Good day, ladies and gentlemen, and welcome to the Avista Corporation second quarter 2012 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Jason Lang, Investor Relations' Manager.

Good morning, everyone. Welcome to Avista's second quarter 2012 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; Senior Vice President and CFO, Mark Thies; Senior Vice President and President of Avista Utilities, Dennis Vermillion; Vice President of State and Federal Regulation, Kelly Norwood. I would like to remind everyone that some of the statements that will be made today are forward-looking statements that involve assumptions, 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, please refer to our Form 10-K for 2011 and our Form 10-Q for the first quarter of 2012, which are available on our website. To begin this presentation, I'd like to recap the financial results presented in today's press release. Our consolidated earnings were $0.31 per diluted share for the second quarter of 2012 compared to $0.39 for the second quarter of 2011. On a year-to-date basis our consolidated earnings were $0.96 per diluted share for 2012 compared to $1.12 for 2011. Now, I'll turn the discussion over to Scott Morris.

Thank you, Jason, and good morning, everyone. Avista's earnings for the second quarter and first half of 2012 were below our expectations largely because retail loads were lower than we anticipated. The continued weak economy and operational challenges at certain industrial customers resulted in lower retail sales volumes. Based on results for the first half of the year and a reduction in our forecasted loads for the remainder of 2012, we expect our consolidated and utility earnings to be at the lower end of our guidance range for the year. This spring we had above average precipitation and streamflows, which resulted in strong hydroelectric generation in the second quarter and first half of 2012. In addition, purchased power and natural gas fuel prices are below the level included in base rates, which ultimately benefits both customers and shareholders. We continually strive to reduce cost and improve efficiency and productivity in our utility business. The net decrease and other operating expenses was driven by decreased electric maintenance cost, which included the regulatory deferral of certain maintenance cost and reduced outside services, partially offset by increased expenses for pension and post-retirement benefit. Results from Ecova, our primary unregulated subsidiary, improved in the second quarter of 2012 as compared to the first quarter of 2012. The costs of completing the acquisitions of Prenova in November 2011 and LPB Energy Management in January of 2012, and the accelerated pace of integrating the companies in the first quarter resulted in a decrease in earnings for the first half of 2012 as compared to 2011. The acquisitions increased Ecova's market share and allow Ecova to offer its clients a broader range of services leading to potential future earnings growth. Ecova's revenues continue to grow as it expands its customer base. We expect the business to have…

Thanks, Scott. Good morning, everyone. For the second quarter of 2012, utility earnings contributed $0.31 per diluted share, which is a decrease from $0.36 in the second quarter of last year. On a year-to-date basis, utility earnings contributed $0.97 per diluted share, a decrease from $1.06 last year. The decrease in quarterly and year-to-date earnings was primarily due to decrease in gross margin and partially due to expected increases in depreciation, amortization and interest expense. The decrease in gross margin was primarily due to warmer weather. It was also due in part to the continued economy and lower energy usage at certain industrial customers, which we expect to be temporary that reduced retail loads. These decreases and energy usage were partially offset by general rate increases and a decrease in operating cost. Heating degree days in Spokane were close to historical average for 2012, but were 21% lower than the second quarter of 2011, and 9% lower than the first half of 2011. For the second quarter of 2012, we recognized a benefit of $1 million under the energy recovery mechanism compared to an expense of $0.2 million for the second quarter of 2011. For the six months ended June 2012, we recognized a benefit of $5.1 million under the energy recovery mechanism compared to $4.7 million in the six months of June last year. We expect the benefit under the ERM for the full year of 2012 to be within the 90% customer, 10% company sharing band. This is primarily due to natural gas fuel prices below the amount included in base rates, and as Scott mentioned, the above normal hydroelectric generation. Ecova's year-to-date revenues increased $18.1 million as compared to the first half of 2011 and totaled $77.1 million. The acquisitions of Prenova and LPB added $11.6 million…

Thank, Mark. And now, we'll open the call for questions.

(Operator Instructions) And our first question comes from the line of Michael Klein with Sidoti & Company. Michael Klein - Sidoti & Company: Just on the guidance, what gives you confidence, you didn't hit your guidance range at Ecova. I mean it implies a pretty significant jump in the back half?

You're correct. We made $0.01 per share in our guidance to $0.16 to $0.19. A lot of that has to do with the timing of the revenues that certain of their programs tend to be later in the year. And we do expect to have more significant revenue growth in the second half of the year as compared to the first half of the year. And we believe we'll be able to be in our guidance range. Michael Klein - Sidoti & Company: And in terms of costs at Ecova, are those expected to wind down in the back half of the year as well or is the earnings guidance driven mainly by revenue?

