Q4 2022 Avista Corp Earnings Call

Okay.

Good morning, welcome to it.

Oh go ahead.

Good day, and thank you for standing by and welcome to the Avista Corporation Q4, 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 answer session to ask a question. During the session you will need to press star one one.

<unk> on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Stacy ones Investor Relations manager. Please go ahead.

Good morning, welcome to Vista is fourth quarter and fiscal year 2022 earnings conference call, our earnings and our 2022 a Form 10-K 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, Senior Vice President External affairs, and Chief customer Officer, Kevin Christie, and Vice President Controller, and principal accounting Officer, Ryan Cross up.

Some of the statements we will make today are forward looking and involve assumptions risks and uncertainties, which are subject to change.

For reference to the various factors, which could cause results to differ materially from those discussed in today's call. Please refer to our 10-K for 2022, which is available on our website.

I'll begin by recapping the financial results presented in today's press release.

For the full year consolidated earnings were $2.12 per diluted share for 2022 compared to $2.10 last year.

Our consolidated.

Earnings for the fourth quarter of 2022 for one dollar and five cents per diluted share compared to 71 cents for the fourth quarter of 2021, now I'll turn the discussion over to Dennis.

Well, thanks, Stacy and good morning, everyone I hope the new year is off to a great start for you all.

And Mr ended in 2022 with a memorable accomplishment in November Mark and Kevin and I were among a group of senior executives and board members, who stood on a podium above the New York stock exchange to ring. The closing bell to celebrate our 70 <unk> anniversary of being listed on the N Y S. C. It was pretty cool.

Sure.

We are among the top 10% of the longest listed members of the NYSE very few companies can stake claim to such an extraordinary achievement.

As a as president and CEO I couldn't be more proud of all the current and former employees, who who came before US who helped achieve this major milestone we certainly could not have done it without them and it was certainly an honor for me.

Special experience that I'll never forget.

If you look back over more than 133 years to when our business was founded.

Our employees always demonstrate their diligence and determination to pose through challenging times. That's certainly true for 2022, we worked hard to manage our cost and run our business amidst the highest inflation in decades.

We had extreme volatility in the power and natural gas markets and of course, a rapid rise in interest rates.

Despite our best efforts Avista utilities earnings were slightly below expectations.

On a consolidated basis, our earnings were better than our expectations due to a significant increase in the fair value of certain non regulated investments.

Mark will have a little bit more on that in a minute.

As we begin 2023, I'm counting on the grit and determination of our employees to propel us forward and I know they'll answer the call. Once again, just like they always do.

So for 2023 regulatory outcomes are key to our success the Washington commissions approval of the settlement agreement in our multi year rate cases in December was the first step and earlier. This month, we filed a multi year rate plan in Idaho that would allow the company to recover the cost of our ongoing investments in utility infrastructure.

And the increased operating costs that we experienced in 2022.

We also plan to file a general rate case in Oregon within the next few weeks, we expect rates associated with this case to go into effect in January of 'twenty four.

We continue to execute on our clean energy implementation plan and we've taken steps toward achieving our aspirational clean energy goals, including issuing a request for proposal to seek renewable natural gas resources for our customers.

And signing contracts for renewable hydro and wind resources to meet our customers' energy needs.

As we work through this clean energy transition, we believe that natural gas serves an important role to support both the reliability and affordability for our customers, especially for those most vulnerable among us.

In December we updated investors corporate responsibility report, which showcases recent examples and the latest data that demonstrate our commitment to our environment, our people, our customers and communities and along with our shareholders.

Its latest updates include the Vista is our aspirational goals for workplace equity inclusion and diversity and aspirational goal related to supplier diversity and Avista has continued reporting on a series of key industry ESG disclosures and metrics.

Finally earlier this month the board increased our dividend by four 5% to an annual dividend of $1 87, excuse me $1 84 sets.

The dividend increase approved by the board marks the 20 <unk> consecutive year. The board has raised the dividend for our shareholders. This demonstrates the board's commitment to maximizing shareholder value.

At this time I'd like to invite Mark to discuss our earnings Marc take it away. Thanks Dennis.

Everyone just to keep the <unk>.

Positive energy as it's called though in the Blackhawks won their third Street last night.

