U.S. Markets open in 8 hrs 3 mins

Edited Transcript of AVA earnings conference call or presentation 8-Feb-19 3:30pm GMT

Q4 2018 Avista Corp Earnings Call

SPOKANE Feb 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Avista Corp earnings conference call or presentation Friday, February 8, 2019 at 3:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jason Lang

Avista Corporation - Director of Finance

* Kevin J. Christie

Avista Corporation - VP of External Affairs & Chief Customer Officer

* Mark T. Thies

Avista Corporation - Senior VP, CFO & Treasurer

* Scott L. Morris

Avista Corporation - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Andrew Levi

ExodusPoint Capital Management, LP - Portfolio Manager

* Konstantin Lednev

Guggenheim Securities, LLC, Research Division - Associate

* Paul Patterson

Glenrock Associates LLC - Analyst

* Paul Thomas Ridzon

KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst

* Vedula Murti

Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the fourth quarter 2018 earnings conference call. My name is Brandon, and I will be your operator for today. (Operator Instructions) Please note, this conference is being recorded.

And I will now turn it over to Jason Lang. You may begin, sir.

--------------------------------------------------------------------------------

Jason Lang, Avista Corporation - Director of Finance [2]

--------------------------------------------------------------------------------

Thank you, Brandon. Good morning, everyone. Welcome to Avista's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. Our earnings were released premarket this morning and are available on our website.

Joining me this morning are Avista Corp. Chairman of the Board and CEO, Scott Morris; Senior Vice President and CFO, Mark Thies; Avista Corp. President, Dennis Vermillion; Vice President, External Affairs and Chief Customer Officer, Kevin Christie; and Vice President and Controller, Ryan Krasselt.

I would like to remind everyone that some of the statements that will be made today are forward-looking statements that involve assumptions, risks and uncertainties, which are subject to change.

For reference to the various factors, which could cause actual results to differ materially from those discussed in today's call, please refer to our 10-K for 2017 and 10-Q for the third quarter of 2018, which are available on our website.

To begin this presentation, I would like to recap the financial results presented in today's press release.

Our consolidated earnings for the fourth quarter of 2018 were $0.70 per diluted share compared to $0.42 for the fourth quarter of 2017. For the full year, consolidated earnings were $2.07 per diluted share for 2018 compared to $1.79 last year.

Now I'll turn the discussion over to Scott.

--------------------------------------------------------------------------------

Scott L. Morris, Avista Corporation - Chairman & CEO [3]

--------------------------------------------------------------------------------

Well, thank you, Jason, and good morning, everyone.

To start off, I want to express my deepest gratitude to everyone who worked with us on the Hydro One transaction over the last 18 months. Throughout this process, we were able to achieve remarkable collaboration with the various parties involved, including the staffs in Washington, Idaho and Oregon, public counsel in Washington as well as the parties in Montana and Alaska, just to name a few. And because of this joint effort by all parties, we were able to reach agreements that were unprecedented in our industry.

We were committed to ensuring the transaction would best serve the interest of our stakeholders, and the agreements reflected this commitment. And while we're disappointed that we were not successful in obtaining timely regulatory approval, I want to celebrate the tremendous effort by everyone involved. The agreements that we reached emphasized our values and as a company -- and as who we are as a company, dedicated to innovative thinking and serving the interest of all of our stakeholders, our customers, our employees, our communities and our shareholders.

The agreements reached contain unprecedented safeguards and outstanding benefits to all our stakeholders. We believe the agreements would have allowed us to operate as an independent utility, and continue to provide the same level of service.

Hydro One would have been a great partner. We enjoyed collaborating with their employees on the transaction, and I want to thank all of them for their outstanding effort over the past 18 months, and we wish them well in the future.

Lastly, I want to thank our employees, who never let this transaction distract them from providing safe and reliable energy and unequaled dedication to our customers and our communities.

And even though the transaction was not completed, we believe that Avista is well positioned, and we look forward to building on our nearly 130-year legacy.

Looking ahead, we like our strategy, and we remain focused on running a great utility and continue to invest prudent capital to maintain and update our infrastructure and provide reliable energy services to our customers. And to facilitate the timely recovery of our costs, including capital investments that are not included in our current rates, we expect to file general rate cases in Washington, Idaho and Oregon in the first half of 2019 with requested effective dates in early 2020.

And in addition, to continue prudent capital expenditures at the utility, we expect to invest about $19 million at our other businesses in 2019. This is mainly related to economic development projects in our service territory that will showcase the latest energy and environmental building innovations and house several local college degree programs.

