Q4 2024 Avista Corp Earnings Call
Good day and thank you for standing by. Welcome to the Avista Corporation fourth quarter 2024 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 the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: Thank you and good morning. I'm happy to have you with us this morning on Avista's fourth quarter 2024 earnings conference call. Our earnings and 2024 Form 10-K were released pre-market this morning. You can find both on our website.
Kevin Christie: Joining me this morning are Avista Corp President and CEO, Heather Rosentrater, and Senior Vice President, CFO, Treasurer, and Regulatory Affairs Officer, Kevin Christie.
Kevin Christie: Today, we will make certain statements that are forward looking. These involve assumptions, risks, and uncertainties which are subject to change.
Kevin Christie: 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 2024, which is available on our website, for a full discussion of these risk factors.
Kevin Christie: I'll begin with a recap of the financial results presented in today's press release.
Kevin Christie: Our consolidated earnings for the fourth quarter of 2024 were $0.84 per diluted share, compared to $1.08 for the fourth quarter of 2023.
Kevin Christie: For the full year, consolidated earnings were $2.29 for diluted share compared to $2.24 last year.
Now, I'll turn the call over to Heather.
Thank you, Stacey, and good morning, everyone.
Kevin Christie: I want to start by saying how proud I am of the performance and what we accomplished in 2024. Even with the headwinds we experienced from higher costs, including purchase power costs in 2024, our utility earnings were near the midpoint of our original expectations and improved nearly 5% from 2023.
Kevin Christie: Our regulatory strategy has been central to our focus and critical to our success. Our Washington general rate case is concluded in December with a constructive order from the Washington Commission that provided balanced, positive outcomes for our customers and shareholders.
Kevin Christie: The Commission also increased our return on equity to 9.8 percent.
Kevin Christie: The Commission also continued its support for important deferral mechanisms like our balancing accounts for wildfire and insurance costs.
Kevin Christie: Unfortunately, the Commission did not support our request to modify the mechanics of the Energy Recovery Mechanism, or the ERM. We will continue to look for opportunities to modify the ERM so that, in time, the mechanism appropriately reflects the changes we are experiencing in regional energy markets.
Kevin Christie: And we plan to build on the constructive Washington outcomes in the coming year as we work through the regulatory process in our general rate cases in Oregon and in Idaho.
Kevin Christie: We laid a strong foundation in 2024 in more ways than one. Beyond constructive regulatory outcomes, we invested a record $510 million at Avista Utilities to better serve our customers.
Kevin Christie: We entered a mirandum of understanding from the North Plains Connector, and we're excited about the potential opportunity from that project. Completion of the North Plains Project will connect our region to generation and markets we previously have not been able to access.
Kevin Christie: which is an important step to improve regional reliability and resource adequacy.
Kevin Christie: The North Plains project was identified in the preferred resource strategy of our Electric Integrated Resource Plan, or IRP, which we filed in December.
Kevin Christie: As an outcome of the finalized IRP, we expect to issue an all-source Request for Proposal, or RFP, calling for bids for up to 375 megawatts of generation, targeted to be online in 2029.
Thanks for tuning in.
Speaker Change: The first bill relates to approval of wildfire mitigation plans, and the second bill would enable securitization of the costs associated with large disasters, such as a catastrophic wildfire.
Kevin Christie: We're continuing to work with stakeholders on education around these critical legislative changes.
Kevin Christie: In addition to these important legislative efforts, we made great progress in 2024 with our wildfire mitigation plan.
Kevin Christie: We met or exceeded all targets for 2024 for distribution grid hardening, transmission hardening, vegetation management, and continued automation of fire safety modes.
Kevin Christie: In particular, I want to highlight the success of the artificial intelligence-enabled cameras we've begun deploying throughout our service territory.
Kevin Christie: When a fire was started in a remote part of our service terry, not near any of our facilities, the Washington Department of Natural Resources, or DNR, was notified immediately through the camera alert system.
Kevin Christie: The information captured by the camera enabled the DNR to appropriately scale their response and quickly manage and contain the situation.
Kevin Christie: We will continue hardening our systems, improving the reliability and resiliency of our grid, and keeping our communities safe.
