Q4 2019 Earnings Call
Welcome to the Q4 2019 earnings Conference call. My name is chains and I'll be your operator for today's call.
At this time all participants are in in listen only mode. They do we will conduct a question answer session.
During the human, especially if you have a question. Please press star one on your phone.
Also note this conference is being recorded.
I'd now like to turn call over to John Wilcox, John You may begin.
Thanks, James and good morning, everyone and welcome to investors fourth quarter and fiscal year 2018 earnings Conference call.
And our 2019 form 10-K were released pre market. This morning and are both available on our website at <unk> Dot com.
Joining me this morning, our Vista core President and CEO, Dennis Vermillion, Executive Vice President Treasurer, and CFO Mark sees.
Senior Vice President external affairs, and Chief customer Officer, having Christie and Vice President controller, and principal accounting officer blank Russell.
I would like to remind everyone. Some of the statements that will be made today are forward looking statements 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 art.
Form 10-K for 2019, which is available on our website.
To begin this presentation I would like to recap the financial results presented in today's press release, our consolidated earnings for the fourth quarter of 2019 were 76 cents per diluted share compared to 70 cents for the fourth quarter of 2018.
For the full year consolidated earnings were $2, a 97 cents per diluted share for 2019 compared to $2.07 last year.
Now I'll turn the discussion or to Dennis.
Well, thanks, John and good morning, everyone.
Performance. During 2019 was strong as we were able to achieve both our financial and operational goals, while being on the forefront of innovation in our industry.
Financially we had a good year as our earnings for 2019 were in the upper half of our guidance and Mark will provide further details on that a little bit later.
Operationally, we are on track with one of the largest capital projects in our history.
Deployment of advanced metering infrastructure in Washington, The development of this infrastructure will provide customers with more real time data so that they can better manage their energy use.
We also announced plans to join the Western energy imbalance market in 2022, which will expand our ability to integrate additional renewable energy into our electric generation resource mix.
I was to share resources in costs more effectively across a larger geographic area.
We have continued to be on the cutting edge of innovation, our industry and region and 2019 through our partnership with Mckinstry. We began construction of the new catalyst building in Spokane, Washington, which is a zero energy zero carbon 159000 square foot building along with the Scott Morris Center for inter.
Energy innovation when these two projects are completed in 2020, a centralized system will provide energy to multiple buildings in the eco district.
Last year, we established our clean energy goals with an ultimate target of serving our customers with carbon neutral electricity by the end of 2027 and carbon free electricity by 2045. We also do donated $7 million trivia Vista Foundation to support area communities to prevent homelessness.
Remote use education and success and support small communities and our surface area over the years to come.
We were proud to announce yesterday that are Vista has been recognized as one of the 2020 world's most ethical companies by Ethisphere, a global leader in defining and advancing the standards of ethical business practices. This is just a tremendous achievement and it acknowledges how a vista interacts as a business.
And as people with our natural environment communities in it and employees our actions our mission driven and values based with a commitment to achieving our organizational goals in ways that deliver value for all of our stakeholders.
We're honored to receive this recognition, which demonstrates the leadership of our employees in a vistas commitment to ethical corporate culture built on trust integrity and respect.
In 2019, we reached settlements in all of our general rate cases with approvals by the commissions in Oregon, and Idaho, and we are waiting the decision from the Washington Commission on the partial settlement agreement for our 2019 General rate cases, we're also waiting on the decision for the 2050.
Team remained case.
Looking ahead, we remain focused on running a great utility and continuing to invest prudent capital to maintain and update our infrastructure and provide WEHLU reliable energy services to our customers.
To facilitate the timely recovery of our costs, including capital investments that are not included in our current rates, we expect to file general rate cases in Washington, Idaho, and Oregon in 2020.
We are initiating our earnings guidance with a consolidated range of $1.95 to $2.15 per diluted share, which represents over 9% growth from our midpoint of the original 2019 guidance.
Course, excluding the effects of hydro one.
This earning earnings guidance range assumes approval of our partial general rate case settlement by the Washington Commission.
