Q4 2021 Avista Corp Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, thank you for calling please remain on your lines. Your conference call will begin momentarily. Thank you for your patience.
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Good day, ladies and gentlemen, and thank you for standing by welcome to the Avista Corporation fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone keypad.
As a reminder, this conference call is being recorded if you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to MS. Stacy wins. Thank you ma'am. Please begin.
Thank you good morning, everyone welcome to <unk> fourth quarter and fiscal year 2021 earnings conference call our earnings and our 2021 Form 10-K were released pre market. This morning, both 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 <unk>.
Yep.
Yeah.
Some of the statements that will be made today are forward looking statements that involve assumptions risks and uncertainties, which are subject to change.
Friends 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 2021, which is available on our website.
I'll begin by recapping the financial results presented in today's press release.
Our consolidated earnings for the fourth quarter of 2021 were 71 cents per diluted share compared to 85 cents for the fourth quarter of 'twenty 'twenty for.
For the full year consolidated earnings were $2.10 per diluted share for 2021 .
<unk> to $1 90 last year.
Now I'll turn the discussion over to Dennis.
Well, thanks, Stacy and good morning, everyone.
I think we can all agree that 2021 was certainly a memorable year, it's hard to believe that we've been living through this pandemic for nearly two years now.
And today, we're seeing some signs that we're moving toward establishing a new normal and we're very excited about that but we're certainly not out of the woods are quite yet.
As we reflect on these challenging times I wanted to take a second just to applaud our employees for making it possible to achieve all that we accomplished in 2021, they've really done a nice job.
On the financial front, our 2021 earnings were in the upper half of our guidance range, primarily due to significantly significant gains at our other businesses and mark is going to get into some of the details on that in a little bit a little bit later I'd.
I'd like to focus on some of our achievements on the operations front.
In 2021, we finished installing all of our smart electric meters and natural gas modules across Washington State.
Now our customers are accessing more real time data. So they can better manage their energy use we have proactive high bill alerts or high energy alerts, where our customers are notified.
They could exceed their set energy budgets, which of course helps them eliminate surprises when the bill arrives.
The smart meter data also provides more visibility into our system, which helps us run a more reliable and efficient power grid detect and restore power outages more quickly and provide customers with a higher level of service customer benefits like these helped us achieve a receive a full cost recovery on one of our.
Largest project capital projects in company history.
On the clean energy front, we filed our clean energy implementation plan in Washington, which provides the framework for achieving our clean energy goals also in 'twenty. One we set a new aspirational natural gas goal of being carbon neutral by 2045 with a 30% reduction of greenhouse gas emission.
<unk> by 2030.
Two new power purchase agreements with shell and county public utility district were entered into during 2021, and we'll add more renewable hydropower to our electric generating portfolio starting in 2024 and of course this will help move us closer to achieving our clean electricity goals.
We also announced a request for proposals seeking power generation and demand management proposals to meet our clean energy goals.
We also recently published Avista is 2021 corporate responsibility report to our Avista Corp website.
In the report.
We provide a broad look at our operations and how we are fulfilling our commitments to our people our customers communities and our shareholders. The website also provides links to Avista is reporting on a series of environmental social and governments disclosures or ESG disclosures. The information we've shared demonstrates avista is long standing.
It meant to corporate responsibility and I urge you to check it out we've done a nice job with that.
Avista has new nonregulated subsidiary Avista edge is rolling out an internet broadband pilot in the city of Chini, Washington, which is about 20 miles outside of Spokane.
Avista edge patented technology offers a new turnkey reliable secure high speed Internet device, that's easy and cost effective to deploy as we partner with other utilities and Internet service providers to deploy the solution. We hope it will bridge the gap in a widening digital divide that exists in many world community.
He has struggled with high speed Internet access and connectivity that is so essential in our daily lives and we saw that more than ever during the pandemic.
Mr Edge builds upon a vista's rich history of innovation.
With respect to regulatory filings in January we filed we filed multi year general rate cases in Washington.
In October of 'twenty, one we filed a general like general rate case in Oregon, and expect rate recovery in the second half of 2022 weeks.
We continue to await the regulatory process.
In these jurisdictions.
In Idaho, we a two year rate case went into effect in September on September <unk> of 'twenty, one and we expect to file another rate case in the first quarter of 2023.
Looking ahead, we remain.
Focused on continuing to prudently invest capital to maintain and update our infrastructure and provide reliable energy service to our customers.
We are confirming our 2022 and 'twenty three earnings guidance with a consolidated branches of $1 93 to $2 13 in 2022.
