Q3 2022 Avista Corp Earnings Call
[music].
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day and thank you for standing by welcome to the Avista Corporation Q3, 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 ask a question during that session you will need to press star one one on your phone please.
Please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today, Ms. Stacy <unk> Investor Relations manager Ms. Wang.
Please go ahead.
Good morning, everyone and welcome to the third quarter 2022 earnings Conference call.
Our earnings and our third quarter 10-Q were released pre market. This morning.
Both are available on our website.
Joining me this morning.
Have 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 <unk>.
And Vice President controller, and principal accounting Officer, Ryan Crackel.
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 third quarter of 2022.
Both are available on our website.
I'll begin by recapping the financial results presented in today's press release.
Consolidated loss for the third quarter of 2022 was eight cents per diluted share compared to earnings of <unk> 20 for the third quarter of 2021.
For the year to date consolidated earnings were $1.06 per diluted share for 2022 compared to one dollar and 38.
Last year.
Now I'll turn the call over to Dennis.
Well, thanks, Stacy and good morning, everyone.
After an unusually warm and Sunny October it definitely feels like our typical fall weather has now settled into a region.
We're getting some pretty good preset, but it looks like our first big Mountains snow season. So that's a good thing.
With the summer season behind US, we're happy with how our system handle this year's peak summer months.
<unk> investments, we continue to make in our system to harden, our grid and bolster the reliability and resiliency of our Substations and distribution system allow us to better serve our customers.
We're also making good progress in achieving our clean energy goals, we're evaluating opportunities in our recent RFP and we're implementing our Washington clean energy implementation plan that was approved in June .
Turning to rate cases, we continue to work our way through the regulatory process for our Washington General rate cases.
Following the multiparty settlement, we reached earlier this year, we expect a decision by the commission in December of 2022, and Idaho we.
We expect to file both gas and electric rate cases in the first quarter of 'twenty. Three we also plan to file a general rate case in Oregon during the first half of 2023.
In Alaska, our interim and refundable rate base base rate increase of four 5% was approved by the commission and it was effective in December of 'twenty two.
Now for earnings as we've previously.
Communicated our strategy is to achieve our 2023 guidance.
<unk> adequate rate relief and cost management, and we've made significant progress on both fronts, our Washington General rate case settlement demonstrates progress toward attaining the needed rate relief prescribing to achieve.
We have identified opportunities to manage our costs for 2023.
Despite these great efforts the goalposts have simply been moved on us and as a result, we are lowering our 2023 consolidated earnings guidance by <unk> 15.
To a range of $2 27.
<unk> to $2 47 per diluted share the combined upward pressure cost pressures from inflation and rising interest rates, which accelerated in the third quarter proved too much for our cost management efforts to offset in 2023.
In particular, we expect increases in.
Borrowing cost pension expense and depreciation.
Higher borrowing costs and operating expense also impacted 2022, and therefore, we are lowering our 2022 guidance by <unk> <unk> per diluted share to a range of $1 88 to $2 <unk>.
At this time I'll turn this presentation over to mark to get into some of the details Mark. Thanks, Dennis Good morning, everyone.
And while our news on our earnings is down.
I do have a positive blackhawks comment I know youre I'll wait for that where a point out of first place nine games into the season.
Still very early but a lot better than I thought it would be.
Compared to the third quarter of 2001, our utility earnings decreased primarily due to rising interest rates higher depreciation we have had some higher capital and increased operating expenses.
These increases were partially offset by benefits from increases from rate cases that we completed in both Idaho, and Washington, and we also had retail customer growth of about one 5%, which helps our utility margin.
As well the energy recovery mechanism in Washington was a $4 5 million dollar expense in pre tax expense and the FERC in the third quarter compared to $3 8 million in the prior year or an expense year to date, we've recognized $7 3 million of expense compared to $7 1 million last year.
And we do expect to continue to be in the 90% customer 10% company sharing band for 2022.
With respect to capital we continue as Dennis mentioned earlier in his remarks, we continue to invest necessary capital in our utility infrastructure and we expect our capital expenditures to be about $475 million and each 22 and 23 at Avista utilities, we expect AE lp's capital to be $10 million.
22% and $13 million in 'twenty, three and we expect to invest about $18 million in our other businesses in 'twenty, two and $15 million in 'twenty three.
With respect to liquidity as opposed to <unk>.
As of September 30, we have one.
$2 million in available liquidity liquidity.
Under our committed lines of credit and in the fourth quarter. We expect to end short term credit facility for up to $50 million to provide additional liquidity going into next year.
During 2022, we expect to issue $135 million of common stock, including the $93 million, we've already issued in the first three quarters.
And in 'twenty, three we expect to issue up to $140 million in long term debt and $120 million of common stock to fund our planned expenditures.
Getting into guidance and as Dennis mentioned, we are we are lowering our 'twenty two guidance by <unk> <unk> to.
To a range of $1 88 to two O eight and we're lowering our 2023 guidance to 15 by 15.
To a range of $2 27 to $2 47.
These increases are all related to Avista utilities, and as Dennis mentioned, while our regulatory and cost management efforts have been successful.
We don't believe they're going to be sufficient to overcome the as.
He said the goalposts moved the increase.
The continued increase in inflation in those costs going up interest rates continue to rise driven by the federal reserve aggressively raising interest rates five times this year and we anticipate another tomorrow I believe in other.
Increased continuing that we expect those borrowing cost to continue to increase next year, we forecast based on forward curves and Thats included in our guidance.
A portion of our operating expense is also related to the pension expense in our pension asset values have decreased significantly as a result of poor market performance, causing increases to our pension expense to outpace the potential decrease due to a rising discount rate from interest rates.
Finally, we've increased our capital expenditures, primarily due to inflation in certain new projects that we believe are in the best interest of our customers, which results in an increase in depreciation expense. We do expect these costs to be recoverable through future rate cases, as Dennis mentioned earlier, we have settled in Washington, a two year plan.
Assuming the commission approves it which is the commission still has to approve it if the commission approves it Washington rates will be set for 2000 and December of 'twenty two through December of 'twenty, four, but we do plan to file in Idaho, and Oregon in the first quarter and first half of next year respectively.
We expect Avista utilities to contribute in the range of $1 66 to $1 82 per diluted share in 2022 and the mid point does not include any benefit from there our expectation as I mentioned earlier, the <unk> would be in the 90 10 sharing band and is expected to reduce our earnings by <unk> <unk> per diluted share.
Primarily due to the impact of the year and we do expect to be at the bottom of the range for Avista utilities.
Looking to 2023, we expect Avista utilities to contribute $2 15 to $2 31.
Per diluted share and our guidance assumes appropriate rate relief in all of our jurisdictions, including the approval of the 2022, Washington General rate cases, and for 2023, we anticipate just to give you a sense of where we are on our our earned ROE, we anticipate unrecovered structural costs.
To reduce the return by approximately 60 basis points, that's what it will cost structural lag.