The guidance is primarily driven by revenue. The cost we did incur in the first quarter and acceleration of certain integration costs. But we continue to work with that integration. It's not completed as of the first quarter. But we had an acceleration of cost, so we expect some cost to continue to be incurred, but is largely driven more by revenue growth in the second half of the year. Michael Klein - Sidoti & Company: I guess, given the cost and the revenue ramp right now that we're expecting. When do you expect to hit a normalized run rate? Do you think we'll exit 2012 kind of on a run rate that we can expect as a harbinger for future growth going forward or is that still a little early?

I think, when we get through 2012, again the acquisitions occurred in November of last year as well as January of this year, so we'll have almost a complete year for both of those acquisitions. So by the end of the year, we should have a pretty good sense of what our revenues are, and then we would expect to continue to have organic revenue growth, because of the position we have. We think there is a lot of runway left to continue to grow our business organically as well as we will continue to look for potential acquisitions if they fit and add to our businesses we have today. And we've done that for the past several years. Michael Klein - Sidoti & Company: And last question, switching over to the utility. You said some operational challenges at industrial customers. Does that imply that there maybe a one-time event, is it more temporary or is this maybe something of a more permanent nature?

Mike, just for example, we had a large silver mine in North Idaho that had to close down for some safety reasons, but are starting to ramp up again and have been cleared. So we expect to have work come back. So that's a great example. We currently have a large paper manufacturer that's had some machine problems and motor problems. They're fixing that and it will take some time for them to get new equipment. So, yes, the industrial loads on those two examples are temporary.

And our next question comes from the line of Paul Ridzon with KeyBanc.

Are those two customers kind of the biggest drag?

The biggest drag for the results, no. They are a portion of the drag. The overall economy is probably the biggest drag. Overall, our results across commercial and industrial loads were more than those customers. Those customers probably represented, I don't know, 20% to 30% of our drag. I mean that's a meaningful number, but it's not the majority. The majority is the overall economy is slower than what our expectations were. And we have seen the results in the first half and we also changed our forecast to look forward, and say, we expect that to continue. It's just not recovering this fast.

And then, secondly in the commentary about the utility, you said that operating cost were down. When I look at the consolidated income statement other operating costs seem to be up. Is that all that Ecova's at?

Yes, that would be the difference. And again, that's largely due to some growth and operating cost to prepare for the additional revenue and the acquisitions that we did last year and beginning of this year.

How much of that is in acceleration of cost as opposed to what we expect to be a normal run rate?

Well, what we said was that the transactional cost was $1.5 million in the first quarter related to that. And that's the only number that we've given out. The rest are just part of cost, as part of their business.

But that the goodwill amortization shows up in depreciation, correct?

Correct. And yes, it does.

And our next question comes from the line of Brian Russo with Ladenburg Thalmann.

Could you breakdown the EPS variance between weather and the slowdown or operational issues in industrial sales or equity economy?

What we've said is really from a year-over-year perspective, we are down about 9% from weather from a degree day perspective, but really it was close to normal. On our forecast, we try to include normal. Most of our issue for the year, and going forward, for the outlook for guidance is related to the economy and the operational challenges that we had at the certain customers, as Scott described. So we said actually specifically in our guidance, $0.10 to $0.12 is what that impact is. That includes six-months to date and our forecasted expectation of continued weakness.

Could you update us on what your updated load forecast is for the rest of the year?

It's about half of what that expectation is, little less than half of that expectation, that we incurred already.

And can you remind us the changes in your load forecast. Can that be captured in this pending Washington rate case, and thus won't contribute to any sort of under recovery or lag, when do rates go into effects in early 2013?

In our original filing, we included you probably had seen an attrition adjustment. Part of that attrition adjustment is to reflect the expected loads during that future rate year, which is 2013. Since we have recently revised our load forecast, we actually did modify our attrition adjustment, and we've provided that information to all parties. Though, I will say there is opportunity to reflect it. There is no guarantee, but certainly, before all the parties and we will certainly next year that it's viewed by the Commission and considered as part of the end result.

So part of the attrition adjustment reflects the load forecast in '13, as well as the post test year debt plan additions?

That's correct. And essentially what you're doing with an attrition adjustment is taking a look at your growth in net plant investments or rate base, your growth in your expenses, and then compare that to your growth in loads. And if your growths in loads are lower, you'll have a higher attrition adjustment.

This is a one-time only-event. You don't have to re-file in your next rate case to keep this ongoing or is it something that could be permanent?

It could be permanent, but our proposal at this point is to address it in this case, we would need to propose it again in the next case.

And the historical test year and the regulatory lag attributable to that, that's currently about 60 basis points to 80 basis points?

