Q2 2022 Avista Corp Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Avista Corporation second quarter 2022 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 participate simply press star one one on.
On your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to Stacie once investors relations manager the floor is yours.
Good morning, everyone welcome to our second quarter 2022 earnings Conference call.
And our second quarter 10-Q were released pre market. This morning 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, and senior Vice President External affairs, and Chief customer Officer, Kevin Christie.
Yeah.
Today, we will make certain statements that are forward looking these 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 2021 and 10-Q for the second quarter of 2022, which are available on our website.
Okay.
I'll begin by recapping, our financial results presented in today's press release, our consolidated earnings for the second quarter of 2022 were 16 cents per diluted share compared to 20 for the second quarter of 2021.
For the year to date consolidated earnings were a dollar $1.15 per diluted share for 2022 compared to $1.18 last year.
Now I'll turn the discussion over to Dennis.
Thanks, Stacy and good morning, everyone. I Hope you are enjoying your summer so far.
Cool wet spring summer finally hit our region with a vengeance actually here recently, we had a triple.
Triple digit temperatures across the entire Pacific Northwest region, and it made national news.
Of course, the ongoing investments we've made to our system to help keep our customers safe and cool during the excessive heat and we were relieved to see these temperatures give way to a more normal summer weather pattern. This week.
The heat wave move moved eastward.
He shared with everybody else across the across the country.
Our second quarter consolidated earnings met our expectations, we continue to be on track to meet our full year consolidated guidance. Our performance was primarily the result of increased net investment gains by our other businesses.
Through the second quarter, the utility continued to be challenged by.
A higher cost, particularly rising interest rates and inflation.
We are very pleased to have reached a multiparty settlement in our moat.
It reached a settlement multiparty settlement of our multiyear Washington General rate cases, both electric and gas.
If approved by the Washington Commission. This outcome provides a positive framework for our Washington operations that benefits, both our customers and our shareholders as part of the settlement, we wrote off $4 million in costs related to the dry ash disposal disposal project at Colstrip during the second quarter.
We expect inflation to decrease from current levels in 2023 that combined with the rate relief and cost management efforts positions us to earn our allowed return in 2023.
We're proud to be the first investor owned utility to reach approval of our clean energy implementation plan with the Washington Commission.
If we did that in June of this year the business plan as a roadmap of specific actions, we expect to take over the next four years to make progress towards goals established by the clean energy transformation after ceta and of course, our own clean energy goals as we work towards achieving these goals we are committed to balancing.
Reliability and affordability, while meeting our long standing commitment to environmental sustainability.
Benchmarks that are included in the plan were created with customer input and we also work very closely with commission staff and other stakeholders to develop and strengthen the plans.
We recently completed a permanent fish fish passage facility at our cabinet Gorge dam that will help restore and expand bolthouse populations in the Clark Fork River basin, reflecting our ongoing commitment to environmental stewardship.
This $60 million multiyear project also fulfills elements of our FERC licensing obligations and is the culmination of over 20 years of study negotiations planning and collaboration with Native American tribes state and federal agencies and other stakeholders. We're very excited to have this facility up and running and our team just.
Did a great job.
In June we opened up River Park, which incorporates a portion of the Washington Centennial Trail, along the Spokane River in the heart of the city like to fish passage project apart fulfills elements of our FERC licensing obligations as it contributes to an ecologically healthy shoreline and provides river access in water.
Water based recreation.
The project also provides a neighborhood park in river access for a disadvantage low income neighborhood and has increased safety along the very popular Centennial trail by removing vehicle traffic.
Moving to rate cases, as I mentioned, we are pleased to have reached the settlement.
2022, Washington General rate cases, and we expect that that rate relief in December of 2022.
We expect to file rate cases in the first quarter of 2023.
And then you saw I'm sure in Alaska, We filed our general rate case in July we expect an interim and refundable rate base.
Base rate increase of four 5% effective in September of 'twenty two.
For guidance, we are confirming our 2022 earnings guidance with a consolidated range of $1 93 to $2 13.
And are revising our segment earnings guidance for 2022 to decrease the contribution from Avista utilities and increase the contribution from our other businesses by <unk> <unk> per diluted share each we expect to be near the lower end of the consolidated range, primarily due to higher power supply cost.
We are confirming our 2023 consolidated earnings guidance range of $2 42.
<unk> to $2.62 per diluted share at this time I'll turn the presentation over to Mark.
Thank you Dennis and good morning, everyone. Thanks for joining us today, so like Dennis said, we've got a lot of great things that have occurred in the quarter and as we look forward I'm very excited about that the one thing I'm not excited about is the blackhawks or in a major rebuild we are dumping everybody in getting almost nothing for it so.