The term and then we have timing lag of about 90 basis points. So we didn't we anticipated originally trying to get back to earning our allowed return, but with the increase in interest pension and depreciation were not going to get there for this year for 2023, we expect that to be about 90 basis points. So that gets our total return on equity to be seven 9%.
We expect <unk> to contribute in the range of eight to 10 and.
In 2022, and 2023 and our outlook for <unk> assumes among other variables variables as always normal precipitation and hydroelectric generation.
We expect the other businesses to contribute 14 to 16 per diluted share in 'twenty two.
In 2023, we expect those businesses to contribute in the range of 4% to <unk> per diluted share.
Our guidance generally includes only normal operating conditions and doesn't include any unusual or nonrecurring items until the effects are known.
And Thats the end of the discussion on guidance, So I'll turn it back to Stacy and we can get the questions.
Thank you Mark.
To take your questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your phone.
Please standby as we compile the Q&A roster.
One moment please for our first question.
Our first question will come from Julien Dumoulin Smith of Bank of America. Your line is open.
Hey, good morning, Thanks for the time guys as well.
Morning Julien.
Hey, Thank you.
I wanted to go back to the 23 guidance you guys have been a good chunk of time here, but can we can we break down so much as some of the pieces you alluded to here.
Obviously, you talk about cost management efforts you guys have been talking about that for a bit here can you talk about.
The ability to kind of recapture some of that in some of these subsequent cases as well as some of the discrete breakout of the other items that you flagged here on the 'twenty three guidance.
Quantify the three or four specific points that you called out.
Well I mean, it really is rising interest rates, we do borrow money under our.
Largely our short term credit facility, we will issue some bonds later in 'twenty three.
On a long term basis, we have $140 million of debt, we expect to issue on a long term basis, but really the short term interest rates have increased significantly as I mentioned, we have a four just to give a sense, we have a $400 million credit facility and we have a $100 million at September of available liquidity if that liquidity goes consistent you assume we have three.
<unk> $300 million borrowed and interest rates have moved substantially over the course of where we were two now in 'twenty three where we expect it to be and we're just looking at forward curves. There on interest rates, we borrow very short term week to two weeks under that credit facility. So that has caused it to go up our pension expense as I mentioned.
Our asset values went down significantly.
We see the market values right, what's happening in the stock market we have.
A certain portion of equity and we do have some fixed income as well.
On that but interest rates rising there hurts the returns on the fixed income portion of the portfolio. So we're down in our assets over 20% in our pension and thats too much to overcome relative to the increase in the discount rate and I'm not trying to get into Julian to pension accounting, because I don't want to and nobody wants to hear it but thats overall our pension.
Expense is expected to be higher for 'twenty three based on that based on what we see today and Thats. What we have to go on for our guidance. The increase we mentioned earlier, we had an earlier call. We had some increase in inflation in our Capex and our Capex is higher than what we have filed for in Washington, We will expect to file in.
Idaho, and Oregon in 2020 early 'twenty, three first quarter for Idaho in first half for Oregon. So there is an opportunity there to pick up some amounts.
In those future rate cases, all subject to that process.
In Washington, our cases before the commission right now we've reached a multiparty settlement one party did not settle public counsel thats still being going through that process, but we expect that we will be able to get approval on the Washington case, but thats still has to be determined by the commission. So that's not up to us.
So those are those are the three primary drivers or other cost management efforts really offset the other impacts of inflation, we've seen inflation in wages, we've seen inflation in goods and services in.
<unk> different.
Contractors that we used to do a lot of our work we were able to offset that with our cost management I'm not going to go into specific details there, but the effort we did offset all of that and it was just the.
Faster ryzen, I guess I'd attributed to.
Higher inflation for longer that the fed has had to then move.
The market reaction to that those those are really the drivers we were not able to offset.
And our expectations.
We do believe that that will all be recoverable in future rate cases, assuming we can demonstrate that we did this prudently and I believe we absolutely can.
Got it can we talk can we try to quantify a little bit more on the.
Pension impact reflected here in 'twenty, three as well as if you don't mind going back to.
The cost management equation like how do you think about maybe 24 at this point and reflecting some of these pieces. Maybe also if you don't mind on interest expense.
Thoughts on.
The refinancing terming that out et cetera.
Again, how you think about that on a more structural basis in the 'twenty four.
Again, I know that you keep trying on cost management Ive heard this ever for a while how do you think about kind of giving the college try if you will under the 'twenty four time period.
We're always doing that that'll be consistent and we will expect to continue those efforts I don't have anything specific to report for 'twenty four but.
We've done that 23 wasn't an unusual we had a little bit higher effort in 'twenty, three because we knew who had a little bit higher hurdle, but.
Going into 2000.
We always are trying to manage our cost to run it efficiently and we need to demonstrate that.
As we go in for rate cases, we have to demonstrate how are you trying to manage your costs. So we do that consistently 24 won't be any different.
And that with respect to that effort with respect to that.
Putting putting down the pieces, we've kind of laid out what our what our borrowings were if that was if that was an average borrowing you can look at rates and determine what that is the pension dollars I'm not going to get into specifics because those can move around coming into 'twenty four if interest rates come down a little bit that could help 'twenty four right if market performs better going into <unk>.
At the end of 'twenty, three or we get into 'twenty four and the market performs better that our pension can have a lower expense, that's a future opportunity as well, but none of those things are known at this time. All we can give you is what we expect at this time, which is where we're at so if you look at it I won't say a third a third a third but that's probably as close of an estimate.
Without getting into great detail of depreciation pension and interest.
Got it.
Third a third of the Delta in guidance reduction.
Good morning.
Yes, exactly thank you for quantifying that and then to be clear on the 24 rate activity, though.
Think about going back here to true that up just sorry, I tried to ask that.
Perhaps in code earlier, just to clarify that and I'll pass it.
Well, so with respect to 2004.
And we expect to file in 'twenty, three in Oregon and Idaho.
About 40% of our business, Washington represents about 60% of our Avista utilities.
And so in Washington, we're not going to be able to re file until.
The.
24, respectively for 25, I mean, it might possibly get into December I can't break scant change before December .
And again, we got to go through the process.
Oregon, Idaho to demonstrate that these are these are approvals and then we have to we will continue to have our cost management will continue to look at where the market goes.
Excellent. Thanks for your patience guys speak to you soon.
Thanks Julien.
Thank you.
One moment please for our next question.
Our next question will come from Shah <unk> of Guggenheim Partners. Your line is open.
Hi, guys its James reward on for Shar, how are you hi.
Hi, Jamison good.
Good.
So I wanted to clarify are you still projecting long term growth of 4% to 6% off of 2023 or how should we think about that.
That aspect.
The later years aspect in the forecast period.
Yes, I think thats consistent again that would be that's our looking at our rate base growth and as we would go in a normalized period. We are as we are.
