Q1 2024 Avista Corporation Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Avista Corporation Q1 2024 Earnings Conference Call.

Good day, and thank you for standing by and welcome to the Avista Corporation Q1, 'twenty 'twenty four earnings conference call.

Operator: 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 the session, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's call is being recorded. I would now like to hand the conference over to our first speaker for today, Stacey Wenz, Investor Relations Manager. Stacey, if you may begin,

Operator: At this time all participants are in a listen only mode.

Stacey Wenz: After the Speakers' presentation, there will be a question and answer session.

Operator: Ask a question during this session you will need to press star one on your telephone you will then hear an automated message advising that your hand is raised to withdraw your question. Please press star one once again.

Stacey Wenz: Please be advised that todays call is being recorded I would now like to hand, the conference over to our first speaker for today, Stacy Stacy with Investor Relations manager.

Stacey Wenz: You may begin.

Stacey Wenz: Thank you good morning, everyone.

Stacey Wenz: Good morning, everyone. Welcome to Avista's first quarter 2024 earnings conference call. Our earnings and first for first quarter Form 10-Q were released pre-market this morning. You can find both on our website. Joining me this morning are Avista Corp. CEO Dennis Vermillion, President and COO Heather Rosentrader, Senior Vice President, CFO, Treasurer, and Regulatory Affairs Officer Kevin Christie, and Vice President, Controller, and Principal Accounting Officer Ryan Kras

Stacey Wenz: Welcome to this first quarter 'twenty 'twenty four earnings conference call.

Stacey Wenz: Our earnings and first or first quarter Form 10-Q were released pre market. This morning, you can find both on our website.

Stacey Wenz: Okay.

Stacey Wenz: Joining me. This morning are Avista Corp E O Dennis Vermillion, President and C. O O Heather Rosen trader senior Vice President CFO, Treasurer, and regulatory Affairs Officer, Kevin Christie, and Vice President Controller, and principal accounting Officer Ryan crossover.

Stacey Wenz: Today, we will make certain statements that are forward-looking. These involve assumptions, risks, and uncertainties, which are subject to change. Various factors could cause actual results to differ materially from the expectations we discussed in today's call. Please refer to our Form 10-K for 2023 and our Form 10-Q for the first quarter of 2024, which are available on our website, for a full discussion of these factors. First, I will recap the financial results presented in today's press release. Our consolidated earnings for the first quarter of 2024 were $0.91 per diluted share compared to $0.73 for the first quarter of 2023. Now, I'll turn the call over to Dennis.

Stacey Wenz: Today, we will make certain statements that are forward looking and involve assumptions risks and uncertainties, which are subject to change various factors could cause actual results to differ materially from the expectations. We discussed in today's call.

Dennis: Please refer to our Form 10-K for 2023, and our Form 10-Q for the first quarter of 'twenty 'twenty, four which are available on our website.

Dennis: For a full discussion of these factors.

Stacey Wenz: Okay.

Dennis: First I will recap the financial results presented in today's press release our.

Stacey Wenz: <unk> earnings for the first quarter of 'twenty 'twenty four we're 91 cents per diluted share compared to 73 cents for the first quarter of 2023, now I'll turn the call over to Dennis.

Dennis P. Vermillion: Well, thanks, Stacey, and good morning, everyone. In March, Avista marked its 135th anniversary. In the midst of unprecedented change in our industry, I look back on our history and realize that our legacy of innovation is still alive and well. We've made our way through seismic shifts before, and we're prepared to meet today's challenges, and those are the future. I continue to be inspired by innovation that makes it possible not only to persevere but to prevail over the years.

Dennis: Thanks, Stacy and good morning, everyone.

Dennis P. Vermillion: In March our Vista markets 135th anniversary.

Dennis P. Vermillion: In the midst of unprecedented change in our industry I look back on our history and realize that our legacy of innovation is still alive and well.

Dennis P. Vermillion: We've made our way through tax mix shifts before in and we're prepared to meet today's challenges and those are the future.

Dennis P. Vermillion: Continue to be inspired by the innovation that makes it possible not only to persevere, but to prevail over the years.

Dennis P. Vermillion: Who we are today is a testament to the thoughtful planning and careful building of our predecessors who formed the company that we've inherited. The quality of our work is recognized on the outside as well. For the fifth year in a row, Avista has been recognized by Ethosphere as one of the world's most ethical companies. Avista is one of only eight honorees in the energy and utilities industry this year.

