Q3 2020 Avista Corp Earnings Call
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Lots of questions on assessing the need to press star one of your telephone.
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Corny Furbished. This please press star zero.
Well no it's uncomfortable that you're speaking today, John Wilcox Investor Relations manager. Thank you. Please go ahead Sir.
Good morning, everyone and welcome to this third quarter 2020 earnings Conference call. Our earnings were released crease market. This morning and are available on our website.
Joining me. This morning are just the court president and CEO, Dennis Vermillion Executive Vice President CFO and Treasurer, Mark These senior Vice President external affairs, and Chief customer Officer, Kevin Christie, and Vice President Controller, and principal accounting Officer, Ryan Krasselt.
I want to let you know that some of us are remote due to the pandemic.
I would like to remind everyone that some of the statements that we made today are forward looking statements that involve assumptions risks and uncertainties, which are subject to change.
For reference to the various factors that would.
Could cause actual results to differ materially from those discussed in todays call. Please refer to our 10-K for 2019 and.
And 10-Q for the third quarter of 2020, which are available on our website.
To begin this presentation I would like to recap the financial results presented in todays press release, our consolidated earnings for the third quarter of 2027 cents per diluted share compared to eight cents for the third quarter of 2019.
For the year to date consolidated earnings were a dollar four per diluted share for 2020 compared to $2.21 last year now I'll turn the discussion over to Dennis.
Well, thanks, John and good morning, everyone.
As we begin the ninth month of working through the COVID-19 pandemic, we hope youre staying safe and healthy as we see the numbers of cases climb across our country.
The Vista continues to support our customers and communities recently I've missed any of this the foundation.
But another round of funding as community agencies experience an increased need for services.
Which now boost our charitable giving this year to more than $2 million throughout the areas we serve.
And when numerous community throughout our region were devastated by the Labor day Windstorm, we partnered with community leaders to quickly galvanized resources.
Help those who were impacted.
Today, we continue to look for ways to support affected communities as they work to repair the damage and rebuild.
I missed the stress and strain of these uncertain times the safety of our customers our employees and our communities continues to be our top priority and I continue to be amazed and inspired by our employees, who work safely and diligently to provide the energy that is so is central to our customers.
Despite these trying times, we continue to make significant progress across our business in September.
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I missed a chairman Scott Morris his vision to create the five smartest blocks in the world.
Excuse me.
Became a reality with the Grand opening of the catalyst building on the adjacent more center for energy innovation.
These two new buildings are the latest examples of where this is rich history of innovation.
A centralized plant located in the more center will provide the energy to power both buildings through a shared energy model, we call. It Eco district. This.
This type of innovation will be essential to achieve a clean reliable and affordable energy for all of Us also.
Also a majority of our Washington Smart meter project will be completed in the next few weeks and this means our Washington customers will have access to more timely information about their energy usage during the upcoming winter heating season.
Last week, we filed general rate cases in Washington, due to the challenges caused by the COVID-19 pandemic. We have worked very hard to identify how we can move forward in a way that doesn't increase the cost to our customers at this time, while also acknowledging the financial investments we've made in infrastructure on our customers.
Yeah.
Through the use of a tax credit to customers. Our proposal would completely offset an immediate increase in electric and natural gas bills I'm proud of our employees for finding an innovative solution to balancing the interest of our stakeholders.
With respect to results our third quarter consolidated earnings were below our expectations, primarily due to higher bad debt expense for a Vista utilities. However, we anticipate being able to defer the additional bad debt expense through a COVID-19 deferral in the fourth quarter.
As such we are confirming our 2020 consolidated earnings guidance in the range of $1.75 to $1.95 per diluted share.
And now I'll turn this presentation over to Mark.
Thanks, Dennis good morning, everyone.
I always love to start out with my usual Black Hawk comment and we got rid of two times Stanley Cup champion goalie, Corey Crawford, which is a sad day for me CRO was a great.
