Q2 2023 Avista Corporation Earnings Call
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Good day and thank you for standing by welcome to the Avista Corporation Q2, 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session I'll need to press star one on your telephone you will then hear an automated message a bias in your hand is raised to withdraw your question. Please press star.
One one again please be advised today's conference is being recorded I would now like to hand over to your speaker today Stacy once please go ahead.
Good morning, welcome to the second quarter of 2023 earnings Conference call our earnings 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, Senior Vice President CFO , Treasurer, and regulatory Affairs 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. The information. We will share. This morning is based on our current expectations abnormal.
First deputation temperatures and other operating conditions as well as below normal hydroelectric generation as of today's date.
And various factors could cause actual results to differ materially from expectations discussed in today's call. Please refer to our 10-K for 2022 and our 10-Q for the second quarter of 2023, which are available on our website threshold discussion of these risk factors.
I'll begin by recapping, our financial results presented in today's press release, our consolidated earnings for the second quarter of 2023, or 23 cents per diluted share compared to 16 cents for the second quarter of 2022.
For the year to date consolidated earnings were <unk> 96 cents per diluted share for 2023 compared to one dollar and 15 cents last year.
I'll now turn the call over to Dennis.
Well, thanks, Stacy and good morning, everyone.
I hope you're all enjoying the summer so far it's been a hot one for sure.
I'd like to begin this morning by congratulating our employees, who recently won one of the Chartwells Best practices Awards in outage operations for Avista is whether an incident forecasting tool. This innovative tool leverages, our historical database for weather.
Infrastructure and previous outages to predict future outages. It allows us to proactively plan and prepare for potential weather events, which helps us better utilize our resources. It improves our response times and enhances the overall customer experience.
Just one Great example of how it is this spirit of innovation informs how we approach what we do every day to deliver safe reliable energy to our customers.
In that spirit, we are continuing to invest capital across our service territory to harden the grid maintain and upgrade our infrastructure to enhance reliability for customers while at the same time moving closer to earning our allowed return.
Regarding rate cases, we've made significant progress on the regulatory front. This year, we reached a multiparty settlement agreement in our Idaho rate cases.
And new and new electric and natural gas rates will go into effect in September . We also reached a settlement in principle in our Oregon General rate case, which is in line with our expectations.
In June we filed our 2023 electric integrated resource plan with the Washington, and Idaho commissions and.
And you might remember every two years, we produce an electric ERP, which details projected growth in demand for energy and then the new resources that will need to serve our customers over the next 20 years.
Thanks to the resource selections from a recent all source RFP. We are in really good position to meet our customers' needs now and into the future.
With respect to earnings our results are slightly ahead of our expectations for the first half of the year and I'd like to take a minute just to acknowledge our leaders and employees for their ongoing actions to manage our costs to offset.
The impacts of inflation that we continued to experience, including higher interest rates and additional financing costs are our results show the good work and the benefit of these efforts.
We are confirming our annual consolidated guidance for 2023 with a range of $2 27 to $2.47. However, we expect to be in the lower end of the range due to higher than expected costs under the ERM in Washington, resulting from faster than normal snow melt and one of the worst.
Grow years, we've seen in many many years now.
Now I'd like to turn this presentation over to Kevin who will share more about our earnings Kevin Thanks, Dennis and good morning, everyone.
Got it to be here. This morning, and my first earnings call as CFO was a pleasure to meet or get acquainted with many of you at age you gave this past me and I'm looking forward to working more closely with our investor community in the future.
I'd like to thank the finance accounting and regulatory leadership and their amazing teams there to Vista Theyre, Great group, who have made the CFO transition go quite smoothly.
As we turn to earnings Avista utilities earnings increased in the second quarter of 2023 compared to the second quarter of 'twenty two.
We've seen increased margin as a result of our general rate cases customer growth and lower costs under the ERM compared to the second quarter of last year.
In the second quarter of this year. The ERM was a pre tax benefit of $1 million compared to a pre tax expense of $4 8 million in the second quarter of last year.
Year to date, we've recognized a pre tax expense of $6 5 million in the arm compared to pre tax expense of $2 8 million.
Last year for the full year, we now expect higher costs under the ERM and expect to be.
To end the year in the 90% customer, 10% company sharing band with a decrease to earnings of eight cents per diluted share.
Recognizing the volatility in Europe , we are examining whether the <unk> is the most appropriate cost sharing mechanism for Washington going forward.
We continue to be committed to investing the necessary capital in our utility infrastructure, we expect avista utilities capital expenditures to total $475 million in 'twenty, three and we're well on our way as our capital expenditures were $220 million in the first half of the year.
We expect <unk> capital expenditures to be $19 million in 'twenty, three and we expect to invest $15 million our other businesses in 2023.
Okay.
