Thank you for joining us for the Avista Corporation Third Quarter 2020 Earnings Conference Call. I would like to introduce your speaker today, John Wilcox, Investor Relations Manager. Please proceed.

Good morning, everyone, and welcome to Avista's Third Quarter 2020 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, CFO and Treasurer, Mark Thies; Senior Vice President, External Affairs and Chief Customer Officer, Kevin Christie; and Vice President, Controller and Principal Accounting Officer, Ryan Krasselt. Just want to let you know that some of us are remote due to the pandemic. 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 that could cause actual results to differ materially from those discussed in today's call, please refer to our 10-K for 2019 and 10-Q for the third quarter of 2020, 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 2020 were $0.07 per diluted share compared to $0.08 for the third quarter of 2019. For the year-to-date, consolidated earnings were $1.04 per diluted share for 2020 compared to $2.21 last year. Now I'll turn the discussion over to Dennis.

Well, thanks, John, and good morning, everyone. As we begin the ninth month of working through the COVID-19 pandemic, we hope you are staying safe and healthy as we see the numbers of cases climb across our country. Avista continues to support our customers and communities. Recently, Avista and the Avista Foundation approved another round of funding as community agencies experience an increased need for services, which now boosts our charitable giving this year to more than $2 million throughout the areas we serve. And when numerous communities throughout our region were devastated by the Labor Day windstorm, we partnered with community leaders to quickly galvanize resources to help those who were impacted. Today, we continue to look for ways to support affected communities as they work to repair the damage and rebuild. Amidst the stress and the strain of these uncertain times, the safety of our customers, our employees, and our communities continues to be our top priority, and I continue to be amazed and inspired by our employees who work safely and diligently to provide the energy that is so essential to our customers. Despite these trying times, we continue to make significant progress across our business. In September, Avista Chairman Scott Morris' vision to create the 5 smartest blocks in the world became a reality with the grand opening of the Catalyst Building and the adjacent Morris Center for Energy Innovation. These two new buildings are the latest examples of Avista's rich history of innovation. A centralized plant located in the Morris Center will provide the energy to power both buildings through a shared energy model we call an Eco-district. This type of innovation will be essential to achieve clean, reliable, and affordable energy for all of us. Also, a majority of our Washington smart meter project will be completed in the next few weeks, and this means our Washington customers will have access to more timely information about their energy usage during the upcoming winter heating season. Last week, we filed general rate cases in Washington. Due to the challenges caused by the COVID-19 pandemic, we have worked very hard to identify how we can move forward in a way that doesn't increase the cost to our customers at this time, while also acknowledging the financial investments we've made in infrastructure on our customers' behalf. Through the use of a tax credit for customers, our proposal would completely offset an immediate increase in electric and natural gas bills. I am proud of our employees for finding an innovative solution to balancing the interests of our stakeholders. With respect to results, our third quarter consolidated earnings were below our expectations, primarily due to higher bad debt expense for Avista Utilities. However, we anticipate being able to defer the additional bad debt expense through a COVID-19 deferral in the fourth quarter. As such, we are confirming our 2020 consolidated earnings guidance in the range of $1.75 to $1.95 per diluted share. And now I'll turn this presentation over to Mark.

