Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Avista Corporation Fourth Quarter 2021 Earnings Conference Call. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Ms. Stacey Wenz. Thank you. Ma'am, please begin.

Thank you. Good morning, everyone. Welcome to Avista's fourth quarter and fiscal year 2021 earnings conference call. Our earnings and our 2021 Form 10-K were released premarket this morning. Both 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. 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 2021, which is available on our website. I'll begin by recapping the financial results presented in today's press release. Our consolidated earnings for the fourth quarter of 2021 were $0.71 per diluted share, compared to $0.85 for the fourth quarter of 2020. For the full year, consolidated earnings were $2.10 per diluted share for 2021 compared to $1.90 last year. Now I'll turn the discussion over to Dennis.

Well, thanks, Stacey. And good morning, everyone. I think we can all agree that 2021 was certainly a memorable year. It's hard to believe that we've been living through this pandemic for nearly two years now. And today, we're seeing some signs that we're moving toward establishing a new normal, and we're very excited about that, but we're certainly not out of the woods quite yet. As we reflect on these challenging times, I wanted to take a second just to applaud our employees for making it possible to achieve all that we accomplished in 2021. They've really done a nice job. On the financial front, our 2021 earnings were in the upper half of our guidance range, primarily due to significant gains in our other businesses. Mark is going to get into some of the details on that in a little bit later. I'd like to focus on some of our achievements on the operations front. In 2021, we finished installing all of our smart electric meters and natural gas modules across Washington State. Now our customers are accessing more real-time data so they can better manage their energy use. We have proactive high bill alerts or high-energy alerts where customers are notified if they could exceed their set energy budgets, which of course, helps them eliminate surprises when their bill arrives. The smart meter data also provides more visibility into our system, which helps us run a more reliable and efficient power grid, detect and restore power outages more quickly and provide customers with a higher level of service. Customer benefits like these helped us achieve full cost recovery on one of our largest capital projects in company history. On the clean energy front, we filed our clean energy implementation plan in Washington which provides the framework for achieving our clean energy goals. Also in 2021, we set a new aspirational natural gas goal of being carbon neutral by 2045 with a 30% reduction of greenhouse gas emissions by 2030. Two new power purchase agreements with Chelan County Public Utility District were entered into during 2021, and we'll add more renewable hydropower to our electric generating portfolio starting in 2024. This will help move us closer to achieving our clean electricity goals. We also announced a request for proposals seeking power generation and demand management proposals to meet our clean energy goals. We also recently published Avista's 2021 corporate responsibility report to our Avista Corp. website. In the report, we provide a broad look at our operations and how we're fulfilling our commitments to our people, our customers, communities and our shareholders. The website also provides links to Avista's reporting on a series of environmental, social and governance disclosures. The information we've shared demonstrates Avista's long-standing commitment to corporate responsibility, and I urge you to check it out. We've done a nice job with them. Avista's new non-regulated subsidiary, Avista Edge, is rolling out an Internet broadband pilot in the city of Cheney, Washington, which is about 20 miles outside of Spokane. The Avista Edge patented technology offers a new turnkey, reliable, secure, high-speed internet device that's easy and cost-effective to deploy. As we partner with other utilities and internet service providers to deploy this solution, we hope it will bridge the gap in a widening digital divide that exists in many communities that struggle with high-speed internet access and connectivity that is so essential in our daily lives, and we saw that more than ever during the pandemic. Avista Edge builds upon Avista's rich history of innovation. With respect to regulatory filings, in January, we filed multiyear general rate cases in Washington. In October of 2021, we filed a general rate case in Oregon and expect rate recovery in the second half of 2022. We continue to await the regulatory process in these jurisdictions. In Idaho, a two-year rate case went into effect around September 1 of 2021, and we expect to file another rate case in the first quarter of 2023. Looking ahead, we remain focused on continuing to prudently invest capital to maintain and update our infrastructure and provide reliable energy service to our customers. We are confirming our 2022 and 2023 earnings guidance with consolidated ranges of $1.93 to $2.13 in 2022 and $2.42 to $2.62 in 2023. This puts us on track to earnings our allowed return in 2023. Lastly, earlier this month, the Board increased our dividend by 4.1% to an annual dividend of $1.76 per share. This dividend increase, approved by the Board of Directors, marks the 20th consecutive year the Board has raised the dividend for our shareholders, and I believe it demonstrates the Board's commitment to maximizing shareholder value. So with that, at this time, I'll turn this presentation over to Mark.

