Q1 2021 Avista Corp Earnings Call

Good morning, My name is Cree and I'll be your conference operator today at this time.

Welcome everyone to the other the Corporation Q1, 2021 earnings conference call all.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session and people.

The asked the question during this time simply press Star then the number one on your telephone keypad. If he would like to work part of your question press the pound key.

As a reminder, today's conference is being recorded I would now like to turn the conference over to Mr. John Wilcox, Sir you may begin.

Thank you.

Good morning, everyone and welcome to Avista is first quarter 2021 earnings conference call. Our earnings were released Premarket. This morning and are available on our website.

Joining me. This morning are Avista Corp, President and CEO, Dennis Vermillion, Executive Vice President Treasurer, and CFO, Mark Thies, Senior Vice President External affairs, and Chief customer Officer, Kevin Christie, and Vice President Controller, and principal accounting Officer, Ryan Crackel.

I would like to remind everyone that some of the statements that will be made today are forward looking statements and 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 our 10-K for 2020 and our 10-Q for the first quarter of 2021, which are available on our website.

To begin this presentation I would like to recap the financial results presented in today's press release.

Holiday the earnings for the first quarter of 2021 were 98 cents per diluted share compared to 72 cents for the first quarter of 2020 now.

Now I'll turn the discussion over to Dennis.

Well, thanks, John and good morning, everyone.

I'd like to begin my remarks, this morning by acknowledging that after managing through the impacts of COVID-19 for more than a year now we're encouraged to see some light at the end of the tunnel as more people are vaccinated against the virus and the economy shows signs of recovery.

Yeah, we know it could still be a while before we're able to return to the office for subtle into any type of new normal.

In the meantime, we will continue to provide care and compassion for those who are struggling to make ends meet through energy assistance programs.

Through payment arrangements and even COVID-19 debt relief grants.

I am extremely proud of our employees. Despite these unique times they have adapted easily and continue to move our business forward on all fronts. The <unk>.

Quarterly results for sharing with you today demonstrate their drive and determination to get the job done.

Recently, we've taken steps to move toward moving toward a clean energy future and a few weeks ago, we announced our aspirational goal to reduce our carbon emissions for natural gas by setting new natural gas goal of being carbon neutral by 2045 with the near term goal of reducing greenhouse gas emissions.

And by 30 per se.

By 2030.

Our strategy to achieve lower emissions includes investing in new technologies like renewable gas and.

RMG, which is R&D and hydrogen or other renewable biofuels, we're evaluating how to best integrate <unk> into our gas supply of portfolio and researching hydrogen as another renewable fuel.

And we'll also focus on reducing consumption through conservation and energy efficiency and improving our infrastructure.

And we realize this is a heavy lift there are several critical pieces that will need to fall into place and the coming years.

The technology costs must come down new innovations need to occur.

And regulatory support will be necessary for us to achieve these goals and.

We identify our strategy is keeping costs affordable will be our priority.

We're committed to executing on the skull and ways that support of affordability and reliability for our customers are.

Our natural gas call demonstrates that our vision for of our clean energy future income, which is both electric and natural gas resources.

And then we are dedicated to reducing greenhouse gases from the energy we deliver to our customers.

We're also moving the dial towards achieving our clean electricity goal of providing customers with carbon neutral of electricity by the end of of 2027 and carbon free electricity by 2045 last month, we entered into a contract with the shall and county public utility district that will add more renewable hydro power to our.

Electric generation portfolio.

The contract deliveries on the strategies included and the 2021 electric integrated resource plan that we filed recently and also supports the goals of Washington State's clean energy transformation Act or SEDAR.

And regards to our quarterly results were off to a good start in 2021, and we are on track to meet our earnings targets for the full year.

Avista utilities earnings were better than expected, while AGL and Pes earnings met expectations for the first quarter and our other businesses.

Exceeded our expectations.

