Avista Corp. Q3 2009 Earnings Call Transcript

Oct.28.09 | About: Avista Corporation (AVA)

Avista Corp. (NYSE:AVA)

Q3 2009 Earnings Call

October 28, 2009; 10:30 am ET

Executives

Scott Morris - Chairman of the Board, President & Chief Executive Officer

Mark Thies - Senior Vice President & Chief Financial Officer

Jason Thackston - Vice President of Finance

David Meyer - Vice President & Chief Counsel for Regulatory & Governmental Affairs

Christy Burmeister-Smith - Vice President, Controller & Principal Accounting Officer

Jason Lang - Manager, Investor Relations

Analysts

Paul Ridzon - KeyBanc

Brian Russo - Ladenburg Thalmann & Co.

James Bellessa - D.A. Davidson & Co.

Chris Ellinghaus - Shields & Co.

Paul Ridzon - Key Bank

Operator

Ladies and gentlemen and welcome to the third quarter Avista Corporation earnings conference call. My name is Ann and I will your coordinator for today’s call. (Operator Instructions) As a reminder this conference is being record for replay purpose. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session following the presentation.

I’d now like to turn the presentation over to Mr. Jason Lang, Investor Relations Manager. Please proceed, sir.

Jason Lang

Thank you, Ann. Good morning everyone and welcome to Avista’s third quarter 2009 earnings conference call. Our earnings were released pre-market this morning and the release is available on our website at www.avistacorp.com.

Joining me this morning are Avista Corp, Chairman of the Board, President and CEO, Scott Morris; Senior Vice President and CFO, Mark Thies; Vice President of Finance, Jason Thackston; Vice President and Chief Council for Regulatory and Governmental Affairs, David Meyer; and Vice President, 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. A reference to the various factors which could cause actual results to differ materially from those discussed in today’s call, I will direct you to our Form 10-K 2008 and Form 10-Q for the period ended June 30, 2009, which are available on our website.

To begin this presentation I’d like to recap the financial results presented in today’s press release. For the third quarter of 2009, our consolidated net income was $0.15 per diluted share compared to net income of $0.13 per diluted share for the third quarter of 2008. On a year-to-date basis our earnings were $1.18 per diluted share compared to $1.04 per diluted share for the first nine months of 2008.

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

Scott Morris

Thank you, Jason, and good morning everyone. We’re pleased with our 2009 results through September 30. Our continued solid financial performance keeps us on tract to meet our earnings expectation for the year. We are expecting to be at the upper end of our range for consolidated and utility earnings for 2009. We continue to make progress in the timely recover of our costs and capital investments we’re making in our generation, transmission and distribution infrastructure.

New rates went into effect in Idaho August 1 and in September we reached an all party settlement in our Oregon natural gas general rate case. As approved by the Oregon commission new rates will become effective in Oregon on November 1. As part of the settlements we have agreed to refund a total of $2.4 million to our Oregon customers related to Oregon Senate Bill 408 over two month period, November and December of 2009.

This refund is approximately equal to the new revenue from the general rate increase for this period. In Washington we reach the partial settlement in our general electric and natural gas rate case in September. The settlement resolved issues in the areas of cost of capital, power supply, rate spread and rate design and funding under the low income rate-payer assistance program.

Issues in the case that remain unresolved include, among others, the prudence and timing of the addition of the power purchase agreement for the Lancaster plant. Capital additions to rate base, labor costs, tree trimming costs, information systems costs and the proposed continuation of the natural gas decoupling mechanism. These issues are being addressed in further regulatory proceedings before the WUTC.

We expect a decision from the WUTC on the remaining issues and new rates to become effective by the end of the 2009, some eleven months after the case was initially filed. In November we will be lowering natural gas rates for customers in all jurisdictions because of a decline in wholesale prices. These purchase gas adjustments are designed to pass through changes in natural gas costs to our customers with no change in gross margin or net income.

Since beginning of the year, when considering all rate changes effective through November 1, residential natural gas rates will have decreased 30% in Idaho, 28% in Washington and 12% in Oregon. Also contributing to our improvement in results for 2009 are lower interest costs and a decrease in income tax expense. The decline in interest expense was primarily the result of financing transactions and decisions we made in 2008 and 2009. In September we issued $250 million of 5.125% debt due in 2022.