Looking back to 2018, we're pleased with our earnings results. Avista Utilities and AEL&P had earnings that were above our expectations. We are initiating our 2019 earnings guidance with a consolidated range of $2.78 to $2.98 per diluted share, which includes $1.01 per diluted share for the termination fee received from Hydro One and the payment of remaining transaction costs.

So at this time, I'm going to turn it over to Mark.

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, Scott. Good morning, everyone. I always like to start out with my hockey reference. Blackhawks have won 6 in a row, and we're back into playoff discussions, so things are looking up.

For the fourth quarter of 2018, Avista Utilities contributed $0.66 per diluted share compared to $0.44 last year. For the full year, Avista Utilities was $2.04 per diluted share, an increase from $1.77 last year. The increase in the fourth quarter and in the year-to-date was primarily due to general rate increases, customer growth and a decrease in transaction costs spent in '18 versus the costs in '17, partially offset by increased costs, interest and depreciation and operation and maintenance.

As Scott said, we continue to be committed to investing the necessary capital in our utility infrastructure, and we expect Avista Utilities' capital to be about $405 million and AEL&P's capital to be about $9 million in 2019.

For liquidity, in January, we received $103 million termination fee from Hydro One for the purpose of reimbursing our transaction costs, including related income taxes, and we had $51 million of these costs incurred from 2017 to 2019. The balance of the termination fee will be used for general corporate purposes and reduces our need for external financing.

In 2019, we expect to issue $165 million of long-term debt and up to $50 million of equity in order to finance -- to refinance maturing long-term debt, fund our planned capital and maintain an appropriate capital structure.

I want to spend a little bit of time on our earnings guidance this year and just to be -- just to make sure things are clearer, Scott mentioned, we're initiating guidance to be in the $2.78 to $2.98 per diluted share, which includes $1.01 per diluted share related to the termination fee and related costs.

Due in part to the ongoing regulatory proceedings for the Hydro One transaction for the past 18 months, we elected not to file general rate cases in '18, so the commissions could focus and their staff could focus on the merger proceedings. While we received a base rate increase effective January 1 in Idaho related to a 2-year plan that we had approved in '17, we have not had base rate relief in Oregon since November of '17 and Washington since May of '18.

And during '17 and '18, we continued to invest in our utility infrastructure to maintain and enhance our system. And only limited portions of these costs are reflected in current rates to customers. As such, we expect to incur regulatory lag through '19 through '21 due to the delay in our rate case filings.

We plan to file rate cases in Washington, Idaho and Oregon in the first half of 2019 with requested effective dates in early 2020 to begin remedying the regulatory lag.

Going forward, we'll continue to strive to reduce the timing lag and more closely align our earned returns with those authorized by 2022. To achieve this, we anticipate an earnings growth rate of 9% to 10% from 2020 to 2022. We're using 2019 as a base, but we're also removing the termination fee from that. So if you look at our guidance, you take out the $1.01 termination fee and then that base for the utility is what we're growing at the 9% to 10% from 2020 to 2022 and then our normal 4% to 5% growth rate beyond 2022. And again, this assumes timely and appropriate rate relief in each of our jurisdictions.

Our 2019 earnings guidance encompasses unrecovered structural cost that reduces our return on equity by approximately 90 basis points. And in addition, our 2019 guidance includes regulatory timing lag estimated to reduce the return on equity by approximately 105 basis points, which results in an expected return on equity for Avista Utilities of approximately 7.5% in 2019.

We expect Avista Utilities to contribute in the range of $2.72 to $2.86 per diluted share in '19, which includes $1.01 again of -- per diluted share of the termination fee received from Hydro One and offset by the payment of remaining transaction costs. The midpoint of our guidance does not include any expense or benefit under the ERM in Washington. Our current expectation for the ERM is to be in a benefit position with a 90% customer/10% company sharing band, which is expected to add $0.07 a share per diluted share.

Our outlook for Avista Utilities assumes normal precipitation, temperatures and hydroelectric generation for the year.

For 2019, we expect AEL&P to contribute in the range of $0.09 to $0.13 per diluted share and our outlook for AEL&P also assumes normal precipitation and hydroelectric generation for the year.

We expect our other businesses to be between a loss of $0.03 and a loss of $0.01 per diluted share, which includes costs associated with exploring strategic opportunities.

Our guidance generally includes only normal operating conditions and does not include unusual items, such as settlement transactions or acquisitions or dispositions until the effects are known.

