Avista Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 1, 2023

There are 9 speakers on the call.

Operator

Welcome to the Avista Corporation Q3 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Wen, Investor Relations Manager. Please go ahead.

Speaker 1

Good morning. Welcome to Avista's Q3 2023 earnings conference call. Our earnings and our Q3 10 Q were released pre market this morning, both are available 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 Krasilv.

Speaker 1

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 discussed in today's call. Please refer to our 10 ks for 2022 and 10 Q for the Q3 of 2023, which are available on our website for a full discussion of these risk factors. To begin, I'll recap the financial results presented in today's press release.

Speaker 1

Our consolidated earnings for the Q3 of 2023 were $0.19 per diluted share compared to a loss of $0.08 for the Q3 of 2022. Year to date, consolidated earnings were $1.14 per diluted share for 2023 compared to $1.06 last year. Now I'll turn the call over to Dennis.

Speaker 2

Well, thanks, Stacey, and good morning, everyone. I hope you're Enjoying some nice fall weather wherever you're at here in Spokane and the Inland Northwest. The leaves are showing their brilliant colors And we even experienced our 1st light snowfall last week, first one of the season. I'd like to begin by welcoming Heather Rosentrader to our earnings call this In September, you may have seen we announced that Heather would become Avista's 15th President. She is the 1st female President in our company's 134 year history.

Speaker 2

You all get a chance to meet Heather at the EEI Financial Conference Coming up in November in a couple of weeks. When you meet Heather, you'll see that she's a dynamic leader who's built a deep understanding of the utility business. Over the years, she's established a reputation as a thought leader who has the uncanny ability to strategically anticipate what's next. I believe we have the right leadership team in place to successfully lead us forward through a rapidly changing energy landscape and the That will continue to tap into our rich history of innovation and ask ourselves how might we do things differently. Commitment to our strategy and innovation landed us one of only 10 Connected Communities grants awarded by the Department of Energy.

Speaker 2

We recently completed the 1st year of this 5 year grant that allows us to work with partners to engage customers about their energy usage at a deeper level. Part of this grant work includes using our grid simulator in Avista's Energy Innovation Lab to explore how to make the best use of the existing grid. And at the same time, we're continuing to ask ourselves how might we possibly expand our owned generation portfolio? How might we meet the demand for transmission assets as we move toward our clean energy future? And how might we partner With building owners and operators to actively manage not only how much energy these buildings use, but when they use it.

Speaker 2

Ideas like these tap into the built environment to create a battery of sorts, moving us closer to achieving our clean energy goals and can help make energy more affordable for everyone. As we explore options, rest assured, we will be prudent and wise with our decisions. Turning to regulatory outcomes. Our results so far this year reflect significant progress we've made on the regulatory front and includes the benefits from our 2022 Washington rate cases. New electric and natural Gas rates went into effect in September in Idaho, the first of a new 2 year rate plan.

Speaker 2

Our Oregon general rate case was approved by the commission last And new rates will be effective January 1. We look to continue executing our strategy with the next Multi year rate plan to be filed in Washington in early 2024, which will allow us the opportunity to earn our allowed return. With respect to earnings, our 3rd quarter results are ahead of our expectations. At Avista Utilities, we're seeing the benefit of our cost management efforts. AEL and P is also ahead of our expectations for the year.

Speaker 2

Year to date, we've experienced losses in our other businesses, which are driven by valuations of investments. There is value that comes from these investments beyond their expected contribution to earnings. These investments can create opportunities for learning, Economic development within our service area and help propel us towards energy innovation and transformation necessary to meet our clean energy goals. Now I'd like to turn this presentation over to Kevin, who will share more about our earnings.

Speaker 3

Thanks, Dennis, and good morning, everyone. I'd also like to extend my welcome to Heather. I very much look forward to working with her in her new role. It's also nice to no longer be the new person in the room. I would to expand on what Dennis was saying about our earnings, Avista Utilities earnings increased in the Q3 of 2023 Compared to Q3 of 2022, this was largely a result of the beneficial impact of our general rate cases, customer growth and lower costs under the compared to the Q3 of last year.

Speaker 3

In the Q3 of 2023, The was a pre tax expense of $1,200,000 compared to a pre tax expense of $4,500,000 in the Q3 of last year. Year to date, we've recognized a pre tax expense of $7,800,000 in the compared to a pre tax expense of 7,300,000 in 2022. We expect to end 2023 in the 90% customer, 10% company sharing band with a decrease to earnings of $0.08 per diluted share. We are committed to investing the necessary capital in our utility infrastructure. Our planned capital expenditures at Avista Utilities are $475,000,000 in 2023, so that we can continue to support our customer growth and maintain our system to provide safe, reliable energy to our customers.

