Q2 2020 Avista Corp Earnings Call
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I'd now like tend to comps over to speak today, John Wilcox Investor Relations manager. Thank you. Please go ahead Sir.
Good morning, everyone and welcome to this a second quarter 2020 earnings conference call. Our earnings release pre market. This morning in are available on our website.
Joining me. This morning are Mr. core President and CEO, Dennis Vermillion, Executive Vice President CFO and Treasurer Mark piece.
Senior Vice President external affairs, and Chief customer Officer, Kevin Christie, and Vice President Controller, and principal accounting officer rank Russell.
I would like to remind everyone.
But some of the statement that will be made today are forward looking statements that involve assumptions risks and uncertainties, which are subject to change.
For reference for the various factors, which could cause actual results to differ materially from those discussed in today's call. Please refer to our 10-K.
For 2019, and 10-Q for the second quarter 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 consolidated earnings for the second quarter of 2020, or 26 cents per diluted share compared to 38 cents for the second quarter of 2019.
For year to date Consoled earnings were 98 cents per diluted share for 2020 compared to $2 or 14 cents last year.
Now I'll turn the discussion over to Dennis.
Well, thanks, John and good morning, everyone.
We hope everyone is staying safe and healthy during these uncertain times, it's hard to believe that we've been managing through the cobot 19 pandemic four five months now.
Every day I continue to be inspired by how our employees continue to rally on all fronts to respond to the crisis.
I couldn't be more proud of how we're staying vigilant and adapting across the organization to the new policies and procedures that couldn't quickly change in the states where we serve.
I appreciate their patients there, they're persistence and professionalism as we all navigate through these uncharted waters to seek out our new normal almost all while still providing the energy that is so a central to our customers.
As always our top priority is to preserve the health and safety of our customers our employees contractors and our communities.
As the regional economies across the areas, we serve move forward with fits and starts we're doing our best to support those customers, who we know are struggling you may have seen recently the I guess the foundation provided more than $500000 to support 37 different organizations throughout our service area and so far.
2020, our foundation has provided more than $1.5 million to help those in need.
Although the majority of our employees are still working from home it hasn't impacted our ability to complete important work across our business.
Wildfires continues to be an important topic for industry at our company, especially this time of year.
For the Wild fire season arrived we enhanced our 10 year wildfire resiliency plan to expand our current safeguards for preventing mitigating and reducing the impact of wildfires to help minimize the possibility of wildfires and their related service disruptions.
Our team spent the last year developing our plan through a series of internal workshops industry research engagement with state and local fire agencies.
The plan has certain key areas that include grid hardening vegetation management situational awareness operations and emergency response in worker and public safety in total we expect to spend approximately $330 million implementing the plan components over the life for the 10 year plan.
We're also excited for construction to be completed on the catalyst building and the Scott Morris Center for energy innovation.
We can hardly wait for the buildings to open next month and when they do Scott Morris his vision to create the five smartest blocks in a world will become a reality Vista, we'll be able to continue to innovate and test new ideas about how to share energy in a shared economy model and what we learn could not only shape, how the grid of the future will operate but also could provide a.
Transformative new model for the entire utility industry.
Last year, we established a goal to serve our customers with 100% clean electricity by 2045 at 100% carbon neutral resources by 2027.
Consistent with our goal at our 2020 integrated resource plan, we are seeking proposals from renewable energy project developers, who are capable of constructing owning and operating up to 120 average megawatts.
Our intent is to secure the output from the renewable generation resources, including energy capacity and associated environmental attributes. This will allow us to offset market purchases and fossil fuel thermal thermal generation, which is a key step to achieving our goals.
With respect to results our second quarter consolidated earnings were inline with expectations and we are on track to meet our 2020 earnings guidance Edmister utilities AG LMP and or other businesses as such we are confirming our 2020 consolidated earnings guidance a range of a dollar several.
85 to $1.95 per diluted share.
And finally, one last point, our senior Vice President Chief legal Counsel and corporate Secretary Merian Durcan just retired on August Onest.
I'd like to take this time to thank Merian for her 15 years of service to a Vista during her tenure Marion defined our business needs and built to build our legal department from the ground up to the robust team that it is today as the focus and scrutiny on compliance has grown across many different industries Merian also centralize the company's compliance.
Hertz and has taken our compliance department to a new level also under Marian's leadership earlier. This year I missed it was named as one of the Spears worlds most ethical companies. It's a tremendous honored to receive this designation thanks to Marion.
We wish Merian all the best as she begins her retirement and transitions into this new chapter.
And now I'll turn this presentation over to Mark.
