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Edited Transcript of AVA earnings conference call or presentation 7-Nov-19 3:30pm GMT

Q3 2019 Avista Corp Earnings Call

SPOKANE Nov 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Avista Corp earnings conference call or presentation Thursday, November 7, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dennis P. Vermillion

Avista Corporation - CEO, President & Director

* John Wilcox

Avista Corporation - IR Manager

* Kevin J. Christie

Avista Corporation - Senior VP of External Affairs & Chief Customer Officer

* Mark T. Thies

Avista Corporation - Executive VP, CFO & Treasurer

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Conference Call Participants

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* David Jafar Emami

Verition Fund Management LLC - Analyst

* Philip Stephen Covello

ExodusPoint Capital Management, LP - Analyst

* Richard Jude Ciciarelli

BofA Merrill Lynch, Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the Q3 2019 earnings conference call. My name is Adrianne, and I'll be your operator for today's call. (Operator Instructions) Please note this conference is being recorded.

I'll now turn the call over to John Wilcox, Investor Relations Manager. John Wilcox, you may begin.

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John Wilcox, Avista Corporation - IR Manager [2]

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Thanks, Adrianne, and good morning, everyone, and welcome to Avista's Third Quarter 2019 Earnings Conference Call. Our earnings were released premarket this morning and are available on our website.

Joining me this morning are Avista Corp. President and CEO, Dennis Vermillion; Executive Vice President, Treasurer and CFO, Mark Thies; Senior Vice President, External Affairs and Chief Customer Officer, Kevin Christie; and Vice President, Controller and Principal Accounting Officer, 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 2018 and 10-Q for the third quarter of 2019, 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 third quarter of 2019 were $0.08 per diluted share compared to $0.15 for the third quarter of 2018. For the year-to-date, consolidated earnings were $2.21 per diluted share for 2019 compared to $1.37 last year.

Now I'll turn the discussion over to Dennis.

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Dennis P. Vermillion, Avista Corporation - CEO, President & Director [3]

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Well thanks, John, and good morning, everyone. I'm very excited to be here today, and I'm deeply humbled by the honor and privilege to serve as Avista's Chief Executive. I've been at Avista for 34 years. And as Avista's President for the last 10 years, I've worked closely alongside Scott. He has been a great friend and mentor to me, and he has achieved so much for our shareholders, customers, employees and communities we serve. And I know everyone at Avista is grateful for his leadership. I want to thank Scott for all that he has achieved throughout his career for our company, and we all wish him well in his retirement. We will miss him greatly as he is no longer involved in the day-to-day operations of the company. But of course, we look forward to continuing our work with him on the Board of Directors.

At a time of great change in the energy industry, I am excited to meet the future head on. And I am confident that Avista is prepared to meet the challenges ahead, including achieving our clean energy goals that we proactively set.

Now turning our attention to quarterly results. Our earnings at each of our segments met our expectations for the third quarter, and we remain on track to meet our consolidated guidance for the full year.

Regarding regulatory matters. In October, the Oregon Commission approved our natural gas general rate case settlement, and new rates will go into effect January 15, 2020.

In Idaho, we were able to reach an all-party settlement agreement where, if approved, new rates would take effect on December 1, 2019. This outcome is in line with our expectations.

In Washington, a settlement in principle has been reached in the current general rate cases with all parties and all issues with the exception of decoupling and energy recovery mechanism-related issues. The settlement stipulation is in drafting stage and the parties, including the Public Counsel Unit of the Washington Attorney General's Office and the Sierra Club, are securing the necessary approvals in their respective organizations. The settlement stipulation is anticipated to be filed on or about November 1 -- or excuse me, November 21, 2019, and will require commission approval. We believe that the terms of the settlement in principle are fair for our customers and shareholders.

And finally, we continue to work through the regulatory process related to the 2015 remand cases.

And then finally, based on our 2019 results to date, for the full year of 2019, we are confirming our earnings guidance with a consolidated range of $2.83 to $3.03 per diluted share. This includes $1.01 per diluted share for the termination fee received from Hydro One in the first quarter, which was partially offset by the payment of related transaction costs.