Thank you, Dennis, and good morning, everyone. Thanks for joining us this morning. For those of you that will see me coming up either in-person or on video, I have shaved off my playoff beard because there's a very slim chance that the Blackhawks will have any chance of making the playoffs this year. That's sad for me. But that's all right. For 2021, Avista Utilities contributed $1.79 per diluted share compared to $1.83 in 2020. This met our expectations even though it was slightly below our guidance range for the utility. Our earnings decreased primarily due to increased operating expenses and depreciation expenses, which really represented increased insurance costs, IT costs, and labor and benefits, along with depreciation increase primarily due to continuing investment in our system. We have seen an economic recovery, resulting in increased loads for non-decoupled customers, increased loads for everybody, but non-decoupled customers affect the earnings. We've also experienced increased power supply costs. Last year, we encountered lower hydro conditions with some drought conditions, along with extended hot weather and gas power price increases that caused our Energy Recovery Mechanism in Washington to end up at a pretax expense of $7.7 million versus a benefit in 2020 of $6.2 million, which is a significant change year-over-year. With better-than-expected earnings at our other businesses, as Dennis mentioned, our consolidated earnings were consistent with our expectations and in the upper half of our guidance. Those businesses contributed $0.21 of earnings in 2021 compared to a $0.05 loss in 2020. Our earnings expectations included investment gains, and we just had stronger gains through a variety of our investments in those businesses. Going forward, we expect those businesses to make money. We're investing in those, and we expect them to make money. We look for them to be in the range of $0.04 to $0.06 a share. We don't expect $0.21 a share consistently. We expect it to be more of a $0.05 per share earnings over the next couple of years, including the investment we're making in the pilot that Dennis mentioned, which will come with some associated costs that are included in our expectations. For our forecasted capital expenditures, we expect to spend about $445 million in each of 2022 and 2023, and in Avista Utilities we expect AEL&P to be $14 million in 2022 and $13 million in 2023, along with an investment of $15 million in our other businesses in 2022 and $14 million in 2023. We continue to invest in those other businesses. Moving on to liquidity, at December 31, we had $82 million of available liquidity under our committed line of credit. In 2021, we issued $140 million of long-term debt and about $90 million in common stock. In the first quarter of 2022, we expect to issue $400 million of long-term debt because on April 1, we have a $250 million maturity. We also expect throughout 2022 to issue $120 million of stock, and in 2023, we anticipate issues of $110 million of long-term debt to fund our expenditures. Moving on to guidance, as Dennis mentioned, we're confirming our 2022 and 2023 consolidated guidance ranges of $1.93 to $2.13 in 2022 and $2.42 to $2.62 in 2023. Our guidance does assume timely and appropriate rate relief in all jurisdictions in which we're filing cases that Dennis just walked through. Our 2022 and 2023 guidance ranges reflect the expected rate relief as a result of the Washington general rate cases and the Oregon general rate cases in the second half of the year. Washington's is an 11-month process, and it will be December before we will have any expected impact there. In Idaho, we expect rates to go into effect after September 1, 2023. In addition to our rate relief, our guidance range reflects improved customer growth of about 1% to 1.5% annually, which is an improvement over the previous range of about 0.5% to 1%. We are seeing inflationary pressures, with just over 5% of some cost increases in 2022, and we expect to return to a more normal level of inflation in 2023; we will have to manage our costs to get there, and we're confident we can do that. We expect Avista Utilities to contribute in the range of $1.81 to $1.97 per share in 2022 and $2.30 to $2.46 a share in 2023. The midpoint of our guidance range does not include any expense or benefit under the energy recovery mechanism. Our expectation for the ERM is in the expense position to a negative within the 50% customer and 50% company sharing band, which is expected to reduce earnings by about 7% in 2022. We expect authorized power supply costs for the ERM to reset in 2023 through the regulatory process and approximate actual power supply costs. We expect AEL&P to contribute in the range of $0.08 to $0.10 a share for 2022 and 2023, and our other businesses to contribute $0.04 to $0.06 per share in 2022 and 2023 as well. Our guidance generally includes only normal operating conditions and does not include unusual or nonrecurring items until the effects are known and certain. For Avista Utilities and AEL&P, we also consider normal precipitation and hydroelectric generation for the year. Now I'll turn the call back to Stacey.

Thank you. We are open for questions.

Our first question or comment comes from the line of Julien Dumoulin-Smith from Bank of America.