Thanks, Dennis. Good morning, everyone. I always love to start out with my usual Blackhawk comment, and we got rid of two-time Stanley Cup Champion goalie Corey Crawford, which is a sad day for me. Crow was a great goaltender and really led us to a couple of championships. So we'll see how we do in this upcoming season. But with that, I'll start talking about Avista now, which is what you want to hear about. The third quarter of 2020, Avista Utilities contributed $0.08 per diluted share compared to $0.09 in the prior year. Compared to our third quarter, our earnings decreased due to higher operating expenses, as Dennis mentioned, primarily related to bad debts and decreased loads resulting from COVID-19. This was partially offset by higher utility margin due to lower power supply costs and rate relief in Washington and Oregon. In addition, we also had some customer growth, which helped out margins. The Energy Recovery Mechanism in Washington was a slight pretax benefit in the third quarter of $0.3 million compared to an expense in the prior year of $2.4 million. For the year-to-date, we've recognized a pretax benefit of about $6 million compared to just over $1 million in 2019. With respect to the COVID-19 impact on our results, we have recorded an incremental $8 million of bad debt expense year-to-date, and we expect an additional $3.5 million for the full year as we compare to our original forecast. In July, Idaho issued an order that allows us to defer certain costs, net of any decreased costs and other benefits associated with COVID. For the year-to-date, we deferred $2.5 million of that bad debt expense associated with the order. Now with that, for the third quarter, had we had orders in Washington and Oregon in the third quarter, we would have deferred an additional $0.06. We expect to defer that in the fourth quarter as we do expect to receive an order in Oregon very late, and we got it in October, and we do expect an order in Washington to allow us to defer those costs. So that would have benefited the third quarter by $0.06, had those orders been in the third quarter. Compared to normal, our third quarter saw a decrease of 2% on electric loads, which consisted of a 6% decrease in commercial as well as a 6% decrease in industrial, which was partially offset by a 5% increase in residential load, which is consistent with past quarters. We expect a gradual economic recovery, but prolonged unemployment that will depress load and customer growth into 2021. We do have decoupling mechanisms, which really mitigates the impact of changes in loads for revenues for residential and certain commercial customer classes, and over 90% of our utility revenues are covered by a regulatory mechanism. During the third quarter, we continued to experience some supply chain delays due to the effects of the pandemic, with delays ranging from a couple of weeks to eight weeks in some cases. However, we do not expect to have a significant impact on any of our planned projects this year. With respect to that, we continue to be committed to investing the necessary capital in our utility infrastructure and expect to spend approximately $430 million, which was up from about $405 million in 2020 at Avista Utilities. This is primarily due to higher development of growth in our customer base. As of September 30, we had $324 million of available liquidity under our credit facility. During the third quarter, we issued $165 million of long-term debt, and we expect to issue up to $70 million of equity in 2020, and that includes the $53 million we issued through September. With respect to earnings guidance, as Dennis mentioned earlier, we are confirming our 2020 earnings guidance with a consolidated range of $1.75 to $1.95, and we expect to be near the midpoint, including the benefit of the Energy Recovery Mechanism, which is a change. We are including the benefit of the ERM, which offsets some additional costs we've incurred, as well as some lower margin we expect to incur relative to our forecast, primarily due to the pandemic that's not covered by our decoupling mechanism. So it'd be certain commercial customers and our industrial customer base. We expect that the COVID impact related to these operating expenses, including bad debt, will mostly be offset by tax benefits and the CARES Act, but the part that we don't, we're using the ERM to cover. We have filed for deferred accounting treatment for our COVID expenses in each of our jurisdictions, and we anticipate being able to defer in Washington and Oregon in the fourth quarter. We continue to experience regulatory lag, and we expect that to continue until 2023, which is consistent with what we've said in the past. In the general rate case in Oregon, we filed that in March. We filed in Washington and Oregon. We just filed that last week, and we anticipate filing in Idaho in the first quarter of 2021. We are still expecting our long-term earnings growth after 2023 to be 4% to 6%. We expect Avista Utilities to contribute in the range of $1.77 to $1.89 per diluted share for 2020, including the ERM. Our current expectation is that the ERM will be in a beneficial position rather than the 90%-10% sharing band, which is expected to add $0.06 per diluted share. The benefit of the ERM is offsetting lower utility margin and higher operating costs. Our outlook for Avista Utilities assumes, among other variables, normal precipitation, temperatures, and hydroelectric generation for the remainder of the year. At AEL&P, we expect to contribute in the range of $0.07 to $0.11 per diluted share, and our outlook for AEL&P assumes, among other variables, normal precipitation and hydroelectric generation for the remainder of the year. We expect our other businesses to have a loss from $0.09 to $0.05 per diluted share. And 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 and certain. We cannot fully predict the duration and severity of the COVID-19 global pandemic, and the longer and more severe the economic restrictions and business disruption, the greater the impact on our operations and our results. I will now turn the call back over to John.

And now we would like to open up this call for questions.

Our first question comes from Richard Ciciarelli with Bank of America.

First question, just on the regulatory front in Washington. You ultimately elected not to file the multiyear rate plan, but seem to find a convenient solution with a tax credit. Just curious if any initial feedback from stakeholders there in the state? And any precedents for the accelerated flowback for customers on the tax credit side?

Good morning, Rich, it's Kevin Christie. Good to hear from you. We talked in advance with our commissioners in Washington and gave them a heads-up. But no, we haven't had any conversations with any of the parties since we filed.

Okay. Got it. It's still early there.

Richie, with respect to the tax position, we did file also with our rate cases, we filed petitions for a change in accounting, which we need approval from all of our commissions to change the accounting on certain of those tax strategies that we are completely able to do, but we will need their approval. And that allows us to accelerate the flowback of those deferred tax items to the benefit of our customers.

Okay. Got it. That's helpful. And then just on the COVID deferral docket in Washington. I know the commission there was taking more of a wait-and-see approach, but it sounds like you're confident you'll get something in the fourth quarter here. I guess, what gives you confidence in that outcome?

