Idacorp Inc (IDA) 2007 Q1 法說會逐字稿

Good day, and welcome, everyone to the IDACORP first quarter 2007 conference call. Today's call is being recorded and is being webcast live. A complete replay will also be available from end-of-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.

Thank you, Tom, 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 web site.

We filed the form 10-Q with the SEC earlier today and that document has also been posted to our IDACORP web site. Included on the call today are LaMont Keen, Idacorp and Idaho Power President and CEO, and 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. Before turning the presentation over to Lamont, I'll briefly recap the financial results presented in today's earnings press release. IDACORP's first quarter earnings report shows net income of $24.6 million, down $800,000 from last year's first quarter. Earnings decreased by $0.04 per diluted share to $0.56 per diluted share quarter-over-quarter. Our chief subsidiary, Idaho Power, had earnings of $0.53 per diluted share for the quarter, down $0.06 per diluted share from last year. With that I'll turn the presentation over to Lamont.

Thank you, Larry, and greetings to all of you joining us on this call today. Our first quarter results reflect much different water conditions for hydrogeneration this year than last year. Stream flow conditions, critical in determining how much power we can generate at our hydroplants, are poor this year because of significantly below normal winter snow accumulation in the drainages that feed the Snake River. The latest stream flow forecast from the Northwest River Forecast Center predicts approximately 3.0 million acre feet with flow into Brownlee Reservoir during the April through July period in 2007. This compares with 8.9 million acre feet last year and 6.3 million acre feet expected in an average year. And changes in water conditions also impact our customers. On April 13, we submitted our annual Power Cost Adjustment Filing to the Idaho Public Utilities Commission, reflecting accumulated deferred costs through March in the April 1st River Forecast Center water outlook. If approved, this PCA Filing will increase customer's rates by $77.5 million or 14.5% on average on June 1. By contrast, last year's PCA filing during good water conditions decreased customers' rates by $123 million or 19% on average.

Operationally, we are prepared to again manage through low water conditions using our well-established risk management practices. We have made purchases from the regional market, will increase usage of our reliable but more costly coal-fired and natural gas-fired power plants and will continue efforts to enroll customers in peak demand reduction programs. Operation and maintenance expenses were up for the quarter, partly as a result of planned maintenance work performed at generating facilities and also due to higher regulatory, labor, and other costs related to operating an ever larger and more complex system. These costs for the quarter are consistent with our previously-disclosed estimate of O&M expenses for the year.

We connected 2,038 new general business customers between January 1st and the end of March and this is down from the 3,369 customers connected during 2006's robust first quarter. Over the past two years, we have added more than 30,000 new customers. Serving these new customers requires infrastructure expenditures to connect and meet their electric energy needs, as well as more employees, vehicles, and other resources to operate and maintain the new facilities and systems. Combined with investments in and rising costs associated with preserving our existing power plant and transmission and distribution infrastructure, investment in our core business over the next several years will be substantial.

While challenging, these investments are the seeds of the company's future growth and prosperity. Once sited, constructed, operational and included in the company's rate structures, these investments will provide benefits to both customers and shareowners for years to come. This does mean we will be filing general rate increase requests, as investments and costs warrant going forward, with the next one anticipated in Idaho this summer.

Later this spring, we will begin the process of constructing our third gas-fired peaking plant at the Evander Andrews site near Mountain Home, Idaho. This plant will add 170 megawatts of generation to our system and is scheduled to be online to help meet summer loads next year. We were pleased to complete the sale of IDACOMM in February to American Fiber Systems and this sale, along with the sale of IdaTech in the third quarter last year, enables us to focus our attention on the considerable growth opportunity we have at Idaho Power Company. We're also pleased to welcome Judith Johansen to the IDACORP and Idaho Power Company Boards of Directors. Judy is a former President and Chief Executive Officer of PacifiCorp and Administrator of the Bonneville Power Administration. We are gratified to have had someone with her experience and industry stature join our boards. She became a board member on April 1st and serves on our audit committee. And with that, I'll now turn the discussion over to Darrel.

