kind of given the strong growth that you are experiencing?

We are in the middle of our preparing a new integrated resource plan, as we sit here today. I don't know that it's ready to be published. But it is out of the big tent process that involves us, staff of the Idaho Public Utilities Commission, customer groups and others, and it's in the process of being converted from a 10-year look forward to a 20-year look forward. Right now, we're operating under the 2004 integrated resource plan, which is what has us bringing on the gas turbine in 2008. We'll have an updated look at that in the not too distant future. I'm not sure of the exact date of filing. But that will give you the next glimpse at how we've updated that, rolled in the customer growth that we have incurred and expected, and intend to match that up with resources. Little premature for me to give you much insight in that today.

Okay. Thank you, again.

And that does conclude the question-and-answer session for today. We have no further questions in the queue. Mr. Spencer, I'll turn the conference back over to you.

Okay. Well, I would like to thank everyone for your interest in IDACORP and our first quarter earnings. So good-bye.

Thanks, everybody.

And that does conclude today's conference. Thank you for your participation. You may disconnect at this time.