Yes, this is Kevin again. We expect the commission to take action in a meeting in November. And as we went through the process to proceed with the parties, we saw the commission take the steps to move forward with these first aspects, and no pun intended, deferred the deferral part of it till a subsequent meeting. But everything we've seen in the process and as we've worked with the parties, we would expect the commission to move forward with approval on that.

Got it. That's helpful. And one more, if I can just slip in. Any update on the timing of the DNR investigation?

No, we don't really.

Yes, this is...

Any update on that? Dennis, anything?

No. No, we don't have any updates. It would be very difficult to speculate. So I think that would be a question best asked of DNR.

Our next question comes from Brian Russo with Sidoti.

Just to clarify on the midpoint of the guidance, it includes $0.08 for the ERM, and it also includes COVID recovery of deferred bad debt and deferred costs in the fourth quarter, correct?

We anticipate being able to defer most of the bad debt. There is a calculation involved. While it may not cover 100% of the debt, we do plan to defer a significant portion. We expect to record this in the fourth quarter. However, the ERM is only $0.06, as I mentioned earlier in the call, not $0.08.

The midpoint includes the $0.06 benefit from the ERM and assumes most of the COVID cost recovery on the bad debt side in the fourth quarter.

Yes, we will record it. We are deferring those costs and we won't see recovery until the commissions in each of our states allow for it. We can only defer it, so it doesn't appear as an expense on our books. It will offset an expense we've already recognized. Just to clarify, my controller is pleased with me at the moment.

Yes, understood. Regarding the wildfire plan costs you are asking to defer in the recently filed Washington rate case, are these operating and maintenance expense costs you want to defer for recovery later? Or are they associated with rate base, capital expenditures, or investments that you aim to defer and recover the return on at a later date? I'm just curious.

Yes. Brian, I'll take the latter first. We're including about $2.6 million of capital for the first nine months of 2021. And then it's O&M for the tracker balancing account that we are proposing in the filing. And in 2021, that's about $5.4 million. And I think of it as a balancing account mechanism. The idea here is the O&M increases and decreases, initially increases over time and then decreases, levels out a bit. And of course, this is the biggest portion or has the biggest impact on our overall rate lag or financial situation by moving the O&M in if approved.

Okay, right. So deferral of that helps your lag relative to historical levels?

Yes, it would.

Yes. Okay. And then just on the increase in CapEx. In 2020, the $430 million at Avista Utilities. Is that just one-time, meaning it's just for 2020? Or is that a step-up in the annual CapEx run rate of about $405 million?

At this point, we're only providing guidance for this year. If growth picks up, we will reassess in the future. However, this year, we encountered some increased costs related to customer growth, which we've factored in. So, for now, we're not offering guidance for next year. We will share next year's guidance in February, including our capital assumptions.

Okay. Brian, just to be clear on your question on the O&M related to wildfire, when Kevin mentioned the balancing account, that's not as much historical lag as it is protecting future cost increases due to our Wildfire Resiliency Plan and the costs associated with that. So we're attempting to defer those costs as opposed to recovering prior year's costs that would slow lag. What it does is protect us from additional lag, but it may not reduce lag because it's really covering additional costs. Just to clarify how that works or how we propose it to. Okay. Got it. And then on that, the wildfire plan you're referring to is that $270 million I think of a 10-year proposal filed with the commission several months ago, that is still pending review. So the two quarterly...

To be clear there, Brian, we filed with Idaho for Idaho's portion previously. And now we're including the Washington portion here.

Our next question comes from Sophie Karp with KeyBanc.

Yes, I understand. These quick returns are based on the balance sheet. We were reviewing the rate cases you have either in progress or planning to file. It seems like you're seeing earnings, but cash flow is not coming in. How are you considering the impact on the balance sheet from that? Is this a concern for you?

We examined the situation and, as Dennis mentioned earlier, we are aware that we need to recover the costs and capital invested in serving our customers. However, we also understand that substantial increases can be challenging for customers facing job loss and economic hardships due to the pandemic. This created a dilemma for us. To address this, we sought to find a way to balance these issues in the short term by adjusting our tax position and filing for accounting changes. This allowed us to mitigate the impact on customers while still ensuring we earn a return on the capital we have invested for their benefit. We consider this a creative solution. It may temporarily affect our cash flow, but we believe our financial strength will allow us to maintain our credit ratings and support our customers. We expect conditions to improve in the coming years, which will help stabilize the situation. Overall, our strategy aims to balance providing returns for our shareholders while safeguarding our customers' bills.

And we're currently showing no further questions at this time. I'd like to turn the call back over to John Wilcox for any closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.