Thanks, Lamont, and good afternoon, everyone. Today I will briefly review with you some of the key drivers to first quarter 2007 results, update you on IDACORP and Idaho Power's liquidity and discuss the changes to our 2007 key operating and financial metrics. Net income declined by a little over $800,000 or $0.04 per share as compared to first quarter 2006 results. The decrease in net income is a combination of increases in O&M expenses, coupled with net decreases in operating margins, partially offset by customer growth and the elimination of losses from discontinued operations. O&M expenses increased quarter over quarter, primarily due to higher thermal and hydroelectric O&M expenses for planned outages and maintenance and increased labor-related expenses to support the impacts of customer growth.

The increase in O&M expenses is somewhat higher, because demand-side management expenses of $2.1 million are included for 2007 with no corresponding amount for 2006. In 2007, the Company began recording these demand-side management costs in other O&M expenses with a like amount being recorded in other revenues. The result is no impact on earnings. This change is consistent with our accounting order from the Idaho Public Utility Commission. The level of operation maintenance expenses in the first quarter, after excluding the DSM expenses, are consistent with our previous annual guidance of O&M expenses of $270 to $280 million.

Cash flow from operations decreased in the first quarter versus 2006, because of PCA rate differences, less favorable hydroelectric operating conditions, and changes in working capital items. In the first quarter of 2006, we had PCA rates above face in effect and favorable hydrogeneration conditions and this year just the reverse. In the first quarter 2007, we had PCA rates below base rates in effect, because of last year's favorable hydroconditions, while currently experiencing actual hydroconditions much below normal. With the decrease in operating cash flow, short-term borrowings increased almost $28 million over first quarter 2006. Proceeds have been used to fund increases in net power supply expenses, as well as increases in our ongoing capital expenditure program. I will now update you on the key operating and financial metrics for 2007. These are also shown in the earnings press release we released earlier in the day and included with the form 10-Q that we filed with the Securities and Exchange Commission today.

The only changes to our previous estimates for our key operating financial metrics relate to our reduced estimate for our hydroelectric generation at Idaho Power Company and our estimated effective tax rate at both IDACORP and Idaho Power Company. The reduction in our estimated hydroelectric generation to between 5.5 to 7.0 million megawatt hours for the year, reflects the low levels of precipitation during the winter and spring, which has decreased the estimated inflows into Brownlee Reservoir. The decline in the 2007 estimated effective tax rate from IDACORP from 20 to 25% to 15 to 20% is directly attributable to changes in estimated income at Idaho Power Company, due to the impact of deteriorating hydro conditions. A decline in Idaho Power Company earnings, combined with a stable current year level of affordable housing tax credits generated at IDACORP Financial, serves to reduce our consolidated effective tax rate at IDACORP.

Our 2007 financing plans will continue to focus on maintaining a balanced capital structure at Idaho Power Company at approximately 50% debt and 50% equity. Based on our current liquidity estimate, we expect to finance the capital program with a combination of internally-generated resources, equity or equity-like securities, and debt. We continue to have access to IDACORP's continuous equity program, where we have approximately 1.9 million shares of common stock available. On April 25th, we extended the maturity of our credit facilities to April 2012 from March 2010. In connection with the extension, we expanded the facility at Idaho Power Company to 300 million from 200 million and reduced the facility at IDACORP to 100 million from 150 million. These changes were made to reflect the emphasis of our business on the utility operation.

One last item I would like to comment on relates to our recent filing with the Idaho Public Utilities Commission on the topic of pension expense. As you may recall, in the 2003 Idaho rate case, the Idaho Commission disallowed recovery of pension expense, because there was no current contributions being made to the plan. In March of this year, we filed a request to clarify the treatment of future cash contributions to the pension plan, to be included as part of cost of service. If the commission approves our request, we will begin deferring pension expense to be matched with revenue, when future pension contributions are recovered through rate. A deferral of any pension expense would not begin until $4.1 million of cash contributions still recorded on the balance sheet have been expensed. For 2007, it is estimated that approximately $2.8 million would be deferred to a regulatory asset beginning in the third quarter. We do not expect to make any cash contributions to the plan in 2007. That concludes our prepared remarks, and we'd now like to respond to your questions.