Dennis P. Vermillion: We are today is a testament to the thoughtful planning and careful building up our predecessors, who formed the company that we've inherited.

Dennis P. Vermillion: The quality of our work is recognized on the outside as well for the fifth year in a row Avista has been recognized by Ethisphere as one of the world's most ethical companies Avista is one of only eight honorees in the energy and utilities industry. This year.

Dennis P. Vermillion: We're putting our innovative spirit in action with the modernization of our Post Falls Dam. We started work on this project here in the first quarter, and we currently estimate we will spend $225 million over five years replacing existing aging equipment with more modern and energy efficient designs. The project was also selected by the U.S. Department of Energy to receive a $5 million grant associated with the improvements in efficiency that are planned with the scope of that work. We are delighted with the DOE's support.

Dennis P. Vermillion: We're putting our innovative spirit in action with the modernization of our post Falls dam. We started work on this project here in the first quarter and we currently estimate we will spend $225 million over five years, replacing existing aging equipment with more modern and energy efficient energy.

Dennis P. Vermillion: Efficient designs.

Dennis P. Vermillion: Project was also selected by the U S Department of energy to receive a $5 million grant associated with the improvements in efficiency that are planned with part of that or is.

Dennis P. Vermillion: Our plan with the scope of that work.

Dennis P. Vermillion: We are delighted with the department of energy support it enables our $500 million capital budget to accomplish even more for our customers in 2024.

Dennis P. Vermillion: It enables our $500 million capital budget to accomplish even more for our customers in 2024. Turning to earnings, our earnings for the first quarter are right in line with our expectations, and I believe we are well positioned to meet our full-year earnings targets. Kevin will have more on this later.

Dennis P. Vermillion: Turning to earnings our earnings for the first quarter are right in line with our expectations and I believe we are well positioned to meet our full year earnings targets, Kevin will have more of this later.

Dennis P. Vermillion: As we expected, the EIRM in Washington had a negative impact on our first quarter results. Our general rate case in Washington seeks to modify the way the power supply costs are shared with our Washington customers, and if approved, these changes would reduce the volatility we experience under the ERM.

Dennis P. Vermillion: As we expected the earn in Washington had a negative impact on our first quarter results, our general rate case in <unk>.

Dennis P. Vermillion: Washington seeks to modify the way the power supply costs are shared with our Washington customers and if approved these tankers would reduce the volatility we experienced under the Earth.

Dennis P. Vermillion: We will continue to work through the rate case process with the Commission, as we always do, as we execute on our regulatory strategy. Specifically, executing on our regulatory strategy includes seeking to adjust customer rates to reflect the actual cost of providing service. In addition to the general rate case currently before the Washington Commission, we expect to file our next Oregon case in the latter half of 2024. We expect to file general rate cases in Idaho in the first quarter of 2025. Now, I'll turn the call over to Heather for some updates about our operations.

Dennis P. Vermillion: We will continue to work through the rate case process with the commission as we always do as we execute our regulatory strategy.

Dennis P. Vermillion: Okay.

Dennis P. Vermillion: Executing on our regulatory strategy includes seeking to adjust customer rates to reflect the actual cost of providing service. In addition, the general rate case currently before the Washington.

Heather: We expect to file our next Oregon case.

Heather: Latter half of 2024, we expect to file general rate cases in Idaho in the first quarter of 2025 now.

Dennis P. Vermillion: Now I will turn the call over to Heather for some updates about our operations.

Heather Rosentrader: Thank you, Dennis. I'm glad to be here with you this morning.

Heather: Thank you Dennis I'm glad to be here with you this morning.

Heather Rosentrader: Our first quarter operations were impacted by the extreme cold, which took hold throughout the Pacific Northwest in mid-January, highlighting the growing need for additional capacity in the region. Demand during the period of extreme cold exceeded our expectations based on a similar cold snap in late 2022. We're taking the increase in demand into account as we continue our integrated resource planning. Throughout the region, conversations around resource adequacy are ongoing as we contemplate the transition to clean energy and the impact of increasing electrification.

Heather Lynn Rosentrater: Our first quarter operations were impacted by the extreme cold, which took hold throughout the Pacific northwest and mid January highlighting the growing need for additional capacity in the region.