And now I'll turn this presentation over to Mark.

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

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Thank you, Dennis. Good morning, everyone. My usual obligatory Blackhawks comment: We stink. We have not started out the season very well and need to turn it around. But fortunately, when we go to EEI this weekend, I will not be worrying a Rangers tie because we haven't played them yet.

For the third quarter of 2019, Avista Utilities contributed $0.09 per diluted share compared to $0.18 in 2018. The decrease over the prior year is due to an increase in operating costs, increased depreciation and power supply costs mainly related to the ERM. On a year-to-date basis, Avista Utilities contributed $2.11 per diluted share, an increase from $1.39 last year, again, primarily due to the receipt of the termination fee from Hydro One as well as a positive impact from general rate increases and customer growth. These increases were partially offset by transaction costs related to the Hydro One transaction and taxes associated with the termination fee, also increased transmission, distribution and O&M costs and increased depreciation and amortization. In addition, in the second quarter, we announced a $7 million donation commitment that impacted our results.

The energy recovery mechanism in Washington was a pretax expense of $2.4 million in the third quarter compared to a pretax expense of $0.2 million last year. And year-to-date, we have a benefit of $1.1 million compared to a benefit of $5.6 million last year.

We continue to be committed to investing the necessary capital in our utility infrastructure, and we expect Avista Utilities' capital expenditures to total about $435 million for 2019.

Regarding liquidity. At the end of September, we had $179 million available liquidity under our committed line of credit. And in September, we entered into a bond purchase agreement to issue $180 million of first mortgage bonds in November of 2019. No further long-term debt issuances are expected for this year.

During 2019, we expect to issue up to $65 million of equity, of which $42.9 million has been issued at the 9 months ended September 30. We intend to use the proceeds from our issuances to refinance maturing long-term debt, we have a $90 million maturity in December, planned funded -- fund our planned capital expenditures and maintain an appropriate capital structure.

As Dennis mentioned earlier, we are confirming our 2019 guidance with a consolidated range of $2.83 to $3.03 per diluted share, which includes $1.01 for the termination fee and the payment of related transaction costs.

Going forward, we expect to continue to strive to reduce the regulatory timing lag and more closely align our earned returns with those authorized by 2022. To achieve this, we anticipate annual earnings growth of 9% to 10% from 2022 -- from 2020 to 2022 with a return to our normal 4% to 5% growth rate following 2022. And this is consistent with the expectations we set out all year. The earnings growth rate are based on the midpoint of our original 2019 earnings guidance as a starting point and exclude the $1.01 per diluted share related to the Hydro One transaction. These growth rates also assume timely and appropriate rate relief in our jurisdictions.

We expect Avista Utilities to contribute in the range of $2.72 to $2.86 in 2019, including the $1.01 for the termination fee. The midpoint of our Avista Utilities guidance does not include any expense or benefit under the ERM, and our current expectation is to be in a benefit position within the 75%/25% company sharing band, which is expected to add approximately $0.05 per diluted share. Our outlook for Avista Utilities assumes, among other variables, normal precipitation, temperatures and below normal hydroelectric generation for the remainder of 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 them includes, among other variables, normal precipitation and hydroelectric generation for the remainder of the year.

We expect our other businesses to contribute earnings in the range of $0.02 to $0.04 per diluted share. Our guidance generally includes normal operating conditions and does not include unusual items as settlement discussions, acquisitions or dispositions until the effects are known.

I will now turn the call back over to John.

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John Wilcox, Avista Corporation - IR Manager [5]

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Thanks, Mark. We'd now like to open up this call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Richard Ciciarelli from Bank of America.

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Richard Jude Ciciarelli, BofA Merrill Lynch, Research Division - Research Analyst [2]

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Just curious if you can provide a little bit more details on the Washington rate case settlement, potentially around the return parameters and if it includes any forward-looking attrition adjustments and what your expectations are for regulatory approval and time line now?

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Kevin J. Christie, Avista Corporation - Senior VP of External Affairs & Chief Customer Officer [3]

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This is Kevin Christie. Thanks for the question. We have a settlement in principle, and the details are not available until we file our stipulation on or about the 21st of November. So the details that you're looking for would be found there. I can say that we know that Washington's an 11-month approval period state. So we would expect to have final approval on the settlement, assuming that they approve it, in April.

