Ladenburg-2-09-2012.pdf

Brian Russo 646.432.6312 INDUSTRY UPDATE
NOAA July 2011 Official Forecast
On February 8, 2012, the National Oceanic and Atmospheric Administration
(NOAA) issued its February Forecast for 2012 water supply for the Northwest
United States. Water supply levels are generally near or below normal and
below the comparable period a year ago. Within the Ladenburg Thalmann utility
universe (and in order of sensitivity to changes in hydro conditions), Portland
General Electric (POR-$25.24-NEUTRAL), Avista Corp (AVA-$25.94-NEUTRAL),
and IDACORP (IDA-$42.04-BUY) are the companies primarily affected by these
reports as their generation portfolios all contain substantial hydroelectric assets.
Table 1: NOAA Water Supply Updates -2011/2012
NOAA Water Supply Updates(% of 30-year avg)
April - September Jan Feb Mar Apr May Jun Jul
Clark Fork
St Regis 92% 99%
2011 102% 110% 112% 122% 134% 159% 166%
Near Plains 82% 92%
2011 104% 112% 114% 124% 140% 156% 160%
Cabinet Gorge Dam 83% 93%
2011 102% 102% 113% 124% 140% 157% 159%
Spokane
At Spokane 90% 94%
2011 101% 102% 109% 126% 151% 170% 176%
*Coeur D'Alene Lake 85% 89%
2011 98% 104% 108% 124% 151% 167% 168%
Clackamas
Estacada 88% 94%
2011 106% 94% 94% 100% 120% 130% 138%
Deschutes
Benham Falls 95% 97%
2011 102% 95% 100% 109% 119% 113% 111%
Snake
Brownlee Dam 80% 84%
2011 112% 99% 91% 115% 133% 159% 153%
Hells Canyon 79% 80%
2011 112% 99% 91% 115% 135% 163% 159%
Source: Ladenburg Thalmann & Co, Inc., NOAA, as of February 8, 2012
Avista Corp - Spokane and Clark Fork River
AVA's hydroelectric generating facilities are located along the Clark Fork River
(-80% or 794 MW) in Idaho and Montana and the Spokane River (-20% or 180
MW) in Washington. In a normal year, hydroelectric capacity totals 4.6m MWh.
Under the Energy Recovery Mechanism (ERM), there is a 50% customer sharing
when actual power supply expenses are higher than the amount between $4-
$10m, there is a 75% customer sharing when actual power supply expenses are
lower (rebate to customer) than the amount included in base rates between $4-
$10m, AVA receives 100% of the cost or benefit within the $4m "deadband", and
10% of the cost variance when power supply costs exceed $10m.
Recall, in 2011, AVA was in the the 90% sharing band (+$10m) of its ERM due to
favorable year-to-date hydro conditions, expectations for continued above normal
hydro, and lower expected fossil fuel costs relative to the level in customer rates
later in the year.
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Brian Russo 646.432.6312 INDUSTRY UPDATE
As of February 8, 2012, forecast stations St. Regis, Cabinet Gorge Dam, and
Near Plains along the Clark Fork River are forecasted to have water supplies
99%, 92%, and 93% respectively, of their 30-year averages.
Table 2: NOAA - Clark Fork River Water Supply (0/o of normal)
Jan Feb Mar Apr May Jun Jul
-1- St Regis 2012 - - St Regis 2011 ---+--- Near Plains 2012
---+--- Near Plains 2011 ------- Cabinet Gorge 2012 -- Cabinet Gorge 2011
Source: Ladenburg Thalmann & Co, Inc., NOAA, as of February 8, 2012
The Spokane forecast station in Spokane and Coeur D'Alene Lake in northern
Idaho, primary outflow is the Spokane River, are forecasted to have water
supplies 94% and 89% of their 30-year averages, respectively.
Table 3: NOAA - Spokane River Water Supply (0/o of normal)
180% ---
160%
140%
120%
Jan Feb Mar Apr May Jun Jul
---- Spokane 2012 - - Spokane 2011
----+--Couer D'.AJene Lake 2012 ----+--Couer D'.AJene Lake 2011
Source: Ladenburg Thalmann & Co, Inc., NOAA, as of February 8, 2012
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Brian Russo 646.432.6312 INDUSTRY UPDATE
IDACORP - Snake River
IDA's hydroelectric facilities are primarily located on the Snake River along the
Idaho/Oregon border. IDA begins monitoring hydro conditions in the northwest in
November, particularly snowpack and forecasted stream flows. The majority of
IDA's water supply is held at the Brownlee Reservoir. In a normal year,
hydroelectric capacity totals 8.6m MWh.
