Q2 2025 Avista Corp Earnings Call

Speaker #1: Good day, and thank you for standing by. Welcome to the Avista Corp Q2 2025 earnings conference call. At this time, all participants are in listen-only mode.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: I would now like to hand the conference over to your speaker today, Stacey Walters, Investor Relations Manager. Please go head.

Speaker #2: Good morning. It's great to have you with us for AVISTA's second quarter 2025 earnings conference call. Our earnings and second quarter 2025 Form 10-Q were released pre-market this morning.

Speaker #2: You can find both on our website. Joining me today are AVISTA Corp President and CEO, Heather Rosentrater, and Senior Vice President, CFO, Treasurer, and Regulatory Affairs Officer, Kevin Christie.

Speaker #2: We will be making forward-looking statements during this call. These involve assumptions, risks, and uncertainties, which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today's call.

Speaker #2: Please refer to our Form 10-K for 2024 and our Form 10-Q for second quarter of 2025 for a full discussion of these risk factors.

Speaker #2: Both are available on our website. I'll begin with a recap of the financial results presented in today's press release. Our consolidated earnings for the first half of 2025 were $1.15 per diluted share, compared to $1.20 for the first half of 2024.

Speaker #2: For the second quarter 2025, our consolidated earnings were $17.00 per diluted share, compared to $29.00 for the second quarter of 2024. Now, I'll turn the call over to Heather.

Speaker #3: Thanks, Stacey. And hello, everyone. The results we're sharing today reflect continued strategic progress at AVISTA Utilities. As well as headwinds from shifts in market sentiment related to clean technology.

Speaker #3: I'm happy to share that even with these headwinds, we are affirming our consolidated earnings guidance for 2025. At Avista Utilities, our year-to-date results of $1.25 per diluted share reflect a nearly 7% increase over 2024's year-to-date results.

Speaker #3: And highlight the continued strength of our strategic execution. We also continue to make progress in activities that set us up for success going forward.

Speaker #3: In the second quarter, our all-party, all-issue settlement in Oregon was approved by the Commission. We also reached an all-party, all-issue settlement in Idaho. Both cases build on the constructive regulatory outcomes already in place through our Washington multi-year rate plan.

Speaker #3: And serve to raise our confidence in our expectations for AVISTA Utilities' earnings in 2025. However, market conditions in the clean energy sector weighed on our consolidated earnings performance in the second quarter.

Speaker #3: Valuations within our portfolio of investments primarily those in clean technology-focused funds were significantly impacted by shifts in public policy and sentiment. These valuations are disappointing.

Speaker #3: And Kevin will share more about our investments in a few minutes. I want to take time to highlight the strong fundamentals of our business.

Speaker #3: Our core utility operations continue to be strong, and our solid results at AVISTA Utilities reflect strong performance. Underpinned by diligent cost management and constructive regulatory outcomes.

Speaker #3: I want to commend the efforts of each of our employees working hard each day to position us for this strategic success. We will continue to focus on doing what we do best.

Speaker #3: Serving our customers and communities with compassion and optimism for the future. Providing the reliable energy our customers count on us to provide. Ensuring that we can continue to provide that safe and reliable energy is the purpose behind our current all-source request for proposals, or RFP.

Speaker #3: We issued our RFP in May, seeking 100 to 425 megawatts of generation to meet the needs we've identified in our Integrated Resource Plan by 2029.

Speaker #3: We received more than 80 bids for consideration, including a wide array of resource options, such as wind, solar, battery storage, natural gas, distributed energy, demand response, and combinations of these resources.

Speaker #3: Equally broad in scope were the contract and ownership options included in the bids. We submitted self-build resource bids for consideration and also received bids for build transfer agreements, power purchase agreements, and other contract structures.

Speaker #3: Together with our independent evaluator, we are reviewing each bid. We expect to have a shortlist of preferred projects by the end of this month.

Speaker #3: We intend to request selected shortlist projects to resubmit detailed proposals that include any necessary repricing, as well as clarity on their ability to take vantage of safe harboring allowed by the budget reconciliation bill.

Speaker #3: We anticipate contract negotiations with the final selected projects will begin in the fourth quarter of 2025. I continue to be optimistic about the opportunities that are ahead of us.

Speaker #3: Information from this RFP process is also crucial to inform our conversations with potential large load customers. In addition to several requests from existing large industrial customers for expansion, we have over 3,000 megawatts of requests in our pipeline of potential demand.

