Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the they still Corporation first quarter 2020 earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker Mr., John Wilcox Investor Relations manager. Please go ahead Sir.
Thank you.
Good morning, everyone and welcome to this is first quarter 2020 earnings conference call or earnings were released pre market. This morning in are available on our website.
Joining me this morning.
Our vis a core president and CEO, Dennis Vermillion, Executive Vice President Treasurer, and CFO Mark fees.
Senior Vice President of external affairs, and Chief customer Officer, Kevin Christie.
Nice President controller, and principal accounting officer, Brian Krasselt.
I would like to remind everyone that some of the statements that will be made today or forward looking statements involve assumptions risks and uncertainties, which are subject to change.
A reference to the various factors, which could cause actual results to differ materially from dosed discussed on todays call. Please refer to our 10-K for 2018 and 10-Q for the first quarter of 2020, which are available on our website.
To begin this presentation I would like to recap the financial results presented in today's press release or cancelled or earnings for the first quarter 2020 were 72 cents per diluted share.
Compared to $1.76 for the first quarter of 2019.
Now I'll turn the discussion over to Dennis.
Well, thanks, John and good morning, everyone.
First of all we want to expressed our deepest sympathies to everyone who is suffering unprecedented hardships during the cobot 19 pandemic.
We know that many people are hurting businesses or hard here and communities are challenged as a result of this pandemics.
Like other businesses and utilities.
Our primary focus is the safety of our customers and employees, while providing reliable energy service during this difficult and uncertain time.
And I'm, so proud and inspired by the way our company has risen to this challenge with flexibility humility courage and a carrying heart.
We're doing everything we can to anticipate the needs of our employees customers and communities, while making sure. We can successfully manage through this crisis.
We've taken precautions concerning employee and facility hygiene imposed travel limitations on employees.
Directed our employees to work remotely whenever possible.
Protocols have been established and implemented to protect employees and the public work requires public interaction.
And we have informed our retail customers and state regulators for that Disconnections in late fees for non payment or temporarily suspended.
We also believe it is extremely important to continue to support our communities. During this health crisis.
So were honoring all of our financial contributions and commitments to nonprofit organizations in corporate sponsorships, even though many community events have been canceled.
Foundations charitable giving across our service territory totals more than $1.1 million and includes more than $865000 towards relief from the impacts of cobot 19.
Along with other utilities and businesses across the region in country. We continue to plan for the future and what it might look like and how we can best serve our customers moving forward.
We believe that we will continue to be able to conduct or utility operations, effectively and provide safe and reliable service to our customers.
Even with the challenges we faced this quarter several important regulatory matters in Washington were resolved during March.
Washington Commission issued orders with respect to the remainder of our 2015 general rate case.
The cost of replacement power related to an unplanned outage at Colstrip in 2018, and our 2019 general rate cases.
We appreciate the commission's efforts to arrive at results that keep rates affordable for our customers. During this challenging time and better also fair and reasonable for our shareholders.
Due to the current environment, we have reevaluated the timing of our plans for general rate case filings in Washington, Idaho.
And time, certainly have changed versus where we were just a short eight weeks ago.
And while the company is mindful of its duty related to prudently managing this business for our investors.
Must also realize that the communities we operate in the customers, we serve or hurting.
We are carefully balancing all of our constituencies and we're now planning to make those filings in the fourth quarter of 2020.
With respect to results our first quarter consolidated earnings were below expectations due to the impact of the Washington regulatory decisions.
As well as increased operating cost due to higher labor employee benefits in bad debt expense.
We have implemented cost reduction activities to help mitigate higher operating costs.
Hey, I want peace earnings were on track for the first quarter. However, we believe there will be a negative impact on the Juno economy due to an unexpected decline and tourism.
In the remainder of the year.
Our other business experienced a net loss during the first quarter due to impairment losses, and we are expecting additional losses at nonutility businesses for the remainder of the year due to overall market declines including impacts of Cobiz 19.
We are lowering our consolidated earnings guidance for the year to reflect regulatory items.