I would like to comment about the economy and our service territory. We’re observing declines in employment throughout our service area due to cutbacks and construction, forest products, mining and manufacturing. Unemployment rates are much higher than a year ago in our Eastern Washington, and Northern Idaho, and Southern Oregon service areas. The housing markets in Spokane, Coeur d’Alene, Idaho and Medford, Oregon are showing year-over-year increases in permits, but the commercial construction markets remain weak.

We plan to investment in generation, transmission and distribution systems with a focus on continuing to enhance service reliability for our customers. Utility capital expenditures were $141 million for the nine months ended September 30, 2009. We expect utility CapEx to be approximately $210 million for 2009. We’re expecting CapEx for $210 million for 2010. Excluding potential costs associated with wind generation and projects associated with stimulus funding.

The American Recovery and Reinvestment Act, known as ARRA includes almost $80 billion of stimulus funding in areas that have some relation to electric and natural gas utilities, such as Avista and just yesterday, we received notification of an award from the Smart Grid Investment Grant Program, the deployment of Smart Grid enabling technologies in the Spokane area. The total project costs are estimated to be $40 million, of which we will contribute approximately 50% and the project will be completed over a three year period.

In August, the Northwest submitted an application for consideration for regional Smart Grid demonstrate project. This project is comprised of 12 regional utilities located in five Northwestern states that include six cost shares of partner vendors. The proposal is assumes that 50% cost share from the Department of Energy.

Our portion of the project is located in Pullman, Washington and it’s estimated for a total cost of $38 million. If approved, we expect to fund $13 million, DOE would fund $19 million and our cost share partners would fund $6 million. The Smart Grid demonstration project would spend the funds over the course of five years and a decision by the DOE on the award is expected in December of 2009.

In August, we filed our 2009 Electric Integrated Resource Plan with the WTC and the IPUC and highlights of IRP include up to 150 megawatts of wind by 2012 and additional 200 megawatts of wind power by 2022, 750 megawatts of clean burning natural gas fired generation, aggressive energy efficiency measures to reduce generation requirements by 26% or 399 megawatts. Transmission upgrades that are needed to integrate new generation resources and hydroelectric upgrades at existing facilities that will generate additional renewable energy.

Based on resource acquisition goals identified in IRP, we’re evaluating proposals from suppliers to provide us with up to 35 average megawatts of long term qualified renewable energy by 2012, in order to take advantage of federal and state tax incentives. The amount of renewable resources in future RFPs could change of the cost effect in this resource changes.

As you recall in 2008, we completed acquisition of development rights for wind generation site near Reardan, Washington, contingent on the results from evaluating proposals from suppliers we could construct this generation facility of at least 15 average megawatts an estimated cost of over $125 million.

We’re continuing to evaluate the timing of this project relate to the investment tax credit rules and sales tax exemption rules in Washington State. Based on the supplier proposals and analysis of various options to meet our renewable energy needs, we may accelerate the deployment of capital related to the wind generation site and/or increase the capacity.

Overall, especially considering economic conditions, I’m pleased with the progress we have made in 2009 and I believe we are well positioned to continue our earnings growth in 2010 and beyond. So, now I would like to turn the presentation over to Mark Thies and Mark will provide details on the performance of our business, liquidity financing activities dividend information and earnings guidance.

Mark Thies

Thank you, Scott and good morning everyone. Avista Utilities contributed $0.13 per diluted share for the third quarter of 2009 compared to $0.12 in the same period in 2008. On a year-to-date basic our utility operations contributed $1.15 per share, an increase from $0.96 period in 2008. The improvement in our year-to-date results was primarily a result of increased gross margin due to the implementation of new retail rates in Washington and Idaho.

The increased in net income was also due to a decrease in interest expense and income tax expense. The interest expense decrease was due to the effect of refinancing higher cost debt with lower cost long term debt and lower interest costs on our short term borrowings. An adjustment to reconcile our 2008 federal income tax return to the amount included in the financial statements for 2008 resulted in a $3.2 million decrease to income tax expense for the third quarter of 2009.

These positive impacts on net income were partially offset by an increase in other operating expenses, depreciation and amortization and taxes other than income taxes. In addition, in the third quarter of 2008 we reported $5.7 million of internet income partially offset by $1.4 million of interest expense related to income tax settlements in that period.