Heather Rosentrader: Demand over the period of extreme cold exceeded our expectations based on a similar cold snap in late 2022.

Heather Rosentrader: We're taking the increase in demand into account as we continue our integrated resource planning.

Heather Rosentrader: Throughout the region conversations around resource adequacy are continuing as they contemplate the transition to clean energy and the impact of increasing electrification.

Heather Rosentrader: Ensuring that we have adequate resources to serve our customers reliably into the future may accelerate our generation needs compared to what was identified in our 2023 integrated resource plan. We're still working through how the landscape of our generation needs may change, utilizing our biannual integrated resource planning process, and we will also continue to intentionally consider opportunities as they arise.

Heather Rosentrader: Ensuring that we have adequate resources to serve our customers reliably into the future may accelerate our generation needs compared to what was identified in our 2023 integrated resource plan.

Heather Rosentrader: We're still working through how the landscape of our generation needs may change utilizing our biannual integrated resource planning process and we will also continue to intentionally consider opportunities as they arise.

Heather Rosentrader: I also want to spend some time talking about our wildfire preparedness efforts. Our wildfire risk mitigation efforts are critical to our customers, our communities, and our shareholders. And we made great progress in 2023 executing our wildfire mitigation plan, work that will continue as we move through 2024 and beyond. We plan to spend upwards of $55 million, including capital and O&M, in 2024 on wildfire mitigation. So let me share a few highlights of our progress. In 2023, our vegetation management teams set company-wide records for the number of risk trees they addressed on the distribution system. As of the end of last year, our transmission system was 40% steel.

Heather Rosentrader: I also want to spend some time talking about our wildfire preparedness efforts, our wildfire risk mitigation efforts are critical to our customers our communities and our shareholders.

Heather Rosentrader: And we made great progress in 2023 executing our wildfire mitigation plan work that will continue as we move through 'twenty four and beyond.

Heather Rosentrader: We plan to spend upwards of $55 million, including capital and O&M in 2024 on wildfire mitigation work.

Heather Rosentrader: So let me share a few highlights of our progress.

Heather Rosentrader: And 2023 of our vegetation management teams that companywide records for the number of reps trees. They addressed on the distribution system.

Heather Rosentrader: As at the end of last year, our transmission system was 40% steel.

Heather Rosentrader: The progress in both programs is ahead of our planned targets for the work. Our grid hardening work, which includes fiberglass cross arms, fire-resistant pole wraps, and undergrounding, among other tools, exceeded its targets in 2023 as well. And we are taking this momentum from our 2023 efforts into 2024. As we look ahead to the upcoming fire season in our service territory, we are prepared with our fire safety mode. Fire safety mode consists of additional safety measures that are in place whenever the National Weather Service and our own fire risk dashboard indicate an elevated fire risk within our service territory.

Heather Rosentrader: Both programs is ahead of our planned targets for the work.

Heather Rosentrader: Our grid hardening work, which includes fiberglass cross firms fire resistant pull reps and underground among other tools.

Heather Rosentrader: Exceeded their targets in 2023 as well.

Heather Rosentrader: And we are taking this momentum from our 2023 efforts into 2024.

Heather Rosentrader: As we look ahead to the upcoming fire season in our service territory, we are prepared with our fire safety mode.

Heather Rosentrader: Fire safety Snowed consists of additional safety measures were in place whenever the national weather service and are on fire risk dashboard indicate elevated fire risk women within our service territory.

Heather Rosentrader: In 2023, we implemented a fire safety mode four times, and we saw positive results from these elevated protection settings. In 2024, public safety power shutoffs will be part of our toolkit as well. We have been working with key stakeholders over the past two years to prepare, and we are holding a press conference to communicate the details of our public safety power shutoff plan more broadly next year. This year, we will continue partnering with EEI to focus on opportunities at the federal level to provide support for wildfire risk. At the same time, we are leading efforts in the region to develop legislative protections for utilities at our state level. Now, I'll turn the call over to Kevin for a discussion of financial results.

Heather Rosentrader: In 2023, we implemented a fire safety mode four times and we saw positive results from these elevated protection settings.

Heather Rosentrader: In 2020 for public safety power Shutoff are part of our toolkit as well we.

