Avista Q2 2023 Earnings Call Transcript

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August 2, 2023

There are 5 speakers on the call.

Operator

Good day

Speaker 1

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 speakers' presentation, there will be a question and answer session. Please be advised today's conference is being recorded.

Speaker 1

I would now like to hand the conference over to your speaker today, Stacey Wentz. Please go ahead.

Speaker 2

Good morning. Welcome to Avista's Q2 2023 earnings conference call. Our earnings and our Q2 10 Q were released Pre market this morning, both 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 Krasselt.

Speaker 2

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 of normal precipitation, 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 ks for 2022 and our 10 Q for the Q2 of 2023, which are available on our website for a full discussion of these risk factors. I'll begin by recapping the financial results presented in today's press release.

Speaker 2

Our consolidated earnings for the Q2 of 2023 were $0.23 per diluted share compared to $0.16 for the Q2 of 2022. For the year to date, consolidated earnings were $0.96 per diluted share for 2023 compared to $1.15 last year. I'll now turn the call over to Dennis.

Speaker 3

Well, thanks, Stacey, 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 We recently won one of the Chartwell's Best Practices Awards in Outage Operations for Avista's weather and incident forecasting tool. This innovative tool leverages our historical database for weather, infrastructure and previous outages to predict future outages.

Speaker 3

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. This is just one great example of how Avista's 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 and 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 multi party settlement agreement in our Idaho rate cases and new electric and natural gas rates will go into effect in September.

Speaker 3

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 you might remember, every 2 years, we produce an electric IRP, which details projected growth and demand for energy and in the new resources that we'll need to serve our customers over the next 20 years. Thanks to the resource selections from our recent AllSource 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 to manage our costs to offset the impacts of inflation that we continue to experience, including higher interest rates and additional financing costs.

Speaker 3

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 in Washington, resulting from faster than normal snow melt and one of the worst hydro years we've seen in many, many years. Now, I'd like to turn this presentation over to Kevin, who will share more about our earnings. Kevin?

Speaker 4

Thanks, Dennis, and good morning, everyone. I'm excited to be here this morning in my first earnings call as CFO. It was a pleasure to meet or get acquainted with many of you at AGA this past May, 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 they're amazing teams here at Avista. They're a great group who have made the CFO transition go quite smoothly.

Speaker 4

As we turn to earnings, Avista Utilities earnings increased in the Q2 of 2023 compared to the Q2 of 2022. We've seen increased margin As a result of our general rate cases, customer growth and lower costs under the compared to the Q2 of last year. In the Q2 of this year, the was a pre tax benefit of $1,000,000 compared to a pre tax expense of $4,800,000 in the Q2 of last year. Year to date, we've recognized a pre tax expense of $6,500,000 in the compared to pre tax expense of 2,800,000 Last year, for the full year, we now expect higher costs under the and expect to be To end the year in the 90% customer, 10% company sharing band with a decrease to earnings of $0.08 per diluted share. Recognizing the volatility in the we are examining whether the is the most appropriate cost sharing mechanism for Washington going forward.

Speaker 4

We continue to be committed to investing the necessary capital in our utility infrastructure. We expect Avista Utilities Capital expenditures to total $475,000,000 in $23,000,000 and we're well on our way as our capital expenditures were $220,000,000 in the first half of the year. We expect AEL and P's capital expenditures to be $19,000,000 in 2023, and we expect to invest $15,000,000 at our other businesses in 2023. First half of the year was a busy time for our treasury team as we increased the capacity of our line of credit facility from $400,000,000 to $500,000,000 and terminated our $100,000,000 revolving credit facility. As of June 30, we have $292,000,000 of available liquidity under our committed lines of credit and $34,000,000 available under our letter of credit facility.