We absorbed $2 million of expense under the Washington Energy Recovery Mechanism in the third quarter of 2009 compared to a benefit of $0.1 million in the third quarter of 2008, which decreased electric gross margin and income from operations by $2.1 million in the third quarter of ‘09 as compared to the same period in ‘08.

We absorbed $6.1 million of expense under the ERM in the first nine months of 2009 compared to $7.3 million in the first nine months of 2008; which increased electric gross margin and income from operations by $1.2 million in the first nine months of 2009, compared to the same period in ‘08. We expect to be in a benefit position under the ERM by the end of the 2009 due to lower wholesale electric and natural gas field prices and the amounts included in our retail rates.

Partially offset by the negative impact from the extended outage at our Colstrip plant. Utility revenues in the nine months ended September 30, decreased $127.8 million as a result of decreased natural gas revenues of $127.2 million and decreased electric revenues of $0.6 million. The decrease in natural gas revenues was primarily the result of decreased wholesale revenues of $112.2 million and retail natural gas revenues of $17 million.

The decrease in natural gas wholesale revenues reflects the decrease in natural gas prices partially offset by increase in sales volume. The decrease in natural gas sales primarily reflects the decrease in sale volumes due to whether. The decrease in electric revenues was primarily due to decreases in wholesale revenues of $44.2 million and sales of fuel of $11 million partially offset by increased retail revenues of $54.8 million. The increase in retail revenues was primarily due to general rate increases.

Resource costs for Avista utilities decreased $163.6 million due to decreases in natural gas resources of $130.6 million and electric resource cost of $33 million. The decrease in natural gas resource cost primarily reflects a decrease in the price of natural gas purchases, the decrease in electric resource costs primarily reflects a decrease in fuel costs.

Utility operating expenses increased $17.2 million primarily due to an increase of $6.6 million in electric generation OEM expenses, an increase of $2.6 million in natural gas and distribution service costs, as well as $8.2 million increase in pension and other post-retirement costs.

As Scott mentioned earlier in September we issued $250 million of 5.125% first mortgage bonds due in 2022. The net proceeds from the issuance of $249.4 million were used to retire variable rate short term borrowings outstanding under our $320 million committed line of credit and for general corporate purposes. In conjunction with the issuance of the long term debt we settled interest rate swap agreement and receive the total of $10.8 million this resulted in effective borrowing rate of 4.9%.

As of September 30, 2009 we had a combined $513 million of available liquidity under our $320 million committed line of credit, $200 million committed line of credit and $85 million revolving accounts receivable sales facility. Our $200 million credit facility expires in November, 2009 and we’re in the process of renewing this credit facility at a reduced level. We don’t expect that to exceed $100 million.

We have a sales agency agreement to issue up to 2 million shares of common stock from time-to-time and we issued 750,000 shares under this agreement in 2008. We continue to evaluate issuing common stock in future periods. However, we are not currently planning to issue common stock for the remainder of 2009 other than for compensatory plans and direct stock purchases for the dividend reinvestment plan.

As Scott mentioned earlier we expect capital expenditures to be $210 million for 2010. Excluding the cost for wind generation projects and projects associated with the stimulus funding. We’re planning on issuing long term debt and common stock in 2010 in order to finance a portion of our capital expenditures and maturing long term debt, while maintaining our capital structure at an appropriate level for our business.

Due to market conditions and the decline in the fair value of pension plan assets, we contributed $48 million to the pension in 2009. Our annual contribution represents a significant increase compared to the $28 million we contributed in 2008. We expect that our contribution for 2010 will be approximately $21 million. The determination of pension plan contributions for future periods is subject to multiple variables.

Most of which are beyond our control and we will continue to evaluate the changes in actuarial assumptions. Advantage IQ’s net income attributable Avista Corp. for the first nine months was lower than the first nine months of 2008. This was primarily due to a decrease in the interests earnings on funds held for customers due to lower interest rates and reduced ownership percentage in the business as a result of the acquisition of Cadence network, effective July 2008.

On August 31, 2009 Advantage IQ acquired Ecos Consulting Inc a Portland, Oregon-based energy efficiency solutions provider. The acquisition of Ecos was funded primarily through borrowings under Advantage IQ’s committed credit agreement. Under the terms of the transaction, Ecos is a wholly-owned subsidiary of Advantage IQ and had about $19 million in revenues for the 12 months ended September 30, 2009.

