Good day, and thank you for standing by. Welcome to the Avista Corporation Q3 2021 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Stacey Wenz. Please go ahead.

Thank you. Good morning, everyone, and welcome to Avista’s Third Quarter 2021 Earnings Conference Call. By way of introduction, I have been with Avista since 2009, working in our accounting group. I’m very excited to be taking over from John for my first earnings call, and I look forward to working with all of you in the coming year. Our earnings were released pre-market 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 2020 and 10-Q for the third quarter of 2021, 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 2021 were $0.20 per diluted share compared to $0.07 for the third quarter of 2020. For the year-to-date, consolidated earnings were $1.38 per diluted share for 2021 compared to $1.04 last year. Now I’ll turn the discussion over to Dennis.

Well, thank you, Stacey, and welcome to the IR team. Thanks for heading up the team for us. As you heard, this is Stacey’s first call today, and we’re just so happy to have her in this role, and she’s going to be with us at EEI too. So everybody will have a chance to meet Stacey and get to know her a little bit. So good morning, everyone. I’d like to start our conversation this morning by acknowledging that it’s been more than 1.5 years since we started this pandemic journey. And unfortunately, it looks like we still have a ways to go. We will, no doubt, face more challenges as we move forward. Our region and our nation are recovering and rebuilding from this, and we’re ready for the challenge. I continue to be extremely proud of our employees, and I’m just so grateful for the resolve and resiliency they’ve all demonstrated and the flexibility they’ve displayed. The commitment and concern they have for our customers and communities is just fantastic, and I’m so proud of our team. I’m confident that no matter what the future brings, we have the team, and we have what it takes to manage through whatever the future may bring. Now, let me turn to our earnings results at Avista Utilities. Our earnings were above expectations primarily due to the timing of the recognition of income taxes. Over at AEL&P, their earnings remain on track to meet the full year guidance. In our other business, we’ve had a great year so far, and we are pleased with our investments. They produced significant gains in 2021, exceeding expectations. We continue to expect these investments to contribute $0.05 to $0.10 per diluted share going forward. Regarding regulatory matters during the third quarter, we concluded our Idaho and Washington general rate cases with rates effective September 1 and October 1, respectively. We are pleased with both Commissions’ support of our ongoing investments in the infrastructure that serves our customers and offers us the opportunity to continue to provide our customers with safe, reliable, and affordable energy without immediately impacting customer bills. However, we did not get recovery of certain operating expenses through the Washington general rate cases. In October, we filed our general rate case in Oregon. We have proposed that the increase in base revenues included in the rate case be fully offset for a 2-year period with tax customer credits of the same amount, resulting in no impact on customer bills. Early in the first quarter of 2022, we expect to file general rate cases in Washington, both electric and gas. They will be multi-year rate plans as required under the new law, and we will seek to include in rates all capital investments and expected operating expenses through the end of the rate plan period in an effort to earn our allowed return by 2023. In other regulatory filings, we were the first utility to file its Clean Energy Implementation Plan with the Washington Commission in October. Our plan sets the course for an equitable transition to clean energy and provides a roadmap for specific actions to be taken over the next 4 years to show the progress we’re making toward achieving clean energy goals established by the Clean Energy Transformation Act or CETA. This plan is available on our website under the Clean Energy Future tab, and there’s a good executive summary there if you have interest in checking that out. Focusing back on earnings, we are confirming our consolidated earnings guidance for 2021 and 2023 of $1.96 to $2.16 per diluted share for 2021 and $2.42 to $2.62 per diluted share for 2023. We are lowering our consolidated guidance by $0.10 per diluted share in 2022 to a range of $1.93 to $2.13 per diluted share. So with that, I’ll turn this presentation over to Mark.

