PacifiCorp said last week 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. The company also took a hit from its failed bid for Britishutility giant The Energy Group.

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 proposals from partiesinterested in acquiring its electric distribution assets inCalifornia. It signed an agreement last Thursday to sell itsMontana service territory to Montana-based Flathead ElectricCooperative, which serves 12,000 customers in the state. Financialdetails of the agreement were not disclosed.

California and Montana represents about 6% of PacifiCorp’sbusiness. Observers have suggested the bad news and proposed saleof its operations in two states may be a precursor to a sale of thecompany, but PacifiCorp has denied those rumors.

PacifiCorp stock prices fell $1.88 (8%) to $21.19/share lastThursday in trading following the announcement.

Rocco Canonica

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