Lastly earlier this month the board increased our dividend by 4.5% to an annual dividend of $1.62 per share and at this time I'll turn this presentation over to Mark.
Thank you Dennis good morning, everybody.
As as stated in last quarter's call My Black Hawk still stink and were in last place in the Central Division. We are mathematically alive for the playoffs, but it's a tough road and I'm not very optimistic I am optimistic about our company, though in our earnings as Dennis mentioned, we're in the upper half of our guidance range.
Engine benefited from customer growth in both natural gas and electric we did receive the termination fee related to hydro and that's the big bump that was earlier early in the year and in 2019 or other businesses had strong earnings primarily related to the sale of metal FX and then net investment gains related to our Nonregulated investment Act.
Pivoting.
With respect to capital expenditures, we remain committed to investing in the necessary capital in our utility infrastructure, we expect to Vista utilities to have capital expenditures of about $405 million in 2020, and we expect AG LP to be about $9 million.
Our other businesses, we expect to continue to invest and it's about $15 million for 2020.
With respect to liquidity, we continue to have strong liquidity with $196 million available under our committed line of credit.
And in 2019, we issued about $65 million and common stock and we sold bonds in November of $180 million and then those bonds are due in 2049 30 year bonds.
In 2020, we expect issue approximately 160 million of long term debt and $60 million of equity in order to reframe refinance we have a 52 million dollar maturity long term debt maturity to fund our planned capital expenditures and maintain an appropriate capital structure.
As Dennis mentioned, we are initiating our 2020 guidance for consolidated earnings to be in the range of $1.95 to 15 per diluted share.
And this again guidance range assumes approval of our partial general rate case settlement by the Washington Commission.
We experienced regulatory lag during 2019, and we do expect us to continue through 2021.
Due to our continued investment in infrastructure and the fact that we didnt file a rate case in 2018.
In April we filed general rate case in Washington, and we completed an.
An electric only rate case in Idaho with new rates effective December Onest. We also filed in Oregon in March and those new rates are effective January 15th of this year 2020, and we expect those cases to provide rate relief and start reducing the lag that we have been experiencing.
Going forward, we will continue to try to reduce the regulatory timing lag and more closely align our returns with those authorized by 2022.
We continue to anticipate an annual earnings growth rate of 9% to 10% from 2020 to 2022 and again, we're basing that off of the midpoint of our original 2019 guidance.
And then follow in 2022, we expect to have a 4% to 6% growth rate going forward beyond 2022.
Our earnings growth rates.
Again exclude the they are based on the midpoint of the original but 2019, but exclude the dollar one unrelated to the hydro one transaction.
These growth rates are are really necessary, we have to have timely and appropriate rate relief and all of our jurisdictions.
So our 2020 guidance range reflects structure unrecovered structural costs of about 90 basis points as consistent in our guidance range for 2020 has improved our lag is now approximately 80 basis points and the results and expected return for Avista utilities of approximately 7.7% in 2020 Bernard.
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For 2020, we expect the Vista utilities to contribute in the range of $1.80, 9% tool one.
In the midpoint of our guidance does not include any benefit or expense under the arm. Our current expectation for the arm is a benefit within the 90.
Sent customer, 10% company sharing band, which is expected to add approximately seven cents per share.
We expect LP to contribute between eight and 12 sensors per diluted share.
Our outlook for Vista utilities in a LMP assume among other variables normal precipitation in normal hydro electric generation for the year.
We expect our other businesses to be between a loss of two cents to earnings of two cents per diluted share.
Our guidance again only includes normal operating conditions and does not include any unusual items, such as settlement transactions or acquisitions or dispositions until the effects are known.
I'll now turn the call back over to John.
And now we would like to open the call for questions.
Very good we can begin our culinary now.
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Our first question is from.
Richard.
Richard Raleigh, I apologize Richard from Bank of America.
Hi, good morning, no or is there.
Great and congrats on the quarter on the here guys.
Just had a quick question on.
It looks like you increase the top end of the growth rate from four to five or 6% post 22.