And $2.42 to $2 62 and 2023.
This puts us on track to earning our allowed return in 2023.
Lastly earlier this month the board increased our dividend by four 1% to an annual dividend of $8 76 per share. This dividend increase approved by the board of directors marks the 20th consecutive year. The board has raised the dividend for our shareholders and I believe it demonstrates the board's commitment to maximizing shareholder value.
So with that at this time alternative this presentation over to Mark. Thank you Dennis and good morning, everyone. Thanks for joining us this morning.
So those of you that will that will see me coming up either in person or on video I have shaved off my playoff Baird because there's a very slim chance. The Blackhawks 11, any chance of making the playoffs. This year, that's sad for me, but.
Alright.
For 2021 avista utilities contributed $1 79 per diluted share compared to $1 83 in 2020. This met our expectations, even though it was slightly below our guidance range for the utility and our earnings decreased primarily due to increased operating expenses and depreciation expense in those operating <unk>.
<unk> is really represented increased insurance costs are.
I T cost in labor and benefits and depreciation increased primarily just due again Dennis as Dennis mentioned, we continue to invest in our in our system that was really plant additions during the period.
We have seen an economic recovery.
<unk> and increased loads for non decoupled customers increased nodes for everybody, but not a couple of customers affect the earnings and with it. We've also experienced increased power supply costs than we had last year.
Lower hydro conditions, we had some drought conditions and we also had extended hot weather and gas priced power power price increases that caused our ERM in Washington to end up at a pre tax expense of $7 7 million versus a benefit in 2020 of $6 2 million, which was a significant change year over year.
With better than expected earnings at our other businesses as Dennis mentioned, our consolidated earnings were consistent with our expectations and in the upper half of our guidance. Those businesses contributed 21 cents of earnings in 'twenty and 2021 compared to a five cent loss in 2020.
Our earnings expectations included investment gains and we just had stronger gains through a variety of our investments in those businesses going forward. We expect as we've said over the last couple of times, we expect those businesses to make money, we're investing in those and we expect them to make money, we look for them to be in four to six cents a share.
Sure. We don't expect 21 cents a share consistently we expect it to be more of them.
A five cent per share earnings over the next couple of years, including the you know the investment we're making in the in the pilot that Dennis mentioned, we are going to have some costs associated with that pilot that's included in our expectations.
For our forecasted capital expenditures.
We expect to spend about $445 million in each of 'twenty, two and 2020 three.
In Avista utilities, we expect <unk> to be $14 million in 2022, and 13 in 2023, and we expect to invest $15 million in our other businesses in 'twenty, two and $14 million in 2023. So we continue to invest in those other businesses.
Moving on to liquidity at December 31, we had $82 million of available liquidity under our committed line of credit and we in 'twenty. One we issued $140 million of long term debt and about $90 million in common stock in the first quarter of 2022, we expect to issue 400 million.
Of long term debt because on April 1st we have a $250 million maturity.
And we also expect throughout 2022 to issue $120 million of stock.
And in 2023, adding some guidance to 2023, we expect to issue $110 million of long term debt, we have a small maturity and $110 million of equity common stock to fund our expenditures.
Moving onto guidance.
As Dennis mentioned, we're confirming our 2022 and 2023 consolidated guidance ranges of $1 93 to $2 13 in 'twenty, two and $2 42 to $2 62 and 'twenty three.
Our guidance does assume timely and appropriate rate relief in all our jurisdictions in which we are filing cases have Dennis kind of walk through just a few minutes ago.
Our 2022, and 2023 guidance ranges reflect the expected rate relief as a result of the Washington General rate cases, and the Oregon General rate cases in the second half of the year, Washington really it's an 11 month process it'll be December before we'd have any expected impact there and in Idaho, we expect in the second half of 'twenty.
23 really after nine one for 'twenty three rates can go into effect for Idaho as he mentioned we have a two year rate case there.
In addition to our rate relief our guidance range reflects improved customer growth of about one to one 5% annually. We previously had been about a half a percent to 1%. So a slight improvement in our customer growth as well as we are seeing inflationary pressures, we see just over 5% of some cost increases in 'twenty, two and we expect a return to a.
A more normal level of inflation in 2023, and we'll have to manage our cost to get there and we expect to do that.
We expect Avista utilities to contribute in the range of $1 81 to $1 97 per share in 2022, and $2 30 to $2 46 a share.
Share in 2023.
The midpoint of our guidance range does not include any expense or benefit under the energy recovery mechanism or expect us expectation for the ERM is in the expense position to a negative within the 50%.
