Q1 2022 Avista Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to Avista Corp Q1.
Earnings Conference call at this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. It sounded like you did quite assistance during the conference. Please press Star Zero I get that you don't sell it down.
This conference call is being recorded I would now.
Like to turn the conference over to your House Ms. Daisy Wang. Please go ahead.
Good morning, everyone. Welcome to Vista's first quarter 2022 earnings conference call our earnings in our first quarter 10-Q were released pre market. This morning.
Are available on our website.
Joining me this morning.
Alright, that's a court 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>.
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 for reference to the various factors, which could cause actual results to differ materially from those discussed during today's call. Please refer to our 10-K for 2021 and 10-Q for the first quarter of 2022.
Which are available on our website.
Yeah.
I'll begin by recapping, our financial results presented in today's press release.
Our consolidated earnings for the first quarter of 'twenty, 'twenty, two where 99 cents per diluted share compared to 98 cents for the first quarter of 2021 now I'll turn the discussion over to Dennis.
Well, thanks, Stacy and good morning, everyone.
You know we had a real solid start to 2022 as Avista utilities earnings were above our expectations and we are pleased with the results of the first quarter are our performance was partially the result of the timing of certain expenses and for the remainder of 2022, we anticipate seeing higher cost based upon.
Current economic environment. However, as we always do we are proactively managing these issues and we are on track to meet our consolidated earnings targets for the full year.
You know not unlike what other companies are seeing some of these challenges that we're seeing include higher inflation than in the recent past we have increased interest rates.
Commodity costs at or higher than we've seen in almost 15 years and some supply chain constraints.
And competitive labor markets and of course, a lingering pandemic, which thankfully.
Thankfully it looks like we're on the tail end of that.
We're all real happy about that obviously, so all these are contributing to a difficult operating environment.
To address some of these issues, we do expect to update our authorized authorized power supply cost towards the end of 2022 through our pending Washington Electric general rate case, as well as interest costs and other changes in costs in the current and future rate cases.
As always cost management efforts are also fundamental to achieving our results are.
In addition, as you may have seen we recently filed out of cycle purchase gas adjustment or P. G as in Washington, and Idaho to adjust customer commodity rates to take into account the rising cost of natural gas.
I'm pleased with our continued progress towards achieving our clean energy goals in March we entered the western energy imbalance market or E I M, which which really expands our ability to share and renewable resources across their regional market to help reduce cost to our customers all while continuing to meet there.
Needs going forward.
We also introduced a voluntary renewable gas.
Renewable natural gas program in Washington that allows customers to opt in and offset their natural gas usage with RMG parcel is $5 a month.
In March we were recognized for the third consecutive year by Ethisphere as one of the world's most ethical companies in 2022, and we were only one up nine honorees in the energy and utilities industry and we are honored to receive this significant recognition yet again, which.
You know, which acknowledges our company's rich history of corporate responsibility that spans more than 130 years, where we're really proud of to win this award for the third time.
With respect to rate cases in our regulatory filings in March we settled our Oregon General rate case, and if approved we would expect new rates to be effective in August .
We are still awaiting the regulatory process in Washington, and expect rate recovery towards the end of 2022.
In Idaho, we expect to file rate cases in the first quarter of 2023, and then finally in Alaska, We expect to file a rate case by August 30 of this year.
We are confirming our 2022 earnings guidance with a consolidated range of $1 93 to $2.13. We expect to be at the lower end of this range, primarily due to higher power supply costs and we are confirming our 2023 consolidated earnings guidance.
Range of $2 42 to $2.62 per diluted share so with that I will turn this presentation over to mark. Thank.
Thank you Dennis good morning, everyone and two good things happened in the first quarter like Dennis said, we had a good quarter and secondly, the Blackhawks pain ended so the season ended and we did not make the playoffs. So when you turn on your TV to watch hockey you won't see them.
For the first quarter Avista utilities contributed <unk> 93 per share as Dennis said compared to <unk> 92 last year and this was above our expectations.
Partially due to timing, but some of them we had just had a better quarter.
Compared to the first quarter, our increases were due primarily to completed rate cases in Washington, and Idaho effective in late 2021, and the benefits from those rate cases, historically those benefits come through gross margin and the revenue line, but because of our.
The tax customer credit that we're trying to keep the bills lower.
That the benefit of that gets recorded through income taxes. So you see a higher income tax expense or benefit and that will continue going forward as we have that credit offsetting our customer bills, which was important to us in that process.
We also have in our in.
