COC IDA070908.doc

IDACORP, Inc.
July 9, 2008 IDA – NYSE

Rating:
BUY ࢭ

Price: (7/9/08) $29.30

Price Targets:
12-18 month: $34
5-year: $41

Industry:
Utilities

James L. Bellessa, Jr., CFA
406.791.7230
[e-mail]

Company Description:
Boise, ID -- IDACORP, Inc. is the holding company for the Idaho Power Company, an electric public utility that serves an approximate 24,000 square mile area in Southern Idaho and Eastern Oregon. Non-regulated subsidiaries include an affordable housing project finance company and an operator of small hydroelectric generation projects.


FY (Dec) 2007A 2008E Y-O-Y Growth 2009E Y-O-Y Growth Revenue ($M) $879.4 $976.2 11% $1,127.5 16% Previous - NC NC Price/Revenue ratio 1.5x 1.4x 1.2x EPS Revised $1.86 $2.09 13% $2.27 9% Previous - NC $2.29 Price/EPS ratio 15.8x 14.0x 12.9x EBITDA ($M) $293.0 $330.8 13% $353.9 7% EV/EBITDA ratio 9.3x 8.2x 7.7x
Quarterly Data: EPS EPS Revenue Revenue EBITDA Previous ($M) Previous ($M) 3/31/08A $0.48 - $213.4 - $80.0 6/30/08E $0.34 $0.41 $245.4 NC $72.0 9/30/08E $0.86 $0.79 $282.7 NC $102.0 12/31/08E $0.41 NC $234.7 NC $76.8
Valuation Data Trading Data
Long-term growth rate (E) 5% Shares outstanding (M) 45.2 Total Debt/Cap (3/31/08) 53.7% Market Capitalization ($M) $1,325 Cash per share (3/31/08) $0.16 52-week range $28.74 - $36.72 Book value per share (3/31/08) $26.91 Average daily volume (3 mos.) (K) 404 Dividend (yield) $1.20 (4.1%) Float 97% Return on Equity (T-T-M) 7% Index Membership S&P 400 MidCap
Adjusting Estimates Again. Raising Rating to BUY.
Meaning of “significant” now disclosed. In our Research Bulletin of June 19, 2008, we attempted to adjust our IDACORP earnings model for a recent change in the power cost adjustment (PCA) mechanism. The company had alerted investors that a revised PCA formula (equally weighted monthly expenses of annual base power supply costs, as opposed to the previous allocation based on expected levels of monthly electric generation) would cause “significant” shifts in EPS from one quarter to another as compared to historical results; however, the total impact from the change in methodology would be zero on an annualized basis. With the July 1, 2008 filing of a Form 8-K, the company now defines “significant.” Pre-tax 3Q’08 results will be $17 million greater than they would have been had the formula not been changed. Assuming a 35% tax rate for the utility and 45.8 million average shares, the resulting 3Q’08 EPS change is +$0.24. Offsetting EPS changes will occur in 2Q’08 and 1Q’09. Accordingly, our EPS estimates are changed as shown above.
Streamflow forecast trimmed; record demand attained. On July 8, 2008, the Northwest River Forecast Center lowered its forecast of April-July inflows into the Brownlee Reservoir to 68% of normal from 72% previously. Also, at 3 pm on June 30, 2008, the demand for electricity rose to 3,214 megawatts (MW), outpacing the previous record of 3,193 MW, established on July 13, 2007.
Target price remains unchanged. We are maintaining our 12-18 month target price of $34, or 15.0x our revised 2009 EPS estimate. The company’s 10-year median multiple of price to year-forward EPS estimates is 14.8x. Given the recent drop in share price, we are raising our rating to BUY from NEUTRAL.
Price Chart

Source: Thomson One

Recent Rate Relief Decisions/Filings

Danskin 1 Power Plant Application
In March, Idaho Power filed with state regulators a request to increase customer rates by 1.39%, or $9 million in additional revenues in order to recover $60 million in construction costs associated with the new natural gas power plant located near Mountain Home, ID. The 170-MW addition to the Danskin Generating Unit is primarily used as a peaking facility and began commercial operation on March 11, 2008. On May 30, 2008 state regulators authorized the utility to add to its base rates $56.7 million for the plant and $7.5 million for the associated transmission upgrades. As of June 1, 2009 new rates associated with the Danskin filing will increase 1.37% or $8.9 million annually.