We're going to be under earning and have some continued timing lag we would like to see that we can chip away at that but that's going to take a period of over $24 25 to have that opportunity as I just mentioned earlier really because of the again regulatory process in Idaho and Oregon.
Able to possibly chip away at 24, and then Washington for 25, So we would expect that to be a normalized growth.
Based on current expectations of where our rate base growth is.
But we would look to add to that some incremental growth.
To offset this reduction we have.
And this timing lag that we have identified today.
Got you so would a fair way to put it.
I sort of think of re basing as four to six still off of 'twenty three off of this lower 23, but maybe more of a bias to the top end of that rather than the mid point as you look for incremental opportunities to.
To normalize as Youre, saying in to catch back up is that fair or I think I would look at we have an incremental opportunity.
The base that makes sense right go off the 4% to 6% off of the revised twenty-three. Okay. I would say that makes sense. The incremental opportunity is we're going to we're going to have to see I would say, yes. There is an opportunity for again, 40% of the business in Oregon, and Idaho, if youre going to look at that versus the.
Washington, So 60% of that we don't believe we're going to continue to do cost management, we're going to continue to look at running our business efficiently.
We will have continued impacts of market forces as we go forward, but we can we can possibly pick up to 40% of that.
In 'twenty four and then the remainder in 25 is our opportunity and we will have to work through those processes with our commissions.
Got it got it.
And in terms of incremental opportunity.
We had $4 six.
The other businesses initial guidance for the past couple of years and then.
Obviously that segment have exceeded expectations repeatedly.
Understood the investment gains are driven that but.
What sort of the potential that we could see an upside surprise.
Similar to what we've seen in the last couple of years.
'twenty three that might not close the gap.
Makeup some of the 15th time difference.
Again, we don't we look at we look at the forecast to Amazon with respect to where we see those market valuations. They can go up and down we actually saw some third.
Third quarter it wasn't a significant it was pretty flat so we.
We don't forecast significant market upsides in those we just kind of forecast a normalized return that we see based on our investment there is there a possibility. It could go up yes is there a possibility it could go down yes, I mean, there are valuations that can move there.
So we don't we try to we try to I think I would say, we try to forecast conservatively in that area.
But.
It can go both ways market valuations can go down as well as we've seen in the stock market.
Certainly.
Last two questions I have one on that note I would ask.
Valuations declining now.
Our pension survey back in the summer you'd mentioned that you have regulatory mechanisms that allow you to record regulatory asset for the portion of the pension and other postretirement benefit funding deficiency that you'd have relative to what you are recovering in rates.
Hi.
How does that play in here and is that.
Something that can help to offset or it seems like it isn't.
Headwinds are going to be weighing on 2023, how should we think about the regulatory mechanisms and regulatory recovery that you have relate.
Related to pension.
Yes, we don't I mean.
Assets versus liability for unfunded component of it but that's not where we're largely funded in our pension and so I don't think that there is an issue. There. It is not with respect to the expense we don't we get recovery of.
The ERISA expense.
Based on an annual calculation there and so.
That ability to change out we don't have a tracker for that mechanism at all at this point.
This is more like.
<unk> exceeded.
The corridor and pushes out into 2023 impact or could or it looks like it Mike is that more of the way to think about this well as we look at it we can forecast what the market's going to do what our pension is going to earn and what the discount rate is and we can run an.
An actuarial calculation on that that says here's what pension expense would be forecasted based on what we know today those those numbers change and we don't value we value. It at the end of the year for the next year.
But where we see it today is going to be a higher expense.
Yeah understood that makes sense.
<unk>.
Just to clarify as well on the <unk>.
The midpoint of guidance does not include an impact from CRM and so we understand the nine Wang.
This year, but just so we can understand when thinking about next year do you have any sort of early indication given the components that go into the ERM.
Essentially is it just the reset to zero.
Jan one or is there any sort of early indication of whether things are looking more positive.
More negative relative to coming in flat or zero.
We're really waiting for so we've got a file rate case in Washington, which is where the arm is.
We have a PCA in Idaho, but thats more of a 90 10, so that's not as impactful as the euro and from an earnings perspective and in Washington, We when we filed our case, we reset to.
December January of that year, I don't remember the exact dates that we reset, but we reset our power supply costs in that case, but have not reset for any any current.
Amount so until we get that case through the Washington Commission I'm, not comfortable saying, where we expect to be we will come out in February because we will assume that in December we will have an order from the commission and so when we give our guidance when we refresh our guidance for 'twenty three in our fourth quarter call.
Next year, we will have a view of where that arm is based on the market conditions at that time.
Understood. Thank you very much I appreciate you answering the questions.
James.
Thank you.
And one moment please for our next question.
Our next question will come from Sophie Karp of Keybanc. Your line is open.
Hi.
Thanks for your time.
So a couple of questions.
Im looking closely at the numbers here in your 10-Q right.
To me that you.
The interest expense has gone up by about 3 million. So it would have been like with them.
Delta year over year on year EPS.
Just wanted to confirm that this is the totality of it because you brought it up as a major driver of Zika O&M was a way to be the driver.
Is there another interest expense somewhere like Barrington, though again again for 'twenty, two but also an interest expense.
As we look at it.
I'm looking more to 23, then 22, okay as.
We look at that 'twenty, two we just move guidance.
22 by five which included interest and.
Operating expenses, but it really didnt move significantly in 'twenty two 'twenty three was what I was trying to address their Sophie so when I said the interest pension and depreciation was really a 'twenty three expectations.
Got it got it okay and so the ink.
Inquiries and O&M brokers I guess, if I run rate that we are seeing this year. This is basically your expectations that it stays the same grow into the 20th when you're three or are you contemplating some grain that but.
Celebration of deceleration in the rate.
Inflation in the O&M Lake.
Again with respect to our cost management, we expect it to try to keep our O&M.
Relatively flat in 2003 compared to 22, but.
We're going to see a higher costs in our pension and we are going to see some are the drivers really for the change in in.
Our guidance go back to again pension depreciation.
And.
Interest costs, we did have higher debt.
In 2002, <unk> compared to 'twenty, one we expect to continue that as we go forward into 'twenty three so it's a combination of the rate going up and plus our increase to fund our capital budget were funded okay.
$175 million capital budget, so that increases as well so that we are some of that you don't see in there <unk> is the effects of our cost management. I mean, we are trying to manage our cost to keep that rate of growth below inflation.
Great.
I will now ask you this.
And that you hope to recover.
Your government that hopefully will get approved in December in Washington, You mentioned that you hope to recover extra O&M costs, I guess may be above and beyond what was contemplated in the two year, great Jason future rate cases, so how does it work do you have like.
So brennan mechanism to track those costs in excess of what's been the perelman, because it's a black box settlement two right. So it's Tim.
Can you help us understand how progress.
How this would work.
And so if you just Kevin Christie I'll jump in here.
Focus primarily on capital.
The capital that we're incurring that creates timing lag will pull into the next case.