Tyler Johnson, a local school in scores the game, tying all with less than a minute to go and scored the only goal in the shoot out so the Blackhawks beat the goals of 93 to two so a little positivity, we're still in third place in the economy Bernard Lottery sweepstakes.

Good this year.

Our consolidated earnings on the other hand, we're good this year and they were largely as Dennis said.

Primarily due to our other businesses our other businesses contributed 41.

For sure in 2022 compared to 21.

In 2021, the majority of these earnings were really the result of the significant increase in the fair value of an investment in a biotechnology company and Bioscience company. Our original investment in this company was for the development of Biofuels.

To tie to our our core but it was later acquired and the focus shifted to biotechnology their patented biologic drug platform accelerates the time to market for orally administrative antibody drugs and has advanced through testing stages. As a result, the value of this investment has increased significantly.

They are in various stages of clinical trials right now and we don't expect results really until the end of 2024, so theres going to be some time before we have significant updates on that is our expectation.

For 2022, Avista utilities contributed $1 61 per share compared to $1 79. In 2021. This was as Dennis mentioned, just slightly below our expectations and was the result of extreme volatility in the power and natural gas markets across the west leading to higher power supply cost in December we have.

Zero prices as much as five to eight times higher than normal along with colder temperatures throughout November and December and Thats, you know told US we've seen in over 20 years.

This volatility led to significant margin calls, which impacted our available liquidity and required us to secure additional short term borrowing arrangements, which we did in the fourth quarter.

Avista utilities earnings reflect the result of the combined pressures or just the power supply costs that I talked about interest expense higher interest expense and inflation.

The energy recovery mechanism in Washington was a pretax expense of 10 $9 million compared to a pre tax expense of $7 7 million in the prior year.

So our total deferred power costs exceed $30 million in 2022.

And as a result, we expect to file with the Washington Commission in April April to begin recovering these costs in July of 2023.

With respect to our capital expenditures, we continue to invest in necessary capital in our utility infrastructure to maintain safe and reliable standard of service as we always expect and that we expect those capital expenditures to be $475 million annually through 2025.

We expect Avista <unk> capital to be $16 million, and 23 $14 million in 'twenty, four and $16 million again in 2025.

As I talked about liquidity, a little bit earlier in 2022, we issued $400 million of long term debt and 138 million of common stock we had a significant about $250 million maturity in there too just given.

Given the difference in the fourth quarter, we experienced significant increases in commodity prices and the need for additional liquidity as I mentioned earlier, we increased our short term borrowing capacity by $300 million, bringing our total capacity to $700 million.

As of 12, 31, we had $517 million outstanding under these facilities. So we had a $183 million of available liquidity at year end.

2023, we expect to reduce our short term borrowings in part we expect to increase operating revenues.

Resulting from recovery of some of those deferred power and natural gas costs, a return of margin deposits made with carb Counterparties and we expect to issue $200 million in long term debt and up to $120 million of common stock to fund planned expenditures and reduced our short term borrowings, we expect to increase our capacity and our <unk>.

Of all the $400 million revolving credit facility from $400 million to $500 million in the second quarter.

A L. P. Also has $25 million of available liquidity under its committed line of credit and that expires in November of 'twenty four.

I don't want to give a little bit of discussion on our earnings guidance as Dennis mentioned, we confirmed our 2023 earnings guidance with a range of $2 27 to $2 47 per diluted share our guidance assumes timely and appropriate rate relief in all of our jurisdictions jurisdictions and as Dennis mentioned, we recently filed a multiyear.

Plant in Idaho.

Constructive outcomes in these cases are key to our success as is the ongoing management of our costs.

We expect Avista utilities to contribute in the range of $2 15 to.

$2 31.

Per diluted share.

The midpoint of our guidance does not include any expense or benefit under the energy recovery mechanism and we expect to be within the dead band of $4 million on either side of the midpoint.

With an increase in earnings of <unk> <unk> per diluted share.

We expect to manage our cost as I mentioned earlier, that's part of it to an increase of 2% in O&M in 2023.

Our 2023 earnings guidance reflects unrecovered structural costs estimated to reduce our return on equity by approximately 70 basis points as well as continued regulatory timing lag that we're working to reduce that reduces our return on equity by approximately 80 basis points. So this results in an expected return on equity.