And regulatory matters. We are pleased to share just two days ago on Monday afternoon, Governor, Washington, and Governor Jay Inslee signed into law Senate Bill $52 95 that new law will help transform the regulation of electric and natural gas companies towards multi year rate plans and take and take the first step.

Towards performance based ratemaking the benefits, we see with the passage of this important legislation is a requirement to file a multiyear rate plans from two to four years and linked with the foundation of the rate plan being set you using methodologies. The commission may use to minimize regulatory lag ultra.

Ultimately it will require current and future commissioners to implement the change, but we feel this is an important first step towards progressing and the regulatory model in the state of Washington.

Meanwhile, Here's an update on our regulatory filings and January as you know we filed two year of general rate cases and Idaho.

One for electric one for gas.

And in 2020, and we filed general rate cases in Washington, and again, one for electric and gas we continue to work through the regulatory process in these jurisdictions and.

The Oregon, and we expect to file a rate case and the second half of 2021.

We reached a significant milestone and our focus on electric transportation, when the Washington Utilities and Transportation Commission approved three tariffs that allow us to proceed with several programs outlined in our transportation electrification plan.

My mother's day, among other things the the U T sees approval allows us to establish both of an optional general service and a large commercial electric vehicle race, which will help us enable and accelerate our fleet electrification for commercial customers such as the Spokane Transit authority.

Our transportation electrification plan and newly approved tariffs will serve as a valuable model for others and it's a great example of our industry's role and electric transportation and our clean energy future.

Once again Avista is leading the way.

Looking ahead, we remain focused on running the great utility and continue to invest prudent capital to maintain and an update of our infrastructure and provide reliable energy service to our customers. We are confirming our 2021 through 2023 earnings guidance and with that I'll turn this presentation over to Mark.

Thanks, Dennis and good morning, everyone.

So last night and my Blackhawks were eliminated from the playoffs of so we have five of our games less but we have no chance for post season play of this year.

So that's the sad day for me, but on the happy note, we had a great first quarter the.

Diversity of utilities contributed 92 per diluted share compared to 68 cents last year and.

And compared to the prior year, our earnings benefited from higher utility margin and we had general rate increases and customer growth. The first quarter also included.

And accrual of the first quarter of the prior year of crew had some negative accruals and it related to the Washington, Reman case of 2015 case, and disallowances around colstrip, and and and accrual for the Colstrip community fund and that all happened in 2020 that were drags on 2020 earnings the ERM and Washington was the pretax benefit of $4 3 million of.

And the first quarter compared to $5 2 million and the first quarter of 2020.

We continue to be committed to investing the necessary capital and our utility infrastructure and we expect Avista utilities capital expenditures to total about $415 million and 2021.

With respect to liquidity on April 5th of 2021 we repaid the outstanding balance of our one year credit agreement that we entered into in April of 'twenty, and 'twenty and that was to remind you to make sure we had sufficient liquidity at the start of the pandemic on.

On April 30, we had $182 million of available liquidity under our $400 million line of credit and we expect to extend that line of credit into a multiyear deal and the second quarter.

We expect the issue of approximately $120 million of long term debt and 2021 and $75 million of equity.

As Dennis mentioned earlier, we are confirming our 2021 2020, two and 2023 earnings guidance.

With consolidated ranges of $1 96 to $2 16 per diluted share and 21 two.

And $2 18 to $2.38 and 2020 two and.

And $2 42 for $2 62, and 2023 and this puts us on track to earn our allowed return by 2020 three.

Our guidance does assume timely and appropriate rate relief and all of our jurisdictions.

Our 'twenty one earnings guidance reflects.

The unrecovered structural costs estimated to reduce our return on equity by approximately 70 basis points.

And in addition, our 'twenty one guidance reflects the regulatory timing lag estimated to reduce our equity return by approximately 100 basis points. This results and a return on equity for Avista utilities of approximately seven 7% in 2020 one.