Great goaltender and really led us to a couple of championships. So we'll see how we do in this upcoming season.
With that I'll start talk about Vista, now, which is what you want to hear about the third quarter of 2020. This the utilities contributed eight cents per diluted share compared to nine cents in the prior year.
And compared to our third quarter earnings decreased due to higher operating expenses as Dennis mentioned, primarily related to bad debts and decrease loads, resulting from COVID-19. This was partially offset by higher utility margin due to lower supply power supply cost and rate relief in Washington, and Oregon. In addition.
And we also had some customer some customer growth, which helped out margins.
The energy recovery mechanism in Washington was a slight pre tax benefit in the third quarter point threemillion compared to an expense in the prior year of 2.4 million.
For the year to date, we've recognized the benefit pre tax of about $6 million compared to just over $1 billion in 2019.
With respect to the COVID-19 impact on our results. We have recorded an incremental $8 million of bad debt expense year to date, and we expect an additional three and a half million for the full year as we compared to our original forecast.
In July Idaho issued an order that allows us to defer certain costs net of any decrease cost and other benefits associated with cold it.
For the year to date, we deferred two and a half million dollars of that bad debt expense associated with the order now.
Now with that so the third quarter had we had orders in Washington, and Oregon in the third quarter, we would have deferred an additional six cents, we expect to defer that in the fourth quarter. As we do expect we did get an order in Oregon very late and we've got it in October and we do expect an order in Washington to a.
Allow us the deferral of those costs. So that would have benefited the third quarter by six cents had those orders been in the third quarter.
Compared to normal our third quarter was a decrease of 2% on loads on electric loads, which consisted of a 6% decrease in commercial as well as a 6% decrease in industrial.
Which was partially offset by a 5% increase in residential load, which is consistent with past quarters. We.
We expect a gradual economic recovery, but prolonged unemployment that will depress load and customer growth into 2021, we.
We do have decoupling mechanisms, which really mitigates the impact of changes in loads for revenues for residential in certain commercial customer classes and over 90% of our utility revenues are covered by a regulatory mechanism.
During the third quarter, we continued to experience some supply chain delays due to the effects of the pandemic with delays ranging from a couple of weeks to eight weeks in some cases. However, we do not expect to have a second a significant impact on any of our planned projects. This year.
With respect to that we continue to be committed to investing in the necessary capital in our utility infrastructure and expect to spend approximately $430 million, which was up from about $405 million in 2020 Avista utilities. This is primarily due to higher higher development of growth.
In our customer base.
As of September Thirtyth, we had $324 million of available liquidity under our credit facility.
During the third quarter, we issued $165 million of long term debt and we expect to issue up to $70 million of equity in 2020 and that includes the $53 million we issued through September.
With respect to earnings guidance as Denis mentioned earlier, we are confirming our 2020 earnings guidance with a consolidated range of $1.75 to $1.95.
We expect to be near the midpoint, including the benefit of the AR, which is a change we are including the benefit of the or in which offsets some additional costs, we've incurred as well as some lower margin, we expect to incur relative to our forecast primarily due to the pandemic thats not covered by our decoupling mechanisms.
I'd be certain certain commercial customers and our industrial customer base.
We expect that the covert impact related to these operating expenses, including bad debt.
Well, mostly be offset by tax benefits and the cares act, but the part that we don't we're using the ERM to cover.
We have filed for deferred accounting treatment for our cobot expenses I mentioned each of our jurisdictions and we anticipate being able to defer in Washington, and Oregon in the fourth quarter.
We continue to experience regulatory lag and we expect that to continue until 2023, which is consistent with what we've said in the past in the general rate case in Oregon, We filed that in March we filed in Washington, and Oregon, We just filed that last week and we anticipate filing in Idaho in the first quarter of 2021.
We are still expecting our long term earnings growth after 2023 to be 4% to 6%.
We expect the Vista utilities to contribute in the range of $1.77 to $1.89 per diluted share for 2020, including the air our current expectation is that the arm will be in a benefit position than a 90 10 sharing band, which is expected to add six cents per day.