Our customer growth were in line, but what about for sudden half I know others have strong that strong for us we expect 1% to one 5% and we're just over that in the first quarter and we see good customer growth as we go forward, but we do as Dennis mentioned have some headwinds we have higher power supply cost gas prices are really getting impacted primarily by as the.
A conflict.
By the conflict in Russia, and Ukraine, we've seen higher gas prices, which causes us to have higher power supply cost, which is a negative which is why as Dennis mentioned the earn is as we forecasted in the first quarter. It wasn't so bad but as we forecasted it is going to be higher.
Packing us we also have some higher depreciation and O&M costs.
The room as I mentioned in Washington was it was a benefit in the first quarter of a million nine compared to $4 3 million benefit in the prior year and as I mentioned, we do expect that to be turned around and be in the expense position in the 90% customer 10%.
Company sharing band.
As we continue to grow our business and serve our customers. We continue to invest that capital in our utility infrastructure, we expect avista utilities capex to be about $445 million in each of 'twenty, two and 'twenty three.
We expect a LP capital expenditures to be down slightly about $10 million from our previous estimate and we expect in 'twenty, two and 'twenty three we expect it to be $13 million. That's just due to the timing of it and receiving that Dennis mentioned, some supply chain constraints at the timing of receiving some goods.
That's a little bit of a challenge up in Alaska, and they've moved that capital out a few years, but they are still on track to make their numbers.
And we also in our other businesses expect to spend about $15 million in 'twenty, two and $14 million in 'twenty three.
With respect to liquidity it looks odd to me on the balance sheet as we had a significant amount of cash, but we did issue $400 million in March and late March and we have $370 million of available liquidity on our credit facility, but we were doing that because we had on April 1st repayment of $250 million. So.
As we look forward from today, we're back to normal liquidity and we still have strong liquidity, we do expect that.
The issue about $120 million of common stock in 'twenty, two and that includes the $38 million that we issued in the first quarter and in 'twenty. Three we expect to issue $110 million of long term debt and the same amount in common stock.
Moving onto guidance. So we are confirming as Dennis mentioned, we're confirming our 22 consolidated guidance with a range of $1 93 to $2 13.
We expect to be at the lower end of that range again, primarily due almost all due to the <unk>, which we expect to be about <unk> <unk> negative.
And in 2022.
We are also confirming our 2023 guidance and our guidance of $2 42 to $2 62 per diluted share.
Our guidance assumes timely and appropriate rate relief in all of our jurisdictions and in addition to the rate relief you know we do have the one to one 5% customer growth annually and we have the impact of inflation is included in our guidance and as inflation has increased we are and it does put some pressure on us to continue.
Denis mentioned to manage our costs, which we expect to do we do expect to seek.
60 days prior to rates going into effect, we re forecast our power supply costs, all as part of our regulatory process. So we will be able to re forecast that as we look towards 'twenty three to get the power supply costs more in line with the market is so these increases we've seen today will impact us in 'twenty. Two we don't expect them to have the same impact in <unk>.
'twenty three and we will have to manage our costs as we go forward to address the inflationary pressures that we're seeing to achieve our expected results.
We expect Avista utilities to contribute in the range of $1 81 to $1 97, a share for 22 and $2 30 to $2 46, a share for 23.
So as we give our ranges the midpoint of our ranges don't include the impact of ear and as I mentioned as we expect today than what.
What it was originally in our first.
Guidance <unk>, it's moved to nine cents negative now so that does put us slightly outside of the utility range from the mid point and we're not going to redo our ranges to cover that to work at that we just may be we're still inside our range for consolidated we may be slightly below for the utility.
We.
<unk> <unk> LNP to contribute in the range of eight to 10.
Per diluted share both 'twenty, two and 'twenty three they will we do expect them as Dennis mentioned to file a rate case are required to file a rate case in August of this year, So and that's incorporated into our guidance and our outlook for Avista utilities and <unk> does assume among other variables normal precipitation and normal hydroelectric generation for the rest of the year our hydro.
Right now is in a reasonable spot.
We have about 110% of Snowpack and right now it's been it's currently been.
Cool cool spring. So if we can get a long cool spring that does tend to benefit us as that brings the water off slowly.
We expect our other businesses to be $4 <unk> per share in 'twenty, two and 'twenty three.
And our guidance again does not only includes normal operating conditions and doesn't include anything unusual or nonrecurring until the effects are known and certain I'll now turn the call back over to Stacy.
Thanks, Marc we are open for questions.
Yeah.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your budget on telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And your first question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open.
Hey, Mark its actually Kevin Clark on for Julian Thanks for taking my questions.
How are you.