Customer and 50% company sharing band, which is expected to reduce earnings by about 7% in 2022, we expect authorized power supply cost for the arm to roof reset in 23 through the regulatory process and approximate actual power supply costs.
We expect <unk> to contribute in the range of eight to 10 cents a share for 'twenty, two and 'twenty three.
And our other businesses to contribute $4 <unk> per share in 2022, and 2023 as well.
So our guidance generally includes only normal operating conditions and does not include unusual or nonrecurring items until the effects are known and certain and for Avista utilities and <unk>. We also considered normal precipitation and hydroelectric generation for the year.
So now I'll turn the call back to Stacey.
Thank you we are open for questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.
If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.
Our first question or comment comes from the line Oh Julien.
Do Molen Smith from Bank of America. Your line is open.
Hey, its actually Coty Clark on for Julien Good morning.
Good morning, Cody <unk>.
So just to start I just wanted to confirm that earning your authorized ROE 23 minus structural lag assumes he received full laskin, the Washington rate case, and others is that correct or is there some percentage of ASP that you're assuming in that 23 number and just a second parts of that question is folk.
<unk> on the ROE.
That was requested in the Washington rate case, we've seen authorized in the 9.4 to nine 5% range even for some of the multiyear rate plans that had been followed up to this point. So just wondering what gets you what gets you comfortable with that 10.25 per cent masks.
Yeah, great. Thanks, Cody This is Kevin Christie. Good morning first question that you asked was.
What gets us comfortable with the.
Percentage of our total Oh the percentage of total asks thank thank you Mark.
We typically file and then find ourselves at a either a settling point or a litigated point in that 60% to 65%. So we do not need we do not expect to receive our full ask and that's not what is required for us to get to our authorized return.
So that's that's the typical number and I would expect to be somewhere in that range in the first year of the rate plan in the second year will need something a little bit higher because of how the rate plans work now in Washington, So closer to the mid Seventy's is what we'll need to get to our authorized return in the second year.
Got it okay, so that $2 42 to $2 62 assumes.
Some were typical of 60% to 65% of.
The total loss there for.
That's what we've mentioned in the past and I would I.
I would say that's true again this time around.
Got it Okay, and then just thinking about the bridge from from 'twenty to 'twenty three guidance is there anything else that I should be thinking of outside of rate relief that that kind of gets you to that.
So that consolidated $2 42 to 262 number.
Or is it really just you know rate relief.
There's a couple of things so as that Kevin just walk through the Washington case, we also expect to get into 'twenty. Three we will file in the first in the first quarter are on track to file in the first quarter or late second quarter in Idaho, because our Idaho, our current Idaho case.
Rolls off September one of 'twenty three so what we would expect as we continue to deploy capital and to serve our customers grow rate, which we'll file in Idaho, and we do have an Oregon case as well. So it's not just Washington is not solely Washington, we still have to file and Idaho, and we have to complete the Oregon case as well.
For Avista utilities will file in Alaska and that is already incorporated in there for the Alaska case, we'll file in August but also we do also have customer growth. We do also have some inflation pressures those are working against each other as customer growth is good for the earnings and that helps us in an inflationary pressures are negative and we will have to.
Implement some cost management is depending on how high inflation is but we do expect to manage our cost.
To have a reasonable level of costs for our customers that we filed in our rate case.
So it's not just golly.
Not solely rate relief there are a couple of other items that helped us out there.
Right Okay.
Okay, and then just a last one if I can just curious if you were to receive an order come to a settlement point and the and the rate cases that you'll have in front of you.
Is there any levers that you can pool kind of in the interim during the multi year rate plan that would allow you to earn your authorized so for example, if you've got maybe a little bit less than your assumption around 60% to 65% are there is there anything that you can do to.
Get back to that authorized ROE or is it kind of the next shot we should be thinking about is when you file for the next multiyear rate plan.
Again, youre looking solely at Washington, we have other jurisdictions that if all of the jurisdictions come in slightly lower.
We would have to look at that can we look at managing our costs. We try to do that regularly anyway, that's not a new thing for us we try to manage our cost all the time to reasonable levels, but we could look at you know we could look at that as a potential.
And then we also have other other opportunities as we move forward, we expect to to join the energy imbalance market here in the first quarter of this year and as that moves forward. We've seen other parties, we have an amount embedded in our rates that we need to recover for our customers or benefit our customers, but above that it can if.
If we are successful it can go through the power supply costs through the ERM, which benefits can benefit earnings and customers depending on what level of sharing we have so there are other things we can do.
To manage but most of it is cost management, we do that consistently every year, that's not a new thing for us, but if we if we were to get an order that was.