For the first nine months of 2009 total revenues increased 32% from an increase in service revenues, partially offset by decrease in interest revenue. For the first nine months of 2009 revenue increases included revenue as a result of the acquisition of Cadence in July, 2008. The first nine months of 2009 Advantage IQ managed bills totaling $13.5 billion, an increase of $1.2 billion for 10% as compared to the first nine months of 2008.

The acquisition of Cadence network added $1.8 billion of managed bills for the first nine months of 2009, compared to ‘08. Advantage IQ continues to experience slower internal growth than was originally expected as some of its customers are experiencing bankruptcies and store closures in these tough economic times. The weak economy has also resulted in slower than expected customer growth.

Additionally, interest revenue will be lower for 2009 due to the historically low short term interest rate environment that Advantage IQ is currently experiencing. In the first nine months of 2009, we absorbed some market losses on venture fund investments of 0.9 million, due to overall economic conditions as well as an accrual of $0.3 million of an environmental liability. These were the primary drivers of a net loss attributed to Avista Corporation of $2 million in our other businesses.

As we have indicated in past calls, management intends to recommend to the board, considered gradually increasing the dividend payout ratio to be more in line with the payout ratio for the utility industry; which currently is approximately 60% to 70% of earnings.

In September 2009, Avista Corp. paid a quarterly dividend of $0.21 per share on the company’s common stock. The board considers the levels of dividends on a regular basis, taking into account numerous factors including business results, business strategies and economic and competitive conditions. The declaration of dividends is within the sole discretion of the board.

We are confirming our 2009 guidance, for the consolidated earnings to be in a range of $1.45 to $1.60 per diluted share. We expect Avista utilities to contributing is in the range of $1.40 to $1.50 per diluted share for 2009. Our outlook for Avista Utilities, assumes among other variables normal precipitation, temperatures and hydroelectric generation for the fourth quarter.

We are expecting to be at the upper end of our consolidated and utilities guidance for 2009. However, despite recent rate increases, these results still did not reflect full recovery of utility capital investments in operating costs to serve customers. We expect Advantage IQ to contributing in the range of $0.09 to $0.11 per diluted share and other businesses to be between a loss of $0.04 and a gain of $0.01 per diluted share.

With this release we are initiating our 2010 guidance for consolidated earnings to be in the range of $1.55 to $1.75 per diluted share. We expect Avista Utilities to contribute in the range of $1.45 to $1.60 per diluted share for 2010. Our range for Avista Utilities encompasses the variability in power supply costs and resulting impact in the energy recovery mechanism.

Our outlook for Avista Utilities assumes among other variables, normal precipitation, temperatures and hydroelectric generation. We expect Advantage IQ to contribute in the range of $0.10 to $0.13 per diluted share and the other businesses to be between a breakeven and contribution of $0.02 period.

Although recent rate settlements in Idaho and Oregon and the expected resolution of our Washington rate case by the end of 2009 provide progress in the recovery of utility costs, we will continue to experience regulatory lag in 2010 due to a delay in the recovery of incremental capital investments and increased operating expenses. We plan to file new general rate cases in all three states in the first half of 2010, and more closely align returns allowed with those authorized by the regulators.

I will now turn the call back to Jason.

Jason Lang

Thanks Mark. Now, we’ll open this call up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Paul Ridzon - KeyBanc.

Paul Ridzon - KeyBanc

Hand full of questions, one is can you review, how we earned for the forward looking, we’ll be set and will be set?

David Meyer

The ERM for the ERM always gets reset when complete our power supply costs in our rate case and we just have a tentative settlement subject to the commission approval that would have with our on the power supply and capital structure that we reached in September. So we still have to go through the approval process with the Commission on that, but that will set our power supply costs, in which we will calculate ERM for 2010.

Paul Ridzon - KeyBanc

You just look at the gas trip is a big driver of how that is set?

David Meyer

Yes, we’ll look at well in power costs, but the gas strip, gas is a driver of that, but also forward power costs.

Paul Ridzon - KeyBanc

What takes you from $6 million absorption of the ERM to positive in the fourth quarter?

David Meyer

A lot of that is the same very similar, that the comparison of the current natural gas strip in the fourth quarter and power costs compared to what we had in our rates effective as of January of 2009.

Paul Ridzon - KeyBanc

You are currently based on $8 gas strip? I s that the number?