Thank you. (OPERATOR INSTRUCTIONS) We'll take our first question from Paul Ridzon with KeyBanc.

With the higher reliance on fossil, is that going to pressure the O&M forecast, just the operating costs around those plants?

Hey, Paul, this is Darrel. I think right now the current estimates that we have in our forecast for estimated thermal O&M assume a certain level of production, that would include the reliance that we currently have in our forecast on the thermal generation side of things. Now I can have Gene Miller kind of speak to any of the operation issues, but right now that's in our forecast, as it relates to generation. What we can't predict is if the unit's going to go down and when it goes down and those type of things. Based on our current estimates, we wouldn't expect to see a runup O&M expenses. Jim?

This is Jim Miller. We typically try to run those plants as much as we possibly can during the year. A normal year, we're going to be running them as often as possible. Like Darrel said, if something happens that we don't expect, it could drive up costs but we don't really expect at this point.

What was the DSM cost in the first quarter? Was that $2.1 million, or is that for the full year?

That's 2.1, Paul.

For the quarter.

For the quarter.

And just on the pension, you said you wouldn't be able to start deferring until you'd made a contribution that matched the $4.1 million on the balance sheet.

We have 4.1 that we still will be amortizing off and, until that's amortized off, we would not be have the ability to defer any of the current pension expense.

But that should be amortized off by the third quarter?

Yes.

And the higher O&M, I guess it's around $20 million for the year, looks like we saw a large chunk of that in the first quarter, even without the DSM. How do you anticipate that flowing? Should that kind of fall into the rest -- in fourth quarter now, as you had more outages in the offpeak months?

Paul, I'm not sure I followed the question exactly. Are you talking about the timing of our O&M through the balance of the year?

Exactly.

I think it's fair to say that we would expect -- we gave you the range and we haven't gave you quarterly guidance as to when O&M comes, but we do have -- we do expect to add some more people through the balance of the year, but we have added -- what you see in the changes, we've added over 100 people since this time last year, so we think we're getting kind of to that point, where you should see a little more steady level of O&M through the balance of the year, we would expect.

The DSM of about $2 million, is that a good quarterly run rate?

The DSM, we would expect to be ramping up over the balance of the year, but the thing there again is that -- we do expect that to be a net zero impact on the bottom line. So even if it does ramp up over the year, we would see a corresponding amount recorded as revenue, so we would not see a net impact on the bottom line.

And that DSM is not in the O&M numbers you gave?

That's correct. That is correct.

Thank you very much for your clarification.

Hey, Paul. I don't know if you're still there. But if you're there, I think, we just want to kind of -- you made reference to a $20 million number and I think I want to kind of go back and see what that related to.

I'm thinking the annual number, but it doesn't have the initial sales, the '06 number.

Paul, if you could come back, we'll cover that later possibly.

We'll take our next question from Neil Kalton with A.G. Edwards.

Good afternoon.

Hey, Neil.

I apologize if I missed, this on the effective tax rate at Idaho Power, could you explain why that is coming down versus your previous expectation?

It's down slightly Neil. We'll have [Gene Marcero], our tax director, just talk briefly about that at Idaho Power.

What drives the effective tax rate at Idaho Power is just the level of pretax income is from a regulatory tax accounting method we have what we call flowthrough tax adjustments, which our tax adjustments like any company would have, except they do go through our effective tax rate as opposed to -- typically you would see them in preferred income taxes. And those adjustments typically don't vary with the variational pretax income, so they can affect the direction of how that rate goes. If they're moving favorably, meaning their production, that helps push the rate down. If they're moving the other way, it could help push the rate up.

Okay, thanks.

Neil, we'll have a few -- we're thinking a few more flowthroughs that we are expecting that we weren't anticipating before, is what that means.

We'll take ore next question from David Thickens with Deephaven.

Neil beat me to it. Thank you much.

All right. Thanks, David.

And we'll go next to Darin Conti with Wachovia Securities.

Good afternoon.

Hi, Darin.