Speaker #3: Looking for system integration within the next three to five years. For context, our peak electric native load is just under 2,000 megawatts. We continue to advance conversations with these potential customers.

Speaker #3: And our all-source RFP responses provide us with up-to-date supply resource costs and availability information to help inform those conversations. However, meeting the demand from these potential customers will entail not only additional generation, but also regional grid expansion.

Speaker #3: While we 't have available capacity to serve all the current requests in the pipeline, system impact studies indicate that we have capacity available to accommodate a portion of those requests.

Speaker #3: The level of available capacity varies by location, and we are most optimistic about our ability to serve customers with scalable implementation capability. I believe in our ability to be competitive with these potential loads while also ensuring benefits for our existing customers.

Speaker #3: And look forward to sharing our progress in future calls. Now, I'll hand the call to Kevin for more discussion of our earnings.

Speaker #4: Thanks, Heather. And good morning, everyone. Like Heather said, AVISTA Utilities' performance continues to be strong and reflects our ongoing success with constructive regulatory outcomes as well as continuous cost management.

Speaker #4: As expected, AVISTA Utilities' arnings in the second quarter 2025 are slightly below the same period from 2024. This is primarily due to the changes in shape of authorized levels of resource costs year over year, as well as how our operating costs are incurred on a more consistent basis throughout the year, while revenue is typically highest in the first and fourth quarters.

Speaker #4: Consolidated earnings were materially impacted by valuation losses of $0.12 per diluted share in the second quarter. These are disappointing results, and want to discuss them directly.

Speaker #4: The majority of these changes in valuation were connected to our estments in clean technology-focused venture funds. Shifts in public policy and sentiment with regard to the role clean energy in America's energy future have had a material impact on the value of these funds.

Speaker #4: As clarity is restored to public policy, we anticipate that the volatility in valuation will moderate. The value recorded in our financials represents our portion of the fund's value on a one-quarter lag basis due to the timing of when we receive financial information from these investments.

Speaker #4: Uncertainty surrounding the impact of tariffs as well as the extent to which the highly anticipated tax reconciliation bill would prioritize investment in natural gas or fossil fuel generation over clean energy both negatively impacted values in the first quarter.

Speaker #4: In general, clean technology funds and indices reached their lowest valuation point in years right around the close of the first quarter of this year.

Speaker #4: The variety of the businesses within the clean technology funds suggests these valuations may have reached a relative low point, but we can't say that for certain given the dynamics outside our control and the fact that public policy and tariffs still evolving.

Speaker #4: When we set guidance for other businesses at zero for the year, we pointed to our expectation of volatility from one quarter or one year to the next through the recognition of valuation adjustments.

Speaker #4: We don't predict the valuations of these companies. We continue to see strategic value in learning about innovations related to the utility of future and the future of energy technology as well as investing in the economic development of our service territory.

Speaker #4: Over the long term, we do expect benefits from these investments through economic development, shared learning, and gains. Building on the constructive outcomes from our 2024 Washington General Rate Cases, our -party, all-issue settlement in our Oregon GRC was approved by the Commission.

Speaker #4: New rates will take effect September 1st. In Idaho, we reached an all-party, all-issue settlement for the general rate cases we filed in January. If approved by the Commission, new rates from that proceeding will also go into effect September 1st.

Speaker #4: Work has already begun to prepare for the next Washington GRC, which we expect to file in the first quarter of 2026. We are continuously investing in our utility infrastructure to support customer growth and maintain our system so that we can safely and reliably serve our ustomers.

Speaker #4: Capital expenditures at Avista Utilities were $236 million in the first half of 2025. We expect overall capital expenditures of $525 million in 2025. From 2025 through 2029, we expect capital expenditures of nearly $3 billion, resulting in an annual growth of between 5% and 6%.

Speaker #4: These estimates do not include any incremental capital requirements that could result from our RFP process. Or opportunities that might arise from transmission projects whether the regional grid expansion that Heather mentioned or large projects like the North Plains Connector or new large load customers.

Speaker #4: Any incremental capital is most likely to occur in the latter half of our capital plan. Turning to liquidity, as of June 30, we had available liquidity of $106 million under our committed line of credit and $42 million under our letter of credit facility.

Speaker #4: In July, we issued $120 million of long-term debt and do not expect further debt issuances this year. We expect to issue up to $80 million of common stock in 2025 and that includes $35 million which was issued during the first half of the year.