Kevin Christie: Building on our success in 2024, we are initiating our consolidated earnings guidance for 2025 with a range of $2.52 to $2.72 per diluted share.
Kevin Christie: The midpoint of this guidance range includes an expected 12 cent expense from the energy recovery mechanism and a zero contribution from our other businesses in 2025. And Kevin will provide more detail on our guidance in a minute.
Kevin Christie: Our dividend is an important component of the shareholder return, and for the 23rd consecutive year, the board has increased the dividend for our shareholders just over 3% to $1.96 per share.
Kevin Christie: We target a competitive dividend payout range of 65 to 75 percent. And over the last few years, we have taken, we have been a bit above our average.
Kevin Christie: We are as committed to the financial strength of our company as we are to the importance of returns for our shareholders and we expect that our dividend growth rate will be less than the growth in our earnings per share until we reach our target payout range.
Kevin Christie: Now Kevin, I'll hand the call over to you for discussion of our earnings.
Kevin Christie: Turning to our earnings, our consolidated results demonstrate the strength of our utility operations.
Kevin Christie: Avista Utilities delivered earnings near the midpoint of our original guidance range for the segment.
Kevin Christie: In 2024, we recognized a pre-tax expense of $8 million under the ERM because of poor hydro and power supply costs.
Kevin Christie: At our other businesses, we recognized a $0.09 loss per diluted share in 2024. This loss is the result of periodic market valuations within our portfolio of investments, losses from early-stage joint venture investments, and borrowing costs.
Kevin Christie: We pursue these investments because they provide us with an opportunity to learn about innovations related to the utility of the future and the future of energy technology, and because they provide for the economic development of our service territories.
Kevin Christie: There's a value that comes from these investments beyond any formal contribution to our earnings.
Kevin Christie: Our regulatory strategy is critical to our success, and the constructive outcomes from our 2024 Washington General Rate Cases provide a crucial foundation for further execution in 2025.
Kevin Christie: We filed general rate cases in Oregon in November and Idaho earlier this year. In both cases, we are primarily seeking to bring our capital invested in these service territories up to date, as well as set costs at an appropriate level for both jurisdictions.
Kevin Christie: Power supply cost is also an important component of our case in Idaho.
Kevin Christie: We've requested to modify Idaho's sharing mechanism, the PCA, to a 95-5 split, as well as include power purchase agreements associated with certain renewable resources into authorized power supply costs.
Kevin Christie: These resources serve our Idaho customers and we believe it's appropriate that authorized levels of power supply costs reflect that.
Kevin Christie: We are committed to investing the necessary capital in our utility infrastructure. Capital expenditures at Avista Utilities were $510 million in 2024 to support customer growth and maintain our system for the benefit of our customers.
Kevin Christie: At AALMP, capital expenditures were $23 million, and we invested $10 million at our other businesses in 2024.
Kevin Christie: The capital plan we've shared with you for 2025 of 525 million does not include any incremental capital that would result from our planned RFP process.
Kevin Christie: The opportunity that might arise from the transmission projects, like the North Plains Connector, or securing new large load customers.
Kevin Christie: Without considering these potential opportunities, we expect capital expenditures from 2025 through 2029 of nearly $3 billion, resulting in an annual growth rate of between 5 and 6 percent.
on the liquidity front.
Kevin Christie: As of your end, we had $153 million of available liquidity under our committed line of credit and $38 million available under our letter of credit facility.
Kevin Christie: In 2024, we re-marketed $84 million of tax-exempt bonds and issued $68 million of common stock.
Kevin Christie: We expect to issue up to $120 million of long-term debt and up to $80 million of common stock in 2025.
Kevin Christie: As Heather mentioned, we are initiating our earnings guidance for 2025 with a consolidated range of $2.52 to $2.72 per diluted share.
Kevin Christie: We expect the VISTA utilities to contribute within a range of $2.43 to $2.61 per diluted share.
Kevin Christie: The midpoint of our guidance range from Avista Utilities includes an expected negative impact from the ERM of $0.12 in the 90% customer, 10% company sharing band.
Kevin Christie: including the impact of the ERM in our guidance as a change in practice, and I want to share some background on why we're making that change now.
Kevin Christie: based upon our projections and given the Washington Commission's denial of her proposed modification to the ERM.