We are currently forecasting customer growth of about 1% annually for Avista utilities.

For 2020, one avista utilities is expected to contribute and the range of $1 93 to $2 seven per diluted share with the midpoint of our guidance range, not including any expense or benefit under the energy recovery mechanism. Our current expectation is to be and the 75% comp.

Customer of 25% company sharing band, which is expected to add approximately <unk> <unk> per diluted share.

For 2020, one we expect A&P to contribute in the range of 8% to 11 cents per diluted share and our outlook for both Avista utilities and <unk> assumes among other variables normal precipitation and slightly below normal of about 92% for avista utilities hydroelectric generation for the year.

For 2020, one we expect our other businesses to be be between the loss of five two.

The two cents per diluted share or.

Our guidance generally includes only normal operating conditions and does not include any unusual or nonrecurring items until the effects of such items are known and measurable.

I'll now turn the call back over to John.

And now we would like to open up this call for questions.

Do you like to ask a question. Please press Star then the number one on your telephone keypad again that Scott and the number one of your telephone keypad well pause for just a moment to compile the Q&A roster.

Okay.

Your first question comes from the line of Clark with Bank of America.

Hey, good morning, everyone and thank you for taking my question Morris.

In the morning morning.

So maybe first on the R&D side.

And I know, it's early but I'm wondering if you're planning on any unregulated investment and the production or otherwise are you.

Just thinking about it in terms of integrating it into your distribution system and maybe there's some incremental capex on interconnection with the with the facilities and just wondering how you're thinking about the setup.

Yes Cody.

Yeah and Cody this is Dennis.

At this point and time its the latter so we were we were looking at it as a.

Utility resource it would be integrated into our system to meet our our utility of loads.

Got it okay.

And then maybe just higher level, if you could share your thoughts on the puts and takes of potentially.

City, and colstrip, removing it from rate base and replacing it with Ppas that are and their WAC return under theater.

Kind of wondering how this plays into your post 2020 three growth outlook.

Well with Colstrip, it's clear when you look at our integrated resource plan recently filed a and we've been stating all along and it will it will need to exit our portfolio at the end of 'twenty five so.

We recently.

<unk> issued an RFP for new resources and the.

Net as a result of that process, the shale and county P O D. A.

And contract that I referenced earlier.

<unk> was selected and we will continue to meet our needs going forward.

Through.

The competitive process, we need to.

You know of any self build options. We would have we would we'd have to stack up with an RFP and what might be available and the marketplace and of course, the and obligation and desire here is to get the most cost effective resources for our customers to serve their needs going forward.

Does that okay got it.

Yeah, Yeah understood that most of them.

That's all I had the thanks again for your time thanks.

Thanks Cody.

Your next question comes from Sophie Karp with Keybanc.

Hi, Good morning, guys how are you.

I was wondering if you could comment maybe on the Montana losses related to closed stream that is being reported.

And any color you can offer on the positions of the parties and what do you think will transpire with the with respect that they feel that the past and it's proceeding.

Well.

This is Dennis it's hard to know what will transpire at this point.

You know as we've talked before.

Six owners and the the plant.

We've all been working and good faith to try to find the solution that meets the needs of.

Of.

All parties, including the parties and Montana.

And you know and it's just the very complex situation, it's unfortunate that the bills and question.

The Senate Bill 265, and $2 66 for signed into law it complicates matters.

It adds complication to it already complicated situation and we were just.

And a position where we need to protect our rights under the current agreement. So so those have been or those are and in process and it really is at this point and time, Sophie and impossible to know how those.

And will play out.

But we will keep keep you updated as we go forward.

And I think of that's all I had.

Thanks Sophie.

At this time there are no questions.

Okay I.

I guess, we will conclude the call.

And I want to thank everyone for joining us today, we certainly appreciate your interest and our company have a great day.

This concludes today's conference you may now disconnect.

Yeah.

[music].

For the.

The.

And.

[music].