Thank you, Dennis. Good morning, everyone, and welcome Stacey to the team. We are looking forward to seeing everyone at EEI and discussing our company, which we're excited about. For everyone's reference, the Blackhawks are currently on a one-game winning streak, although it's just the one game they won this year. It has been a challenging start. However, for us at Avista, the third quarter has been positive. As we noted, Avista Utilities reported earnings of $0.13 per share, up from $0.08 in previous years. This increase is mainly attributed to changes in income tax timing, and we anticipate that this outperformance will return to normal levels in the fourth quarter. The energy recovery mechanism in Washington incurred a pre-tax expense of $3.8 million in the third quarter, compared to a benefit in the previous year. Year-to-date, we recognize an expense of $7.1 million versus a $5.9 million benefit last year. Looking at it year-over-year, we had projected a full-year impact of negative $0.08 but now expect it to be negative $0.09, indicating only a slight adjustment in our expectations for the year and notably a significant recognition this quarter. Regarding capital expenditures, we remain committed to investing in our utility infrastructure. We expect Avista Utilities to spend approximately $450 million in 2021 and around $445 million in both 2022 and 2023 to support customer growth and ensure the reliability of our energy supply. To finance this capital, we plan to issue about $140 million in long-term debt and $90 million in equity in 2021, with $70 million of the debt already issued. We have also issued $61 million in common stock through September. For 2022, we expect to issue $370 million in long-term debt, addressing a $250 million maturity, alongside $90 million in common stock to support our capital expenditures while maintaining a prudent capital structure. We are confirming our guidance for 2021 and 2023 but are lowering our guidance for 2022. This adjustment is due to several factors, including not recovering all our expected expenses. We believe our Washington and Idaho rate cases were fair, and although we obtained expected capital, we were unable to recover some operational expenses, which we aim to address in our next case. We plan to file that case in early 2022 and expect it to conclude by the end of the year, pending normal timelines. We are hopeful to secure both capital and operating expenses in this rate case. Regarding our guidance for Avista, we anticipate contributions for 2021 will be between $1.83 and $1.97 per diluted share, mainly due to the ERM impact, which we expect to result in a decrease of about $0.09. We foresee being near the lower end of that range for Avista Utilities, with an expectation of a surcharge position affecting earnings. Based on our results thus far, we project exceeding the upper limit of our range concerning other investments, thanks to significant gains from our various investments. Considering these factors, including AEL&P meeting their forecasts, we expect to be close to the midpoint of our range for 2021, acknowledging the negative ERM impact. For 2022, we are lowering our guidance due to decreased recovery for certain costs, including insurance, rising labor costs amid inflationary pressures, IT expenses, and specific Colstrip-related costs. We plan to file our general rate case in the first quarter of 2022, as it will be a multi-year plan under new law requirements, including all capital and projected operating expenses, aiming for allowed returns by 2023. As always, our guidance is based on timely and adequate rate relief across our jurisdictions, along with normal operating conditions, excluding any unusual or non-recurring items until they are confirmed. I’ll now hand the call back to Stacey.

Thanks, Mark. Now, we will open the call for questions.

Your first question comes from Kody Clark of Bank of America.

So first, just wondering what gives you confidence in reiterating your 2023 guidance? You’re implying 24% growth year-over-year, which is a large step-up in rates paired with this increasing power supply cost backdrop. So can you provide some color on what sort of rate relief you’re assuming in ‘23? Any specific assumptions there would be helpful. Or are you just kind of assuming you would get to your allowed ROE minus structural lag?

This is Kevin Christie. Thanks for the question. I’ll start by saying we’re, of course, still formulating that case. But it’s important to point out that as we formulate the case, we’re visiting with the Commission and consulting with them as we consider how to best move forward. We do know we will include all capital in the case from 2021 to 2022, which will bring us up to the rate effective date. From the rate effective date through the rate period, the 2-year period, if we do in fact file a 2-year, we have the requirement. As you might recall from the legislation to file a 2 or 3 or 4-year rate plan at our election, and we’re still analyzing that. We’ll take advantage of the legislation that we worked with the commission and other parties on to formulate the methodology to move from the first year through subsequent years of that rate case. We will absolutely include all the capital that we spent in ‘21, will spend in ‘22, and what we expect to spend within the rate effective period. We are also including, for the legislation, an approach that will allow us to properly capture our expenses up into the rate effective period and through those rate periods as well. We believe the legislation provides a good opportunity, and if you look back at this last case, the Commission offered strong support for our capital, as Mark highlighted. We think it’s very viable and likely.