When we build the test period and pro form into the rate effective date any any extent expenditures expense operating expense will be treated like it always is we will develop a test period and that test vertical pole been current.
And we will pro forma any additional O&M, we think might be appropriate. So we have the ability to take what we expect to have from an expense perspective at that time in and any capital that we're spending now.
That isn't recovered or what might not be recovered in that case will be pulled into the next case as well.
Okay.
Capital with the with your comments related to capital not not on the O&M.
Yes, not on O&M O&M.
O&M unless it's covered in a tracker.
What we hope to have for insurance expense, that's part of the settlement in Washington case.
Anything related to wildfire for example, which is a current tracking mechanism we have that in the state of Washington as well.
Got it.
And last one if I may be a philosophical question I guess with respect to your regulatory strategy here. So.
Is there a way to have some kind of limited to the opener for this settlement to account for these.
Incremental.
Ross with Jim Mcqueeney Narrows, Australia, you rich.
The settlement because of the.
The time line of business it seems to me.
Yes, I think you're right on that's when we mentioned the goalpost moving on us in that what we had in test period and what.
What we knew of at the time when we have reached settlement a number of things have occurred.
Negatively since then.
With.
The state of regulation and Washington, We really don't have an opportunity to go back unless it's captured in a tracker that I just mentioned and reopen.
With the new legislation in Washington that we are utilizing here.
The case, we filed was longer.
Three or four years, which is an option. We didn't do that here then there is a reopener if you're under earning below a certain level, but that doesn't really apply here given the timing of this case just being two years.
Okay got it thank you.
It also doesn't necessarily make sense for us to withdraw from the settlement and re file because it's an 11 month process. So we would effectively lose a year to do that just to try to come back. So we don't think that makes sense either we think the settlement as we said earlier, we think the settlement is a good settlement. We think it's a fair settlement reached with all the parties.
And will help us get towards earning our allowed return.
We said, it's just the market has changed census, the census time, so we don't have that opportunity.
Idaho, and Oregon will file.
Alright, well. Thank you appreciate the color.
Thanks Sophie.
Thank you.
Again to ask a question. Please press star one on your phone one moment. Please next question.
Okay.
Our next question will come from Brian Russo with Sidoti Your line is open.
Yes, hi, good morning.
Brian Brian .
Just to clarify with the understanding that.
Do you expect the.
The rate case settlement can be finalized.
Next month.
And then you've got to read.
The increase in 'twenty late 'twenty, two and then again in late 2003, when actually can you file again, assuming that 11 months' time.
Time clock for a fully litigated rate case do you have to read you have to wait until December of 2023, when the second year of the rate increase goes into effect or can you file anytime. After you reached the settlement agreement.
Well, it's easier to think about it this way we can file 11 months prior to December 22 2024.
You could file sooner than that but youre not going to have new rates into effect any sooner than that so it's really up to the company to try to time it right up to that point in time. So if we are continuing to have.
Lag to fill the gap there right at that 2024 time frame in late December .
Okay got it thanks for the clarification, that's all I had thank you.
Thanks, Brian .
Yes.
Thank you.
Okay and one moment please for our next question.
Our next question will come from Brandon Lee of <unk> Securities. Your line is open.
Hi.
So hi, Brian midpoint.
Hey, how are you.
From the midpoint of.
$1 74 for 2022 by reduce we.
Reduce it by the arm of <unk> since I get $1 65, and so far for the year you've earned 90.
Am I thinking about this correctly that you would need to end.
75 cents in the fourth quarter.
To hit the midpoint of your guidance.
For Avista utilities.
Again, again, Avista utilities I look at it more on the consolidated but.
At the end of the day.
That's right second or fourth and first quarters are our largest quarters historically.
And so that is an expectation that we would.
Trusting your math there.
Without confirming without confirming.
Any models, but that sounds appropriate.
For the utilities to earn that in the fourth quarter.
And now that we're about a month into the quarter.
How is the fourth quarter looking so far.
I don't have a sense again, it's early in the fourth quarter and.
As you look at the fourth quarter, we're looking at earnings the second and third month of the quarter or the colder months of the quarter. So I'm not going to try to guess at how is it looking for the quarter, we do expect to make that in our quarter.
Okay.
And then when we think of the drivers from 23 to 24.
I mean, you have rates set in Washington, I guess, how do you improve.
2024 from here.
Is it the Idaho and Oregon rate cases are there.
Other drivers so that's part of it as I've mentioned earlier on the call that as part of it we do expect to be able to file cases, <unk> will have to go through those processes and demonstrate.
Yes.
That we should get recovery, but we do expect that.
We're going to continue our cost management efforts, we're going to have to continue that as we go forward as well as.
There are can can interest rates slow down or reverse some there are some forecasts out there that show that.
We just continue to manage our business we have a strong business. We've hit a timing issue here, that's going to take some time to get through but our business model is still is still very.
Strong and we just have to work through these timing issues to get back to earning our allowed return.
That will be through the regulatory process, and we're not going to be able to get there in Washington as Kevin just mentioned until late 'twenty four will be the opportunity to increase in Washington, which is 60% of our business.
Got it and then.
In 2024.
Do you mean.
Idaho and Oregon.
Well you get constructive outcomes, there that's about 40% of your business.
But you have cost pressures on a 100% of the business should we be leaning towards the lower end of the 4% to 6% range.
Okay.
No I don't know that I would say that I haven't really thought that all the way through we can we can continue to look at that we've really focused on 'twenty three and then incrementally as we go forward in 'twenty four we expect to incrementally improve.
The 4% to 6%, we expect to be able to achieve that.
We included that.
Even in our in our Washington case, and we will get some some opportunity there as part of our second year in our Washington case, we're always going to have to continue manage that 100% O&M.
O&M. So we will continue to work for that so I don't know that I'd say, there is a upward or downward side of the range. We will have to continue to look at those cost increases and continue our cost management efforts to help offset those.
But I don't I don't know that I would say directionally I would give guidance on where we are.
With respect to any possible increase range for 'twenty four.
Okay, Great. That's all I had thanks, thanks for taking my question.
Thank you.
Thank you.
And I'm seeing no further questions in the queue I would now like to turn the conference back to Stacy went for closing remarks.
Thank you all for joining us today, we appreciate your interest in the company.
A number of you in the coming weeks. Thank.
Thank you.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Yes.
Okay.
[music].
Okay.
Yes.
Yes.
[music].
Sure.
Okay.
Yes.
Okay.
Yeah.
Yes.
[music].
Yes.
[music].
So.
Okay.
Okay.
[music].
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Sure.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
[music].
Okay.
[music].
Okay.
Okay.
Sure.
Okay.
[music].
Yes.
[music].
Okay.
Okay.
Yes.
Okay.
[music].
Thank you.
Okay.
Okay.
Thank you.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
Okay.
Thank you.
Yes.
Okay.
[music] earnings.
Yes.
Yes.
Okay.
[music] okay.
Okay.
