Rate Settlement Hurts Outlook for Idacorp

We are cutting our fair value estimate for Idacorp IDA following 2007 announced earnings and a 2008 rate case settlement at the regulated utility, Idaho Power, that could result in $16 million less gross profit than we expected and $32 million less gross profit than the company requested. The utility will be able to raise customer rates 5%, generating $32 million of additional revenue. However, the shortfall between our expectation and the settlement translates into $4 of equity value on a tax-adjusted, discounted basis using our 7.4% cost of capital and 2% long-term growth assumptions. In addition, earnings results and rate case documents suggest operating and maintenance expenses are trending higher than our forecast. Some of that is because of the wildfires out West of which full cost recovery is uncertain at this time. The combination of lower-than-expected revenues and higher-than-expected costs leads us to cut our fair value estimate. Cash collected during 2007 added $1 to our fair value estimate, offsetting a portion of our fair value estimate reduction. We expect regulators to approve the settlement terms by the end of February. The settlement also left open the potential for future negotiations regarding the state's cost recovery mechanisms that have hurt Idacorp earnings recently. We will monitor any developments.