So I'll now turn the call back over to Jason.

--------------------------------------------------------------------------------

Jason Lang, Avista Corporation - Director of Finance [5]

--------------------------------------------------------------------------------

Thanks, Mark. Brandon, we'd like to open the call up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And from ExodusPoint, we have Andrew Levi.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [2]

--------------------------------------------------------------------------------

Can you hear me?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [3]

--------------------------------------------------------------------------------

Yes. We can, Andy.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [4]

--------------------------------------------------------------------------------

Just a couple of questions, if you don't mind. First, just on the balance sheet. Because I see you do -- issuing $50 million, where should your -- I guess, whether we focus on -- I don't know if you're more focused on the equity ratio at the utility or your FFO to debt, but can you kind of just talk about that, where you're going to be at the end of the year? And what metrics you're focused on? And where -- what the metric should be?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [5]

--------------------------------------------------------------------------------

So what we strive to do is maintain a prudent capital structure and achieve an equity ratio for our jurisdictions that is in line with what's allowed or authorized by each of our commissions, and those vary by jurisdiction, but that's how we look at how much equity we need to raise in a given year. And so that's really the metrics that we look at. We also look at our FFO in our rating agencies to make sure that we're maintaining investment grade -- strong investment-grade credit ratings, and that takes part of it, but the level of equity really is designed to maintain the equity ratio for our utility jurisdictions.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [6]

--------------------------------------------------------------------------------

I understand. So again, I didn't look at your balance sheet, I apologize. But -- so I guess, looking at where you are at year-end, and then you had the $100 million coming, had to pay tax on that whatever it was. But between that and the $50 million, that kind of gets you where your equity ratios need to be on a regulatory basis. And then as you look into '20 and '21, can you give us any guidance there on how we should kind of be modeling the equity, if there is any?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [7]

--------------------------------------------------------------------------------

We haven't really given -- Andy, we haven't really given guidance on what we need for equity there. A lot of that, we continue to -- depends on our -- as we continue to deploy capital and what type of relief we get from our jurisdiction. So we give that on an annual basis. We historically don't give that farther than that. We can consider that in future calls, but we have not done that.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [8]

--------------------------------------------------------------------------------

Got it. And then, just to make sure, I mean you were pretty clear on the guidance, but so we're using $1.88 midpoint, and then we take the $1.88 and grow that 9%, 10% every year? Or is that only in 2020 that we grow off of 2020 9% to 10%.

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [9]

--------------------------------------------------------------------------------

And this takes some relief in our jurisdictions, but that's an annual growth rate to allow us to get back to earning our allowed return by the end of '21 and end of '22.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [10]

--------------------------------------------------------------------------------

But is that off the $1.88 in '19 or off what you ever -- what you earn in 2020?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [11]

--------------------------------------------------------------------------------

I think it's $1.87, $1.88. Yes, yes, yes. That's correct.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [12]

--------------------------------------------------------------------------------

Okay. So is $1.87 -- okay, so that has you chugging around $2 in 2020 and -- I'm sorry.

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [13]

--------------------------------------------------------------------------------

You can do the math, Andy.

--------------------------------------------------------------------------------

Andrew Levi, ExodusPoint Capital Management, LP - Portfolio Manager [14]

--------------------------------------------------------------------------------

Yes, yes, okay. So it's like a $2, $2.20 is the type number for '20 and '21. Okay. So that's very, very clear and that assumes, what type of -- just on the rate relief portion, would you be filing for like kind of larger cases than you have in the past because of the lag in lack of filings? Or how should we think about the size of the cases?

--------------------------------------------------------------------------------

Kevin J. Christie, Avista Corporation - VP of External Affairs & Chief Customer Officer [15]

--------------------------------------------------------------------------------

Andy, this is Kevin Christie. We'll be moving forward. We need to finalize our numbers and get a better handle on exactly what the filings will look like both on the electric and gas side in each jurisdiction. But we are making up for rate lag, timing lag related to capital that we do not have in rates yet. So we can't share a number with you right now, but that's what we're going to be doing as we move forward, assuming that we get support from our commissions.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

From KeyBanc, we have Paul Ridzon.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [17]

--------------------------------------------------------------------------------

So in the third quarter, you said you needed about $110 million of equity. You're getting $52 million from the breakup fee and now, you're telling us you only need $50 million kind of -- what backfilled that? Was it just the strength of 2018 where that finally came out?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [18]

--------------------------------------------------------------------------------

No, there was -- so if you recall, Andy, when -- or Paul, sorry. Got to get to my next question. Sorry, Paul. I know, I apologize, Paul. I apologize. So when we had our guidance last year in the third quarter, we were assuming that the transaction would close in the year in 2018. With the closure of that transaction, there was significant other costs associated with the transaction, which would have reduced our equity, and we would have needed more of an infusion from Hydro One to balance our capital structure. So those costs didn't occur, right? Because we didn't...