Mark Thies

Yes. $8 in change.

Paul Ridzon - KeyBanc

Then from a rate making perspective and I guess regulatory balance sheet, what is going to happen to the stimulus funds? Was that go in its equity, obviously you can’t earn on it, but what is that due to the regulatory capital structure?

Mark Thies

I think it’s just CapEx.

Scott Morris

Contribution to eight construction.

Paul Ridzon - KeyBanc

So you’re going to spend some $19 million of government funds on smart meters?

Mark Thies

We don’t expect to get any earnings on that.

Scott Morris

I mean, we will get to spend that. The government will pay for it, but we don’t expect to add that to rate based and to get to earn on it. We will get to earn on what we spend in our share of that contribution, that matching share. That’s what we’ll get to put in rates, the other I’ll get pay. The customers will get the benefit of the capital that we deploy, but we’re not going to get to earn on that.

Paul Ridzon - KeyBanc

So it has no impact on equity layer?

Scott Morris

It should have no impact.

Paul Ridzon - KeyBanc

Then going from ‘09 to ‘10, is got any improvement in the other segments, what’s driving that?

Scott Morris

I mean in the tough economic times, we’ve had some reductions in certain of those funds. We anticipate that turning around. We’re not look to generate in significant earnings, we just think that the losses should slow down and get to a positive in that segment and it’s a pretty small number.

Paul Ridzon - KeyBanc

Is there any progress in kind of exiting those businesses or is that just not the right time to do that?

Scott Morris

We don’t think it’s the right time to exit the businesses, given the current economic condition.

Operator

Your next question comes from Brian Russo - Ladenburg Thalmann & Co.

Brian Russo - Ladenburg Thalmann & Co.

Could you be a little bit more specific on your external capital needs in 2010? You mentioned you’ll raise both debt and equity. Will the equity be accomplished through your sales agreement?

Mark Thies

Here is how we look at it. When we have approximately $210 million of CapEx expected, and our dividend at the current rate is approximately $45 million. So if you have $255 million of needs of capital need, we generate around $170 million to $175 million of cash out of our existing business on a trailing 12 month base, assuming income is about $82 million depreciation around $90 million.

So that leaves us with a need of about $80 million to $85 million and to maintain a reasonable capital structure would look at around a 50/50, just for example purposes, what we would need from an equity or debt perspective, that gives you some range of that expectation, to maintain our consolidated balance sheet. We’re about 47% equity as of September 30.

Brian Russo - Ladenburg Thalmann & Co.

So will the sales agreements of 1.25 million shares left, if will that satisfy your external equity needs?

Mark Thies

If we’re at $80 million to $85 million for the year and we have an expectation of around 50%. Let’s assume it’s on those calculations, $40 million to $42.5 million and where we’re trading at now, no, the $250 million won’t be enough. We anticipate applying to get another two million shares on that agency, renewing the program for 2010. We were look to go in and file to be able to do that and with that we would expect that to be able to cover any needs.

Brian Russo - Ladenburg Thalmann & Co.

So we can expect incremental shares outstanding by year end of $2 million for updated sales agreement plus the remaining $1.5, so the total of $3.5 million, on top whatever your shares outstanding are now?

Mark Thies

No. What we’re looking at raising and it’s equity, between $40 million and $50 million roughly and over the course of the year and we haven’t set out specifically how we would do it and let’s assume we’re around $20 today is where our stock is around that’s to get to that number, it’s 2 million to 2.5 million shares.

Brian Russo - Ladenburg Thalmann & Co.

Just on the 2010 guidance, what kind of assumptions is you making to get you through the mid point in terms of say lower growth.

Mark Thies

It’s about 1.5% low growth in our expectations, which we’ve had a long running consistency on that. So, that’s our expected low growth.

Brian Russo - Ladenburg Thalmann & Co.

Okay and correct me if I’m wrong, but I think in your consolidated tables it looks like lower growth until what our sales were relatively flat in the third quarter, to slightly down as well as flat to slightly down in the nine months ended. Is that accurate?

Mark Thies

Yes.

Brian Russo - Ladenburg Thalmann & Co.

So you’re expecting a pick up maybe in the fourth or at least in 2010?

Mark Thies

That is correct.

Brian Russo - Ladenburg Thalmann & Co.

Can you just update us on any transmission projects that are being proposed that you might be involved in the Northwest?