Yes, within that neighborhood 60 to 80, 70 to 90's somewhere in that neighborhood.

And if you're precedent for this, or maybe you can put it into context as to how staff or the Commission might view this, maybe, just add some color to that?

We actually had attrition adjustment for our company back in the 80s. And in fact a Washington Commission policy statement came out in December of 2010, the Commission had noted that an attrition adjustment maybe appropriate to consider. And then the Washington staff in their testimony indicate, also suggested that an attrition adjustment maybe the solution to addressing the lag issue. So that's what in front of us now, and we're hopeful that commission will approve in the form of attrition adjustment.

And we're still awaiting staff in your general rate case, correct?

That's correct. Their testimony is due, September 19.

And just moving or changing gears to Ecova. Remind us of the current appraisal value, I think in the March 10-Q, the appraisal value of the 20.8% minority interest was $44.3 million. I suppose that might be higher, with some of the recent acquisitions, if you would have reappraised it, and does that reappraised quarterly?

We do put in and this will actually be the last quarter that we do that, is in our 10-Q which we'll file today will have a listing of what it was, as of June 30. But then after that that put right goes away, as we talked about the redemption rights expired on exercise, so we won't see that. The acquisitions, though, typically from a purchase price versus a value creation, they wait a year to determine what that impact was. So we don't expect to see that until next year.

And Brian, I would just add that, while I can speak for our minority partner, I think its a great indicator of our minority partner's confidence in this business that they have not exercised their put right, and feel optimistic about the future. We think that that the company really has an opportunity to continue to grow. And while there is a hockey stick with the revenues in the second half of the year, I would like to remind people that when we do book new clients, bookings have been strong and that is does take a month or two or three often to get those clients kind of situated in online and into the systems. So once we sign somebody, there is a little bit of lag from the signing into actually driving revenues. So that's why the second half of the year is going to be stronger than the first half of the year.

And in terms of the long-term strategic plan, you mentioned in the Qs and the Ks, you might look to monetize it or take it public. Just wondering, you guys have bolted on quiet a number of acquisitions. You're going to be well in north of $100 million in sales. Just want to get a sense for what the long-term strategy is for Ecova?

Brian, we still are so confident about this business. We continue to see significant upside to this business. We continue to add more products, more services. There is more demand for the product. And we're getting to see opportunities not just in the commercial industrial side, but our utility business is quiet strong. Given all of that, we're going to continue to invest in the business, we're going to continue to drive organic growth, as Mark mentioned. And really any kind of monetization strategy is going to be, if we do want, it's going to be timed and we can maximize shareholder values. So I really can't give you a timeframe, what I'm telling you is that because we see the runway, and because we see some good upside, we're going to continue to do everything we can do to support that business to maximize shareholder value. The timing really becomes, in our opinion secondary to making sure that we keep this business viable and growing.

And our next question comes from the line of Eric McCarthy with Praesidis Advisors.

My question was asked, anyway, thank you.

And our next question comes from the line of Chris Ellinghaus with Williams Capital.

Mark, can you give us any more color on the seasonality that you're expecting out of Ecova going forward?

I don't know if there is much seasonality, as there is couple of things. We added the few companies, and we're integrating those companies, and then trying to grow organically, as we added new clients. So part of that, as Scott said, we continue to have additional bookings and we continue to see strength there, but it takes some time to get back to revenue growth. And then there are some in certain of the programs in the utility space, that half portion of the business, is tend to ramp up historically over the second half of the year and largely a lot of it even occurs in the fourth quarter. So we expect to see that again. We continue to see strength in that business. And historically, we've seen the growth in the fourth quarter and we continue to expect that.

Can you quantify at all, what your offline industrial customers meant in first and second quarter?

Well, what I indicated was in our $0.10 to $0.12 it was about 20% to 30% of that. That's our expectation. That's as close of a quantification, as I'm comfortable.

And I'm sorry, I miss this. But would you say about the ERM for the second quarter?

It was to $1 million, I believe

And where did that put you to, for the year-to-date?

$5.7 million.

And our next question comes from the line of James Bellessa with D.A. Davidson.

When you set your 2012 EPS guidance range of $1.65 to $1.85, you assume some type of load, and now you're saying that that load for 2012 was lower than you had planned, and you're saying that the earnings drag from the lower load is $0.10 to $0.12. How much of that was the first half of the $0.10 to $0.12, how much is for the first half?

Jim, what I said before it was just a little less than half.

Ladies and gentlemen, we've no further questions. This concludes today's questions-and-answer session. I would now like to turn the call back to Mr. Jason Lang for closing remarks.

I want to thank everyone for joining us today. We certainly appreciate your interest in our company. Have a great day.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect. Have a good day.