Kevin Christie: Current hydro forecasts show our generation approximately 94% of normal and even if we were above normal there would be no material improvement in the ERM.
Kevin Christie: As you may be aware, the ERM tracks the difference between authorized and actual power supply costs.
The increasing frequency of unpredictable extreme weather events.
Kevin Christie: Rising concerns around regional resource adequacy as thermal resources are retired and more renewables are integrated into the system and new carbon emission policy have resulted in forward market uncertainty and associated price premiums.
Kevin Christie: When we calculate the level of power supply cost included in a multi-year rate filing, we use forecast market prices as much as 35 months prior to the actual operating day that have this embedded forward premium.
Kevin Christie: This results in a significant forward calculated value of excess generating capacity.
Kevin Christie: Unfortunately, as we've gotten closer to the operating period, where we are able to sell our long positions, whether due to the collapse of regional energy market prices from forecast levels, or having less excess power than we forecast, or both,
Kevin Christie: We are unable to fully capture the forecast value of our excess resource stack, which results in higher net power supply costs than those included in base customer rates.
Kevin Christie: Our guidance assumes approximately 470 million of O&M expense and is up from 2024 by about 15 percent.
Kevin Christie: Approximately 40% of this increase is due to amortizations and base levels of wildfire mitigation and insurance costs with corresponding increases to revenue which result in no impact earnings.
Kevin Christie: This also reflects higher levels of base costs, such as labor and benefits.
Kevin Christie: For which we now have recovery in Washington and expect the same in Idaho and Oregon again with no impact to earnings
Kevin Christie: Going forward, we expect annual increases in O&M to be closer to 4%.
Kevin Christie: We expect our earnings to be split evenly in either half of the year, with the first and fourth quarters being the most significant. We expect roughly half of the anticipated $0.12 IRM expense will be absorbed in the first quarter.
Kevin Christie: Due to the staggered timing of rate cases throughout our multiple jurisdictions, going forward, our expected return on equity at Avista Utilities is 8.8%.
Thank you for tuning in.
Kevin Christie: AELP continues to perform well, and we expect it to contribute in the range of $0.09 to $0.11 per diluted share in 2025.
Kevin Christie: For our other businesses, we are changing our approach to providing guidance.
Kevin Christie: We expect our other businesses to have zero contribution to earnings in 2025.
Kevin Christie: There will likely be volatility from one year to the next and even one quarter to the next as we recognize valuation adjustments to these investments.
We also incur ongoing borrowing costs to fund these investments.
Kevin Christie: These costs may be offset by more variable gains. Over the long term, we expect to see a return on these investments as well as economic development in our service territory.
Kevin Christie: Assuming constructive outcomes in our Idaho and Oregon general rate cases and without any incremental generation ownership resulting from our upcoming RFP.
Our large load opportunities.
We expect that.
Kevin Christie: Our earnings will grow 4-6% over the long term from a forecast 2025 base year.
Now we'll be happy to take your questions.
Speaker Change: Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. Please stand by while we compile the Q&A roster.
Thank you.
Speaker Change: And our first question comes from Char Perez of Guggenheim Partners. Your line is open.
Hey guys, this is Alex on for Char.
Good morning. Good morning.
Speaker Change: So just on the guidance for 25, just given some of the past challenges, including the drag and the other business, can you just talk about where you see yourself within the range for the year, and same with the 4-6 CAGR, given the increased visibility around the 5-year plan?
Speaker Change: very good chance of meeting our guidance range and certainly being towards the midpoint. There will be a few variations that happen throughout the year and we'd like to think we have a chance to beat the midpoint, but we'll see how that plays out.
Speaker Change: On the long-term growth rate side of 4 to 6 percent, again, 2025 is the base year. We haven't been able to say that for a while. And we think that with this base year and the way we've set it up and the regulatory support we've received in Washington, we expect in our other jurisdictions.
Speaker Change: and the potential growth beyond what the capital I've described, we think we've got a good opportunity to grow at that 4 to 6% and maybe more, but we'll describe that later if we have those opportunities to invest additional capital.
Speaker Change: Got it. Thanks. That's helpful. And just on the Idaho rate case, I know we're, you know, somewhat in the early innings, but could you just go into more detail on how the proceedings going and just sort of any key dates that we should be looking out for? Thanks.