I was just curious whats kind of driving the increase confidence there and the anything specific to the utilities.
Well, it's again most of our earnings come from the utilities. So really it was just a as we looked at our forecast going forward and believe it again. This this is still we need timely and fair rate relief in each of our jurisdictions, but as we looked at our forecasts and our ability to have some customer growth and.
And.
Continued growth in our rate base, we believe that that you know that slight improvement in the top end was was warranted. So we added that this quarter.
And that's really at 23 and beyond.
Right right that makes a lot of sense.
And just wanted to touch base on the other businesses I guess historically, there's been a.
A bit of a drag there and now you're pointing.
Even at the midpoint of the guidance.
What's kind of the driving factor there and is that expected to continue to improve throughout the outlook.
Well the drive in fact for this for the for the for 2019, we had the sale of metal effects and then we had some earnings from our.
Other investments that.
We do expect as we continue to invest in these other businesses, we do expect them to generate earnings and income.
We haven't we haven't really giving forward guidance on.
In the in the.
Beyond this year, but as we continue you know you've seen the improvements it gets as you mentioned Richie the.
Good point is a breakeven we would expect as we get out over the next three to five years. It would be in a nickel to 10 cents a share if we continue to invest at the levels that we've been investing and and the performance of those investments continues to be what we expect that can always change, but we do expect it to be start generating positive earnings for.
For us as we go forward.
Got it thanks, that's very helpful Thats I'll add.
Thank you.
Our next call question is from Brian Russo of Sidoti.
Hi, good morning ordering Brian.
With.
The upcoming Washington rate case filing that the two are targeting for second quarter third quarter when would new rates go into effect in 2021 is still that April 1st or will that.
Be pushed out given the later than usual filing.
In Washington, as an 11 month process than historically they have use the entire 11 months. So it would be 11 months from when we file.
Okay got it and then.
Two we just have to look like.
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Year to revenue request that was not settled on.
Totaled about 23 to 24 million does that kind of good kind of benchmark as to what.
Revenue increase you might file.
In this upcoming rate case, and then what is what will be the new.
Historical test year.
I think that I think the best way to get a benchmark is to look at what we file we have to reevaluate every time, what we're going to file for so.
In the second or third quarter in Washington in the first quarter here in Oregon, and then second half of the year in Idaho.
The we're constantly evaluating where we are with our capital deployment in our expenses and then we file our case. So that's one we're going to youre going to have the best I wouldn't use.
Prior year second year as what you what you think it's going to be and Ryan I apologize I forgot the second half of your question.
All the test.
Yes, this year will be the the.
At least 2019, if we file later in the year, we might move that forward a quarter or two depending on when we file.
Okay got it and the am paying by deferral.
Mentioned in the 10-K.
Will that be included for recovery in this upcoming rig.
Brian This is Kevin Christy, we're still analyzing the case and at this point in time, we can't say for sure that that will be through it will either be this case or the next though.
Okay, and then lastly on the risk is what would be the optimal capitalization that you'd look to file for I think the last case was 47 40.
8%.
Equity and how does that compare with where you ended at yearend 2019 at close to 54% debt.
Well again, it's that is that's a consolidated cash directors, you're looking at when we look at our our regulated.
Sure stickiness cap structure, we are.
Our very close we may not be at exactly on but we're very close at all times. That's why we issue the equity the way we do it to maintain that capital structure on jurisdictional basis at 48.5% in Washington as.
It is where we currently are again, assuming that the settlement gets approved by the commission.
Okay and then thank you and then on the re man potential refund.
In the K also do you know the such a wide range of three point Sixmillion, which is what do you guys.
Took a charge for 19, but the top end of 77 million and I'm just trying to.
Get a sense for what are the scenarios, there and how might that change your equity needs.
Relative to.
Any outcome there.
Well I mean, yes, it is a wide range and that's because the parties have.
Very diverse.
Beliefs on what each of the issues in that case.
And that when the when the commission decides is one we're going to look at <unk>.