Expected net impact from co Goodnight team and losses at our nonutility businesses.
As a result, our consolidated earnings guidance is a range.
Oh, the dollar 75 to $1.95 per diluted share.
Decrease from our prior guidance of $1.95 to $2.15 per diluted share.
Despite these recent headwinds I still believe we are well position financially and operationally for success in the future and that we will ultimately be able to meet our long term earnings targets of 4% to 6% growth just may take a little longer than we planned.
And now I will turn this presentation over to Mark.
Thank you Dennis and good morning, everyone I want to first Echo Dennis just thoughts on our concern for everyone who may be suffering hardship.
Due to the pandemic I hope everyone is safe and healthy I always also start out with a little hockey referenced since we're not playing hockey now you can use yours hockey stick to socially distance, it's about six feet. If you hold it extended.
For the first quarter of 2020 Vista utilities contributed 68 cents per diluted share compared to $1.70 in 2020, and as you recall the first quarter.
2019 included the termination fee from Hydro, one which was approximately a dollar per share.
So compared also compared to the prior year, our earnings benefited from lower power supply cost.
Rate relief in Oregon, and some customer growth.
These increases were mostly offset by refunds from the remain case, the disallowance under replacement power and unplanned outage at Colstrip. We also had higher operating expenses as Dennis mentioned.
The arm in Washington was a pre tax benefit in the first quarter of $5.2 million compared to a pre tax expense of $2.5 million in the prior year.
With respect to the covert 19 impacts on our results during the first quarter, we did not experience a material reduction overall customer loads or retail revenues as the economic restrictions and closures Didnt take effect in our service territory until about mid March.
We did record an incremental 1.6 million of bad debt expense in the first quarter and expect about 3.4 million increase for the remainder of the year as compared to our original forecast. So originally we expected about $3 million in total for the year and we've moved that we expect throughout the year, we'll get to $8 million.
Bad debt expense.
In the month of April there was a decrease of about 5% on overall electric load.
That consisted of approximately 12% decrease in commercial loads, a 14% decrease in industrial loads, which was partially offset by a 10% increase in our residential loans.
In contrast, our natural gas loads appear to be within normal bounce for this time of year.
We expect a gradual economic recovery, but prolonged high unemployment will distress depressed load and customer growth into 2021.
We have decoupling and other regulatory mechanisms, which mitigates the impact of lower loads and revenues for residential in certain commercial classes and over 90% of our utility revenue is covered by regulatory mechanisms.
We recognize that this is a fluid situation and we are evaluating several different scenarios and outcomes as a situation evolves and more information is known we will respond accordingly and update our forecast to include the most up to date information.
We continue to be committed to investing the necessary capital in our utility infrastructure.
This time, we don't expect the impact of covert 19 to change our estimate of Vista utilities capital expenditures of 405 million in 2020, but it is possible that can prolonged economic distress or business interruptions could cause a decrease in our utility capital expenditure.
With respect to utility liquidity as of April Thirtyth, we had $188 million of available liquidity under our credit facility at a Vista utilities.
In addition in April we entered into a 300 100 million dollar 364 day million credit agreement and borrowed the entire hundred million, which is expected to provide additional liquidity.
In the second quarter, we expect to amend and extend our 400 million dollar revolving line of credit for an additional year from April 21 to April 22.
We expect to issue approximately 165 million of long term debt this year and up to 70 million of equity, which is a 5 million dollar increase on the debt and about 10 million dollar increase on the equity.
With respect to guidance as Dennis mentioned earlier, we are lowering our 2020 earnings guidance to a consolidated range of $1.75 to $1.95 per diluted share.
Decreased from $1.95 to from to to 15 per diluted share.
Our revised guidance includes 10 cents per diluted share of expenses recorded in the first quarter related to the Washington Commission orders.
We also have two cents per diluted share.
On offset cobot 19 costs at a Vista utilities.
We are lowering our guidance at 80 LP by a penny per share.
And the other businesses by seven cents per share.
We are expecting that cobot 19 impacts of the Vista utilities have reduced industrial loads increased interest in bad debt expense.