Hey, it's actually Kody Clark on for Julien. Good morning.

Good morning, Kody.

Hi, Kody.

So just to start, just wanted to confirm that earning your authorized ROE in 2023 minus structural lag assumes you receive full ask in the Washington rate case and others. Is that correct? Or is there some percentage of ask that you're assuming in that 23% number? Just a second part to that question. Focusing on the ROE that was requested in the Washington rate case, we've seen authorized in the 9.4% to 9.5% range even for some of the multiyear rate plans that have been followed to this point. So just wondering what gets you comfortable with that 10.25% ask.

Yes, great. Thanks, Kody. This is Kevin Christie. The first question that you asked was what gets us comfortable with...

I think the percentages of our total ask.

The percentage of total ask. Thank you, Mark. We typically file and then find ourselves at either a settling point or a litigated point in that 60% to 65%. So, we do not expect to receive our full ask, and that's not what is required for us to get to our authorized return. So, that's the typical number, and I would expect to be somewhere in that range in the first year of the rate plan. The second year will be something a little bit higher because of how the rate plans work now in Washington. Closer to the mid-70s is what we'll need to get to our authorized return in the second year.

Got it. Okay. So, the $2.42 to $2.62 assumes somewhere typically 60% to 65% of the total ask there for...

Yes, that's what we've mentioned in the past, and I would say that's true again this time around.

Got it. Okay. And then just thinking about the bridge from 2022 to 2023 guidance, is there anything else that I should be thinking of outside of rate relief that kind of gets you to that consolidated $2.42 to $2.62 number? Or is it really just a rate relief?

Well, there's a couple of things. So that Kevin just walked through the Washington case. We also expect to get into 2023. We will file in the first quarter or try to file in the first quarter or late second quarter in Idaho, because our Idaho, our current Idaho case rolls off September 1 of 2023. So, we would expect, as we continue to deploy capital to serve our customers, grow rate risk we'll file in Idaho, and we do have an Oregon case as well. It’s not just Washington. It’s not solely Washington. We still have to file in Idaho, and we have to complete the Oregon case as well. For Avista Utilities, we'll file in Alaska. I mean that's already incorporated in there for the Alaska case we'll file in August. But also, we do also have customer growth. We do also have some inflation pressures. Those are working against each other as customer growth is good for the earnings and that helps us, and then inflationary pressures are negative. We will have to implement some cost management depending on how high inflation is, but we expect to manage our costs, and we expect to do that. We expect Avista Utilities to contribute in the range of $1.81 to $1.97 per share in 2022 and $2.30 to $2.46 a share in 2023. The midpoint of our guidance range does not include any expense or benefit under the energy recovery mechanism. Our expectation for the ERM is in the expense position to a negative within the 50% customer and 50% company sharing band, which is expected to reduce earnings by about 7% in 2022. We expect authorized power supply costs for the ERM to reset in 2023 through the regulatory process and approximate actual power supply costs. We expect AEL&P to contribute in the range of $0.08 to $0.10 a share for 2022 and 2023, and our other businesses to contribute $0.04 to $0.06 per share in 2022 and 2023. Our guidance generally includes only normal operating conditions and does not include unusual or nonrecurring items until the effects are known and certain. For Avista Utilities and AEL&P, we also consider normal precipitation and hydroelectric generation for the year. Now I'll turn the call back to Stacey.

Okay. Got it.

So it's not just solely rate relief. There are a couple of other items that help us out.

Right. Okay. Okay. And then just the last one if I can. Just curious if you were to receive an order come to a settling point in the rate cases that you have in front of you. Is there any levers that you could pull, during the multiyear rate plan that would allow you to earn your authorized? So for example, if you got maybe a little bit less than your assumption around 60% to 65%, is there anything that you could do to get back to that authorized ROE? Or is it kind of the next shot we should be thinking about is when you file for the next multiyear rate plan?

Again, you're looking solely at Washington. We have other jurisdictions that; if all of the jurisdictions come in slightly lower, we would have to look at that. Can we look at managing our costs? We try to do that regularly anyway. That's not a new thing for us. We try to manage our cost all the time to reasonable levels, but we could look at that as a potential. We also have other opportunities as we move forward. We expect to join the energy imbalance market here in the first quarter of this year. As that moves forward, we've seen other parties. We have an amount embedded in our rates that we need to recover for our customers or benefit our customers. But above that, if we are successful, it can go through the power supply costs and through the ERM, which benefits can benefit earnings and customers depending on what level of sharing we have. So there are other things we can do to manage, but most of it is cost management. We do that consistently every year; that's not a new thing for us. But if we were to get an order that was less, if it was significantly less then no, we would just have to report how we have challenges because we didn't get a fair recovery of our costs. We don't anticipate that at all. We expect and we've seen the past orders we've gotten, and we believe have been fair orders from our commissions most recently, just last fall in Washington.