Hi. I was wondering if you could guys could speak a little bit to the -- looking at the customer growth rate, while it's still pretty strong, it looks like over the past five or six quarters it's been kind of gradually decreasing and was just hoping you could provide some color around maybe some trends you're seeing there and then maybe also talk about what the housing market looks like in your area?

This is Lamont. I'll respond to that. First, the drop-off in the first quarter versus last year, I guess, at this point is probably too soon to tell whether it's a trend or an anomaly. But we would say we've seen some flattening in the growth over the last few quarters, as you noted. To drive around Boise, you still get the feeling that the economy is growing pretty rapidly and there's a lot of construction going on, so you don't have the sense that it's going to flatten out immediately. And our integrated resource plan, just by way of reference, we've assumed that our customer growth or at least energy growth would be 2% annually. So our long-term number is below what we've been experiencing over the last two or three years.

Okay. And what are the -- I guess, how are housing starts out in the Boise area?

The issue for us -- and I don't have the specific numbers for you, but again that's why I gave the comment, if you drive the area, there are a lot of new subdivisions and developments under construction. In fact, we're in the process of providing services to a number of those developments. What's maybe slowed a little is the sale of the lots or the houses in those developments that actually convert what's been developed into customers for us with meters and I think that's what has to play out, whether this is just a modest decline and it takes off again or whether it's maybe more consistent with the future. And we don't have that answer for you today.

Okay. Thank you.

Thanks.

And we do have Mr. Ridzon back with KeyBanc.

Hey, Paul.

Just a clarification on the $20 million annual increases just over '06. I guess, we have a further question.

Just a point of clarification on the increase. And one of the things you have to realize when you go back and take a look at the 2006 numbers, included in the O&M numbers there were about $7 million of emission allowance benefits, that were there, that are netted, so I would say they're lower than the others. So it's really not kind of that $20 million increase. We would say that number year-over-year, after excluding that, is more like a 4 to 5% increase. If you take a look at the numbers that way. And then the question is, when will those increases impact us throughout the balance of this year and you did see -- we did see, if you take out the DSM numbers, we had about a 10% increase quarter-over-quarter in O&M and, like I said, we have ramped up people and we would see that kind of leveling off a little bit through the balance of the year.

Thank you.

You bet, Paul.

(OPERATOR INSTRUCTIONS) Go next to James Bellessa with D.A. Davidson and Company.

Good afternoon.

Hi, Jim.

The fixed cost adjustment is showing up for the first time. Would you briefly describe what that is now?

Jim, we'll have Ric Gale talk to you about the fixed cost adjustment.

Hi, Jim. The FCA is what is commonly termed a decoupling mechanism, that's been around for probably 15 years, going back to the last time energy efficiency was as important as it is now. And we have a pilot program. It's a three-year pilot. It's limited to just our small size customers, our residential customers in Idaho and our small general service customers, that are only metered by the kilowatt hour and do not have demand meters. And the intent of it -- the intent of the FCA is to primarily remove a disincentive for the Company to engage in demand site management or energy efficiency activities with these customers, because it is economically detrimental for us to do so. We're covering so much on the energy charge, you reduce energy and therefore you reduce -- you have a detrimental impact to the Company. So that's why it's put in. We just now had the order. The order starts the clock ticking back to January 1st, but we're just now adjusting to the order and we'll be implementing a series of actions to address -- actively address energy consumption for those customer classes.

IDACORP Financial Services has assets of about $125 million. Can you tell us on the liability side how much is in debt and how much is in equity?

Jim, we haven't publicly disclosed individual balance sheet information on IDACORP Financial. So we really aren't in a position to discuss that at this time. Is it fair to say, though, they do finance a fair amount of their projects with debt, but it's generally less than 50%.

At one point, perhaps six months ago's report, I had down that you had $38 million in debt and $62 million in equity, did I make that up?

I think you may have picked up some of that information in some of the consolidated segment information and you may have gleaned it from there.

Thank you very much.

You bet, Jim.

And we have no further questions left in our queue at this time. Mr. Spencer, I'd like to turn the conference back over to you.

Okay. Well, thank you, Tom, and we'd like to thank all of you for your continued interest in IDACORP and our first quarter earnings, so good-bye.

Thanks, everybody.

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.