First half of the year was a busy time for treasury team as we increase the capacity of our line of credit facility from $400 million to $500 million and terminated our 100 million revolving credit facility.
As of June 30, we had $292 million of available liquidity under our committed lines of credit and 34 million available under our letter of credit facility.
During 2023, we intend to issue a $120 million of common stock, including $60 million issued thus far this year.
Like Dennis mentioned, we're confirming our 2023 consolidated earnings guidance of $2 27 to $2 47 per diluted share with Avista utilities contributing in the range of $2 15 to $2 31 per diluted share.
The midpoint of our Avista utilities guidance does not include any expense or benefit under the ERM.
As also mentioned, we expect to be in the lower end of the range at Avista utilities and on a consolidated basis.
Due to higher than expected costs under the arm, resulting from this year's poor hydro conditions.
For the year, we expect the earn to be in the 90% customer 10% company sharing band with a decrease to earnings of eight cents per diluted share.
As we mentioned last quarter, our 2021 Washington, Idaho General rate cases included customer tax credits that offset the bill impact of rate increases.
The tax credits that started in 'twenty, one be fully returned to customers by the end of the third quarter of 2023.
We will no longer reduce both customer bills and income tax expense, resulting in an increase in utility margin and our annual effective tax rate our annual tax provision is spread throughout the year as a percentage of pretax income.
Our earnings for the first half of the year represent 45% of our forecast.
Annual utility earnings.
We expect the distribution of the remaining annual utility earnings to be about 5% in the third quarter and 50% in the fourth quarter. This.
This distribution excludes any impact of the error.
Our guidance assumes timely and appropriate rate relief in all jurisdictions.
We expect <unk> to contribute in the range of eight.
Just 10 cents per diluted share in 'twenty three.
We recognized.
Net losses, and our other businesses, primarily due to valuation adjustments.
Quarterly valuations of certain investments introduce some additional volatility to earnings but these more frequent updates increase the transparency of our investment value.
Overall, we expect our other businesses to contribute earnings of four to six cents per diluted share for the year.
Now I'll turn the call back over to Stacy for your questions.
Thanks, Kevin.
Welcome your questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
It's been answered already wishing with yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Willard Granger with Mizuho. Your line is open.
Hi, good morning.
Hey, good morning, good morning.
Thanks for taking my question.
On the Q1 call you mentioned that you were anticipating some positive uplift from the arm now in your prepared remarks, you mentioned that you are experiencing higher than expected costs can you talk a little bit about what youre seeing here and how that impacts your 2023 guidance.
Yeah, Yeah happy to.
You know on that on the Q1 call.
We.
We were sitting really with pretty decent snow pack and hydro forecast for not only for our company, but for the region.
And if you'll recall up until may the springtime for us was really a very cold.
Colder than normal so there's snow melt was was.
Less than it would be in a normal year.
And.
And so when you're in that situation you look well we've got good snow amount, if we have a nice slow.
Like we normally would hope to have been you would have really good hydro with the rest of the year. That's no. It comes off and what ended up happening.
Meg.
Was very warm not only for our service area, but the entire region and all of the snow really came down in one month. So the Mei hydro numbers were pretty good but a lot of that water. Then is just wasted because there's too much but you can't generate.
So what that ended up doing to us is with a cold spring, we were a little bit below normal up until that point expecting to make that up because of the snow would come ratably down the mountain and mountains and it didn't work that way.
And a lot of it just was flushed out of the system and was unusable.
Certainly not at the time of the year when you want it also so that change just in in weather and.
In may it really impacted the hydro forecast not only for us, but it is a region wide thing and.
That is really what swung around based on what we were projecting at that point in time and May Yeah. Let me build on that Dennis we were at three <unk> positive when we.
Matt last quarter and now as you have heard here, we're expecting to be at <unk> on the other side here. So that's a pretty significant swing in and that goes to that whether that Dennis described and that's why we're indicating that if it weren't for the arm.
We would have pretty strong results here.
Balanced results.
But that does bring us down towards the bottom end of our range as we said earlier.
Okay.
Thank you.
If I could just follow up maybe switching gears here.
The balance for the second half of 2023, what are the puts and takes to hitting your guidance in Q4 of last year. Specifically you had about 25 cents of positive mark to market from a biotech investments should we expect something similar in the back half of the year.
How should we be thinking about that.
I don't think there is a set shape to the investment profile and youre, referring to our non Reg investment portfolio. Overall, I don't think Theres, a ship set shape, but as we indicated earlier in the call. We expect overall to be in that four to six range on our non Reg investments were down for the year, thus far and compare.
To prior periods and we would.
Spect, some turnaround there to get to that four to six range.
Okay.
Understood I'll leave it there thank you team.
Okay.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
And I'm not showing any further question at this time I'd like to turn the call back over to Stacy.
Thank you very much. Thank you for joining us today and for your interest in events that have a great day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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