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Richard Jude Ciciarelli, BofA Merrill Lynch, Research Division - Research Analyst [4]

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Got it. And then just curious why the remand case was pushed back to, I guess, December 6 for the hearing? And what has been the receptiveness thus far to the $3 million settlement proposed?

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Kevin J. Christie, Avista Corporation - Senior VP of External Affairs & Chief Customer Officer [5]

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This is Kevin. The date was moved back at the election of the commission. And I don't know exactly why, but my suspicion is that they need more time to consider the arguments.

Can you remind me of the second question you asked there?

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Richard Jude Ciciarelli, BofA Merrill Lynch, Research Division - Research Analyst [6]

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Yes. Just the receptiveness to the $3 million settlement that was proposed in the case.

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Kevin J. Christie, Avista Corporation - Senior VP of External Affairs & Chief Customer Officer [7]

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No. That was just what we provided in testimony as a potential compromise position with the parties.

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Richard Jude Ciciarelli, BofA Merrill Lynch, Research Division - Research Analyst [8]

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Got it. But no commentary thus far on...

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Kevin J. Christie, Avista Corporation - Senior VP of External Affairs & Chief Customer Officer [9]

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No. We wouldn't expect commentary in the process given where it's at. We're moving towards the hearing and litigation.

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Operator [10]

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And our next question comes from Phil Covello from ExodusPoint.

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Philip Stephen Covello, ExodusPoint Capital Management, LP - Analyst [11]

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My prior question was actually just asked, but I just wanted one follow-up on the settlement stipulation. I guess just how confident are you that the commission would uphold an eventual settlement? Because in the last several rate cases, I think there have been a few alterations or ultimately rejections of such settlements. So just trying to get a sense of your expectation there and how we might think about that.

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Mark T. Thies, Avista Corporation - Executive VP, CFO & Treasurer [12]

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So this is Mark. Typically, in our history, when we've had all-party settlements with respect to general rate cases, the commission has been -- has historically been favorable and approved those. The ones that you're referring to weren't really general rate cases. Those were the transaction around the Hydro One transaction. And with all of the different things that occurred around the Hydro One transaction, the commission ruled against the all-party settlement. They did that in each of the jurisdictions when we had them. But that was a completely different case. Historically, in general rate cases, when we're talking about changing our rates with respect to our capital deployment and our expenses, they have been historically approved. That doesn't mean that in the future, they're automatically approved. They're not. The commission has to weigh the facts and circumstances of the case, but that's what's historically happened.

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Operator [13]

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(Operator Instructions) And our next question comes from David Emami from Verition.

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David Jafar Emami, Verition Fund Management LLC - Analyst [14]

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Congrats, guys, on the settlement. I think that's a huge positive.

I'm just not sure if you can share any more color, but if it's possible, I'd be interested to hear a bit more on how the settlement kind of came around. Because reading the intervenor testimonies, I have to admit, I'm pleasantly surprised that you guys were able to reach an all-party settlement. It seemed like there was kind of quite a spread in the bid-ask there.

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Mark T. Thies, Avista Corporation - Executive VP, CFO & Treasurer [15]

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Yes. And that happens from time to time. And the parties always -- when we have a process like this, the parties always get together and look to see if there's a way that we could compromise and reach a settlement. And sometimes we're able to and sometimes we're not. In this case, it took a couple of times. This was, I think, the second time around of having settlement discussions, and the parties were able to come together. And the details of that, they just really can't come out until we file them. And so that will be on or about, like Kevin said, in the 21st of November, so a couple of weeks. But we were able to get all the parties together and reach a settlement. So we did because we felt that it made sense for, like we said in our release, our customers and our shareholder, so we believe that's positive.

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Operator [16]

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(Operator Instructions) And we have no further questions. I'll turn the call back over to the speakers.

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John Wilcox, Avista Corporation - IR Manager [17]

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I want to thank everyone for joining us today. We certainly appreciate your interest in our company. Have a great day.

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Operator [18]

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