Less if it was significantly less than no. We would just have to report that we have challenges because we didn't get a fair recut.
Recovery of our costs, we don't anticipate that at all.
We expect than we've seen in the past the past you know orders we've gotten we believe have been fair orders from our commissions most recently.
Last fall in Washington.
Okay.
Got it understood. Thanks for the time I'll jump back in the queue. Thanks.
Thanks Cody.
Thank you. Our next question or comment comes from the line of Brian Russo from Sidoti. Your line is open.
Hi, good morning.
Brian for Brent.
Hey, just.
On the the.
The ERM.
And what.
What are you seeing in the marketplace right now that you'd call out.
Seven cents.
Expense or the 50 50 sharing is it just higher gas prices or below.
Conditions gas prices to power prices, Brian It it's a complicated formula I can't give you the specifics, but generally higher gas prices, we've seen slightly lower on the on the hydro electric generation, but not much more in the mid Ninety's on snow pack and so it's hard to say that that's going to come off any different at this point, we don't know as you remember.
<unk>.
Following us a long time it depends how it melts off right. We won't know that till later in the spring but.
Our snowpack seems seems reasonable so it's primarily gas prices and power prices that spark spread differential.
Mhm and understood and just to be clear the the rate increase.
That you're requesting.
The multi year rate increases youre requesting in Washington, These exclude any changes in power cost right because that is a totally separate docket, where do they kind of get it.
Wrapped up and rolled up together.
Yeah, Brian let me jump in there. This is Kevin Thanks for the question, what we do with our rate cases, as we file with the power supply update with the case and what's typical in Washington is 60 days prior to the effective date of the new rates, we do a reset.
Based on what we know then for power supply costs and what we've asked for.
In this case since we have our first multiyear ended the legislation is the ability to do a reset.
In advance of the second year of the rate plan. If we're outside of 10% range. That's a proposal for the commission, we don't know that they'll accept that but we've asked for that in this case, given the uncertainty of power supply costs.
Got it and remind me you also are.
Our customers in a position for a refund based on prior years of.
Being in a benefit position in the arm or has that all been settled out in refunds and bounced out so to speak.
Yeah, we continue to recalculate periodically in the.
At this point in time, given the situation that Mark described I believe that customers.
So the.
The accounting is such that there's been a deferral in and that will go back through rates as we move forward.
Okay and this is just particularly child industry case, but.
It seems as if you need separate approval by the commission to authorize utilization of of the credits to offset.
Custom customer bills and.
Avista cash flows.
Credit metrics would also be considered by the commission and that decision.
Is that just kind of a formality some gather last freakish yep.
It's very similar to the commission can use at their discretion those tax credits that we've made available for our customers and if we settle the case for example, we would expect to make a recommendation through the parties that settled with us on how to best use those tax credits to.
Hopefully help lower the impact of the case to our customers.
And if we are unable to settle and it goes through a litigated case, they would do similar to what they did last time is make a decision.
And they are very well informed on how those decisions could impact our credit metrics et cetera.
Okay, and then quickly on the 2023 guidance of 20 cent range I mean, it's fairly wide, obviously because of the scenarios and outcomes.
The rate case, but it is the way to look at it as like your full ask as di and your midpoint is kind of the 60% to 65% range and in a more.
To your comparable work currently.
ROE in the nine four range.
No I wouldn't look at it that way at all our ranges is really built more around the variability of of power supply and the arm and the arm can fluctuate up and down and then you know.
Managing managing our earnings yes, I would say at the mid point level, we expect to get a fair recovery I mean, kevin's boxed out they're laid out the $60 to 65% it could be anywhere.
Even higher pad, we've had resulted in a 70% range too and thats. Okay. That's encompassed in our range, but I wouldn't say the top end is the ask in the bottom end is if we got.
A bad bad order at all that's not it's more guiding to the midpoint and then we have some variability around the earn and some variability around the recovery of our costs in the rate case, but we can again offset some of that with with our cost management and then the other thing I want to make sure that I referenced with respect to those tax customer credits.
We don't believe if they take everything that we offered for tax customer credits. It does not hurt we don't believe it hurts our cash flows to where it would change our rating agency metrics at all we believe we still have strong credit metrics. This is just an opportunity to offset some of the impact in an interim period for that in a short period for customer bills and.
We believe that that wouldn't if the commission accepted a 100% of what we.
Offered that our credit metrics are still fine.
Hey, Brian .
Sorry, Brian I need to jump in real quick correct, something I said before we are in the net liability position in the arm still.
So I had mentioned.