They could they can decide in our favor they can decide on the other parties favour somewhere in between we don't know we'll have to evaluate that and we'll have to look at is their decision reasonable and then evaluate what our options are with respect to that that's when we would also look at what are our equity needs because it would be a one time, we believe it will be a way.
Onetime adjustment and then the commission would determine how that gets returned to customers. If they if they selected a number that's different than what we've recorded.
Okay, Great and then.
Based on whatever that number is.
Okay understood and then on.
The guidance for 2020, obviously, the midpoint is a zero balance which forecasted to be the 90 to 10.
You know is that driven by low gas prices or.
And or can you comment on the current outlook for hydro conditions.
Well so that's an determined based on the amount of power supply costs that are embedded in our rates in Washington, and then our forecast of what do we expect our power supply cost to be so yes, it's a combination of.
We do expect normal hydro right, we're not where we are it's about 100% in our different basins, but recognize it we're still early right thats, where the snowpack is but it depends how it comes off with the melt.
In footwear, we are right now is about 100% and our expectation. So it is primarily a little bit lower gas prices and then some.
Slightly favorable hydro conditions.
On the.
Okay.
Yes.
Brian you're breaking up a little bit but did you have on speaker.
No.
On the headset can you can you hear me now.
Little better.
Yeah, just on the guidance mid original mid point over the 2019.
Guidance what was that.
Chooses a base dollar 87 was the midpoint is $1.77 to $1.97.
That's excluding I'm, sorry, $2 and you got to take out the hydro one so excluding the hydro on termination fee.
It was $1.77 to $1.97 dollar 87 be in the midpoint.
Okay, great and your decision to.
Participated in the I am anymore.
Further color or outlook on how that might change.
Your integrated resource.
Planning.
And pay roll off so I think in mid Twentys in the mid Twentys.
Yes this Dennis.
As I mentioned, we're hard at work internally.
And we plan to join the I'm in the first part of the of 2020, so really or excuse me 2022.
The having access to that market will allow us to better integrate the renewables.
Our both our existing in the future renewables, we would expect to add onto our system as we.
Move forward to meet our clean electricity goals.
And as I mentioned this helps us spread costs over that larger area. So we're on track there.
If you're familiar with that markets most of the larger players on the west or are either.
Members or are in the like us in the process of joining.
So we think that that will only enhance our ability to manage our system and and manage our costs too and integrate the new renewables that will come online we'll be filing our.
Latest I RP actually later this week I believe in Idaho, So that will be available on our website and you'll be able to see.
What our plans are moving forward both in the short and long term too to meet our our goals going forward.
Okay, and then just lastly, the work paper Apollo statement.
Issued by the Washington commissioned on off on SEDAR legislation any any comments on that.
Well, we think it's a constructive policy statement, obviously, all the utilities are still digesting how that helps us going forward, but our early read.
Indicates that the commission is giving us an opportunity to have multiyear rate plans and a mechanism to work through how that could work the doubled in the details, but we're optimistic at this point.
Great. Thank you very much.
Thanks, Brian.
Our next question from Chris Ellinghaus of Cyber Williams.
Hey, guys.
Good morning, Chris.
Mark you you talked a little bit about the improvement you're expecting in the investment other income.
Can you give us any color on with what's moving that today and servers that by 10 cents.
Goal over what sort of timeframe are you looking for the three to five years.
Again, we continue to make some investments.
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I believe prudent investments and with those investments we expect to have some income with that so we do expect some income growth over the over the next three to five years growing to a five to 10 cents.
Amount per share as we as we get out again three to five years towards end of that period and.
All the specific investments we just we were in energy impact Partners Fund number one we just joined fund number to those were both 25 million dollar commitments and we can we started to see through fund one some earnings come out of that we expect that to continue with fund two and we believe that that will be the case and we're we're making other investments in the in.
In the University district in innovation that we believe will get us those numbers.
Im not giving a specific because I don't have the specifics, but again, we believe we will continue to invest and we will make some money at that and start to have some slight improvement in our earnings overall.
Okay.
Can you give us any color on general timing of when you expect to make your filings this year.
For the rate cases, yes.