Any shortfall (as compared with the median) is generally replaced with purchase
power from the open markets and 95% of those costs are recovered through the
PCA mechanism in Idaho. IDA was authorized by the Idaho Public Utility
Commission (IPUC) in January 2009 to change its sharing mechanism to 95/5
(previously 90/10 sharing with customers), as well as, the implementation of a
forward-looking model forecasting fuel costs. Therefore, we believe IDA has
manageable sensitivity to changes in supply costs due to recent changes in base
rates (including ADITC extension) and adjustments in the annual PCA filing.
As of February 8, 2012, Brownlee and Hells Canyon, IDA's largest hydroelectric
generation facility, are forecasted to have water supplies 84% and 80% of their
30-year averages, respectively.
Table 4: NOAA - Snake River Water Supply (0/o of normal)
160%
140%
120%
60%
40% --j------�---�---�--�---�--�
Jan Feb Mar Apr Mav
--- Brownlee Dam 2012 - - Brownlee Dam 2011
---+--- Hells Canyon 2012 ---+--- Hells Canyon 2011
Jun Jul
Source: Ladenburg Thalmann & Co, Inc., NOAA, as of February 8, 2012
Portland General Electric
Deschutes River
Clackamas River and
POR's wholly-owned hydro facilities (-190MW) are located on the Clackamas
River in northern Oregon, and POR's jointly-owned facilities (66.7% ownership in
-300MW) are on the Deschutes River in Oregon. POR's also has long-term
purchase power contracts for output of 4 hydroelectric projects in the mid­
Columbia River totaling 507 MW and a long-term agreement for output of the
Pelton/Round Butte hydroelectric project totaling 150 MW.
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Brian Russo 646.432.6312 INDUSTRY UPDATE
POR utilizes a Power Cost Adjustment Mechanism (PCAM) to adjust rates to
reflect differences between forecast and actual power costs. The PCAM
deadband range is from $15m below to $30m above the baseline of net variable
power costs. Amounts above or below the deadband are shared with
customers/shareholders 90/10. An earnings test is also conducted that further
mitigates cost pressures with customer surcharge if actual ROE is no greater
than 9.0% and customer refund if actual ROE is no less than 11.0%.
Recall, due to favorably hydro conditions in 2011, POR lower supply costs
exceeded the $1 Sm deadband and POR credited customers cost savings above
the deadband.
As of February 8, 2012, Benham Falls on the Deschutes River is forecasted to
have water supply 97% of its 30-year average and the Estacada forecasting
station along the Clackamas River is forecasted to be 94% of its average.
Table 5: NOAA - Clackamas and Deschutes Rivers Water
Supplies (0/o of normal)
150%
140%
130%
120%
110%
100%
90%
- - - .,,,.. .,,,.. .,,,.. .,,,.. .,,,..
80%
Jul Jun May Apr Mar Feb
70% --t-----�--�---�---�---�--�
Jan
-m- Estacada (Clackamas) 2012 - - Estacada (Clackamas) 2011
--+--Benham Falls (Deschutes) 2012 --+--Benham Falls (Deschutes) 2011
Source: Ladenburg Thalmann & Co, Inc., NOAA, as of February 8, 2012
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Brian Russo 646.432.6312 INDUSTRY UPDATE
Table 6: 2011-YTD Mid-Columbia Off-Peak Power Prices
40.00
35.00
30.00
25.00
..c 20.00 s: � EA- 15.00
10.00
5.00
.,_,, � �" (5.00)
Source: Ladenburg Thalmann & Co, Inc., SNL
Table 7: NOAA Monthly Runoff Summary (2010/2011/2012)
(Units:Thousandsof Acre-feet)
Avista (AVA) 2010 2011 2012
Spokane at Spokane JAN FEB MAR APR MAY JUNE JULY JAN FEB MAR APR MAY JUNE JULY JAN FEB MAR APR MAY JUNE JULY
Adjusted Volumes 211 185 252 450 644 750 205 889 404 643 1,116 1,754 1,221 455 165 25
30YearAvg * 356 446 623 870 1,002 548 184 356 446 623 870 1,002 548 184 356 72
%Avg 59% 41% 40% 52% 64% 137% 111% 250% 91% 103% 128% 175% 223% 247% 46% 35%
Clark Fork at St Regis
Observed Volumes 154 127 169 324 564 1,167 409 247 194 245 533 1,621 2,451 1,293 203 33
30YearAvg 201 208 292 536 1,215 1,278 489 201 208 292 536 1,215 1,278 489 201 34
%Avg 77% 61% 58% 60% 46% 91% 84% 123% 93% 84% 99% 133% 192% 264% 101% 98%
Portland General (POR) 2010 2011 2011
Clackamas JAN FEB MAR APR MAY JUNE JULY JAN FEB MAR APR MAY JUNE JULY JAN FEB MAR APR MAY JUNE JULY
Observed Volumes 279 149 186 233 224 253 79 331 153 265 319 271 209 94 406 43
30YearAvg 281 249 238 222 208 136 74 281 249 238 222 208 136 74 281 40
%Avg 99% 60% 78% 105% 108% 186% 106% 118% 61% 111% 144% 130% 154% 126% 144% 106%
Deschutes
Adjusted Volumes 67 52 57 57 67 82 70 78 60 69 74 92 95 93 86 14
30YearAvg 81 72 BO 80 93 90 87 81 72 BO BO 93 90 87 81 12
%Avg 83% 72% 71% 71% 72% 91% 80% 96% 83% 86% 93% 99% 106% 107% 106% 121%
IDACORP (IDA) 2010 2011 2011
Snake at Hells Canyon JAN FEB MAR APR MAY JUNE JULY JAN FEB MAR APR MAY JUNE JULY JAN FEB MAR APR MAY JUNE JULY