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [19]

--------------------------------------------------------------------------------

That's the rate relief that you would have booked?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [20]

--------------------------------------------------------------------------------

No, it's not rate relief, it's equity. It was an equity contribution, and we had expenses associated with the transaction that we would have had to pay at that time and they didn't occur. So that was included in our equity needs last year in that $110 million. So right now, this is the equity we need. We got the termination payment, less the fees, and then we expect to issue an additional $50 million this year to balance our capital structure.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [21]

--------------------------------------------------------------------------------

Got it. And then, just a little confused on wording, and I got more confused after the last question. The 9% to 10% earnings growth is '20 to '22? Or is that '19 to '22? So I'm trying to get to...

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [22]

--------------------------------------------------------------------------------

'19 is the base year, right? And then you'll grow in '20, '21 and '22.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [23]

--------------------------------------------------------------------------------

But between '19 and '20, is that -- does that also incorporate the 9% to 10%?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [24]

--------------------------------------------------------------------------------

Yes, it does. It's an annual growth rate.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [25]

--------------------------------------------------------------------------------

The way you phrased it -- the release said '20 to '22, so I wasn't sure what's the bridge between '19 and '20, but thank you for the clarification. That's helpful. And kind of at other -- you're exploring other opportunities, can you give us some flavor? Is that all energy-related and energy efficiency type of stuff that you explored in the past?

--------------------------------------------------------------------------------

Scott L. Morris, Avista Corporation - Chairman & CEO [26]

--------------------------------------------------------------------------------

Yes, Paul. This is Scott. Yes, we are looking at some opportunities around -- primarily around distribution, automation and innovation and some other things that we have our engineering teams and others working on. So there are some interesting things out there in the marketplace, so we'll continue to investigate some of those.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

And from Glenrock Associates, we have Paul Patterson.

--------------------------------------------------------------------------------

Paul Patterson, Glenrock Associates LLC - Analyst [28]

--------------------------------------------------------------------------------

A lot of questions are answered, but I just want to touch base with a few of these things. The ROE, the 90 basis point structural debt, so to speak, you don't see any change in that, is that correct?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [29]

--------------------------------------------------------------------------------

No. We expect that -- that's been historically there for a long time. It went up a little bit. It used to be a little lower, but because of tax reform, we get less of a tax benefit from it. So at the end of the day, those costs didn't really change, but it ended up being slightly higher. I think we used to have it at 70 or 80 basis points, and now it's 90, but that's all due to tax reform.

--------------------------------------------------------------------------------

Paul Patterson, Glenrock Associates LLC - Analyst [30]

--------------------------------------------------------------------------------

And you don't see that changing over the next few years?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [31]

--------------------------------------------------------------------------------

No. Those costs are kind of historic. Most of them primarily is executive incentives, Board of Directors' costs and...

--------------------------------------------------------------------------------

Paul Patterson, Glenrock Associates LLC - Analyst [32]

--------------------------------------------------------------------------------

I got you. But then -- then the -- just sort of looking forward here, I mean, you guys obviously went through a major transaction effort. Any sort of thought we should have in terms of lessons learned? Or the outlook in the future for possible combinations or activity that you'd like to share with us?

--------------------------------------------------------------------------------

Scott L. Morris, Avista Corporation - Chairman & CEO [33]

--------------------------------------------------------------------------------

What I would say is this -- is that the Hydro One deal was an extraordinary opportunity for all of our stakeholders. I mentioned that the safeguards that we are able to get were unprecedented in the industry. We got tremendous value for our shareholders, but we also got tremendous values for our customers, our employees and our communities. Being a utility that operates in 5 states and having some of those states being net benefit states, it's extremely challenging to do anything in our states, and you have to be very focused and have -- to have an absolute commitment to all 4 legs of that stool to get anything accomplished in our 5 states. And even having unprecedented safeguards and value, it still was not accepted. So we'll continue to work really hard on our strategies. We like our future and we're going to continue to stay focused on what we need to do to move this company forward.