What we said first quarter for Oregon second to third quarter for Washington, and second half of the year for item that's about us.
As specific as we can get we're analyzing all the details and put in and looking at possibilities of multiyear plans and how the policy statement effects. It in Washington, So we want to make sure that.
And also once we get.
You know as is our practice once we get.
You know rate cases adjudicated by each jurisdiction then we try to take that time, when we're not in a rate case to go over and meet with our commissioners individually.
And with their policy staff to talk about our plans and make sure that we're we have an ability to discuss what we're thinking with the commission's before we file so until all that happens we don't have the details of exactly when we will five.
Yes, Sir I must admit that part.
Are you as far as the equity goes for the year, obviously, you've got a good.
Uncertainty in terms of what we re man might do.
Are you planning to be.
Sorry, using the ATM on a more consistent basis or do you want to wait and see what that re man number might do.
Well again.
We expect that the commission will will.
Have their order on our general rate case for rates to go into effect by April 1st. So we think around there. They may try the commission may we have no insight and that may try to get all of these orders we have a couple of them out there.
Together at the same time, so we just have one change to our customer bills and if that is the case, we will wait we'll find out what that what that is and will go forward, but even that even if if we don't get that if they waited because they have more pondering to do we'll begin we do need our equity will begin to.
That ATM and if we if we get a number that's significant and causes us to have additional equity needs will tell you at the time.
Okay and can we assume that your your guidance in your equity expectations vis based on your proposal on on the re man number.
It's just based on our number that the 3.6 that we already booked in 19, we have not assumed anything going forward that they come out we don't really have an ability to make any other assumption.
Okay.
Do you haven't seen it in the 10-K, yet but.
The delta on Middle effect.
19 to 20.
For operating items.
Metal FX is not in 20, there there was a gain in 19 of I want to say four cents is a estimate I might be off slightly there. So they were they were but that was a gain that wasn't there operating earnings and they are not included in our guidance for 20 yearnings prior to the sale with what was that level in 19 and.
It was about a penny a year if I recall I don't I mean I'd have to go back Thats.
I know I'm close I may not be exact but it wasn't significant earnings is about a million dollars year.
They were positive earnings which is a good.
And going back to the investment other income.
Is that five to 10 cents based on Jeff.
The first two energy impact partners in Vallance all of our investment Chris as we go forward, we're going to continue to invest in his next.
Next three to five years, and we expect to get some earnings out of that.
We're not making the investments not make money.
No I understand.
Just one want to make sure that includes incremental investments over that five year period as well it does.
Okay at roughly that 15 million kind of number.
Somewhere $15 million to $20 million, yes.
Okay. Thanks for your color appreciate it.
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Our next question from but there will emerge.
Ron.
Good morning, good morning Butler.
Just want to double check them.
Yes, I think you indicated that.
The 2020 guide is.
Has the eight is still has 80 basis points of.
Flagged that outside the structural you always have can you one day here that correctly into is the structural lad 90 basis points as I recall.
Yes, and yes.
Okay.
Yes.
Okay.
I think I think I'm good thank you very much.
Thanks for dialing.
Our next question.
Hello of Exodus point.
Good morning, guys.
No.
Yes, Chris and Brian actually answered my questions already pretty darn. Good so exhaustive saw step out of the queue. Thanks. Thank you.
And a question from Brown Russo again.
Okay. Thanks for the fall just real quickly could you remind us what your dividend policies.
Well, we try that we try to stay in the 65% to 75% range of earnings were we as our earnings grow back into were slightly high at this point, but.
We expect as we grow back into what the 9% to 10% to be in that range as we get forward and we tend to grow our dividend the in that four or 5% range. We have historically so we just we just as Dennis mentioned, we just your our dividend about 4.5% this year to get to $1.62.
Got it okay. Thank you very much thanks, Brian.
Once again, if you have a question please press star one.
And John It looks like there's no more questions.
Okay I want to thank everyone for joining us today, we certainly appreciate your interest in our company have a great day.
Thank you ladies and gentlemen, this concludes our conference. Thank you for participating you may now disconnect.
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