And we expect offset at least some of the negative impacts with cost savings as Dennis mentioned, we're looking at the cost savings and have filed petitions in each of our jurisdictions to defer the recognition of cobot 19 expenses.
We previously expected to experience regulatory lag from 2020 to 2022.
We have extended that estimated timeframe averting close to our authorized rates returns from 20 to 23 and this is primarily due to the expected economic recession and anticipated delays and filing rate cases, as a result of cobot 19.
We did file a rate case in Oregon in March of 2020 early March and we now anticipate filing as Dennis said in Washington in Idaho in the fourth quarter of 2020.
We are still expecting our long term earnings growth to be 4% to 6% after 2023.
Now for the specifics, we're revising our expected the Vista utilities guidance to contribute in the range of $1.77 to $1.89 per diluted share, which is a decrease of 12 cents on each end.
The midpoint for our Vista utilities guidance does not include any expense or benefit under the earn in our current expectation for the or.
As in a benefit position within the 90% customer, 10% company sharing bad which is expected to add approximately seven cents per diluted share.
Our outlook for Avista utilities assumes among other variables normal precipitation temperatures and hydro electric generation for the remainder of the year.
And we have implemented cost reduction measures to help mitigate the impact of our higher operating costs.
For 2020, we expect LP to contribute in the range of seven to 11 cents, which I mentioned was a decrease of a penny on both ends.
Our outlook for AG LP among other variables assumes normal precipitation and hydro electric generation for the remainder of the year.
We expect the other businesses to have a loss of nine cents to five cents per diluted share, which is a decrease of seven cents per diluted share on each end.
Our guidance generally includes all learned only normal operating conditions and does not include any unusual items such as settlement transactions for acquisitions and dispositions until the effects are known answered.
We cannot predict the duration and severity of the covert 19 global pandemic the longer and more severe the economic restrictions and business disruption the greater the impact on our operations results of operations and our financial condition.
I'll now turn the call back over to John.
And now we would like to open up the call for questions.
Thank you as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound or ASCII. Please standby only compiled acuity roster.
Our first question comes from Richard Sicker Rally with Bank of America. Your line is now open.
Hey, Good morning Hope you guys are Ah both.
Healthy and say it's out there.
We are thanks, Richard good morning.
I appreciate you taking my question just on the 2020 guidance.
I know 10 cents is more onetime items and you had two cents there related to coded.
What are you thinking in terms of your expectations for industrial load declines.
On an annualized level for 2020.
And how does that compared to what you are.
Were previously in including in your and your guidance for the year.
Well we included in our normal guidance is normal loads for the year given normal weather is our normal guidance. We included about 5% reduction in [noise] overall load.
And then it just depends on so we have we expect in our guidance that.
I will start opening up mid to late summer.
The economy will start opening up so it really does depend on the lengthen the severity of the recession.
We expect the next in the second quarter it'll be bad.
And then as we move forward. It will start we'll start to come out of it if that does not occur and it continues longer we'll have to look at it. We do have like we mentioned regulatory mechanism. The cover most of it we are not be coupled on industrial as you mentioned.
So we that recession through mid summer.
Right right. That's helpful and then on the bad debt piece I mean ultimately.
Would you expect that to get recovered.
Our lead suffered as a regulatory asset is that the expectation for this year well, we have we have filed with our commissions in each Oregon.
Washington in Idaho, and we have to work through those processes, but it's not just the expectation of getting to recover. We also looked at our own costs in our managing to reduce those costs to help offset that impact and what we have in our guidance today. The two cents is the net result of that at this point now.
Second as as it goes if it goes longer or deeper that can change, but it's not only do we expect some regulatory relief. We would expect in that filing that we would have that discussion, but we are trying to manage that ourselves to manage our cost offset if we can offset all that we will last for some relief yes.
But we Havent include thank you that are in our guidance, what we don't can't get relief.
Right right that makes sense and then at the corporate and other side. What's can you provide some more color on what's driving the seven cents.