--------------------------------------------------------------------------------

Paul Patterson, Glenrock Associates LLC - Analyst [34]

--------------------------------------------------------------------------------

Nonetheless, it was kind of an unusual situation with the sort of political developments in Canada, and I'm just wondering that seemed to factor somewhat, I would say, perhaps, not insignificantly, in the regulatory outcome. So I guess, what I'm wondering is -- does that sort of -- does that mean that you might, again, pursue something like that, perhaps without the potential political issues?

--------------------------------------------------------------------------------

Scott L. Morris, Avista Corporation - Chairman & CEO [35]

--------------------------------------------------------------------------------

We -- I don't want to speculate because we really need to stay focused on what we want to do to get this company back on track from the regulatory lag perspective. I can just say that we operate in 5 states with some very different political agendas right now from -- particularly, from an energy perspective. So you've got Washington and Oregon, very different from Idaho and Montana, and Alaska is different there. So there's a lot going on, on multiple levels, not just from a regulatory perspective but from an environmental perspective, from a community expectation perspective. And all of that has to be added into any kind of thing that we do in regards to doing something successfully on a -- from a regulatory perspective and getting it approved. So while, yes, there was an agenda in Toronto that was disappointing for us in how it turned out, I would just say that it's a challenging environment no matter what we do in 5 states, given the diverse ideas and objectives of our stakeholders.

--------------------------------------------------------------------------------

Paul Patterson, Glenrock Associates LLC - Analyst [36]

--------------------------------------------------------------------------------

Okay, great. And then just finally, on the 2019 regulatory filings, after those filings, after this initial set of 2019 filings, what is your expectation for going in for rate relief during this forecast period that you laid out for us? In other words, how many times, I mean, like you guys said that you are holding back basically during the Hydro One merger. After these initial filings, how should we think about it going forward? I mean, how often do you expect to be back in the regulatory arena after this first initial set of filings?

--------------------------------------------------------------------------------

Kevin J. Christie, Avista Corporation - VP of External Affairs & Chief Customer Officer [37]

--------------------------------------------------------------------------------

This is Kevin Christie. Due to the rules within each state, it varies. We'd expect to need to be back in Washington somewhat soon after the next case. In Idaho, yet to be determined. Oregon, we have to work through what our filing looks like this time around and then we'll go from there.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

From Guggenheim, we have Shahriar Pourreza.

--------------------------------------------------------------------------------

Konstantin Lednev, Guggenheim Securities, LLC, Research Division - Associate [39]

--------------------------------------------------------------------------------

It's actually Konstantin Lednev for Shahriar. A lot of the stuff was already answered, and I just wanted to clarify a little bit. When you talk about an appropriate rate relief and kind of going in for these rate cases, are there any kind of broad assumptions that we can think of in terms of the ask that's going to be put in front of the commissions like ROEs, capital structure? Is that staying relatively the same? Or what's the plan there?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [40]

--------------------------------------------------------------------------------

I think, our requests have historically been consistent there, and we wouldn't anticipate significant movement from that. What we -- really the reason for the request, as Kevin mentioned earlier, is the significant capital we've been spending over the last several years. And we expect that capital spend to continue as we have needs in our system to maintain the vibrancy of the system. So we're going to have to file rate cases consistently there, and I don't -- we're not looking. I don't think, Kevin has a perspective of changing significantly our ask for return or capital.

--------------------------------------------------------------------------------

Kevin J. Christie, Avista Corporation - VP of External Affairs & Chief Customer Officer [41]

--------------------------------------------------------------------------------

No. This is Kevin. I would expect that to be pretty consistent with past practice. It's all about capital that's been spent and recovering that.

--------------------------------------------------------------------------------

Konstantin Lednev, Guggenheim Securities, LLC, Research Division - Associate [42]

--------------------------------------------------------------------------------

Okay. Yes, and you've guided on rate base. One other, again, a small nuance. I think, in the prepared remarks, you mentioned a structural lag in roughly 100 basis points or is that expected to be the 90 that you talked about?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [43]

--------------------------------------------------------------------------------

The 90 was what we refer to as structural and the 105 basis points in '19 was a regulatory timing lag.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

From Avon Capital, we have Vedula Murti.