The utilities of approximately seven 9% in 2023.

We expect <unk> to contribute in the range of eight cents per diluted share and our outlook for Avista utilities and <unk> continues to include.

Normal precipitation and hydroelectric generation for the year.

We expect our other businesses to contribute four to six and I know this may sound a little bit we've had two years of significant earnings and those but those are you know we don't we don't predict the valuations of some of these companies. We just continue to watch as they grow and we will record the results as they occur. So we expect that from a general perspective, 4% to six.

<unk> per share is what we're putting out in our guidance.

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

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

Thanks, Mark we're happy to take your questions.

Okay.

Thank you Sir.

Reminder, to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

One moment, while we compile the Q&A roster.

Our first question comes from the line of Brian Russo from Sidoti.

Hi, good morning.

Good morning, Brian Brian .

Okay, you mentioned, a renewable RFP earlier could you just.

Give us some more detail on the size of that and do you expect possibly to submit self builds and maybe the inflation reduction Act.

Make sure self build projects.

More competitive than in the past.

Yes, Brian this is Dennis.

Are the renewable RFP that I was referring to in my remarks raised related to renewable natural gas.

So.

Okay.

So from that perspective.

This is our first RFP for renewable for R&D basically to supply our customers.

On the electric side, we are we have completed our all source RFP.

And I mentioned some.

We haven't announced anything from that yet, but we are nearing completion on a couple of contracts with regard to that.

Certainly with the.

The federal money. That's available we are we have a team of people internally that are exploring opportunities.

To capture some of that money to for a number of potential users are electric evs.

Grid hardening and resiliency.

<unk> deficiency upgrades.

So we are looking and evaluating where we might be able to capture some of that value.

<unk>.

That could be applied to a self build option in the future, but really at this point, we have have no detail on what that might look like.

Okay. Thank you for the clarification and then on the arm.

Mark I think you said youre going to be in the $4 million.

Dollar debt benefit, which would add three sense relative to.

At the midpoint.

If so maybe you could just described given all the volatility in power and gas prices.

In your region.

The dynamics that allow you to forecast that.

Well, that's just a normal forecasting dynamic we do we do this every quarter every year every day.

So I don't know that its a change to that dynamic what we did see.

In the fourth quarter was significant changes and that really put pressure more on liquidity for physicians as we as we hedge our positions going into a winter we have some positions hedged and that cause some significant liquidity constraints not necessarily we have some deferrals in our natural gas cost.

It also caused higher costs, but those get deferred and recovered.

In future regulatory proceedings will file future <unk>.

In our jurisdictions to the extent, we had higher costs are on the gas side, we defer it on the power side. It goes through the arm or the PCA and as I mentioned the arm did hit.

$30 million level and that allows us to file with the Washington Commission to seek recovery of those dollars. So it's really the it's more on the liquidity side and the cash side. Then the earnings were impacted by that because the arm did go up we were in the 90 10.

'twenty two.

And the PCA. So we took 10% of that so that did cause our earnings to Miss slightly in the fourth quarter as we forecast forward, we forecast with forward prices compared to our authorized power supply costs.

For the ERM and that's in and the availability of our units.

And we come up with those calculations and Thats, where we ended up with the <unk>. That's what we expect currently that can change Brian is as conditions change and you know we report that every quarter. So that's where we sit today looking at forward prices for 2003.

Mhm.

Okay very good thank you very much.

Okay. Thanks, Brian right.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press Star one one again. Our next question comes from the line of Fannie three from Bloomberg.

Fannie three from Bloomberg Your line is now open.

Okay.

Please check your mute button. Your line is now open.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Our next question comes from the line of Fannie Threes from Bloomberg. Your line is now open.

Fannie three from Bloomberg Your line is now open.

Please check your mute button. Your line is now open.

We may just need to move to the next question operator, if that's VEGF Thats alright, and she can come back Fannie if that's if that's okay.

Come back he or she I don't know fannies.

Of course at this time I am showing no further questions I would like to turn the conference back to Stacy wins for closing remarks.

Yeah.

Thank you all for your interest in Vista, and joining us on our call today have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.