I might even be able to get season tickets. This year, if they come down low enough. So that's a tough one but compared to the second quarter of 'twenty, one as Dennis mentioned Avista utilities was down primarily due to the write off of that dry ash disposal system at Colstrip, we believe that that was the.
The outcome of that settlement is a positive for customers and shareholders and that was just one part of the overall negotiation. So we took that charge. We also have higher operating and maintenance costs depreciation and interest expense and these increases were partially offset by benefits from our completed rate cases, previously in Idaho, and Washington, which.
Our effective late in 2021.
The benefits from the rate cases are recognized through lower income tax expense. So you don't see that necessarily through through margin. It comes through because of the customer tax credit that's where we see the benefits is in a lower income tax expense. We also continue to have strong customer retail customer growth at about one 5% which is better.
Then our previous amounts of half to 1%, we're showing continued strength there.
The energy recovery mechanism as Dennis mentioned had a pre tax expense of $4 8 million compared to $7 6 million of expense in the prior quarter and for the year to date, you are worried about $2 8 million versus $3 $3 million. All of that said is for the year 2022, we expect to be in.
<unk> expense position in the 90 10 customer sharing band and it expects to be about <unk> a share negative for us.
With respect to capital, we are slightly increasing our capital again.
$30 million, we expected the avista utilities to spend $475 million.
In 'twenty, two and 'twenty, three which is an increase over 400 from $445 million previously.
And we expect.
<unk> capital expenditures to be $10 million in 'twenty, two and 13 in 'twenty three.
And we expect to invest about $15 million in our other businesses in 'twenty, two and 'twenty, three which is pretty consistent with where we've been.
From a liquidity perspective, we have almost $200 million of available liquidity under our committed lines of credit and in the first quarter and Thats due to in the first quarter, we issued $400 million of long term debt and we use those proceeds to repay.
Our borrowings under our credit facility, but also we had a maturity in April of $250 million.
During 2022, we expect this is a slight increase of $135 million of common stock that's really to fund the additional capex.
And that includes $61 million that we've issued to date and for 'twenty. Three we expect to issue a $140 million of long term debt and $120 million of equity and that again to fund our capital expenditures.
With respect to guidance as Dennis mentioned, we are confirming our 'twenty two guidance on a consolidated basis, but we did decrease the utility by <unk> and increase other by 10.
The utility half of that was about almost half of that was really due to the write off of that dry ash disposal system. The other half is some increased costs that we've seen interest and other costs, which we believe we will be able to recover through cost management and the settlement in the rate case, assuming that the commission does approve that we're still waiting commission approval, but assume.
The commission approves that we believe will be able to recover some of those costs through that settlement, we're confirming our as Dennis mentioned, we're confirming our 23 consolidated guidance in the range of $2 42 to $2 62 on a consolidated basis and that doesn't assume again timely and appropriate rate relief.
Not only in Washington, but in all of our jurisdictions.
We expect Avista utilities to contribute in the range of $1 71 to $1, 87% and 22 and again thats due primarily to the write off of the Washington.
Due to the settlement of $4 million for the dry ash disposal rising interest rates and inflation.
The midpoint of our guidance does not include any expense or benefit under the ERM and as I mentioned earlier, we expect that to be about <unk>. This year.
Looking ahead to 'twenty three we continue to expect that we visited with the utilities will contribute in the range of $2 30 to $2 46.
And in March of 'twenty, two we did settle our general rate case in Oregon and in June of 'twenty. Two we settled our general rate case in Washington, now need Commission approvals for those for them to become effective but we anticipate as we look at our guidance, we anticipate that those do get approved.
Rate relief from these cases will come at the towards the end of 'twenty, two and into 'twenty, three which will provide us that opportunity to earn our allowed return. In addition to that we would expect to continue to manage our cost to get that we need both some cost management as well as these rate cases.
We do expect to file a general rate case in Idaho, and 23, those rates and we expect that rate relief to come in the second half.
The Idaho case runs out in September one of 23, So we would expect to file in time too.
To get that to go forward and we do expect again, our continued customer growth of one to one 5%.
We expect <unk> to contribute eight to 10 in both 'twenty, two and 'twenty three and.
And we expect an interim and refundable base rate increase of four 5% for the rate case that they just filed to be effective in September of 'twenty two from their general rate case, our outlook for Avista utilities any LP assumes again normal precipitation normal hydro electric generation.
In the in 'twenty three.