Klein, there and Thats something that you expect.
The key going continuously or are you still expecting that.
Sort of five to 10 cents.
And the after years of your forecast.
With respect to the five cents as an outer years, yes. We have had the reason we had the negative we we had a couple of impairments in the first quarter that offset gains that we would normally would have recorded and so that was we had a negative there and we expect some lower earnings as we go forward again because of the paint.
Because they're going to be impact as well and anything that hits the nonregulated isn't recoverable through any mechanism. So we just included that in our guidance, but I do expect as we go forward that we will turn that back into earnings and I completely believe that as we continue to invest in these businesses. It just as we're in a we're in a recession I don't know if the account.
In the so called it yet or not but I'll state that we absolutely believe Werner session and given the jobs numbers. It can be pretty severe so it just depends on how quickly and safely I will say that we believe we need to get the economy back what we believe we need to get the economy back safely in any way, we can do that and that's how each of our states are looking.
Got it and they're all different Washington, Idaho, and Oregon, all have different.
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Looks at how we're going to come back and we will follow all of those guidelines.
Washington or is there longer term implications from coded that potentially driving that that that get further out.
No. It's very specifically that we are intentionally delaying given the impacts of Cove, and we are not filing rate cases.
This point, we we <unk>, we moved it out from middle of the year to end of the year and that could change depending on the severity of the impacts in the economy. This is just our current expectation we moved out by doing that alone again the process in Washington as an example is an 11 month process. So it just is going to move out our ability.
To get back to earn in our allowed return until for one year and and so that's why we did move that out to 2023.
Yeah that that that makes sense appreciate all the time that they'll add extra she'd be safe.
Thank you.
Under to ask a question that Star then one on your telephone keypad. Our next question comes from Brian <unk>. Your line is open.
Oh, Yeah Tiger mourning mourning.
Right.
Hey, so the and the 90 10 band that you guys are in or you know the the seven cents a all recorded in in in the first quarter I mean, any you know going forward for the remainder of the year, there's any more.
Generation portfolio optimization is real no margin impact right now that you're you know at that 90 10.
Well, yeah, 10% of the exact goes up you have more downside risk when you're sitting in the 90 10 of gas prices ran or hydro for some reason didn't come off if it came off where it got really really hot and it.
Came out very fast and we ran out of hydro. There are there are factors that can cause that you know as we move forward to you know go down the upside is less because we're in the 90 n., but the downside is you know once you get out of the 90 tenure in the in the 70 525 and then then then the Deadband words 100 per cent.
Company risk until you go. So you know we our expectation is based on what we know seven sensor share you know in most of that was recorded in the first quarter not all that the most of it was.
Right got it and and so when I think about you know the the drivers in in the first quarter when resource was higher on a regional basis hydro conditions were near normal obviously, we had lower gas prices. So I would I would imagine that that was a big driver of.
You know recordings, such a such a positive benefit in the room you know in the first quarter as opposed to maybe in a normalized.
Gas price environment or something it would've been maybe spread out a little bit more evenly is such as to where to put it in context I don't know that is necessarily evenly I mean, you know it just depends it is shaped.
To what expectations are and I'm and I'm not sure right off time I had what our wind resource was versus what we expected.
In the first quarter, but it is generally gas prices is generally what has has benefited here I'm in the first or.
Compared to what Catherine rising rates.
Got it <unk> you know mark it seems like for for many many years you guys have always been in the positive room. So I'm. Just wondering if you continue to optimize your generation portfolio. Ultimately you know within 90 10 sharing you will then rebate customers.
Excess margin, which could.
Present, an offset to future.
Base rate increases.
Well, Brian that already happened in our in our last case. The one we just settled you know we have the commission the commission into Washington Commission had used in I don't want I guess, it's $30 million to $35 million I'm not sure the exact number but to be refunded to customers because.
We tripped over an amount that that's a normal mechanism and and the commission said that we're going to refund those dollars to help offset the impact of the case, we just settle the 2019 case that we just settled and marches as we we got through all those different regulatory things at the end of the day you know I think that was a positive it is it.