Kevin: <unk> been working with key stakeholders over the past two years to prepare and we are holding a press conference to communicate the details of our public safety power Shutoff plan more broadly next week.

Heather Rosentrader: This year, we will continue partnering with <unk> to focus on opportunities at the federal level to provide support for a wildfire risk at the same time, we are leading efforts in the region to develop legislative protections for utilities at our state level.

Heather Rosentrader: Now I'll turn the call over to Kevin for a discussion of financial results.

Kevin J. Christie: Thanks, Heather, and good morning, everyone. We are off to a solid start in 2024. Earnings at Avista Utilities increased in the first quarter of 2024 compared to the first quarter of 2023. Our utility margin increased as a result of our general rate cases positively impacting our earnings. As Dennis mentioned, we experienced some headwinds in the first quarter, and the IRM resulted in a $6 million pre-tax expense in the first quarter of 2024. This compares to a pre-tax expense of $7.6 million in the first quarter of 2023. AAL&P's results in the first quarter were also right in line with our expectations.

Kevin: Thanks, Heather and good morning, everyone, we're off to a solid start in 2024.

Kevin J. Christie: Earnings at Avista utilities increased in the first quarter of 2024 compared to the first quarter of 2023.

Kevin J. Christie: Our utility margin increased as a result of our general rate cases positively impacting our earnings.

Kevin J. Christie: As Dennis mentioned, we experienced some headwinds in the first quarter and the ERM resulted in a $6 million pre tax expense in the first quarter of 2024.

Kevin J. Christie: This compares to a pre tax expense of $7 6 million in the first quarter of 2023.

Kevin J. Christie: <unk> results in the first quarter were also right in line with our expectations.

Kevin J. Christie: We are committed to investing the necessary capital in our utility infrastructure. Our capital expenditures at Avista Utilities were $117 million in the first quarter of 2024. So that we can continue to support customer growth and maintain our system to provide safe, reliable energy to our customers, our planned capital expenditures are $500 million in 2024. We expect capital expenditures at AEL&P to be $21 million and investments at our other businesses to be $11 million in 2024.

Kevin J. Christie: We are committed to investing the necessary capital in our utility infrastructure.

Kevin J. Christie: Our capital expenditures at Avista utilities were $117 million in the first quarter of 2024.

Kevin J. Christie: So that we can continue to support customer growth and maintain our system to provide safe reliable energy to our customers our planned capital expenditures our $500 million in.

Kevin J. Christie: In 2024.

Kevin J. Christie: We expect capital expenditures at <unk> to be $21 million in investments at our other businesses to be $11 million in 2024.

Kevin J. Christie: On the liquidity front, as of March 31st, we had $198 million of available liquidity under our committed line of credit and $36 million available under our letter of credit facility. In April, we took advantage of a remarketing opportunity for $83.7 million of tax-exempt bonds. We were pleased to be able to re-market them at 3.875%, about 140 basis points lower than the taxable market. We don't expect further debt issuances during the year.

Kevin J. Christie: On the liquidity front as of March 31, we had $198 million of available liquidity under our committed line of credit and $36 million available under a letter of credit facility.

Kevin J. Christie: In April we took advantage of a re marketing opportunity for $83 7 million of tax exempt bonds.

Kevin J. Christie: We were pleased to be able to remarket them at three 875% about 140 basis points lower than the taxable market we.

Kevin J. Christie: We don't expect further debt issuances during the year.

Kevin J. Christie: We expect to issue approximately $70 million of common stock in 2024, which will occur throughout the remainder of the year, to fund our capital spending. Improved cash from operations will also help fund our planned expenditures in 2024. We are confirming our earnings guidance for 2024 with a consolidated range of $2.36 to $2.56 per diluted share, and we expect Avista Utilities to contribute within a range of $2.23. $2.39 per diluted share. Several changes have occurred since we shared our initial guidance for the 2024 arm with you in February.

Kevin J. Christie: We expect to issue approximately $70 million of common stock in 2024, which will occur throughout the remainder of the year to fund our capital spending.

Kevin J. Christie: Improved cash from operations will also help fund our planned expenditures in 2024.

Kevin J. Christie: We are confirming our earnings guidance for 2024 with a consolidated range of $2 36.

Kevin J. Christie: The $2 56 per diluted share.

Kevin J. Christie: We expect avista utilities to contribute within a range of $2 23.