Speaker #4: Earlier this year, S&P removed the negative watch from our credit rating evidence of the strength of our balance sheet and business plans. We are confirming our consolidated earnings guidance with a range of $2.52 to $2.72 per diluted share for 2025.

Speaker #4: As a result of the $0.15 of valuation losses associated with our investment portfolio that we've recognized, in the first half of the year, we expect to be at the low end of our consolidated range.

Speaker #4: We expect AVISTA Utilities to contribute toward upper end of the range of $2.43 to 2.61 per diluted share. Our guidance for AVISTA Utilities includes an expected negative impact from the energy recovery mechanism or of $0.12 in the 90% customer, 10% company sharing band.

Speaker #4: We have already incurred $0.08 in the first half of the year. Due to this staggered timing of rate cases throughout our multiple jurisdictions, going forward, our expected return on equity at Avista Utilities is 8.8%.

Speaker #4: AEL&P continues to perform well, and we expect it to contribute 9 to 11 cents per diluted share in 2025. Over the long term, we expect our earnings will grow 4 to 6 percent from a forecast 2025 base year.

Speaker #4: Before we shift to your questions, let me close with this. AVISTA Utilities is in a strong position. In each of our jurisdictions, we're well positioned with quality rate case outcomes, which provide necessary recovery of our costs and set costs at an appropriate level.

Speaker #4: We've been diligent in our cost management, ensuring that the expected increase in O&M year over year is achievable. And finally, we've benefited from increases in non-decoupled revenue year over year evident in our electric utility margin year to date.

Speaker #4: It's on the strength of the utility results that we are affirming our original guidance. Now, we'd be happy to take your questions.

Speaker #1: Certainly. As a reminder, to ask a question, please press star one-one on your telephone and wait for our name to be announced. To withdraw your question, please press star one-one again.

Speaker #1: And please stand by while we compile our Q&A roster. Our first question will come from Julian Dumoulin-Smith of Jeffries. Julian, your line is open.

Speaker #5: Yeah. Hi. This is Brian Russo on for Julian. Good morning.

Speaker #6: Good morning, Brian.

Speaker #2: Morning.

Speaker #5: Hey, just the 3,000 megawatts of large load that you're discussing, is there any way to kind of characterize that? Is it all data centers, or could it be, you know, high-tech manufacturing or other types of resources?

Speaker #5: And then h-how does that kind of tie into you ow, maybe the high end of that 100 to 400 megawatts of in, in the RFP?

Speaker #2: Yeah. Thanks, Brian. I appreciate the question. And the 3,000 megawatts, in the pipeline is a wide variety of, different types load. And so, there's not necessarily one specific one that's that's you know, significant out of that.

Speaker #2: And then, like I mentioned, it's really nice to have the responses of the RFP because we can better inform those conversations with potential customers. Because, as you can imagine, the supply cost is a big portion of their consideration.

Speaker #2: And so now that we have over the next month or two, we'll have much better information around the potential type of generation, cost of generation, and timeline of generation to be able to inform those, those conversations.

Speaker #2: And so we're looking forward to being able to advance those with that additional information.

Speaker #5: Right. Okay. So, so I guess, are you comfortable with the high end of, of the RFP of 400 megawatts? Or, or could you con conceptually, need even more on any kind of, you know, normal type, you know, win rate on, the, the this large customer load?

Speaker #2: Right. Fortunately, with the 80 bids that we received and the broad range of type of, generation that we feel like with the bids we've received, we have plenty of opportunity to, support any of, you ow, support those conversations.

Speaker #5: Okay, great. And then, you know, just on the other businesses, I'm curious. I appreciate the commentary before. Despite the non-cash volatility that creates in earnings, you know, you...

Speaker #5: you ow, I'm just wondering, like, longer term, you know, I, think you've already lowered kind of the annual, business investment, allocation. I think the 5 million, it was somewhat more a year ago or two.

Speaker #5: And I'm just wondering, you know, w-would you possibly look for, for exit for monetization, opportunities, you ow, when they present themselves? In the near and intermediate term.

Speaker #6: Yeah. Brian, thanks for the question. It's Kevin. We, of course, are analyzing what to do as we move forward with these. As I mentioned, we get the strategic benefit, and we don't want to lose that.

Speaker #6: As we look forward, we are going to moderate the budgets a bit as we see how the dust settles and what happens with clean energy.