Okay.
[music].
Yes.
Okay.
Okay.
[music].
Yes.
[music].
Thanks.
Yes.
Okay.
[music].
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Good morning.
Okay.
Okay.
Yes.
[music].
Yes.
Okay.
[music].
Yes.
Yes.
Yes.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Okay.
Yes.
Okay.
Yes.
Right.
Okay.
Yes.
[music].
Good day and thank you for standing by welcome to the Avista Corporation Q3, 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 ask a question during that session you will need to press star one one on your phone.
Please be advised that today's conference is being recorded and I will.
Now like to hand, the conference over to your Speaker today, Ms. Stacy Nguyen Investor Relations manager Ms. <unk>. Please go ahead.
Good morning, everyone welcome to vis vis third quarter 2022 earnings conference call.
Our earnings and our third quarter 10-Q were released pre market. This morning.
Both are available on our website.
Joining me this morning, I have 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>.
Today, we will make certain statements that are forward looking these involve assumptions risks and uncertainties, which are subject to change.
<unk> 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 third quarter of 2022.
Both are available on our website.
I'll begin by recapping the financial results presented in today's press release.
Consolidated loss for the third quarter of 2022 with eight cents per diluted share compared to earnings of <unk> 20 for the <unk>.
Third quarter of 2021.
For the year to date consolidated earnings were $1.06 per diluted share for 2022 compared to Q1 dollar and 38%.
Last year.
Now I'll turn the call over to Dennis.
Well, thanks, Stacy and good morning, everyone. After an unusually warm and Sunny October it definitely feels like our typical fall weather has now settled into a region.
We're getting some pretty good preset, but it looks like our first big Mountains snow season. So that's a good thing.
With the summer season behind US, we're happy with how our system handle this year's peak summer months.
Significant investments, we continue to make in our system to harden, our grid and bolster the reliability and resiliency of our Substations and distribution system allow us to better serve our customers.
We're also making good progress in achieving our clean energy goals, we're evaluating opportunities in our recent RFP and we're implementing our Washington and clean energy implementation plan that was approved in June .
Turning to rate cases, we continue to work our way through the regulatory process for our Washington General rate cases, following the multiparty settlement. We reached earlier this year, we expect a decision by the commission in December of 2022.
In Idaho, we expect to file both gas and electric rate cases in the first quarter of 'twenty. Three we also plan to file a general rate case in Oregon during the first half of 2023.
In Alaska, our interim and refundable rate base.
This rate increase of four 5% was approved by the commission and it was effective in December of 'twenty two.
Now for earnings as we've previously.
Communicated our strategy is to achieve our 2023 guidance.
<unk> adequate rate relief and cost management, and we've made significant progress on both fronts, our Washington General rate case settlement demonstrates progress toward attaining the needed rate relief prescribing to achieve and we have identified opportunities to manage our costs for 2023.
Despite these great efforts the goalposts have simply been moved on us and as a result, we are lowering our 2023 consolidated earnings guidance by <unk> 15.
To a range of $2 27.
<unk> to $2 47 per diluted share the combined upward pressure cost pressures from inflation and rising interest rates, which accelerated in the third quarter proved too much for our cost management efforts to offset in 2023.
In particular, we expect increases in.
Borrowing costs pension expense and depreciation.
Higher borrowing costs and operating expense also impacted 2022, and therefore, we are lowering our 2022 guidance by <unk> <unk> per diluted share to a range of $1 88 to $2 eight.
At this time I'll turn this presentation over to mark to get into some of the details Mark. Thanks, Dennis Good morning, everyone.
And while our news on our earnings is down.
Do have a positive Blackhawks comment I know youre I'll wait for that where a point out of first place nine games into the season.
It's still very early but a lot better than I thought it would be so compared to the third quarter of 2001, our utility earnings decreased primarily due to rising interest.
Asked rates higher depreciation we have had some higher capital and increased operating expenses.
These increases were partially offset by benefits from increases from rate cases that we completed in both Idaho, and Washington, and we also had retail customer growth of about one 5%, which helps our utility margin.
As well the energy recovery mechanism in Washington was a $4 5 million dollar expense in pre tax expense and the FERC in the third quarter compared to $3 8 million in the prior year of an expense year to date, we've recognized $7 3 million of expense compared to $7 1 million last year.
And we do expect to continue to be in the 90% customer 10% company sharing band for 2022.
With respect to capital we continue as Dennis mentioned early in his remarks, we continue to invest necessary capital in our utility infrastructure and we expect our capital expenditures to be about $475 million and each 22 and 23 at Avista utilities, we expect <unk> capital to be $10 million.
22% and $13 million in 'twenty, three and we expect to invest about $18 million in our other businesses and 22% and $15 million in 'twenty three.
With respect to liquidity as opposed.
As of September 30, we have one.
$2 million in available liquidity liquidity.
Under our committed lines of credit and in the fourth quarter. We expect short term credit facility for up to $50 million to provide additional liquidity going into next year.
During 2022, we expect to issue $135 million of common stock, including the $93 million, we've already issued in the first three quarters.
And in 'twenty, three we expect to issue up to $140 million in long term debt and $120 million of common stock to fund our planned expenditures.
Getting into guidance.
Dennis mentioned, we are we are lowering our 'twenty two guidance by <unk> <unk> to.
To a range of $1 88 to two O eight and we're lowering our 2023 guidance to 15 by 15.
To a range of $2 27 to $2 47.
These increases are all related to Avista utilities, and as Dennis mentioned, while our regulatory and cost management efforts have been successful.
We don't believe they're going to be sufficient to overcome.
He said the goalposts moved the increase.
The continued increase in inflation in those costs going up interest rates continue to rise driven by the federal reserve aggressively raising interest rates five times this year and we anticipate another tomorrow I believe another increase.
Increased continuing that we expect those borrowing cost to continue to increase next year, we forecast based on forward curves and Thats included in our guidance.
Portion of our operating expense is also related to the pension expense in our pension asset values have decreased significantly as a result of poor market performance, causing an increases to our pension expense to outpace the potential decrease due to a rising discount rate from interest rates.
Finally, we've increased our capital expenditures, primarily due to inflation in certain new projects that we believe are in the best interest of our customers, which results in an increase in depreciation expense. We do expect these costs to be recoverable through future rate cases, as Dennis mentioned earlier, we have settled in Washington, a two year plan.
Assuming the commission approves it which is the commission still has to approve it if the commission approves it Washington rates will be set for 2000 and December of 'twenty two through December of 'twenty, four, but we do plan to file in Idaho, and Oregon in the first quarter and first half of next year respectively.
We expect Avista utilities to contribute in the range of $1 66 to $1 82 per diluted share in 2022, and the midpoint does not include any benefit from there our.
Our expectation as I mentioned earlier, the <unk> would be in the 90 10 sharing band and is expected to reduce our earnings by <unk> <unk> per diluted share.
Primarily due to the impact of the year and we do expect to be at the bottom of the range for Avista utilities.