Oh, well, so you've talked a lot about the inflationary environment and previously you pointed to just over 5% cost increases for 'twenty, two and then coming back to normal that 2% to 3% inflation in costs in 'twenty three how old are your actual is trending versus that plan and I know you mentioned some expense timing, maybe it'd be helpful to you.
To get some more color on the drivers of that.
And also just how you're thinking about the customer bill impact from these pressures in the ongoing and upcoming rate cases.
There's a lot there so I'll start and then I'll, let also Kevin to talk a little bit about the customer impact, but from an inflationary perspective again, we had a good first quarter, we didn't see a significant as significant of an impact there, but we do recognize that that's that's coming in and we have put that in our forecast when we when we talked about.
<unk>.
The impact we did forecast.
5% inflation, but that's over a broad cost basis, we haven't seen significantly higher than that as we look at our forecast now that could come we've updated all of our interest rates to current interest rates. The fed moves today that could change that but where we are today. It's based on current interest rates going out and we did our $400 million bond deal all that's factored in.
To our forecast and then there's we've gone through our our union agreements on our wages. That's all incorporated we have a brand new Union agreement, we've updated our wages for our in place. So that factor is incorporated into our forecast already and was included in that 5% when it looks at costs that directly impact us some of the other.
Costs were seen as you know was trying to manage the cost of materials and supplies that probably impacts capital more than it does O&M, but it does impact O&M to some level and we've incorporated that to the extent inflation lingers longer and stays higher we will have to work through that and we'll work on either managing our cost or getting that in too.
<unk> <unk>.
Future regulatory proceeding so there could be some challenge there if it increases high in 'twenty, three and we can't quite get the recovery as quickly, but we don't at this point, we believe that we can manage through that through managing our cost to offset the impacts of inflation with the customer bill impact I'll turn that to Kevin.
Cody, it's Kevin Christie, Thanks for the question.
All I can really add to what Mark has said is that we provided the commission with an opportunity to use additional tax offset customer tax credit offset and it won't it wouldn't mitigate the full impact of the case, but it certainly would help out and the commission ultimately gets a chance to decide how to use <unk>.
We they have used in the past this last rate case, effectively and I think they would look at that in this instance, so again inflationary pressures or are tough from a customer perspective, what we're trying to give tools to help mitigate where we can.
Yeah, Yeah definitely understood and you gave some thoughts on the power backdrop and the move to the mindset of impact from the earn from the seven prior you also mentioned snowpack being healthy and that could be a driver to some of the offset of the drag but I'm curious if you have any views on how participation and I am is playing into that.
Dynamic thus far.
Have you included any benefits from participation there in that 9% figure.
Well, yes, but again, we've just part of it is included in our expected power supply cost wasn't amount from our rate case. When we got that approved we had an amount that we needed to achieve and I want to say on a system wide basis. I believe it was just over $5 million and then when you back it down to Washington for the ERM. It was.
Three five to four I don't remember the exact numbers, but that's already incorporated that we need to get to get to the expectations and we've seen in the we've been in it for a couple of months now it's been it's been at or better than our expectations, but not significantly enough and we've incorporated some of that into the earn but when you're in the <unk>.
90, 10, even if we get Cody, let's say, we get some benefit additional I'm using this as a hypothetical if we got an additional $5 million of benefit where we are in the <unk> at the <unk>, we would only get 10% of that so we get a half a million dollars. As an example, if we continued and that's just because of where we sit in the ear that doesn't take away from the great work that they're doing.
And the real benefit to our customer bills that we believe that will be.
In that market like Dennis said in his opening comments, we're able to provide that energy it benefits our customers and our company when we're not in the 90 10 right.
Got it Okay and then one last one if I can just squeeze it in just on the other segment I'm wondering if you have any additional detail on how we should be thinking about shaping that over the course of the year I know your edge pilot program is still early stages. So some drag there as it ramps, but anything else that you can point to would be helpful.
Unfortunately, I don't think I really have a great shaping for that.
From our perspective, it's it really depends what we've seen is the investments that we have there.
<unk> have been consistently.
Consistently performing and the market has been fairly strong in the Cleantech. If we look at our investments through energy impact partners, there's a number of things and in clean Tech and technology that.
<unk> has been strong we expect that to continue to be strong, but theres nothing out there that says U shape. It. It's all based on individual company investments and we can't ship it.
We forecast over the course of the year, but from a quarterly shaping we don't we don't really spell.
We spend a lot of time on that other than the fact like you said, we may see a little bit of pressure in half. That's included in the first quarter and second quarter as we have the edge pilot, but thats not significant to move us at this point.