Adjusted Volumes 899 817 979 1,002 1,232 1,905 704 1,209 1,000 1,571 2,787 3,531 3,105 1,363 1,060 155
30YearAvg 1,271 1,316 1,849 1,978 2,006 1,682 827 1,271 1,316 1,849 1,978 2,006 1,682 827 1,271 212
%Avg 71% 62% 53% 51% 61% 113% 85% 95% 76% 85% 141% 176% 185% 165% 83% 73%
(Units:ThousandsofAcre-feet)
•30YearAvgadjustedtoreflectdaysincurrentperiod
Source: Ladenburg Thalmann & Co, Inc., NOAA, as of February 8, 2012
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Brian Russo 646.432.6312 INDUSTRY UPDATE
APPENDIX A: IMPORTANT RESEARCH DISCLOSURES
ANALYST CERTIFICATION
I, Brian J. Russo, attest that the views expressed in this research report accurately reflect my personal views about the subject
security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendation or views expressed in this research report.
The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon
various factors, including the firm's total revenues, a portion of which is generated by investment banking activities.
STOCK RATING DEFINITIONS
Buy: The stock's return is expected to exceed 12.5% over the next twelve months.
Neutral: The stock's return is expected to be plus or minus 12.5% over the next twelve months.
Sell: The stock's return is expected to be negative 12.5% or more over the next twelve months.
Investment Ratings are determined by the ranges described above at the time of initiation of coverage, a change in risk, or a change
in target price. At other times, the expected returns may fall outside of these ranges because of price movement and/or volatility. Such
interim deviations from specified ranges will be permitted but will become subject to review.
RATINGS DISPERSION AND BANKING RELATIONSHIPS (AS OF 1/31/12)
Buy: 76% (31 % are banking clients)
Neutral: 24% (10% are banking clients)
Sell: 0% (0% are banking clients)
COMPANY SPECIFIC DISCLOSURES:
Avista Corp (AVA-$25.94-NEUTRAL)
IDACORP (IDA-$42.04-BUY)
Portland General Electric (POR-$25.24-NEUTRAL)
Ladenburg Thalmann & Co. Inc. does not make a market in Avista (AVA), IDACORP (IDA), Portland General Electric (POR).
Ladenburg Thalmann & Co. Inc. has not had an investment banking relationship with AVA, IDA, POR nor received compensation for
investment banking services in the past 12 months. Neither the Analyst, nor members of the Analyst's household own any securities
issued by AVA, IDA, POR.
For Company-specific information, please write to Ladenburg Thalmann & Co., Inc, Attention: Research Department, 520 Madison
Ave, New York, NY 10022, or call 212-409-2000 or 800-LAD-THAL
GENERAL DISCLAIMERS
Information and opinions presented in this report have been obtained or derived from sources believed by Ladenburg Thalmann & Co.
Inc. to be reliable. The opinions, estimates and projections contained in this report are those of Ladenburg Thalmann & Co. Inc. as of
the date of this report and are subject to change without notice.
Ladenburg Thalmann & Co. Inc. accepts no liability for loss arising from the use of the material presented in this report, except that
this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to
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Ladenburg Thalmann & Co. Inc. may have issued, and may in the future issue, other reports that are inconsistent with, and reach
different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and
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higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Ladenburg
Thalmann & Co. Inc. research reports may not be suitable for some investors. Investors must make their own determination as to the
Ladenburg Thalmann & Co. Inc. PAGE - 7 -
Brian Russo 646.432.6312 INDUSTRY UPDATE
appropriateness of an investment in any securities referred to herein, based on their specific investment objectives, financial status
and risk tolerance.
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express or implied, is made regarding future performance. The price, value of and income from any of the securities mentioned in this
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the potential losses may exceed the amount of initial investment and, in such circumstances; you may be required to pay more money
to support these losses.
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considered as an offer or the solicitation of an offer to sell or to buy any securities mentioned herein. This publication is confidential for
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information or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or
estimate set forth herein, changes or subsequently becomes inaccurate. This report provides general information only.
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