Reduce the impact to our customers of that rate increase but that was what it was it was accumulated earned balance was refunded to the customer.
Yeah, <unk> at and that's absolutely on my point is the whole 35 million is there anything going to be left over to offset the base increase request.
In the Washington, Riki shoe now plan to file in the fourth quarter of this year.
There's a little bit based on where are we said today, there's a little bit left to that.
And we can look to that we've we've we've done that in the past or the commission and the staff has done you know as said you know can we use this to help offset that and we're you know we're always open to looking at those things. So it's not necessarily specific and we have to wait and see what we filed for and all those different factors, but yes, you know that is one of the potential offsets.
Okay, Great and then when when I think about <unk> relief in 2021, you basically just going to have the <unk>. The the tale of the recent we settled free case, you know in the first couple of months of 2021, the case, you're going to file in the fourth quarter of this year, we should.
Assume little if any rate really you know in the fourth quarter of 2021, given the 11 month time horizon and I eat that's to the right lag is.
Being pushed out a bit is that the way to look at it.
Yes, and and there are different Washington is is an 11 month price us if we determined to buy Oregon, It's a it's a shorter process and we did five I'm, sorry, Idaho and we did file in Oregon. So if we move through with that we'll have some at Oregon is our smallest jurisdiction out of S. utilities. So you know I don't think there's a significant amount of rate relief expected by pushing.
After the fourth quarter, there will be some that you can you know you can model that how you how you wish pick and what.
I'm not going to tell you what to do there.
Yep got it and then you don't Wanna deferral accounting.
Filings, you know you and you're obviously all your regional peers have done the same has there been any movement.
In Washington, or.
Idaho, We're Oregon, you know or Eddie schedules sad or or you know what's kind of the next data point, we should be be looking at maybe just focus on Washington's is this your biggest jurisdiction.
Brightness Kevin Christie.
Thanks for the question, we it's too soon to say what will happen in.
In Washington, many but not all of our peers have filed there and then commission is still of course taken into consideration to filings and the action They may want to take.
In Idaho, we've we've heard the condition may want to have a generic proceeding where they bring together all the utilities for.
In one docket and the same might happen in Oregon, I haven't haven't heard there, though yet.
Okay, and when was the <unk> filing made in Washington.
Filed last Monday.
This past okay. So right. So it's any costs from that filing going forward that you can recoup but anything prior to that it should just expense.
No I think the way we view it to the extent that we have support from recognition for that is that it's in aggregate.
<unk> costs at Austin that occurred related to that.
<unk>.
The pandemic. So we would expect if they do approve of mechanism that we could bring in both costs and benefits before and after files.
Okay, Great and interest lastly on the Alaska.
A utility you know how it's only a one cent revision you know one sense on 10 cents is you know nearly 10% just just out of curiosity you mentioned tourism, but you know is is is it given you know the size of the utility and the sensitivity to to you know changes.
Sales that are making.
The the earnings impact a little bit more magnified on a percentage basis.
Oh, it's probably I mean, there's a little bit of that but it's you know it's somewhat bad that's because they're tourism.
The way it works there is the the sales to the cruise ships really offsets the cost of their other retail customers. That's not really a net benefit to the company per se, it's an offset to the customers, but by not getting that you have higher cost of the other customers and you have other customers that are going to have businesses that are going to struggle.
And and it is their economy is based on some of that towards them. So it's really you know, it's just a higher overall expected costs from the impacts to the companies.
I don't worry about that as a as a significant impact to a vista utilities. They have a strong utility up there. They are working very hard for their customers.
And and doing all the things that we're doing as well she has their impact on size to us is not significant.
Right got a degree to thank you very much against thanks, Brian.
Thank you and I'm not showing any further questions. At this time I would now like to hand, the call back over to Mister Wilcox for any closing remark.
I want to think everyone for joining us today, we certainly appreciate your interest in our company have a grey day.
Ladies and gentlemen, this conclude today's conference call. Thank you all for your participation you may now disconnect.
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