Speaker #6: Clean tech and, in particular, I want to point out that all within the funds we have, there's this broad brush name of clean technology that's being applied.

Speaker #6: And those are the indexes that we're often comparing to. But the types of investments within the portfolio is they're it's quite broad. And many of which aren't even really related to clean technology.

Speaker #6: And so it'll be interesting to see how this all plays out. Some of the, what needs to transpire, as I mentioned, a call or two ago, is the ability for the IPO market to open up for our ability to see exits from the funds of the investments that the funds have made.

Speaker #6: And we think there are several opportunities that will help things turn around a bit here. But again, we're going to rest on our heels here and just see how it plays out.

Speaker #6: We have some strategies we're reviewing and trying to see if we should be making some changes in how we think about our non-regulated businesses.

Speaker #5: All right. Great. And then just lastly, you know, i-i-it's nice that you're at the higher end of the, AVISTA Utilities. guidance range now, but it seems like you're still, maintaining that 8.8% earned ROE.

Speaker #5: Is there potential, you know, upside to further close that regulatory gap considering, you know, the success or achievements you've had to date to get to the high end of this year's range?

Speaker #6: I think that we want to make sure that we s place, a number out there for you all that's achievable. And we think that the 8.8 is achievable.

Speaker #6: If we are successful, and I'd like think that we will be, as you think about what Heather shared, that we have opportunities for additional investments that could benefit us and some growth that could benefit us.

Speaker #6: that, that would really drive additional EPS growth. I think the ROE at the utilities, 8.8 is a number that's achievable. We'll, we'll stick there for now.

Speaker #5: Okay. Great. Thank you very much.

Speaker #6: Thank you, Brian.

Speaker #2: Thanks, Brian.

Speaker #1: And as a reminder, to ask a question, please press star one-one on your telephone. Our next question will be coming from Sophie Carp of KBCM.

Speaker #1: Your line is open.

Speaker #7: Hi. Good night. Thank you for taking my question. Good morning, Sophie.

Speaker #2: Good morning.

Speaker #7: Good morning. And you can talk a little bit about the, our, our fees here. I don't know if I missed it in the prepared remarks.

Speaker #7: Are there any thermal resources in there?

Speaker #2: Oh, are there any thermal resources in the RFP? We did have natural gas, which is one of the resources that we received, along with solar, wind, and battery storage, among others.

Speaker #7: And, and how do you guys feel about, like, I guess, your perspective win rate in, in this, h, in this round? maybe I 't know if it's to really talk that, but, like, with the thermal resource being in there, maybe it's a little asier for, you to win that versus, renewable resource because of, like, counting utilization issue.

Speaker #7: But, like, can you discuss that a little bit?

Speaker #2: I don't know if I caught all of that. in terms of the we-we're ing with a third-party evaluator to, look at all of the 80 bids and assess the, the cost, the timeframes, the, the, feasibility of them and, and also folding that into our compliance requirements in, in Washington State specifically.

Speaker #2: And so we're looking at all of the above. I'm not sure if that covers it.

Speaker #7: Yeah, I was just wondering if you could share whether you bid into the thermal resource. Was it your bid or a third party's? And is it easier for Avista, as a utility, to win a thermal resource versus a renewable plant?

Speaker #2: So at this time, with the evaluation underway, we're sharing specifically the self-bid options that we put in. But we do think that our bids will be competitive.

Speaker #2: That's why we put them in. But that's all I can share.

Speaker #7: Got it. Got it. Okay. And then, I was just wondering if you could talk a little bit about the outlook for wildfires in your region.

Speaker #7: Like, how is it shaping up so far? What do you guys see on the ground? Because it's been a pretty dry summer in the West.

Speaker #2: Mm-hmm. Yeah. The fire activity has been, I ink, above normal, but for us, it's been good so far. We haven't seen, significant starts, in August, yeah, so in August, we'll see.

Speaker #2: But it is drier than normal this summer, so we're using all of our mitigation tactics to minimize that risk going forward.

Speaker #7: Good. Okay. Well, thank you. That's all for me.

Speaker #2: Thank you, Sophie.

Speaker #5: Thanks, Sophie.

Speaker #1: Thank you. I have no further questions. I would now like to turn the conference back to Stacey for closing remarks.

Speaker #8: Thank you all for joining us today and for your interest in AVISTA. Have a great day.