Thank you Dennis and good morning, everyone I have big news Floria hockey is back I'm very excited about that the black Hawks because of the pandemic made the playoffs and we're currently one one with Edmonton with the game Tonight. So.
Those on the East coast, it's a tenthirty game, but I'd like you to staff and root for my Blackhawks.
For the second quarter of 2020, especially utilities contributed 26 cents per diluted share compared to 32 cents in 2019.
Compared to the second quarter of 2019, our earnings decreased due to lower electric utility margin from higher power supply costs and decrease loads related to covert 19, which was partially offset by rate relief and customer growth. We also had lower operating expenses in the second quarter of 2020.
The energy recovery mechanism in Washington, with a small benefit this year of <unk> point $4 million compared to a much larger benefit in 2019 of $6 million for the year to date, we recognize a pre tax benefit of 5.6 million in 2020 compared to 3.5 million in 2019, all with respect.
Our.
With respect to the cobot 19 impacts on our results, we recorded an incremental $3.3 million of bad debt expense for the year to date, and we expect the incremental amount to be $5.7 million for the full year, including the first quarter as compare first to first half as compared to our original fourq.
Thanks.
In July the Idaho Commission issued an order that allows us to divert differ certain costs net of any decrease costs and other benefits related to covert 19.
During the second quarter, we deferred $1.1 million of bad debt expense associated with this or.
Compared to normal in the second quarter. There is our loads there was a decrease of approximately 6% on overall electric loads, which consisted of approximately 10% decrease in commercial and a 14% decrease in industrial which was partially offset by about 4% increase in our residential.
Loads.
These loans decreased earnings by about three cents in the second quarter and we expect to have continued lower loads.
Most of the year with a gradual recovery towards the end of the year, we expect to be able to mostly offset the lower utility margin to our cost management activities and this is reflected in our consolidated guidance.
We do expect a gradual economic recovery, but prolonged high unemployment that will depress load and customer growth into 2021.
We have decoupling and other regulatory mechanisms, which helped mitigate the impact of these low changes on our the impact on our revenues for residential and certain commercial customers over 90% of our utility revenue is covered by regulatory mechanisms.
During the second quarter, we began experiencing some supply chain delays due to the effects of the cobot 19 pandemic with delays ranging from a couple of weeks to up to six weeks in some cases. However, we do not expect this to have a significant impact on our planned projects and we continue to be committed to invest.
And the necessary capital in our utility infrastructure and expect our spending in 2020 to be still be about $405 million.
With respect to liquidity.
At June Thirtyth, we had 160 million of available liquidity under our 400 million dollar line of credit and we had $100 million in cash from our term loan.
In the second quarter, we extended our line of credit agreement a year to April 2022.
We expect to issue this year, approximately a $165 million of long term debt and up to $70 million of equity.
And that includes $24 million that we've issued through June.
As Dennis mentioned earlier, we're confirming our 2020 guidance with the consolidated range of $1.75 to $1.95.
We're expecting that covert 19 impacts activist utilities have increased operating expenses include bad debt expense reduced industrial loads and increase in interest will be mostly offset by except expected tax benefits from the carriers Act and other efforts to identify cost reduction opportunities that we have implement.
Good.
We have filed for deferred accounting treatment in each of our jurisdictions and as I said earlier in Idaho, The Idaho Commission issued an order that allows us to defer certain costs related to covert 19 net of any decreased costs and other benefits.
The Idaho Commission will determine the appropriateness and prudency of any deferred expenses when we seek recovery.
We continue to expect to experience regulatory lag until 2023.
We filed the general rate case in Oregon March 2020, and continue to anticipate filing in Washington, Idaho in the fourth quarter of this year.
We are Ics, we expect our long term earnings growth after 2023 to be 4% to 6%.
Now with the specifics on the ranges for each.
Segment, we expect the Vista utilities to contribute in the range of $1.77 to $1.89 per diluted share the midpoint of our range does not include any expense or benefit under the term and our current expectation is that we'll be in the benefit.
The 90 10 sharing band, which is expected to add six 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 the cost reduction measures to help mitigate the impacts of costs related to covert 19.
For 2020, we expect LMP to contribute in the range of seven to 11 cents per share.
And our outlook for AG LMP assumes among other variables normal precipitation.
Hydro electric generation for the remainder of the year.
And we continue to expect our other businesses did have a loss of between nine and five cents per diluted share.
Our guidance generally includes only normal operating conditions and does not include any unusual items, such as settlement transactions or acquisitions and dispositions until the effects are known and certain.
Cannot predict the duration when severity of the cobot 19 global pandemic.
In the longer and more severe economic restrictions and business disruption the greater the impact on our operations results of operations financial condition and cash flows.
I'll now turn the call back to John.
And now we will open up this call for questions.