Looking to 2023, we expect Avista utilities to contribute $2 15 to $2 31 per.
Per diluted share and our guidance assumes appropriate rate relief in all of our jurisdictions, including the approval of the 2022, Washington General rate cases, and for 2023, we anticipate just to give you a sense of where we are on our our earned ROE, we anticipate unrecovered structural costs.
To reduce the return by approximately 60 basis points, that's what it will cost structural lag.
The term and then we have timing lag of about 90 basis points. So we didn't we anticipated originally trying to get back to earning our allowed return, but with the increase in interest pension and depreciation were not going to get there for this year for 2023, we expect that to be about 90 basis points. So that gets our total return on equity to be seven 9%.
We expect <unk> to contribute in the range of eight to 10.
In 2022, and 2023 and our outlook for <unk> assumes among other variables variables as always normal precipitation and hydroelectric generation.
We expect the other businesses to contribute 14 to 16 <unk> per diluted share in 'twenty two and in 2023, we expect those businesses to contribute in the range of $4 <unk> per diluted share.
Our guidance generally includes only normal operating conditions and doesn't include any unusual or nonrecurring items until the effects are known.
And Thats the end of the discussion on guidance, So I'll turn it back to Stacy and we can get the questions.
Thank you Mark.
To take your questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your phone please.
Please standby as we compile the Q&A roster.
One moment, please our first question.
Our first question will come from Julien Dumoulin Smith of Bank of America. Your line is open.
Hey, good morning, Thanks for the time guys as well.
Hey, Julien.
Hey, Thank you. So I just wanted to go back to the 23 guidance you guys got a good chunk of time here, but can we can we break down some of the pieces you alluded to here.
Obviously, you talk about cost management efforts you guys have been talking about that for a bit here can you talk about.
The ability to kind of recapture some of that in some of the subsequent cases as well as some of the discrete breakout of the other items that you flagged here on the 'twenty three guidance.
Quantify the three or four specific points that you called out.
Well I mean, it really is rising interest rates, we do borrow money under our.
Largely our short term credit facility, we will issue some bonds later in 'twenty three.
On a long term basis, we have $140 million of debt, we expect to issue on a long term basis, but really the short term interest rates have increased significantly as I mentioned, we have a four just to give a sense, we have a $400 million credit facility and we have a $100 million at September of available liquidity if that liquidity goes consistent you assume we have three.
<unk> $300 million borrowed and interest rates have moved substantially over the course of where we were two now in 'twenty three where we expect it to be and we're just looking at forward curves. There on interest rates, we borrow very short term week to two weeks under that credit facility. So that has caused it to go up our pension expense as I mentioned.
Our asset values went down significantly.
We see the market values right, what's happening in the stock market we have.
A certain portion of equity we do have some fixed income as well.
On that but interest rates rising there hurts the returns on the fixed income portion of the portfolio. So we're down in our assets over 20% in our pension and thats too much to overcome relative to the increase in the discount rate and I'm not trying to get into Julian to pension accounting, because I don't want to and nobody wants to hear it but thats overall our pension.
Expense is expected to be higher for 'twenty three based on that based on what we see today and Thats. What we have to go on for our guidance. The increase we mentioned earlier, we had an earlier call. We had some increase in inflation in our Capex and our Capex is higher than what we have filed for in Washington, We will expect to file in.
Idaho and Oregon in 2020 early in 2003 first quarter for Idaho in first half for Oregon. So there is an opportunity there to pick up some amounts.
In those future rate cases, all subject to that process.
In Washington, our cases before the commission right now we've reached a multiparty settlement one party did not settle public counsel thats still being going through that process, but we expect that we will be able to get approval on the Washington case, but thats still has to be determined by the commission. So that's not up to us.
So those are those are the three primary drivers or other cost management efforts really offset the other impacts of inflation, we've seen inflation in wages, we've seen inflation in goods and services in.
Different.
Contractors that we used to do a lot of our work we were able to offset that with our cost management I am not going to go into specific details there, but the <unk>.
We did offset all of that and it was just the.
Faster ryzen, I guess I'd attribute it to.
Inflation for longer that the fed has had to then move and the market reaction to that those those are really the drivers we were not able to offset.
And our expectations.
We do believe that that will all be recoverable in future rate cases, assuming we can demonstrate that we did this prudently and I believe we absolutely can.
Got it can we talk can we try to quantify a little bit more.
Pension impact reflected here in 'twenty, three as well as.
If you don't mind going back to the.
The cost management equation like how do you think about maybe 24 at this point and reflecting some of these pieces. Maybe also if you don't mind on interest expense.
Thoughts on.
The refinancings terming that out et cetera.
Again, how you think about that on a more structural basis in the 'twenty four.
Again, I know that you keep trying on cost management I've heard this ever for a while how do you think about kind of giving the college try if you will into the 24 time period.
We're always doing that that'll be consistent and we will expect to continue those efforts I don't have anything specific to report for 'twenty four but.
We've done that 23 wasn't an unusual we had a little bit higher effort in 'twenty, three because we knew who had a little bit higher hurdle, but.
Going into 2000.
We always are trying to manage our cost to run it efficiently and we need to demonstrate that.
As we go in for rate cases, we have to demonstrate how are you trying to manage your cost. So we do that consistently 24 won't be any different.
And that with respect to that effort with respect to that.
Putting putting down the pieces, we've kind of laid out what our what our borrowings were if that was if that was an average borrowing you can look at rates and determine what that is the pension dollars I'm not going to get into specifics because those can move around coming into 'twenty four if interest rates come down a little bit that could help 'twenty four right if market performs better going into <unk>.
At the end of 'twenty, three or we get into 'twenty four and the market performs better that our pension can have a lower expense, that's a future opportunity as well, but none of those things are known at this time. All we can give you is what we expect at this time, which is where we're at so if you look at it I won't say a third a third a third but that's probably as close of an estimate.
Without getting into great detail of depreciation pension and interest.
Got it.
Third a third of the Delta in guidance reduction here.
Yes.
Yes, exactly thank you for quantifying that and to be clear on the 24 rate activity, though how do you think about going back here to true that up just sorry I.
Tried to ask that.
Perhaps in code earlier, just to clarify that in El Paso.
Well, so with respect to 2004.
We expect to file in 'twenty, three in Oregon and Idaho.
About 40% of our business, Washington represents about 60% of our Avista utilities business and so in Washington, we're not going to be able to re file until.
The.
In 2004, respectively for 25, I mean, it might possibly get into December okay, great scant change before December so 24 really isn't going to be an option for Washington, and our expectations.
So it'll be it'll be Oregon, and Idaho that will be able to.
Look to recover and again, we've got to go through the process in Oregon, and Idaho to demonstrate that these are these are approvals and then we have to we will continue to have our cost management will continue to look at where the market goes.
Excellent. Thanks for your patience guys to speak to you soon.
Thanks Julien.