Speaker Change: Yeah, great. Thanks for that question as well. We're very early in the process. We're establishing the procedural schedule. We think if we go all the way to a technical hearing, it would occur in the latter part of July. We have settlement opportunities leading up to that date or the date that when it will be established.
Speaker Change: In the past, we've had good success settling in that jurisdiction in particular. So we'll work towards a settlement. If we can't get there due to some of the headwinds that we've had, then we'll move towards a hearing.
Got it. Thanks. I'll leave it there.
Thank you.
Speaker Change: And as a reminder, if you have a question, please press star 1-1.
Speaker Change: And our next question comes from Anthony Crowdell of Missoula. Your line is open.
Anthony Crowdell: Hey, good morning. Nice job here. Just a couple of clean-up questions from...
the earlier one
Anthony Crowdell: When you talk about the growth rate 4-6%, you talk about you're targeting or you have a bias this year towards the midpoint, where that's maybe the base 262.
Anthony Crowdell: Do you expect to hit it each year of your forecast that you'll be within that four to six range or there could be volatility above or below that range as we move forward?
Anthony Crowdell: Good morning Anthony and thanks for the question. Yeah, good question. We would of course generally plan to be in the midpoint of the range as we go forward or in the midpoint of the four to six percent. We do have multiple jurisdictions and so those regulatory outcomes can be, and I'm using a technical term here, a little bit lumpy, but generally speaking we'd expect to be in the range of four to six percent.
percent, barring inflation, barring some kind of incremental investment.
Anthony Crowdell: opportunity on the capital side so you know those those things can move us outside but again generally in the four to six percent range
Anthony Crowdell: Do you expect to rebase off of actual, say, you know, as we move a year from now, does that base move to the actual number of 2025, or what's the company's plan, I guess, as you update it moving forward, or are you thinking we're just going to keep this and maybe every several years we'll restrike the ground?
Anthony Crowdell: Oh, we'd like to be able to rebase every year and it will depend on our ability to move forward with the rate cases as well as make these other investments. If we have another investment opportunity, that would cause us to rebase a bit. If we're, for example, moving forward with the next Washington case, depending upon what that case looks like, that might create...
Anthony Crowdell: and so it'll be those factors that we'll have to watch so I can't give you a clear answer at the moment but we'll be able to update you as we go from quarter to quarter.
Speaker Change: Great and I think you said in 2025 you're not including any contribution from your non-utility businesses. If I
Speaker Change: Can I make the assumption that you're not going to include any of those contributions also as we move forward, that I think this year maybe you said it's zero, but if in 2026 or 27, if you had...
Speaker Change: you know, positive contribution from those non-utility businesses that you're also going to exclude them from the four to six percent.
Speaker Change: Yeah, I think on a go forward basis, given what we know, we went back and looked at the data over the last 10 or 15 years, and we have these periodic
Speaker Change: And more often than not, the results are near zero or negative. And when we look at the average, it's closer to zero. So it feels like that's the right place to be right now. We're not seeing exits in those types of investments. And without exits, it's hard to see a valuation increase.
Speaker Change: if that were to start to happen in the future then we'll reassess but right now I think our our run rate and the expectation around other would be near zero
Speaker Change: Great, and just my last one, and I apologize, I may have missed some of your comments, but you talked about, I think, in the base year in 25...
You are including...
Speaker Change: some of like the RM or the power prices I guess a negative view and you're including that in it in the base year is that accurate and could you quantify that?
Speaker Change: Yeah, again, that's a shift from past practice for us, and we're doing that because of the outcome in the Washington rate case. That case was very, very constructive with the one exception, that being the ERM.
Speaker Change: And what we're telling you now, again, different than the past, is we are including 12 cents of negative impact of the ERM. And there really isn't a situation that we can see right now that would pull us significantly up from there. And so that's why we're including it.
Thanks so much for taking my questions.
You bet. Thank you, Anthony.
Speaker Change: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Stacey Wenz for closing remarks.
Stacey Wenz: Thank you all for joining us today and for your interest in Avista. Have a great day. This concludes today's conference call. Thank you for participating and you may now disconnect.