Okay. But to be clear, so is that assuming some recovery of the operating expenses that were disallowed in this rate case? Is that what is implied with that step up?

Let me clarify that. The expenses were not disallowed; they weren’t placed into rates yet. We expect to bring the expenses that weren’t placed into rates in as well as the items I just described as we look forward.

Okay. Thanks, Kevin.

Kody, one thing to add to that. Just one thing to add to that for a little clarity. When we file, which will be early in 2022, that will give you a sense, obviously, of size and what we’re looking at. We’re not going to come out with a number prior to that. As Kevin mentioned, we’re working on it. But early in ‘22, we expect to file, so you’ll have a number then, and it will give you a sense. By the end of ‘22, we expect it. If the normal timing of 11 months in Washington goes through, we expect to have an order or a clear adjudication of this case.

Okay. Got it. And then you stated that you expect $0.05 to $0.10 of other contributions going forward. I think this is a change from prior commentary. I know the gain was previously contemplated for 2021 consolidated guidance given the sale of some assets, but to be clear, are you embedding this in ‘22 and ‘23? And can you remind us what you’re assuming previously for run rate other contributions? I seem to remember that it was breakeven to $0.05 and increasing over time. But if you could just clear that up, that would be great.

We have mentioned that we expect to achieve earnings of $0.05 to $0.10 in the next few years. Currently, we are in that timeframe and maintain our earnings expectation. Over the past several years, we have invested between $10 million and $20 million in various categories, and those investments are beginning to deliver returns. We plan to continue making similar investments moving forward with the same earnings expectations. This isn't a change; rather, we are progressing through the timing cycle, and we are currently at that point. This year has seen outperformance, as our investments have yielded significantly better results, which is encouraging, though that may not always hold true. We aim to have realistic expectations for our return on capital as we keep deploying capital into those businesses.

Okay. Thank you. And last one, if I can just sneak it in there. Can you touch on the increased equity needs in ‘22? What was the driver here as CapEx kind of stayed the same?

Well, we’ve been slightly under-equitized overall. Not significantly from our regulatory perspective, and we’re expecting to file a larger case in this next multi-year rate case, and we want our capital structure to be appropriate to what’s currently allowed, which is in Idaho and Oregon, 50-50. In Washington, it’s 48.5% equity and 51.5% debt. Alaska is separate, but it’s not overly material. We had to increase our equity slightly to reach that level. When we have our case and reach our rate effective period, our capital structure will be matching the currently allowed structure. If the Commission gives us a higher allowance, we would raise additional equity to match that, but we’re just trying to get to our allowed ratio. So it’s slightly higher than it has been in the past.

Your next question comes from the line of Richie Ciciarelli of Schonfeld.

Just following up on Kody’s question. Given the other business, you’re expecting that to be $0.05 to $0.10 per year. What does that imply for Utility growth year-over-year relative to your guidance this year?

Well, Rich, we haven’t come out with segmented guidance yet. We’ll come out with it when we file our case, which we expect early in the first quarter. When we give guidance, we traditionally provide segment details and we expect to continue that history in our February call. We haven’t given segmented guidance for ‘22 yet. We’ve given consolidated guidance to give you a sense of trying to earn our allowed return. Our segment guidance for ‘22 will come after we file our case, and we’ll have more clarity then.

Okay. Thanks. Are you still expecting to earn your allowed return in ‘23?

Yes.

What does that imply in terms of a step-up in rates from ‘22 to ‘23?

Again, we haven’t come out with a number in our rate case. When we file our rate case, you’ll understand what we’re looking for. We always have some offsets; the commission doesn’t allow everything that we ask for. We need to ensure the capital and expenses are appropriately placed into the rate effective period or plan. I won’t give you specifics now, but the number indicates a significant increase in our earnings per share—around 20-25%—which is an increase in earnings, but we’ve been under-earning. That would help us get to our allowed return, absent structural lag.

There are no further audio questions at this time. Please continue.

I want to thank everyone for joining us today. We appreciate your interest in our company, and we look forward to seeing a number of you at EEI. Have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.