Mark Thies

No, still Brian really too early around the Pacific gas and electric transmission line of has been proposed. We’re still actively engaged in negotiations and planning around that, but see no significant capital expenditures on that project in 2009 or 2010. So still on a study mode and to be determined and just normal what I’d call normal transmission for reliability purposes in our service territories.

So, no large transmission projects and again with our wind projects what we’re excited about is if we do choose to build wind early we have data transmission near those wind projects and we do not need to put any significant transmission investment to build the wind.

Brian Russo - Ladenburg Thalmann & Co.

Will the wind project need additional equity above and beyond what you laid out early, should above the CapEx profile you had so for?

Mark Thies

It’s a three year project, so over the course of time, we’ll continue to capitalize the company to maintain a prudent balance sheet. We want to have our strong investment grade ratings and maintain our capital for what we have allowed by our commissions, butut that capital will be spent over a three year period. So the incremental equity over that period, there maybe some as we go forward, yes.

Brian Russo - Ladenburg Thalmann & Co.

Advantage IQ I think in the press release when you announced the acquisition of Ecos and you convey that was a creative, can you quantify that in terms of its impact 2010?

Mark Thies

It’s included in the expectations for the $0.10 to $0.13 for Advantage IQ. It’s not a significant impact, but we do expect it to be accretive.

Operator

Your next question comes from James Bellessa – D.A. Davidson & Co.,

James Bellessa – D.A. Davidson & Co.

Earlier in the year when you were providing earnings guidance, did you anticipate the third quarter tax benefit of $3.2 million are $0.06 of share?

Scott Morris

No, again we do our accrual every third quarter and there times it can be up there times going to be down last year in ‘08 we had a positive in the third quarter, 5.7 less $1.4 million on a pre-tax basis. So we had a positive then and we had a positive this year, but we didn’t have that expected. We don’t know that until we file our return and do all of our analysis.

James Bellessa – D.A. Davidson & Co.

So you did not anticipate it, but when you got to the August earnings report and you increased your outlook for your utility, did you then have an anticipation you were going to get a benefit or is that something that later on in the quarter happened?

Scott Morris

Yes, even filed our return yet. So, we worked through in September we file our return, so we did not have an expectation that it would be that much of a benefit when we did our August numbers.

James Bellessa - D.A. Davidson & Co.

Now, therefore why doesn’t your earnings band for the utility go up by that $0.06 for this year that you are still repeating what you were saying last August?

Scott Morris

Now what we added was that we’ll be at the upper end range. So Jim, we have provided some commentary that we didn’t change our range, but we expect it that our position within that range will be at the upper end of the range.

James Bellessa - D.A. Davidson & Co.

That’s also for consolidated business, so that you’re saying not just the utility, but the overall business guidance you expect at the upper end of the range?

Scott Morris

For both the utility and consolidate. So that is the change.

Operator

Your next question comes from Chris Ellinghaus - Shields & Co.

Chris Ellinghaus - Shields & Co.

I apologize. I think I missed a piece of the ERM discussion. Relative to prior quarter comments where you were suggesting that the ERM would be positive in the second half of the year, were you specking at that point to have drag of $2 million for the quarter?

Mark Thies

I think we anticipated that the third quarter would have some drag and then it would turnaround in the fourth quarter. Really, we just speak to it. It’s an annual calculation and we just speak to where we expected to be at the end of the year and we said at that time we expected to be on a positive side. We continue to expect to be on the positive side on the ERM.

Chris Ellinghaus - Shields & Co.

Okay that $2 million is an after tax number?

Mark Thies

No, that is a pretax number.

Chris Ellinghaus - Shields & Co.

Also with Advantage IQ, the slight positive swing year-over-year, what was that attributable to?

Scott Morris

Chris, it’s a number of things. It’s continuing to add new customers continuing to expand in our consulting areas. Again while it hasn’t been the traditional growth that we’ve seen, year-over-year we’re still seeing anywhere around 10% growth, roughly in the business. So those consolidated revenues that continue to grow because of business performance.

Mark Thies

We did pick up the Cadence acquisition mid year in 2008. So we had it for the full period in 2009. Now we did also offsetting that is that we don’t have the same ownership. We have 75% ownership. We did get experience slightly and we did Ecos for the month of September.

Chris Ellinghaus - Shields & Co.