Speaker 3

We are increasing Avista Utilities' expected capital expenditures to $500,000,000 in 2024, dollars 525,000,000 in 2025, dollars 550,000,000 in 2026. Additionally, we are evaluating opportunities as they come up to explore the expansion of our generation assets as well as potential transmission projects to support the integration of renewables and to propel us toward our clean energy goals. We expect AEL and P's capital expenditures to be $17,000,000 in 2023 and we expect to invest $15,000,000 at our other businesses in 2023. On the liquidity front, as of September 30, we have $275,000,000 of available liquidity under our committed line of credit and $41,000,000 available under our letter of credit facility. We have issued $88,000,000 of common stock through September 30 And during the Q4 of 2023, depending upon market conditions, we plan to issue $32,000,000 of common stock.

Speaker 3

In 2024, we expect to issue approximately $80,000,000 of long term debt and $60,000,000 of common stock We frequently talk about the importance of our cost management efforts and that's certainly been true this year. We've been successfully managing our costs, but we're unable to fully offset the impact of higher resource costs as a result of the year's Poor hydro performance. Due to these higher resource costs, we are narrowing our 2023 consolidated earnings guidance range to $2.27 to $2.37 per diluted share. Given current expectations, if it were not for these higher resource costs, We would end the year in the upper half of the original guidance range. To recognize the impact of our cost management efforts, We have increased the floor of Avista Utilities guidance by $0.03 and now expect a contribution in the range of $2.18 to $2.24 for the year.

Speaker 3

We now expect AEL and P to contribute in the range of $0.10 to $0.12 per diluted share in 2023 to reflect the better than expected performance of this segment. Year to date, we've recognized net losses in our other businesses, primarily due to the valuation adjustments. Quarterly valuation of certain investments can cause some volatility in our earnings and it increases the transparency of these investments value. We expect our other businesses to contribute in the range of $0.01 loss to $0.01 gain per diluted share for the year. We are finalizing our 2024 business plans and expect to provide our 2024 guidance

Operator

Thank Please standby while we compile the Q and A roster. And our first call excuse me, our first question today is from Tanner James with Bank of America Securities. Your line is open.

Speaker 4

Hi, good morning.

Speaker 5

Hey, good morning. Good morning, Tanner.

Speaker 4

Good morning. Could you provide a little bit of detail into the incremental CapEx? What are the specific opportunities you're seeing here? And then longer term, what do you expect will go into financing? Just kind of how do you look at that year by year going forward?

Speaker 3

Well, what I can say about the thanks for the question. What I can say about the incremental capital going forward, A significant portion of it is a continuation of the type of capital we've been investing in over the last many years. And we are seeing some additional opportunities and have been upping the investment in our generation assets as we have some major projects coming do and we've had assets those assets in particular for more than 100 years in some cases and we need to make some [SPEAKER JULIEN DUMOULIN SMITH:] LLC:] So that's becoming a bit of a bigger proportion. But generally speaking, we're looking at similar capital as we have been spending in the past. The second question that you're asking there, Tanner, is About our incremental financing plans going forward or financing plans going forward, if I have that correctly.

Speaker 3

And we'll again, we'll be giving guidance Next quarter likely. And at that point in time, if there are any changes to what I've shared here, I would share it there. But we typically only do give guidance around our financing plans a year out.

Speaker 4

Understood. Thank you. And I might have missed it in the press release or presentation or rather it might be implied. Are you guys reaffirming the long term EPS CAGR in line with your rate base growth?

Speaker 3

Once we get back to earning our authorized return, we expect to be in the 4% to 6% long term growth rate.

Speaker 4

Great. Thank you very much guys.

Speaker 3

You bet. Thanks for the questions.

Operator

Thank you. Our next question is from Brian Russo with Sidoti. Your line is open.

Speaker 6

Hi, good morning.

Speaker 5

Hey, Brian. Good morning, Brian.

Speaker 6

Hey, the generation investments that you just referenced for the increase in CapEx. Is this IRP related or are the generation expansion Opportunities you're evaluating kind of longer term IRP focused.

Speaker 3

Yes. So let me differentiate the two types here. What I was referring to with Tanner's question is The proportion of the capital planning dollars that I described earlier are related some of them are related to Generation needs to improve or modernize existing generation assets, hydro assets in particular. And so that's part of what I've described. And then Dennis' comments and then some of what I was mentioning is, we'll also try to be opportunistic.

Speaker 3

As we think about the clean energy future and what is needed, there's a bit of a theme across the country. I'm sure you know where We all have clean energy goals or many of us have clean energy goals and that we are looking at the need to invest in clean generation as well as transmission On a go forward basis to meet those goals. So it's really 2 different categories when you think about generation.

Speaker 6

Okay, got it. And then just on the guidance revisions, there are a few moving parts. Were the regulatory outcomes what exceeded your expectations, but that's offset with the $0.08 headwind, which is now included in your guidance, where previously was excluded From the midpoint, just want to make sure, I want to I'm just trying to get a sense of what's ongoing Into 2024, the earn gets reset to 0 where any upside in the regulatory outcomes Would carry through into 2024 and beyond?