With respect to our other businesses as Dennis mentioned, we are increasing our guidance 10 cents there.
We did see a strong second quarter due to the valuations of our investments and we had some some net investment gains there. We expect that to continue so were at 14% to 16.
For 2022, but we returned to our normal again, 4% to six in 2023 from those other businesses.
Our guidance again, a reminder, generally includes only normal operating conditions and doesn't include anything unusual or nonrecurring until the effects are known and then we include them.
With that I'll turn it back over to Stacy.
Thank you Mark.
We're open for questions.
Thank you and as a reminder, evs have a question simply press star one one on your telephone one moment, while we compile the Q&A roster.
We have a question from the line of Cody Clark with Bank of America. Please proceed.
Hey, good morning, Thanks for taking my questions.
Good morning, Kodiak Kodiak.
First curious if you can discuss more of the drivers behind the Capex increase was that a function of a pull forward of work or more inflation on the capital side.
It's probably more inflation Cody.
Our capital projects.
They changed just as we continue to work through them, but it's a slight inflation, it's not a significant increase and we just felt it was necessary to to put that out there. So I would say, it's primarily inflation and then there is some mix of projects in there, but that those are awful find details for a small increase.
Yes, understood and then as we think about the impact of inflation and higher rates can you talk a little bit more about that how that cascades into 2023, and what's giving you confidence that inflation will abate in 2023, and maybe if you could provide some more color on any major contracts next year that would have to renegotiate.
<unk>.
Labor contractors or supplier anything like that that would be helpful. Thank you.
<unk> completed all you want to talk about the labor chaotic Dennis Yeah. Our labor, we just completed a labor contract with IBEW local 77 tenants are our biggest.
Union membership group.
And.
So we're locked in with wage increases part of that agreement for the next.
Three years.
So that was a big one we did see a little bit of.
Adjustment.
Just given market conditions for skilled craftsman line workers and other skilled tradesmen and we factored that into the contract and that is factored in forward looking into our budgeting process as we as.
As we move forward, but that's a big one and it's good to have that one done.
And Cody that was also included in that and the filing for our rate case. So we did include those those costs. So that's probably what was one of the larger contracts are all kinds of smaller contracts that may come due but we factor that in we believe that we look at what's out there and what the fed salmon where inflation is.
No word that's going to be.
Okay tagging around 3% for next year, it's higher this year.
Whether things change or not whether the new bill coming out gets approved and can help to.
Slow inflation, we don't know what we put in our in our forecast as we expect it to our economists expect about 3% inflation and we're expecting to manage our costs what gives us confidence as we look at our ability to manage our costs, which we've done for a very long time, we expect that to continue and we will be able to achieve our forecasted.
Forecasted goals.
Right, Okay got it so a 30% year over year increase in O&M is kind of the assumption youre running with in that 2023 guidance.
While the inflation that it's not just O&M right theres inflation, all over and we will have to manage our cost to get there. So it's there will be inflation and then we will have some cost management to get to or achieve our goals that will be it will be less than 3% for our O&M, but theres other costs, we have to manage as well.
We havent put out specific all of those it's just August right. We're still in that process. As we go forward two to work through our forecasting our budgets, but we have a confidence that we can get there.
Understood. Okay. Thanks for the thought.
Thanks Cody.
One moment for our next question please.
We have a question from the line of Brandon Lee with Mizuho. Please go ahead.
Hi, Good morning, Dennis Good morning, Marc good.
Good morning, Ryan.
Hey, just a quick question on <unk>.
Do you guys expect to benefit from the inflation.
Production Act and if so can you kind of highlight where you could see.
Potential benefits.
Yes, well, yes good question.
We're looking through it.
Obviously, the bill is it over the finish line yet.
There are some question whether or not.
They will get 50 Democrats on board.
And there are some things that look interesting in there for sure.
Related to.
The tax package around storage and hydrogen and carbon capture evs and some of those other things.
As I mentioned, we're just in the process of kind of digging through it.
But it is.
Bill right in the Devil's in the details for sure. So we'll just continue to evaluate.
And then obviously whether or not it ultimately is passed we'll have to we'll have to watch that as well.
Great. Thanks, that's all I had thanks a lot.
Thank you.
Thank you I'm not showing any further questions syndicate Sir.
Okay, well. Thank you everyone for joining us today, we appreciate your interest in Vista and hope you enjoy the rest of your summer have a great day.
And with that ladies and gentlemen, we concludes today's conference call. Thank you for your participation you may now disconnect.
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The conference will begin shortly to raise your hand during Q&A you can dial one one.
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