Okay understood. Thanks for the time I'll jump back in the queue. Thanks Cody.
Thank you and your next question comes from the line of Anthony Powell from Mizuho. Your line is open Sir.
Hey, good morning, Dennis Good morning, Mark.
Mark I feel your pain on the Blackhawks, but you could be a range of fan it'd be very tired. This morning, well I was I was watching it Fortunately I am three hours earlier than you that was painful in the third overtime.
Yeah, I was fortunate enough to go and I'm on my fourth diet Coke. This morning, some struggling so.
Hope you guys can help just a couple quick questions I guess.
We look at the Capex slide I am just wondering.
A lot of the other companies have reported are mentioning some supply constraints not just on renewables, but also on just some transformers. Some core stuff that you are seeing in the business is there anything that really you think could impact your capex projections.
I don't think it impacts necessarily our capex projections it may impact the.
Timing of getting those done and the amount of work is cost there is some inflationary cost pressures too on the on the goods like you said Transformers and others that we will we will spend our capital we may not get as much done, but we will do the analysis to make sure that we're still economic to our customers with what we're doing obviously.
But what we have seen and Dennis mentioned it in his early comments that there is some timing constraints, there and we've actually had to switch and look for additional suppliers and in Transformers that was one of those examples where we did get a new supplier. It's worked very well they are international but we've vetted them and we've done very well there. So we're working very hard our supply.
Chain folks work very hard to make sure that we can get the goods necessary that we need we may carry a little more inventory as well to be able to get our projects done but all of that is.
It is not negatively impacting our forecast as we look forward. We are working very hard I don't want to take anything away from that but we believe we'll be able to source or our equipment to do our capital projects and the timing of our other projects. It does push out the time to get it but we've been.
We've been successful at this point and we expect that to continue.
Great and then if I could switch gears, obviously rates are really.
Gone up so far this year I believe you guys have.
$250 million bond coming due soon just if you could talk to us on what Youre seeing.
Rates for that to refi that well.
While we did so we did refi it in the first quarter, we did $400 million in the first quarter late late March and rates were up some.
And then also we've seen on the short term side as we borrow to manage working capital rates are up some there all that's incorporated into our forecast.
And we would expect to include that or look to include that as we go through our regulatory processes to update our capital structure for known and measurable items. I mean, we do have a known and measurable item with that $400 million bond deal that we think we can incorporate into our into our regulatory proceeding now that does take commissions have to approve that.
But we believe it's reasonable.
Got it and just last from me I'm just wondering your thoughts I know that <unk> filed January you filed in Washington.
This settlement in March Alaska, you're going to file.
It seems that as rates have moved.
I haven't seen management teams actually changed their requested ROE if.
If you think about the move that we've seen in the 10 year.
Since at the end of the year.
You haven't really seen like the settlement.
Oregon right now 94 kind of is in line with what you've seen the national average, but yet.
Treasuries have almost doubled since the beginning of the year.
As you think about the filing in Alaska going forward could investors start to see maybe utilities ramping up the requested ROE because of the move in rates.
Well.
Part of it that's a great question, but part of it is a challenge in that we've seen rates over the last 10 years moved down significantly and.
<unk> ROE have moved down somewhat so I don't think were going to be fast to raise up and I don't think the commissions at least in our jurisdictions were fast to move down we did incrementally move down as rates came down we did we went when I started.
13 years ago, we were at 10, two in Washington, and Idaho, and now were at 94, but rates from then probably went from treasuries I don't know six six or so percent or higher down to.
Sub two for awhile, So I don't think while incrementally they are moving up I don't think that commissions now.
We would love it if they don't get me wrong, but I don't think theyre going to jumped too quickly to move up when they didn't jumped too quickly to move down they are still looking at value to customers and we'll have to see what that does Kevin I don't know if you'd add anything to that yes, just one one quick item in our Washington case, we did increase the request.
Of an ROE of $10, two 5% and we did that.
In recognition and our witness spent a fair amount of time and detail around inflation and other factors that influenced us to ask for that 10, two five that's higher than what we've asked in the past and in part as a tool available to the commission in this kind of environment, where we have this uncertainty. So we really wanted to make that available.
Both of them so they could they could move forward and work with us as we want to recover and earn our authorized return.
Great. Thanks, so much for taking my questions and hopefully Mark we have a better.
Thursday night.
I'll be watching.
Thank you and your next question comes from the line of Brian Russo from Sidoti. Your line is open.
Hi, good morning.
Good morning, Brian .
Hey, I just wanted to understand kind of the seasonality of the arm.