Does that also include any kind of transaction expenses year-over-year as a delta?

Mark Thies

The expenses are included in how we account for the acquisition, yes.

Chris Ellinghaus - Shields & Co.

There was one comment that Scott made, on the Oregon settlement. Can you just go over the offsetting factor there that you had in the settlement.

Scott Morris

Chris, I’m going to let David Meyer, our Chief Regulatory Counsel walk you through the Oregon step and Senate Bill 408.

David Meyer

Chris, this is David. In that settlement, well let me back up. We had originally file for just an excess of $12 million and through negotiation we settled out at $8.8 million, but one of the advantages of the settlement was to bring those new rates into effect early, much earlier that 2010 implementation date.

So they would be in effect on November 1 and that allowed us to get more revenues for the months of November and December, which happened to offset almost entirely a refund obligation under Senate Bill 408 of $2 million. So we’ll work off essentially that refund obligation over the next two months and then starting January 1 of 2010, we’ll begin with earnings from that $8.75 million settlement.

Chris Ellinghaus - Shields & Co.

Was that by design?

David Meyer

Yes.

Operator

Your next question comes from Paul Ridzon - Key Bank

Paul Ridzon - Key Bank

On the second quarter call you talked about being in the $4 million to $10 million ERM band. Is that still reasonable?

Mark Thies

In the 75, 25 share, we expect to be within the $4 million debt band. We’re pretty close to whether we get to that other band or not, it hasn’t moved significantly, but it has moved slightly down.

Paul Ridzon - Key Bank

What’s go on at Colstrip?

Mark Thies

We expected to be online no later than mid-November. So we feel pretty good about it.

Paul Ridzon - Key Bank

Still expecting to incur about $10 million of losses from that?

David Meyer

That’s all incorporated all of the amounts are incorporated within the power supply cost and ERM. That’s built included in our expectations for ERM for this year.

Paul Ridzon - Key Bank

Previous management always kind of talked about as soon as IQ got to about $100 million of revenues, it was probably time to start thinking about exit strategy. What is your thought process around that?

David Meyer

Paul, we are going to continue to execute on our strategies around Advantage IQ, and what we’ll do is continue to see opportunities in that business. Remember when we say ‘Monetize,’ that doesn’t necessarily mean, we’re going to a set a value for the business, where we monetize as we might obviously, keep a portion or the majority of the business. It will give our partner and opportunity to exit the business, if they so choose.

So we’ll continue to look at that in the 2011-2012 timeframe, but we’ve got some great opportunities to continue to grow the business and with the acquisition of Ecos and with the focus on sustainability and energy-efficiency in these markets, Ecos brings tremendous expertise to continue to allows us to growth our consulting services and providing more products and services to our customers. So we’re going to continue to execute around those strategies and we’ll see where it takes us.

Paul Ridzon - Key Bank

Are you seeing any more rollup-type acquisition potential out there?

David Meyer

You’re always having our eye on the marketplace and if this is opportunities, we’ve certainly take advantage of them.

Operator

Your final question comes from James Bellessa - D.A. Davidson & Co.

James Bellessa - D.A. Davidson & Co.

The question about Advantage IQ, you cite in the press release managed bills totaling $13.5 million for the first nine months, but if you ex out Cadence and Ecos, it looks to me like they were down over half a billion dollars. Can you explain that or discuss that, please?

David Meyer

We did have some decline, Jim, in overall managed bills I mean, some of them are, we had some client based reductions and just some reductions that have occurred just in as well as some of that is timing of what dollars where we’re getting to build, what we’re managing in that. Overall as we’ve seen utility operations, gas prices has come down. Electric has stabilized. So we can see some have some expected lowering in bills just as we’re seeing that with our own customer base. So it’s not overly concerning, but you are accurate it has come down.

James Bellessa - D.A. Davidson & Co.

During the current recession, are you picking up market share or losing market share?

David Meyer

We have actually added overall slightly to our accounts that we manage. It’s not a significant number, but we have seen an addition. We have had some losses and we have had some pick ups in accounts, but on a net basis, we have a slight increase in accounts, which given these tough economic times we feel pretty good about.

Operator

Ladies and gentlemen, this concludes today’s question-and-answer session. I would now like to turn the call back over to Jason Lang for closing remarks.

Jason Lang

Thank you all for joining us today. We certainly appreciate your interest in our company. Have a great day

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