Alluded share.
The benefit of the arm is offsetting lower utility margin and higher operating costs.
Our outlook for Avista utilities assumes among other variables normal precipitation temperatures and hydroelectric generation for the remainder of the year.
At A. LMP, we expect to contribute in the range of seven to 11 cents per diluted share and our outlook for AG LMP assumes among other variables normal precipitation and hydroelectric generation for the remainder of the year.
We expect our other businesses have a loss from nine cents to five cents per diluted share.
And our guidance generally includes only normal operating conditions and does not include unusual items, such as settlement transactions or acquisitions or dispositions until the effects are known and certain.
We cannot fully predict the duration and severity of the COVID-19, global pandemic and the longer and more severe the economic restrictions and business disruption the greater the impact on our operations.
And our results.
I will now turn the call back over to John.
And now we would like to open up this call for questions.
Thank you as a reminder to ask a question you may need to press star one of your telephone to withdraw your question press the pound key please stand by we compile the queue any loss there.
Our first question comes from Richard Ciccarelli with Bank of America. Your line is open.
Hey, good morning, Hope Youre doing well today.
Alright Ritchie.
Hey.
First question just on the regulatory front in Washington, You Ah you ultimately elected not to file the multiyear rate plan, but seem to find a convenient solution with the tax credits.
Just curious if any initial feedback from stakeholders there in the state and any precedent for the accelerated flow back for our customers on the tax credit side.
Good morning, Rich, it's Kevin Christie good to hear from you.
The well.
We've talked in advance with our.
Commissioners in Washington, and give them a heads up.
But no we haven't had any.
Conversations with any of the parties since we filed.
Okay got it.
The tax Brinci with respect to the tax position. We did file also with our rate cases, we filed petitions for a change in accounting, which we need approval from all of our commissions to change the accounting on certain of those tax strategies that we are there were completely able to do but we will need their approval and that allows us to.
Accelerates the flow back of those deferred tax items to the benefit of our customers.
Okay got it. Thank you that's helpful. And then just on the coal that deferral docket in Washington, I know the commission there with taking a more of a wait and see approach, but it sounds like you're confident you'll get something in.
For Q here, I guess, which is what gives you confidence in that outcome.
Yes. This is Kevin again, the we expect the commission to take action in a meeting in November and as we went through that process. The proceeding with the parties. We saw that commission take the steps to move forward with this first aspects and.
No pun intended deferred the deferral part of it till a subsequent meeting.
Everything we've seen in the process and as we've worked with the parties. We would expect the commission to move forward with approval on that.
Got it Thats helpful and one more if I could just slip in any update on the timing of the DNR investigation.
No we don't really yes, this the update that Dennis.
Dennis anything.
No no we don't have any updates they it would be very difficult to speculate so I think that would be a question best ask DNR.
All right. Thanks, a lot that's all that.
Thanks Richard.
Thank you. Our next question comes from Brian Russo with Sidoti Your line is open.
Good morning, Ryan.
And then just hey, good morning, everyone.
Just to clarify on the midpoint of that guidance. It includes eight cents for the term.
It also.
Includes covidien recovery of deferred bad debt of deferred costs in the fourth quarter correct.
Well, it's it's we do expect to be able to cover two.
To defer most.
Most of the bad debt, where theres a calculation there may not be a 100% of it but we do expect to defer most of it and that we do expect to record in the fourth quarter, but the ERV is only six cents, Brian as I mentioned earlier on the call not eight cents.
Okay. So the midpoint includes a six cents benefit from the arm and assumes cobot.
Most of the corporate cost recovery on the bad debt expense in the fourth quarter.
Yes, yes, well actually we will record it we don't work deferring those costs, we don't necessarily get recovery until the commissions in each of our states rule that we can get recovery. We're just allowed us to defer it. So it's not an expense in our books that will reverse and expense weve already record I.