The one point plus million benefit in the first quarter.
But yet.
And to be well above the baseline expense.
<unk>.
For the full year, what's the seasonality I mean, if you have a little above normal hydro conditions in normal run off.
Well most of that expense kind of hit in the fourth quarter. When you have less hydro in Europe .
In the market procuring power.
At higher prices is that kind of the way to look at it.
I mean, the seasonality, yes from a from a availability of supply perspective, when we have if we are assuming we have normal hydro we have a lot more power in the spring and into the summer and how far that goes depends on how quickly. It melts off and then we still have hydro run of the river plant, we still have hydro just not as much.
And we then become more subject to gas prices the seasonality isn't as much due to availability of supply. This year as it is due to the significant volatility in natural gas prices. So we've seen again.
Largely I'll say largely due to Ukraine, Russia conflict I don't know that Thats, 100%, what it is but everybody is saying that thats that does definitely impacted and so the significant increase in gas prices.
It was really caused that to become a challenge because that increases our cost to serve our load and our customers.
For that for the.
If we havent fueled our plants fully and we don't we tend to leave them open through time is to take advantage of lower gas prices, we don't fuel up 100% and thats, what the earn the ERM catches that movement and in this case it's.
It's largely I would say, it's largely due to natural gas prices and the increase there than anything else than timing to try to say there I mean, there is a normal seasonality to the availability of our power and there is a normal seasonality to our loads right. If we had unusually hot or cold weather that does impact our loads, but we havent seen it spend.
A little cool, but.
But we haven't seen any significant volatility with respect to loads due to weather.
Right understood. So then maybe it seems like that dynamic you. Just described was in play during the first quarter of 2022, So I'm just curious.
How you were able to optimize your generation portfolio and market purchases to actually benefit.
Well, we were actually down Brian were actually down $2 5 million from last year.
The first quarter I mean, so if there is a little bit there in the way that shaped based on current prices. Our first quarter last year was over $4 million and this year, we're under two.
So yes, we did have a slight benefit in the actual recording of it but.
But we were down in the first quarter as well.
But year over year okay.
And just yeah.
Million bond deals.
That closed in late April for the refinancing what was the interest rate on that.
And how does that compare with kind of your late March how does that what was it that the borrowing rate on that and how does that compare with your average borrowing rate.
Well it was right around 4% I think it was it was 4% I believe but it.
And in that overall, our average borrowing cost is higher than that I want to say, it's five 5% I don't know what we include in our our total cost of borrowing but it did overall lower the cost of borrowing it just was slightly higher than we had expected coming into the year rates.
<unk> have really ticked up lately. So we did get a little bit of a negative there and we would expect to update that as we go forward.
In our in our regulatory filings as I mentioned is a known and measurable item, we may or may not get that that's up to the commissions, but it was slightly higher than we expected, but still lowered the overall cost to our customers.
Okay, and then just lastly on the other business, 4% to six cents of EPS.
In 2002 and 2023.
Sensitive are those estimates too.
Uh huh.
Market volatility.
I'm just curious are these just forecasted net gains.
Positions that are monetized or is there also kind of a market.
Element function to that.
No.
Right.
There is a lot of different things that.
That we have a lot of different investments.
It's not when we look at our business right, it's not necessarily tied to gas prices or interest rates. I mean. These are these are investments that are growing early stage or you know.
On onward businesses and in clean Tech. So is it what what conditions are out there to the extent there is a continued investment in getting getting back to zero.
<unk> emissions clean Tech investments are have had a lot of benefit going forward, we expect to see that to continue as many companies like we have in our own clean energy goals as Dennis mentioned.
A lot of companies throughout the country are trying to have those goals. These investments are around to try to help achieve those so we believe there will be strength in funding and we've seen that right is there's a lot of money coming into there that is a benefit does that continue forever I have no idea I mean over the next couple of years, we believe that we'll be able to get there and achieve our results.
But it's not based on monetization of any particular investment. It is included in there, but there is a valuation impact to us as we move forward and again. These are very small I know we spent some time on it but it is for <unk>. The focus is our focus is primarily.
Getting the utility back to earning our allowed return.
And okay, great price for our customers.
Alright, Thank you very much.
Thanks, Brian .
Thank you once again in order to ask a question. Please press Star then the number one on your telephone keypad.
And presenters I'm showing no further question at this time I would now like to turn the conference back to MS. Daisy Wang for any closing remarks.
Thank you very much for joining us today, we look forward to seeing many of you in a few weeks in Florida.
Have a great day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.
Okay.
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Yes.
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