--------------------------------------------------------------------------------

Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [45]

--------------------------------------------------------------------------------

When we take a look at the, again, same old topic, I guess, the Avista Utilities, that you use -- excluding the $1.01, your guidance is $1.71 to $1.85. When we think about the 9% to 10% growth rate for 3 years that you're targeting to normalize your ROE, we should exclude the $0.07 that you anticipate this year from ERM as part of that growth trajectory? Or do you feel that for some reason that the ERM will be able to be maintained around $0.07 consistently over the forecast period?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [46]

--------------------------------------------------------------------------------

When we're guiding, when we're talking about the growth rate, we're talking about the midpoint of our guidance, and we exclude the ERM from that. The ERM is based on power supply. And right now, we're not filing for power supply cost based on our last commission order in Washington, but that can change as the teams work on things. So what we guide to is the midpoint of our guidance, excluding the ERM, and that growth rate is off the midpoint of our guidance on a consolidated basis.

--------------------------------------------------------------------------------

Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [47]

--------------------------------------------------------------------------------

And also kind of a different topic. My understanding is that Westmoreland Coal, who is the coal supplier for coal strip, is currently in a bankruptcy proceeding and that there is issue potentially about repricing the coal as part of the bankruptcy restructuring for coal strip that could affect obviously fuel tariff, sort of that type of thing. I'm just wondering, can you kind of explain to me or update me on kind of where that stands and what it may or may not mean for you guys?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [48]

--------------------------------------------------------------------------------

Well, that's an ongoing -- I mean, their bankruptcy is their bankruptcy. You're correct. They're in bankruptcy and that's an ongoing negotiation between the parties, and we don't really comment on that until we have something to comment on. So to the extent something comes out and if it impacts us, then we'll put out future guidance on that. Right now, we're expecting that we have a contract that we'll continue to supply coal to that plant and will operate until we know differently.

--------------------------------------------------------------------------------

Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [49]

--------------------------------------------------------------------------------

If for some reason, the resolution of the bankruptcy results in a higher coal contract price, what would be the mechanism to deal with that? Will it simply be another regulatory filing? Or if there are some other ways or it can't be handled?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [50]

--------------------------------------------------------------------------------

I mean, power supply costs -- we would run through our power supply costs, and that runs through the Energy Recovery Mechanism, the ERM. And then, to the extent, our base power supply cost changed enough, we may have to -- we would have to consider as part of a general rate filing, filing for that. But that's all part of a normal filing. It runs through the ERM, and I don't know what the resolution of this will be. And when we know more and have more color, we'll provide information to the market.

--------------------------------------------------------------------------------

Vedula Murti, Millennium Management LLC - Senior Analyst & Assistant Portfolio Manager [51]

--------------------------------------------------------------------------------

So basically, if coal prices were -- it actually end up being lower as a consequence of this, then that would go to the fuel tariff and would be a net benefit under the current ERM. And if resolution and emergence resulted in higher coal contract pricing, that again would go to the ERM and would kind of cut the other way?

--------------------------------------------------------------------------------

Mark T. Thies, Avista Corporation - Senior VP, CFO & Treasurer [52]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

(Operator Instructions) And we do have a follow-up from Paul Ridzon.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [54]

--------------------------------------------------------------------------------

When you're filing in Washington, do you anticipate bringing up a multi-year rate plan again? Or kind of -- what's the strategy there?

--------------------------------------------------------------------------------

Kevin J. Christie, Avista Corporation - VP of External Affairs & Chief Customer Officer [55]

--------------------------------------------------------------------------------

This is Kevin, again. Due to a court order in our 2015 GRC, it doesn't look like it will be feasible to file a multi-year rate plan this time around. So we'll file one, it's just how it goes and then go from there.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [56]

--------------------------------------------------------------------------------

I mean, the comment was, you looked to have rates in place for early 2020. Are you going to ask the commissions to do anything extraordinary as far as regular timing of rate cases to make that happen?

--------------------------------------------------------------------------------

Kevin J. Christie, Avista Corporation - VP of External Affairs & Chief Customer Officer [57]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Paul Thomas Ridzon, KeyBanc Capital Markets Inc., Research Division - VP and Equity Research Analyst [58]

--------------------------------------------------------------------------------

Okay. So you should be filing in fairly short order, I would assume, is that fair?

--------------------------------------------------------------------------------

Kevin J. Christie, Avista Corporation - VP of External Affairs & Chief Customer Officer [59]

--------------------------------------------------------------------------------

That's a fair statement.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Jason Lang, Avista Corporation - Director of Finance [61]

--------------------------------------------------------------------------------

That seems to be all of our questions. So I would like to thank everyone for joining us today. We certainly appreciate your interest in our company. Have a great day.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.