To give you an accounting guidance, but my controller, here's except happy with me right now.
Yes understood. Thanks for the clarification and then.
The wildfire plan costs that.
You are requesting deferral of in the recently filed Washington rate case is that just is that a one m. expense costs that would be incurred that you are looking to do for.
Recovery of later or is that rate base capex for rate base investment that.
Seek to defer and recover returns return of and on at a later date just curious.
Yes, Brian I'll take the latter first we're including about $2.6 million of capital for.
The first 10 months or sorry, first nine months of.
2021, and then its own them for the tracker are balancing account.
That we are proposing in the filing and in 2021, Thats about $5.4 million and I think of it as a as a balancing account mechanism. The idea here is to go and M. increases or decreases initially increases over time, and then decreases levels out a bit.
And of course. This is the biggest portion or has the biggest impact on our overall overall rate like or rigs or financial situation by moving the own M&A if approved.
Okay, right, so deferral of that.
Helps your legs.
Relative to historical levels.
Yes, it would.
Okay, and then just on the increase in Capex in 2020 to 430 million out of his utilities is that just one time, meaning it's just for 2020 or is that a step up.
In the annual Capex run rate of about $405 million.
At this point, we just were given the guidance on this years, we'll continue to look at it as if growth accelerates, we'll have to look at that if in the future but in this year. We did we did see some higher cost associated with customer growth. So we added that in there. So right now we're not giving guidance for next year, we'll provide guidance for next year in February.
And that'll include capital our capital assumptions.
Okay, Brian just to be clear on the on your question on the <unk>.
Oh, and I'm related to wildfire when Kevin mentioned, the balancing account that's not as much historical lag as it is protecting future cost increases due to our wildfire resiliency plan and the costs associated with that so we're attempting to defer those cost as opposed to recovering.
Prior year's cost that would slow lag what it does is predicts protect us from additional lag, but it may not reduce lag because it's really covering additional costs just to be clear just to clarify how that works or how we proposed.
Okay got it and then and then just on that do you wildfire plan you referred to as the 200, I think 70 million of 10 year.
Proposal filed with the commission several months ago that is still pending review.
That's two quarterly had to be.
To be clear there, Brian we filed with Idaho for Idaho portion.
Previously and now we're including the Washington portion here.
Got it understood. Thank you very much.
Thanks, Brian.
Thank you once again, ladies gentlemen, if you wish that's a question at this time. Please press Star then one are you touched on telephone.
Next question comes from Sophie Karp with Keybanc. Your line is open.
No I'm.
How are you.
But uh huh.
Yes definitely.
Really quickly based on the balances right.
Would be well just looking at the rate we paid that you have in process or planning to file.
Like you Didnt arrange stuff.
Cash flow in.
How are you thinking about balance sheet impact of that and.
You bet.
Yes, so what we looked at is given given what's going on we were we were lit as Denis mentioned earlier in the call.
So we're looking at ways, we know that we need to get recovery of the cost and the capital that we're spending to serve our customers, but we also recognize that significant increases when customers are hurting right now due to.
Employment and economic difficulties associated with the pandemic.
It's kind of a.
Two battles against each other so we tried to find a way to offset the balance in the near term and we were able to do that by taking a change in our tax position and we filed for these accounting changes to allow us to offset in the near term the impacts of the customers, while still being able to.
Maintain.
The ability to earn our return on the capital that we've that we've deployed to benefit our customers. So we think thats creative it does cost us some drag in the near term on our cash flow, but we believe that our financial strength is still strong enough that we'll be able to maintain our credit ratings and and benefit our customers in the near term and then I presume.
I believe things will get better in the years to come and that will all even out but that was our strategy and we think it makes sense to balance the getting the return for our shareholders, while protecting our customers' bills.
Got it thank you.
<unk>.
Thanks Sophie.
Thank you and I'm currently showing no further questions at this time I turn the call back over to John Wilcox for any 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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