Speaker 3

Yes. I can appreciate the question there, Brian. So back to your First point or the point around guidance and guidance setting and we typically don't guide with the included. But for 2023, we've had significant headwinds around hydro poor hydro condition and the way the water came off. And so that led us to here on the and the prior quarter to acknowledge an $0.08 headwind on hydro.

Speaker 3

On The actual results are why we're seeing the utility perform a bit better. When you do exclude the hydro, we have continued to manage our costs pretty Successfully. And that has that's a big part on why we're showing a bit better. We've moved the bottom end of the range up by $0.03 for the Utility segment.

Speaker 6

Okay, got it. And what's driving the AEL and P performance up $0.02

Speaker 3

They've had a bit better weather as well as some cost management as well.

Speaker 6

Okay, great. And then I know it's early in terms of the upcoming hydro season What are supply levels, could you remind us what typically occurs with your resource costs in the La Nina type Do you know a scenario?

Speaker 3

Well, that's funny. We're talking about weather here, Brian, and that's a dangerous topic. I would Share that I've seen a lot of data from our power supply team that shows that it can be a real mixed bag whether you're in a La Nina or El Nino. And although I think what many would say is we'd expect a bit warmer

Speaker 2

and

Speaker 3

a bit drier than normal in the winter, We've seen many instances where that just hasn't been true and we've seen wetter and colder. Understood.

Speaker 6

Thank you very much.

Speaker 7

I got it.

Speaker 6

Very good. Thank you very much.

Speaker 3

You bet. Thanks again for the questions.

Operator

Thank you very much. One moment. Our next question is from Jameson Ward with Guggenheim Partners. Your line is open.

Speaker 7

Hi, good morning. How are you guys?

Speaker 2

Doing good. Good morning.

Speaker 7

Good. Understood from your prepared remarks that you'll provide 2024 guidance, including segment insights on the Q4 call. But higher level in aggregate, do you expect growth to be linear into 2024?

Speaker 3

What I can say there, Jameson, is that we get our next big Bump up in earnings, so it will be non linear as we think about 2025. So this next case that we'll file in the Q1 of 'twenty four in Washington is a Big impact on our expected earnings in 2025 and so we see a much bigger increase in 2025 versus the movement from 2023 to 2024.

Speaker 7

Got you. Got you. And then as we think about the other business segment Going forward, any insights you can give us there on kind of timing and schedule around The potential at least for further valuation related adjustments or impacts on earnings, obviously Predict where valuations will be in the future, but just trying to get a sense of magnitude so that we can kind of have a sensitivity of what could occur In the other segment in the future?

Speaker 3

Yes. Again, we'll give guidance next quarter for all segments, Likely give guidance next quarter for all segments when we have that conversation with you all. And I think one of the things you're alluding to is One of our investments we're seeing a little bit more volatility and what we've shared is that there's A clinical trial that we'd expect to have a better understanding of how things are working out for them in the latter part of next year. And so it's there's not much more I can add at this point in time.

Speaker 7

Understood. Thank you very much and look forward to seeing you guys at EEI.

Speaker 5

Same here. Thank you. Thank you.

Operator

Thank you. Our next question is from Willard Granger with Mizuho Financial Group. Your line is open.

Speaker 8

Hi, good morning team. Thanks for taking my question.

Speaker 5

Good

Speaker 8

morning. Just want to understand a little bit, what should we be assuming as the base year for your 4% to 6% EPS CAGR.

Speaker 3

Yes. I think it'd be fair to say that the base year It wheels off of when we're earning our authorized return, which we would expect to occur. We have a chance to earn our authorized return in 2025. So I would think of it as going from 2025 forward.

Speaker 8

And maybe just one and sorry to beat a dead horse here, but you've raised your CapEx guidance and when can we expect some of the Finance and guidance around that to come out. If you could unpack that a little bit for us here. Thank you.

Speaker 2

Well, there's a lot

Speaker 3

of moving parts and we've shared our incremental needs for 2024, Which would help fund the $500,000,000 that we have described to you here on this call. After that, it will be situational based on, of Of course our cash flows, we've had some tax credits that are rolling off which provides incremental cash and we have the to continue to manage. We've got the earned balance that we filed in a rate case or I'm sorry in a rate proceeding not too long ago middle of the year. We have that coming back to us over 2 years and it will really matter what we see on an go forward basis too And we'll have to update you once we see all of those pieces come together on a go forward basis from 2026 forward.

Speaker 8

Got it. I'll leave it there. Thank you very much.

Speaker 5

Thank you.

Operator

Thank you. I'm showing no further questions at this time. So I would like to now turn it back to Stacy Wynne.

Speaker 1

Thank you all for joining us today and for your interest in Avista. We look forward to seeing many of you here in a couple of weeks at EEI. Have a great day.

Operator

Thank you everyone for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Avista Q3 2023
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