Thank you.
One moment please for our next question.
Our next question shall come from Shah <unk> of Guggenheim Partners. Your line is open.
Hi, guys its James from word on for Shar, how are you.
Good.
Good.
So I wanted to clarify are you still projecting long term growth of 4% to 6% off of 2023 or how should we think about that aspect.
The later years aspect in the forecast period.
Yes, I think that's consistent again that would be that's our looking at our rate base growth and as we would go in a normalized period. We are as we are.
We are going to be under earning and have some continued timing lag we would like to see that we can chip away at that but that's going to take a period of over $24 25 to have that opportunity as I just mentioned earlier really because of the again regulatory process in Idaho and Oregon.
Able to possibly chip away at 24, and then Washington for 25, So we would expect that to be a normalized growth.
Based on current expectations of where our rate base growth is.
But we would look to add to that some incremental growth.
To offset this reduction we have.
And this timing lag that we have identified today.
Gotcha, So would a fair way to put it would be.
Sort of think of re basing as four to six still off a 23 off of this lower 23, but maybe more of a bias to the top end of that rather than the mid point as you look for incremental opportunities too.
To normalize as Youre, saying in to catch back up is that fair or I think I would look at we have an incremental opportunity.
The base that makes sense right go off the 4% to 6% off of the revised twenty-three. Okay. I would say that makes sense. The incremental opportunity is we're going to we're going to have to see I would say, yes. There is an opportunity for again, 40% of the business in Oregon, and Idaho, if youre going to look at that versus the.
Washington, So 60% of that we don't believe we're going to continue to do cost management, we're going to continue to look at running our business efficiently.
We will have continued impacts of market forces as we go forward, but we can we can possibly pick up to 40% of that.
In 'twenty four and then the remainder in 'twenty five is our opportunity and we will have to work through those processes with our commissions.
Got it got it.
And in terms of incremental opportunity.
We've had four to six.
The other businesses initial guidance for the past couple of years and then.
Obviously that segment has exceeded expectations repeatedly.
Understood the investment gains are driven that but what sort of the potential that we could see an upside surprise.
Similar to what we've seen in the last couple of years.
Three that might not close the gap.
Make up some of the 15th time difference.
Yes.
Again, we don't we look at we look at the forecast to Amazon with respect to where we see those market valuations.
They can go up and down we actually saw some third.
Third quarter it wasn't a significant it was pretty flat so we.
We don't forecast significant market upsides in those we just kind of forecasted normalized return that we see based on our investments. There is there a possibility. It could go up yes is there a possibility it could go down yes, I mean, there are valuations that can move there.
So we don't we try to we try to I think I would say, we try to forecast conservatively in that area.
But.
It can go both ways market valuations can go down as well as we've seen in the stock market.
Certainly.
Last two questions I have one on that note of.
Valuations declining now.
Our pension survey back in the summer you had mentioned that you have regulatory mechanisms that.
Wow, you to record regulatory asset for the portion of the pension and other postretirement benefit funding deficiency.
You'd have relative to what you are recovering in rates.
How does that play in here and is that.
Something that can help to offset or it seems like it isn't if pension headwinds are going to be weighing on 2023, how should we think about the regulatory mechanisms and regulatory recovery that you have.
Related to pension.
Yes, we don't I mean.
Assets versus liability for unfunded component of it but that's not where we're largely funded in our pension and so I don't I don't think that Theres an issue there it's not with respect to the expense we don't we get recovery of.
The <unk>.
ERISA expense.
Based on an annual calculation there and so.
That ability to change out we don't have a tracker for that mechanism at all at this point.
This is more like.
Yeah.
Exceeded.
The corridor and pushes out into 2023 impact or or could or it looks like it Mike is that more of the way to think about this as we look at it we can forecast what the market is going to do what our pension is going to earn and what the discount rate is and we can run.
An actuarial calculation on that that says here's what pension expense would be forecasted based on what we know today those those numbers change and we don't value we value. It at the end of the year for the next year.
But where we see it today is going to be a higher expense.
Understood that makes sense.
And.
Just to clarify as well on the <unk>.
The midpoint of guidance does not include an impact from CRM and so we understand the nine Wang.
This year, but just so we can understand when thinking about next year do you have any sort of early indication given the components that go into the ERM.
Essentially is it just a reset to zero.
Jan one or is there any sort of early indication of whether things are looking more positive.
More negative relative to coming in flat or zero.
We're really waiting for so we've got a file rate case in Washington, which is where the arm is.
We have a PCA in Idaho, but thats more of a 90 10, so that's not as impactful as euro and from an earnings perspective and in Washington, We when we filed our case we reset.
December January of that year, I don't remember the exact dates that we reset, but we reset our power supply cost in that case, but have not reset for any any current.
Amount so until we get that case through the Washington Commission I'm, not comfortable saying, where we expect to be we will come out in February because we will assume that in December we will have an order from the commission and so when we give our guidance when we refresh our guidance for 'twenty three in our fourth quarter call.
Next year, we will have a view of where that arm is based on the market conditions at that time.
Understood. Thank you very much I appreciate you answering the questions. Thank you James.
Thank you.
And one moment please for our next question.
Our next question will come from Sophie Karp of Keybanc. Your line is open.
Hi, good morning, Thanks for the time.
So a couple of questions.
Closely at the numbers here in your 10-Q, right and it seems to me that your interest expense has gone up by about 3 million. So it would have been like Boston.
The year over year on year EPS.
Just wanted to confirm that this is the totality of it because you brought it up is the major driver. It seems like the O&M was a way to be the driver.
Is there another interest expense somewhere like Barrington, though again again for 'twenty, two but also an interest expense.
As we look at it.
I'm looking more to 23, then 22 okay.
We look at that 22, so I think we just moved guidance in 'twenty two by five which included interest and <unk>.
Operating expenses, but it really didnt move significantly in 'twenty two 'twenty three was what I was trying to address their Sophie so when I said the interest pension and depreciation was really a 'twenty three expectation.
Got it got it okay and so.
Inquiries and O&M versus I guess, the prior run rate that we are seeing this year. This is basically your expectations that it stays the same going into 2023 are you contemplating some great acceleration.
The acceleration or deceleration in the rate.
Inflation in the O&M Lake, but we again with respect to our cost management, we expect it to try to keep our O&M.
Relatively flat in 2003 compared to 22, but.
We're going to see a higher costs in our pension and we are going to see some are the drivers really for the change in in.
Our guidance go back to again pension depreciation.
And.
Interest costs, we did have higher debt.
In 2002, <unk> compared to 'twenty, one we expect to continue that as we go forward into 'twenty three so it's a combination of the rate going up and plus our increase to fund our capital budget, where we're funding okay.
<unk> hundred $75 million capital budget, so that increases as well. So that we are some of that you don't see in there <unk> is the effects of our cost management. I mean, we are trying to manage our cost to keep that rate of growth below inflation.
Great. Thank you.