Got it. Understood. Thanks for the time. I will jump back in the queue.

Thanks, Kody.

Thank you. Our next question or comment comes from the line of Brian Russo from Sidoti. Your line is open.

Hi. Good morning.

Hi, Brian.

Hi, Brian.

Hey, just on the ERM, and what are you seeing in the marketplace right now that you'd call out, $0.07 of expense or the 50/50 sharing? Is it just higher gas prices or below the normal conditions?

Gas prices to power prices, Brian, it's a complicated formula. I can't give you the specifics. But generally, higher gas prices. We've seen slightly lower on the hydroelectric generation, but not much. We're in the mid-90s on snowpack and so it's hard to say that that's going to come off any different at this point. We don't know. As you remember, as you followed us a long time, it depends how it melts off, right? We won't know that until later in the spring. But our snowpack seems reasonable, so it's primarily gas prices and power prices that spark spread differential.

Understood. And just to be clear, the rate increase that you're requesting – with the multiyear rate increases you're requesting in Washington, these exclude any changes in power costs, right? Because that is a totally separate docket? Or do they kind of get wrapped up and rolled up together?

Yes. Brian, let me jump in there. This is Kevin. Thanks for the question. What we do with our rate cases, as we file with a power supply update with the case. What's typical in Washington is 60 days prior to the effective date of the new rates; we do a reset based on what we know then for power supply costs. What we've asked for in this case, since we have our first multiyear end of the legislation is the ability to do a reset in advance of the second year of the rate plan if we're outside of the 10% range. That's a proposal for the commission. We don't know that they'll accept that, but we've asked for that in this case, given the uncertainty of power supply costs.

Got it. And remind me also; are customers in a position for a refund based on prior years of being in a beneficial position in the ERM? Or has that all been settled out and refunded and balanced out, so to speak?

Yes. We continue to recalculate periodically and, at this point in time, given the situation that Mark described, I believe that customers owe us, so the accounting is such that there's been a deferral and that will go back through rates as we move forward.

Okay. And this is just a technicality industry case, but it seems as if you need separate approval by the commission to authorize the utilization of the credits to offset customer bills and that Avista cash flows and credit metrics would also be considered by the commission in that decision. Is that just kind of a formality from some of the last rate cases?

It's very similar. The commission can use at their discretion, those tax credits that we've made available for customers. If we settle the case, for example, we would expect to make a recommendation through the parties that settle with us on how to best use those tax credits to help lower the impact of the case to our customers. If we are unable to settle and it goes through a litigated case, they would do similar to what they did last time and make a decision. They are very well informed on how those decisions could impact our credit metrics, etc.

Okay. And then quickly on the 2023 guidance of $0.20 range, I mean, it's fairly wide obviously because of the scenarios and outcomes of the rate case. But is the way to look at it your full ask is the high end? Your midpoint is kind of that 60% to 65% range and a more peer comparable or current ROE in the 9.4% range?

No, I wouldn't look at it that way at all. Our range is really built more on the variability of power supply in the ERM. The ERM can fluctuate up and down, and then managing our earnings. I would say, at the midpoint level we expect to get a fair recovery. Kevin's boxed out there or laid out the 60% to 65%. It could be anywhere even higher. We've had results in a 70% range too, and that's okay. That's encompassed in our range. But I wouldn't say the top end is the ask and the bottom end is if we got a bad order at all. That's not – it's more guiding to the midpoint, and then we have some variability around the ERM and some variability around the recovery of our cost in the rate case. We can again offset some of that with our cost management. The other thing I want to make sure that I referenced, with respect to those tax customer credits. We don't believe that they take everything that we offered for tax customer credits. It does not hurt; we don't believe it hurts our cash flows to where it would change our rating agency metrics at all. We believe we still have strong credit metrics. This is just an opportunity to offset some of the impact in an interim period for the – in the short period for customer bills.

And Brian...

And one...

Sorry, Brian, I need to jump in and quickly correct something I said before. We are in the net liability position in the ERM still. So I had mentioned that customers owe us, but we're in the net liability position. Just wanted to make sure that's clear.