Kevin J. Christie: To $2 39 per diluted share.

Kevin J. Christie: Several changes have occurred since we shared our initial guidance for the 2020 for earn with you in February.

Kevin J. Christie: There were unfavorable changes in forward prices that resulted in expected reduced benefit from optimization when compared to our forecast at the beginning of the year. In addition, hydro conditions, which we anticipated would be below normal, have further deteriorated.

Kevin J. Christie: There were unfavorable changes in forward prices that resulted in expected reduced benefit from optimization when compared to our forecast at the beginning of the year.

Kevin J. Christie: In addition, hydro conditions, which we anticipated would be below normal have further deteriorated.

Kevin J. Christie: As a result, we expect the impact of the ERM on the full year for 2024 to be negative seven cents per diluted share in the 90% customer, 10% company sharing ban. And I'm pleased to share that by the end of the second quarter, we expect to finalize an agreement with a prospective large electric customer already in our service territory that is currently being served in the wholesale market. We expect the resulting increase in utility margin to help offset the forecast impact of the ERM on our results in 2024. Our guidance for Avista utilities in 2024 reflects unrecovered structural costs, which we estimate will reduce the return on equity by 70 basis points. We expect 60 basis points of regulatory timing lag in 2024.

Kevin J. Christie: As a result, we expect the impact of the <unk> on the full year for 2024 to be negative seven cents per diluted share in the 90% customer 10% company sharing band.

Kevin J. Christie: And I am pleased to share that by the end of the second quarter, we expect to finalize an agreement with a prospective large electric customer already in our service territory that is currently being served in the wholesale markets.

Kevin J. Christie: We expect the results seen increase in utility margin to help offset the forecast impact of the earn on our results in 2024.

Kevin J. Christie: Our guidance for Avista utilities in 2024 reflects unrecovered structural costs, which we estimate will reduce the return on equity by 70 basis points.

Kevin J. Christie: We expect 60 basis points of regulatory timing lag in 2020 for this.

Kevin J. Christie: This results in an expected return on equity at Avista utilities of 8.1% in 2024. We also expect AEL&P to contribute in the range of $0.09 to $0.11 per diluted share. And we expect our other businesses to contribute in the range of $0.04 to $0.06 per diluted share in 2024. Assuming a constructive outcome in our 2024 general rate case filings, we expect our earnings to grow over the long term in the range of 4 to 6 percent from a 2025 base year. Now we'll be happy to take your questions. As a reminder to ask one, you'll need to press star one, one on your.

Kevin J. Christie: This results in an expected return on equity at Avista utilities of eight 1% in 2024.

Kevin J. Christie: We also expect <unk> to contribute in the range of <unk>.

Kevin J. Christie: To <unk> 11 per diluted share.

Kevin J. Christie: And we expect our other businesses to contribute in the range of $4 <unk> per diluted share in 2024.

Kevin J. Christie: Assuming a constructive outcome in our 2024 general rate case filings, we expect our earnings to grow over the long term in the range of 4% to 6% from a 2025 base here.

Kevin J. Christie: Now, we'll be happy to take your questions.

Kevin J. Christie: Okay.

Kevin J. Christie: Okay.

Operator: Thank you. As a reminder, to ask a question, you'll need to press star 11 on your phone; then you will hear an automated message advising that your hand is raised. Again, to ask a question, please press star 11 on your telephone. Please stand by while we compile the Q&A roster. At this time, we are not showing any questions. Stacey, would you like to return to the call? Absolutely no

Speaker Change: Okay. Thank you.

Kevin J. Christie: As a reminder to ask a question you will need to press star one one on your phone.

Operator: Then you will hear an automated message advising that your hand is raised again to ask a question. Please press star one one on your telephone please standby, while we compile the Q&A roster.

Operator: At this time, we are not showing any questions.

Operator: Stacy would you like to return to the call.

Operator: Absolutely.

Stacey Wenz: Thank you all for joining us today and for your interest in Avista. We look forward to seeing many of you in a few weeks at AGA.

Speaker Change: Thank you all for joining us today and for your interest in Vista, We look forward to seeing many of you in a few weeks at Agi <unk>.

Speaker Change: Have a great day.

Stacey Wenz: Okay.

Operator: Thank you. This now ends the call. You may now hang up.

Speaker Change: Thank you. This now ends the call you may now hang up.

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