Customers owe us, but we're in the net liability position just wanting to make sure that's clear.
Okay. Thank you for that and then just in the past I think you've.
Kind of projected I think of 4% to 6% EPS growth rate off of whatever the 2023.
Our earnings power settles out too and that would match up to your 5% rate base CAGR is that still kind of the way to look at the long term growth.
We didn't put that in there necessarily but yes, we would expect that to continue.
Once we get past once you get to earning our allowed return assuming we still have the opportunities to.
Deploy the capital that we've seen and we don't see any reason why that wouldn't be the case at this point, we would expect to grow that 4% to 6% for earnings.
From 'twenty, Thank you very much.
Brian Thank you.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.
Next question or comment comes from the line of Sophie Karp from Keybanc. Your line is open.
Hi, Good morning, guys. Thank you for taking my question good.
Good morning, So a couple of questions.
So you left your Capex.
Forecast unchanged for a few years out right.
Even the ramp on completion, we have seen.
Can you describe maybe your level of confidence in that particular number right how can it move up or down or kind of what can we expect there.
Inflationary pressures persist as they are.
Well you know from a from a capex perspective.
To the extent the inflationary pressures, we have seen some in steel and some of our other materials, we've seen inflationary for what it will mean is we would expect to.
Try to get to our Capex number spend our capex number, but we may get a little bit less work done.
With the supply chain issues and they were they would still be projects that we believe makes sense right that for our customers and benefit our customers. Overall, so it may be slightly less work for some of the inflation and with the supply chain, we really havent. It just caused us to really forecast out or are asked for the materials with a just longer.
<unk> time, so we have not really seen that we've not been able to do projects. So I would say we have a fairly strong confidence level that we'll be able to.
Get the capital projects down at a reasonable level consistent with the expectations, we put out dollar wise.
So if I'm hearing you right, what you're saying is that you're going to manage to that number and if you have to try and maybe your plans to fit in that number thats, what you would do.
That would be our expectation, but again, we want to make sure that the projects. If there is a higher cost basis that it still makes sense for the customers. So we may evaluate a certain project and not do it if it had too much cost it didn't it wasn't economic for the customers, but for the most part we haven't really seen that so I don't anticipate that being an issue.
Okay. Thank you and then my other question was on them.
The mechanism that you're looking to I guess sweets, that's right and also you Julian the NRG balanced market where are you at the same time I'm hearing your comments correctly expect to benefit from it.
The framework of the existing mechanism right. So.
Can you help us maybe reconcile these positions.
What kind of benefits should we realistically expect from Julien.
We're just really starting in that market. So what we have seen we have an embedded benefit in our regulatory authorization of being able to join the arm that we need to provide a benefit through that process to our customers. So that's really the target that we expect to get that doesn't necessarily impact earnings at all.
If we don't achieve it it could be negative that would run through the earned but.
We have we have seen other companies in our region joined that that market and have been able to demonstrate some benefit it's a pretty efficient market and we think there'll be an opportunity there that's completely different than resetting the arm as Kevin described when we when we do our power supply update in a general rate case, we reset our.
Our power supply costs as part of that as we go forward. We will look at a track record of what we've done in the energy imbalance market and the commission may update that from time to time, we haven't even started yet we don't start until March of this year. So I can't really predict or we can't predict that we're going to have any increased benefit.
Not with respect to the arm. So that's still an unknown Sophie I can't really give you.
Any impact there, but we'll it'll be part of our process as we move forward.
Okay. That's very helpful. Thank you and the last one if I may with a multiyear rate case now going on right now.
One of the largest jurisdiction.
Would you eventually like assuming you have that resolved.
Oh settlement or litigation.
Do you eventually be open to given guidance beyond two years outlook I guess, maybe some of your peers had given longer term horizon. I was look five years out et cetera is that something that you think you would be able to do is to have more so in January .
Well I think what we would like to do is first get to earning our allowed return we've had a little bit of a road here to get there and we want them, we want to make sure that we get there and as well as this is as Kevin mentioned. This is our first go with the new legislation on the multi year rate cases, so to the extent that we get through these processes in a reasonable.
Fashion, and we have a little bit more certainty we can consider looking out for for further guidance at this point all we've done is say once we get beyond earning our allowed return we would expect to grow kind of that 4% to 6% range without giving specific guidance, but we have given an expectation of growth there beyond 'twenty three.
But we'll just have to genome we can work through those processes.
Okay of course, thank you.
Thank you I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to management for any closing remarks.
Thank you.
Thank you all for joining us today and we appreciate your interest and have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
Sure.
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