PacifiCorp said yesterday it expects its third quarter earningswill be 50% below securities analysts’ expectations of $0.41/shareand its annual earnings will be significantly below analysts’forecast of $1.27 per share.

The company said a significant decline in profit margin on U.S.regulated sales is expected to take a bite out of third quarterearnings. Increased power sales, both retail and wholesale,unexpected outages at certain of the company’s lower-costgenerating plants and the lack of low-cost hydro resources in theregion forced PacifiCorp to make unanticipated higher cost powerpurchases to meet wholesale and retail sales demand. Earnings alsoare expected to take a hit from increases in purchased power costsin the company’s Australian electric business and the continueddecline in the exchange rate between the U.S. and Australiandollar.

Moreover, the Utah Division of Public Utilities (DPU) isproposing adjustments in PacifiCorp’s general rates case that, ifaccepted by the Utah Public Service Commission (PSC), could resultin a $57.5 million reduction in customer prices. Any requiredadjustments to customer prices would be retroactive to February1997. The adjustments include a proposed reduction of the company’sauthorized rate of return on equity to 10%, removal of certain costitems from the company’s filed financial results for 1997 and otherfinancial adjustments. Other intervening parties have proposedsimilar types of adjustments that could result in an even largerreduction of customer prices. PacifiCorp has requested a $6.7million reduction in customer prices and proposes a new authorizedrate of return on equity of 11.25%. A final order is expected fromthe PSC by the end of the year.

Meanwhile, the company is analyzing a number of proposals fromparties interested in acquiring its electric distribution assets inCalifornia and Montana and expects to announce a proposedtransaction in the near future.

PacifiCorp stock prices fell $1.88 (8%) to $21.19/share intrading yesterday following the announcement.

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