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Our first question comes from Richard particularly with Bank of America. Your line is open.
Hey, good morning, Hey, guys doing.
Good morning switching Martin.
All right just had a question about how you're thinking about positioning the rate case filing in Washington.
Coming out of the pandemic and balancing the customer rate impact, especially given the backdrop of the Puget sound decision where.
Attrition adjustments were denied do you see an opportunity there for multi air rate plans, you're interested in adjustments still to be implemented by the commission or is there an overall sense of rate achieved.
Hi, there this is Kevin Christy Thanks for the question.
We're still compiling our case and putting together all the information.
Taking into consideration the impacts of cobot 19 and of course, the Puget case, and I'd say, it's too soon to save for sure. We're contemplating a multiyear plan, but I can't say that we're going to file one until we get all or data together and the casing in better shape and then we'll be able to let you know.
Okay got it that's that's helpful.
And then just around your Capex program you reiterated for 2020, but you had some commentary that the economic activity can potentially impact lists.
Just curious how you're thinking about the puts and takes there that spending profile and is that while wildfire resiliency spending that you mentioned earlier included in this program or is that.
Not yet baked into the airport and 5 million per year.
So a couple of questions Eric Ritchie with respect to.
We continue to monitor supply chain and those impacts, but we as I as we mentioned we have seen some some disruption, but not enough to make us believe that we won't be able to achieve our capital spending for 2020, and then as we look at the wildfire resiliency plan. We are looking at it currently as if we will fit that into our.
$405 million of expected capital spend over over the next years and we'll we'll constantly reevaluating that but at this point, we expected to be part of that $405 million of spend.
All right got it Thats very helpful. Thanks, That's all ahead thanks Richard.
Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one are you touched on cellphone.
Next question comes from Sophie Karp with Keybanc. Your line is open.
Hi, Good morning, guys. How are you learn is healthy earnings.
A couple of questions from me first the lots of equity investments could you remind us what those are and how should we think about that going forward.
The equity investments.
Our other businesses.
Yes, yes, exactly yes, or no that we have investments in.
In a number of deferred.
Small business or businesses that are really energy related the largest amount of our other business investments really are to fund investments in energy impact partners and they invest in a lot of other businesses as well. So we also have an investment in a restaurant and we own the steam plant, which is in downtown Spokane.
And a number of other small businesses that are legacy businesses that have valuations that Doug the steam plant that restaurant is really at this point shut down.
Yes, dissipate abilities, possibly to reopen in the future, but we don't know that for sure. We put that off for now so we have just a number of equity investments.
And then as we mentioned as Dennis mentioned in the in his remarks, the catalyst building and the more center for innovation. Those are also investments equity investments in deferred in two different buildings again here located in Spokane.
Got it. So that's basically is that mostly I guess, the restaurant and other corporate impact than business that drove the the devaluation in the second quarter.
No the second quarter, we didn't really have.
As much of a change there as the biggest impact to our other businesses when the first quarter.
Okay.
And energy partners energy impact partners did have some lower valuations, but again it wasn't or something.
Alright.
And then my second question is I guess, when we think about future capex right than you mentioned that.
Hey, good sustained I guess, the economic distress my impact by that I think we understand how those stations work out is there. My question is either way too early framed this conversation with your regulators in a way where this infrastructure work that can actually help.
Jobs recovery.
It's something that's happening in some other states right, where the regulator section we want the acuitas to propose some infrastructure work. That's my list. The unemployment rate. So I was wondering makes that maybe you could be an opportunity for you as well to frame those conversations in this in this way to make sure that your capex programs.
These impacts.
Well I think I think the way we position. The Capex program is it's important work to maintain the safety and reliability of our infrastructure and our systems to serve our customers and that's our main goal is to be able to serve our customers with the energy they need and so we have focused our.
Discussions with our regulators as that's that's how we're spending our dollars as we have to identify each of those projects. When we go in for a rate case and say why this is important.
To provide benefits for our customers an ancillary benefit yes is that we do.
Maintain employment for people a number of those are our own employees in there are some contractors that also work on our construction as well.
But we havent really.
Identified that as additional this is within our expected capital plan, it's not necessary, adding additional jobs is just not having more jobs reduce so I don't think we can pitch it necessarily as we're adding additional jobs were just protecting the jobs that that we have in our contractors have.
By continuing to deploy this capital, which does benefit the economy and does benefit the service territory, the in which we live and serve.
Got it alright, thank or am I appreciate your comments.
Thank you so.
Operator, any other questions. Thank you I'm currently showing no further questions at this time I turn the call back over to John Wilcox 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, this concludes today's conference call. Thank you for participating you may now disconnect.
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