I will now ask you this.
You mentioned that you hope to recover do you have into your Feldman that.
Hopefully we will get approved in December in Washington.
And that you hope to recover extra O&M costs, I guess may be above and beyond what was contemplated in the two year, great Jason future rate cases.
How does it work do you have like.
Brendan mechanism to track those costs in excess of what's been the perelman, because it's a black box settlement two right. So it's Tim.
Can you help us understand how this would work.
And so if you just Kevin Christie I'll jump in here.
Focus primarily on capital.
The capital that we're incurring that creates timing lag will pull into the next case.
When we build the test period and pro form into the rate effective date any any extent expenditures expense operating expense will be treated like it always is we will develop a test period and that test vertical pole been current.
O&M and pro form any additional O&M, we think might be appropriate. So we have the ability to take what we expect to have from an expense perspective at that time in and any capital that we're spending now.
That isn't recovered or what might not be recovered in that case will be pulled into the next case as well.
Okay. So the capital with the with your comments related to capital not not on the O&M.
Yes, not on O&M O&M.
O&M unless it's covered in a tracker.
Because what we hope to have for insurance expense, that's part of the settlement in Washington case.
Anything related to wildfire for example, which is a current tracking mechanism we have that in the state of Washington as well.
Got it.
And last one if I may be a philosophical question I guess with respect to your regulatory strategy here. So.
Is there a way to have some kind of limited to the opener for the settlement to account for these.
Incremental.
Gross which I'm assuming narrows after you reached the settlement because of.
The time line of business it seems to me.
Yes, I think you're right on that's when we mentioned the goalpost moving on us in that what we had in test period in.
What we knew of at the time when we have reached settlement a number of things have occurred.
Negatively since then and.
With this.
The state of regulation and Washington, We really don't have an opportunity to go back unless it's captured in a tracker that I just mentioned and reopen.
With the new legislation in Washington that we are utilizing here if the case, we filed was longer.
Three or four years, which is an option. We didn't do that here then there is a reopener if you're under earning below a certain level, but that doesn't really apply here given the timing of this case just being two years.
Okay got it thank you.
It also doesn't necessarily make sense for us to withdraw from the settlement and re file because it's an 11 month process. So we would effectively lose a year to do that just to try to come back. So we don't think that makes sense either we think the settlement as we said earlier, we think the settlement is a good settlement. We think it's a fair settlement reached with all the parties.
And will help us get towards earning our allowed return like we said it's just the market has changed census, the census time, so we don't have that opportunity.
Okay.
Oh in Oregon will file.
Alright, well. Thank you I appreciate the color.
Thanks Sophie.
Thank you.
Again to ask a question. Please press star one on your phone.
Please next question.
Yeah.
Our next question will come from Brian Russo with Sidoti Your line is open.
Yes, hi, good morning.
Hi, Bryan Bryan.
Hey, just to clarify with the understanding that you.
Do you expect to.
The rate case settlement to be finalized.
Next months.
You've got to read.
The increase in 'twenty late 'twenty, two and then again in late 2003, when actually can you file again, assuming that 11 months' time.
Time clock for a fully litigated rate case do you have to read you have to wait until December of 2023.
The second year of the rate increase goes into effect or can you file anytime after you reached the settlement agreement.
Well, it's easier to think about it this way.
We can file 11 months prior to December 22, 2024.
You could file sooner than that but youre not going to have new rates into effect any sooner than that so it's really up to the company to try to time it right up to that point in time. So if we are continuing to have.
Lag to fill the gap there right at that 2024 time frame in late December .
Okay got it thanks for the clarification, that's all I had thank you. Thanks.
Thanks, Brian .
Thank you.
Okay and one moment please for our next question.
Our next question will come from Brandon Lee of <unk>.
<unk> Securities Your line is open.
Hi.
So hi, Brian midpoint.
How are you.
From the midpoint of.
$1 <unk>.
For for 2022 by reduce.
Reduce it by the arm of <unk> I get $1 65, and so far for the year you've earned 90.
Am I thinking about this correctly that you would need to end.
75 cents in the fourth quarter.
Hit the midpoint of your guidance.
For Avista utilities.
Again, again, Avista utilities I look at it more on the consolidated but.
At the end of the day.
That's right second or fourth and first quarters are our largest quarters historically and so that is an expectation that we would.
Trusting your math there.
Without confirming without confirming.
Any models, but that sounds appropriate.
For the utilities to earn that in the fourth quarter.
And now that we're about a month into the quarter.
How is the fourth quarter looking so far.
I don't have a sense again, it's early in the fourth quarter and.
As you look at the fourth quarter, we're looking at earnings the second and third month of the quarter or the colder months of the quarter. So I'm not going to try to guess at how is it looking for the quarter, we do expect to make that in our quarter.
Okay.
And then when we think of the drivers from 23 to 24.
I mean, you have rates set in Washington, I guess, how do you improve two.
2024 from here.
Is it the Idaho and Oregon rate cases are there.
So that's that.
Part of it as I've mentioned earlier on the call that as part of it we do expect to be able to file cases, there and we will have to go through those processes and demonstrate.
Yes.
That we should get recovery, but we do expect that.
We're going to continue our cost management efforts, we're going to have to continue that as we go forward as well as.
There are can can interest rates slow down or reverse some there are some forecasts out there that show that.
We just continue to manage our business we have a strong business. We've hit a timing issue here, that's going to take some time to get through but our business model is still is still very.
Strong and we just have to work. These through these timing issues to get back to earning our allowed return.
That will be through the regulatory process, and we're not going to be able to get there in Washington as Kevin just mentioned until late 'twenty four will be the opportunity to increase in Washington, which is 60% of our business.
Got it and then.
In 2024.
Do you mean.
Idaho and Oregon.
Well you get constructive outcomes, there that's about 40% of your business.
But you have cost pressures on a 100% of the business should we be leaning towards the lower end of the 4% to 6% range.
Okay.
No I don't know that I would say that I haven't really thought.
Thought that all the way through we can we can continue to look at that we've really focused on 'twenty three and then incrementally as we go forward in 'twenty four we expect to incrementally improve.
The 4% to 6%, we expect to be able to achieve that.
We included that.
Even in our in our Washington case, and we will get some some opportunity there as part of our second year in our Washington case, we're always going to have to continue manage that 100% O&M. So we will continue to work for that so I don't know that I'd say theres, a upward or downward side of the range. We will have to continue to look at.
Those cost increases and continue our cost management efforts to help offset those.
But I don't I don't know that I would say directionally I would give guidance on where we are.
With respect to any possible increase range for 'twenty four.
Okay, Great. That's all I had thanks, thanks for taking my questions.
Thank you.
Thank you.
And Im seeing no further questions in the queue I would now like to turn the conference back to Stacy went.
Closing remarks.
Thank you all for joining us today, we appreciate your interest in the country.
A number of you in the coming weeks. Thank.
Thank you.
This.
Today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.