Avista Corporation (AVA)

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Avista Corp. (AVA)

Q2 2008 Earnings Call

July 30, 2008 10:30 am ET

Executives

Jason Lang - IR Manager

Scott Morris - Chairman, President and CEO

Malyn Malquist - EVP and CFO

Kelly Norwood - VP, State and Federal Regulation

Analysts

Brian Russo - Ladenburg

Paul Ridzon - KeyBanc

Ifran Doza - Romantic Management

Eric Beaumont - Copia Capital

David Thickens - Deephaven

Paul Patterson - Glenrock Associates

James Bellessa - D.A. Davidson & Co.

Steve Gambuzza - Longbow Capital

Presentation

Operator

Good day, and welcome to the Second Quarter 2008 Avista Corporation’s Earnings Call. My name is Candace, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions). It’s my pleasure to introduce your host for today’s conference, Manager of Investor Relations, Mr. Jason Lang. Sir, you may proceed.

Jason Lang

Thank you, Candace. Good morning, everyone. Welcome to Avista’s second quarter 2008 earnings conference call. Our earnings were released pre-market this morning and the release is available on our website at avistacorp.com.

Joining me this morning are Avista Corp’s Chairman of the Board, President and CEO, Scott Morris; Executive Vice President and CFO, Malyn Malquist; Vice President of Finance and Treasurer, Ann Wilson; Vice President State and Federal Regulation, Kelly Norwood and Vice President and Controller and Principal Accounting Officer, Christy Burmeister-Smith.

Before we begin, I’d like to remind you that some of the statements that will be made today are forward-looking statements that involve risks and uncertainties, which are subject to change. For reference to the various factors which could cause actual results to differ materially from those discussed in today’s call, I would direct you to our Form 10-K for 2007 and Form 10-Q for the quarter ended March 31, 2008 which are available on our website.

To begin this presentation, I would like to briefly recap the financial results presented in today’s press release. Our consolidated results for the second quarter of 2008 were net income of $0.44 per diluted share, compared with earnings of $0.26 per diluted share for the second quarter of 2007. On a year-to-date basis of our earnings were $0.91 per diluted share, compared to $0.53 per diluted share for the first half of 2007.

Now, I will turn the discussion over Avista’s Chairman of the Board, President and Chief Executive Officer, Scott Morris.

Scott Morris

Well. Thank you, Jason, and good morning, everybody. Overall, we’re very pleased with our results for the second quarter and first half of 2008. Results for the first half of 2008 have positioned us well to me our earnings targets for the year. The general rate increase in Washington implemented at the beginning of 2008 was the primary reason for the improvement on our utility results. In addition to the improvement at utility, our consolidated results increased as compared to 2007 due to the net loss in Avista Energy in the prior year.

Unusual weather patterns resulted in both higher-than-expected resource costs and increased retail loads. The slight shortfall in earnings relative to our expectation for the second quarter and first half of 2008 was largely due to a higher-than-expected electric resource cost. We absorbed $4 million of cost in the second quarter of 2008 and $7.4 million for the first half of 2008 under the energy recovery mechanism at Washington. This was primarily due to colder-than-normal weather and later-than-expected runoff and while we had good snow pack conditions, the temperatures remained cool so that runoff through mid-May was well below normal.

In addition to below-normal hydroelectric generation, fuel and purchased power costs were higher-than-expected to meet increased demand. And although we had above normal hydro generation from mid-May through July, it will most likely not be enough to make up the entire shortfall from earlier in the year. However, we should recover a portion of the $7.4 million of cost absorbed during the first half of the year under the ERM, primarily due to above normal hydro generation for July.

Actual hydroelectric generation will depend upon precipitation, temperatures and other variables during reminder of the year. It’s important to note that the amounts recognized under the ERM can vary significantly from quarter-to-quarter due to a variety of factors including the level of hydroelectric generation, as well as changes in purchase power and fuel cost.

Partially offsetting the negative effect of higher electric resource costs was higher-than-expected retail natural gas loads due to colder than normal weather. We filed request for increases in electric and natural gas general rates in Washington in March 2008 and in Idaho in April 2008. The filings are designed to recover increases in fuel and purchase power costs to meet growing customer demand, infrastructure investments to increase capacity and reliability, the licensing cost for our Spokane River Hydroelectric Project, and expanding the storage and delivery capacity at the Jackson Prairie Natural Gas Storage Project.

Our request in Washington is for base rate increases averaging 10.3% for electric and 3.3% for natural gas. Combined, this is designed to increase annual revenues by $43.2 million. This request is based on a proposed rate of return of 8.43% with a common equity ratio of 46.3% and a 10.8% return on equity.

On Monday, we filed an update to our demonstrated need for electric rate relief in Washington, primarily to reflect an increase in natural gas fuel cost. And although the update justifies an electric revenue requirement of $47.4 million compared to our original request of $36.6 million, we are not revising our original revenue increase request.

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