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Idaho Power Cost Adjustment Mechanism
Due primarily to a string of 100 degree temperature days last summer and below-average run off this past spring, Idaho Power filed its 2008/2009 Power Cost Adjustment (PCA) in April 2008 requesting recovery of approximately $87 million in power supply and fuel expenses incurred from April 15, 2007 through April 15, 2008. However, subsequent to its PCA filing, state regulators ordered that $16.5 million of proceeds, including interest, from the sale of SO2 credits in 2007 be used to reduce the impact of the PCA filing from $87.2 million to approximately $70.7 million. On May 30, 2008 state regulators approved a 10.7%, or $73.3 million, increase to existing revenues, effective June 1, 2008.

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Oregon Power Cost Adjustment Mechanism
In April 2008, state regulators in Oregon approved a stipulation agreement regarding Idaho Power’s August 2007 filing for a purchased cost adjustment mechanism (PCAM) in the state of Oregon. State regulators approved the first implementation of PCAM on May 20, 2008, which is similar to the Idaho PCA. As of June 1, 2008 Oregon revenues increased $4.8 million, or 15.69%.

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Idaho General Rate Case
In February 2008, state regulators approved a settlement agreement associated with Idaho Power’s June 2007 rate request. The order approves a general electric rate increase of $32.1 million, or 5.2%, effective March 1, 2008. The agreement did not identify a rate base, equity ratio, or an allowed ROE. Idaho Power had originally filed its rate case requesting an increase of approximately $64 million, or 10.35%, and a return on equity of 11.5%. The currently authorized rate of return remains at 8.1%.

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New General Rate Case Filed
Idaho Power Company filed a request with the Idaho Public Utilities Commission (IPUC) on June 27, 2008 for a general rate increase of $67 million (9.9% over current electric rates). The requested increase equates to an 8.5% rate of return on the company’s filed $2.1 billion rate base and is based on a 2008 test year. The requested return on equity is 11.25% on an equity ratio of 49.3%. Idaho Power claims that the rate increase is necessary in order to recover its substantial investment in its electrical system, as well as to recover increasing operating and maintenance expenses. In response to increasing demand for electricity, the company has invested $578 million in its electrical system since 2005. Management has requested the rate increase go into effect on February 1, 2009.

Required Disclosures
D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months.
D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. James L. Bellessa, Jr., CFA, the research analyst principally responsible for the preparation of this report, will receive compensation that is based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. However, D.A. Davidson & Co.’s analysts are not directly compensated for involvement in specific investment banking transactions.
I, James L. Bellessa, Jr., CFA, attest that (i) all the views expressed in this research report accurately reflect my personal views about the common stock of the subject company, and (ii) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Ratings Information

D.A. Davidson & Co. Ratings Buy Neutral Underperform Risk adjusted return potential Over 15% total return expected on a risk adjusted basis over next 12-18 months >0-15% return potential on a risk adjusted basis over next 12-18 months Likely to remain flat or lose value on a risk adjusted basis over next 12-18 months Distribution of Ratings (as of 3/31/08) Buy Hold Sell Corresponding Institutional Research Ratings Buy Neutral Underperform and Distribution 44% 52% 4% Corresponding Private Client Research Ratings Outperform Market Perform Underperform and Distribution 83% 17% 0% Distribution of Combined Ratings 48% 48% 4% Distribution of companies from whom D.A. Davidson & Co. has received compensation for investment banking services in last 12 mos. Institutional Coverage 4% 4% 0% Private Client Coverage 0% 0% 0% Distribution of Combined Investment Banking 4% 4% 0%

D.A. Davidson & Co.’s Institutional Research Rating Scale (maintained since 7/9/02): Buy, Neutral, Underperform

Target prices are our Institutional Research Department’s evaluation of price potential over the next 12-18 months and 5 years, based upon our assessment of future earnings and cash flow, comparable company valuations, growth prospects and other financial criteria. Certain risks may impede achievement of these price targets including, but not limited to, broader market and macroeconomic fluctuations and unforeseen changes in the subject company’s fundamentals or business trends.

Other Disclosures

Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, express or implied, as to future performance. Investors should note this report was prepared by D.A. Davidson & Co.’s Institutional Research Department for distribution to D.A. Davidson & Co.’s institutional investor clients and assumes a certain level of investment sophistication on the part of the recipient. Readers, who are not institutional investors or other market professionals, should seek the advice of their individual investment advisor for an explanation of this report’s contents, and should always seek such advisor’s advice before making any investment decisions. Further information and elaboration will be furnished upon request.

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Please refer to pages 6-7 of this report for detailed disclosure and certification information.

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