Speaker 4

During 2023, we intend to issue $120,000,000 of common stock, including $60,000,000 issued thus far this year. Like Dennis mentioned, we're confirming our 2023 consolidated earnings guidance of $2.27 to $2.47 per Our Avista Utilities guidance does not include any expense or benefit under the 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 resulting from this year's poor hydro conditions. For the year, we expect the to be in the 90% customer, 10% company sharing band with a decrease to earnings of $0.08 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 2021 will be fully returned to customers by the end of the Q3 of 2023 and will no longer reduce both customer bills and income tax expense, resulting in an increase in utility margin And our annual effective tax rate.

Speaker 4

Our annual tax provision is spread throughout the year as a percentage of pre tax 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 3rd quarter and 50% in the 4th quarter. This distribution excludes any impact of the Our guidance assumes timely and appropriate rate relief in all jurisdictions. We expect AEL and P to contribute in the range of $0.08 to $0.10 per diluted share in 'twenty three.

Speaker 4

We recognize net losses in our other businesses, primarily due to valuation adjustments. Quarterly valuations of certain investments Introduce some additional volatility to our earnings, but these more frequent updates increase the transparency of our investment value. Overall, we expect our other businesses to contribute earnings of $0.04 to $0.06 per diluted share for the year. Now I'll turn the call back over to Stacy for your questions.

Speaker 2

Thanks, Kevin. We welcome your questions.

Speaker 1

We'll pause for a moment while we compile our Q and A roster. Our first question comes from Willard Granger with Mizuho. Your line is open.

Operator

Hi, good morning.

Speaker 3

Hey, good morning. Good morning.

Operator

Thanks for taking my question. On the Q1 call, you mentioned that you were anticipating some positive uplift from the Now in your prepared remarks, you mentioned that you're experiencing higher than expected Can you talk a little bit about what you're seeing here and how that impacts your 2023 guidance?

Speaker 3

Yes, happy to. On the Q1 call, we were sitting really with pretty Decent snowpack and hydro forecasts 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 very colder than normal. So the snow melt was less than it would be in a normal year. And so when you're in that situation, you look, well, we've got good snow melt.

Speaker 3

If we have a nice slow Melt like we normally would hope to have, then you would have really good hydro the rest of the year as that snow comes off. And what ended up happening May was very warm, not only for our service area, but the entire region and all the snow really came down in 1 month. So the May Hydro numbers were pretty good, but a lot of that water then is just wasted because there's too much of it you can't generate. So what that ended up doing to us is With the cold spring, we were a little bit below normal up until that point. Hope expecting to make that up because The snow would come ratably down the mountains and it didn't work that way.

Speaker 3

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 weather and In May, really impacted the hydro forecast, not only for us, but it's a region wide thing. And That is really what swung the around based on what we were projecting at that point in time

Speaker 4

in May. Yes, let me build on that, Dennis. We were at $0.03 positive when we met last quarter and now as you've heard here, we're expecting to be at $0.08 on the other side So that's a pretty significant swing and that goes to the weather that Dennis described. And that's why we're indicating that if it weren't for the We would have pretty strong results here, fair and balanced results, but that does bring us down towards the bottom end of our range, as we said earlier.

Operator

Understood. Thank you. If I could just follow-up, maybe switching gears here, on the balance for the second half of twenty twenty What are the puts and takes to hitting your guidance in Q4 of last year? Specifically, you had about $0.25 of Positive mark to market from a biotech investment, should we expect something similar in the back half of the year? How should we be thinking about that?

Speaker 4

I don't think there's a set shape to the investment profile and you're referring to our non reg investment portfolio overall. I I don't think there's a set shape, but as we indicated earlier in the call, we expect overall to be in that $0.04 to $0.06 range on our non reg investments. We're down for the year thus far and compared to prior periods, and we would expect some turnaround there to get to that $0.04 to $0.06 range.

Operator

Understood. I'll leave it there. Thank you,

Speaker 1

And I'm not showing any further questions at this time. I'd like to turn the call back over to Stacy.

Speaker 2

Thank you very much. Thank you for joining us today and for your interest in EBITDA. Have a great day.

Speaker 1

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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Earnings Conference Call
Avista Q2 2023
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