Okay. Yes. Thank you for that. And then just in the past, I think you've kind of projected, I think, 4% to 6% EPS growth rate off of whatever the 2023 earnings power settles out to, and that would match up to your 5% rate base CAGR. Is that still kind of the way to look at the long-term growth?

We didn't put that in there necessarily, but yes; we would expect that to continue.

Once we get past – once we get to earning our allowed return, assuming we still have the opportunities to deploy the capital that we've seen, and we don't see any reason why that wouldn't be the case at this point. We would expect to grow that 4% to 6% for earnings from 2024.

Got it. Thank you very much.

Thank you. Our next question or comment comes from the line of Sophie Karp from KeyBanc.

Hi, good morning, guys. Thank you for taking my question.

Good morning, Sophie.

A couple of questions. So your last year CapEx forecast unchanged for a few years out, right? Given the ramped-up inflation we are seeing, can you describe maybe your level of confidence in that particular number, right? And how can it move up or down or kind of – what can we expect there if the inflationary pressures persist as they are?

From a CapEx perspective, the – to the extent the inflationary pressures, we have seen some in steel and some of our other materials we've seen inflationary. What it will mean is we would expect to try to get to our CapEx number, spend our CapEx number, but we may get a little bit less work done. Due to the supply chain issues, we – and they would still be projects that we believe make sense for our customers and benefit our customers overall. It may be slightly less work for some of the inflation, and with the supply chain we really haven't seen that we've not been able to do projects. I would say we have a fairly strong confidence level that we'll be able to get the capital projects done at a reasonable level, consistent with the expectations we put out dollar-wise.

So if I'm hearing you right, what you're saying is that you're going to manage to that number and if you have to trim maybe your plans to fit into that number, that's what you would do?

That would be our expectation. But again, we want to make sure that the projects, if there's a higher cost basis, that it still makes sense for the customer. We may evaluate a certain project and not do it if it had too much cost, it wasn't economic for the customers. For the most part, we haven't really seen that. So I don't anticipate that being an issue.

Okay. Thank you. And then my other question was on kind of the ERM mechanism that you look into, I guess, to reset, right? And also you joined the energy imbalance market where you – at the same time, if I'm hearing your comment correctly, expect to benefit from it in the framework of the existing ERM mechanism, right? So can you help us maybe reconcile these positions? What kind of benefit should we – can you realistically expect from joining the ERM?

We're just really starting that market. What we have seen, we have an embedded benefit in our regulatory authorization of being able to join the ERM that we need to provide a benefit through that process to our customers. So that's really the target that we expect to get. That doesn't necessarily impact earnings at all. If we don't achieve it, it could be negative that would run through the ERM. But we have seen other companies in our region join that market and have been able to demonstrate some benefit. It's a pretty efficient market, and we think there will be an opportunity there. That's completely different than resetting the ERM, as Kevin described, when we do our power supply update in a general rate case, we reset our power supply cost. As part of that, as we go forward, we will look at a track record of what we've done in the energy imbalance market and the commission may update that from time to time. We haven't even started yet. We don't start until March of this year. So I can't really predict or we can't predict that we're going to have any increased benefit or not with respect to the ERM. So that's still an unknown. Sophie, I can't really give you any impact there, but we'll – it will be part of our process as we move forward.

Got it. Very helpful. And the last one if I may. With a multiyear rate case now going onward in one of your largest jurisdictions, would you eventually – like assuming you have that result either through element or litigation, would you eventually be open to give guidance beyond three years outlook, I guess, maybe some of your peers have given longer-term horizon outlook five years out, etc. Is that something that you think you would be able to do if you have more solvency on the rate?

I think what we would like to do is first get to earning our allowed return. We've had a little bit of a road here to get there, and we want to make sure that we get there. Additionally, this is, as Kevin mentioned, this is our first goal with the new legislation on the multiyear rate cases. To the extent that we get through these processes in a reasonable fashion and we have a little bit more certainty, we can consider looking out for further guidance. At this point, all we've done is say, once we get beyond earning our allowed return, we would expect to grow kind of that 4% to 6% range without giving specific guidance, but we have given an expectation of growth there beyond 2023.

Alright. Thanks so much.

So we'll just have to see how we can work through those processes. Thanks, Sophie.

Of course. Thank you.

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

Thank you. I want to thank you all for joining us today, and we appreciate your interest in Avista. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.