Good day, ladies and gentlemen, and thank you for standing by and welcome to the Avista Corporation Q1 2022 Earnings Conference Call. As a reminder, this conference call is being recorded. I would like to turn the conference over to your host Ms. Stacey Wenz. Please go ahead.

Good morning, everyone. Welcome to Avista’s first quarter 2022 earnings conference call. Our earnings and our first quarter 10-Q were released pre-market 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 and 10-Q for the first quarter of 2022 which are available on our website. I’ll begin by recapping the financial results presented in today’s press release. Our consolidated earnings for the first quarter of 2022 were $0.99 per diluted share, compared to $0.98 for the first quarter of 2021. Now I’ll turn the discussion over to Dennis.

Well, thanks, Stacey, and good morning, everyone. We had a solid start to 2022 as Avista utilities earnings were above our expectations, and we are pleased with the results of the first quarter. Our performance was partially the result of the timing of certain expenses. For the remainder of 2022, we anticipate seeing higher costs based upon the current economic environment. However, as we always do, we are proactively managing these issues and we are on track to meet our consolidated earnings targets for the full year. Not unlike what other companies are seeing, some of these challenges that we’re seeing include higher inflation than in the recent past, increased interest rates, commodity costs that are higher than we’ve seen in almost 15 years, supply chain constraints, and competitive labor markets. And of course, that lingering pandemic, which thankfully looks like we’re on the tail end of that; we’re all really happy about that. Obviously, all these factors are contributing to a difficult operating environment. To address some of these issues, we do expect to update our authorized power supply costs towards the end of 2022 to our pending electric general rate case, as well as interest costs and other changes in costs in the current and future rate cases. As always, cost management efforts are also fundamental to achieving our results. In addition, as you may have seen, we recently filed out-of-cycle purchase gas adjustments, or PGAs, in Washington and Idaho to adjust customer commodity rates to take into account the rising cost of natural gas. I’m pleased with our continued progress towards achieving our clean energy goals. In March, we entered the western energy imbalance market, or EIM, which really expands our ability to share renewable resources across the regional market to help reduce costs for our customers while continuing to meet their needs going forward. We also introduced a voluntary renewable natural gas program in Washington that allows customers to opt in and offset their natural gas usage with RNG for as little as $5 a month. In March, we were recognized for the third consecutive year by Ethisphere as one of the world’s most ethical companies in 2022. We were only one of nine honorees in the energy and utilities industry, and we are honored to receive this significant recognition yet again, which acknowledges our company’s rich history of corporate responsibility that spans more than 130 years. We’re really proud to win this award for the third time. With respect to rate cases and regulatory filings, in March, we settled our Oregon general rate case, and if approved, we would expect new rates to be effective in August. We are still awaiting the regulatory process in Washington and expect rate recovery towards the end of 2022. In Idaho, we expect to file rate cases in the first quarter of 2023, and finally, in Alaska, we expect to file a rate case by August 30 of this year. We are confirming our 2022 earnings guidance with a consolidated range of $1.93 to $2.13. We expect to be at the lower end of this range, primarily due to higher power supply costs, and we are confirming our 2023 consolidated earnings guidance range of $2.42 to $2.62 per diluted share. So with that, I will turn this presentation over to Mark.

Thank you, Dennis. Good morning, everyone. Two good things happened in the first quarter. Like Dennis said, we had a good quarter. And secondly, the Blackhawks season ended, and we did not make the playoffs. So when you’re turning on your TV to watch hockey, you won’t see them. For the first quarter of this year, utilities contributed $0.93 per share, as Dennis said, compared to $0.92 last year, and this was above our expectations, partially due to timing but we just had a better quarter. Compared to the first quarter, our increases were due primarily to completed rate cases in Washington and Idaho effective in late 2021, and the benefits from those rate cases historically come through gross margin and the revenue line, but because of the tax customer credit that we’re trying to keep the bills lower, the benefit gets recorded through income taxes. So you’ll see a higher income tax benefit, and that will continue going forward as we have that credit offset in our customer bills, which was important to us in that process. We also saw good customer growth, exceeding our expectations slightly, and we expect to see good growth as we move forward. However, as Dennis mentioned earlier, we do have some headwinds. Higher power supply costs and gas prices are really getting impacted primarily by the conflict in Ukraine, which has led to higher gas prices affecting our power supply costs. We also have higher depreciation and O&M costs. In Washington, we saw a benefit in the first quarter of $1.9 million compared to $4.3 million benefits in the prior year. As we continue to grow our business and serve our customers, we will continue to invest capital in our utility infrastructure. We expect Avista’s utilities CapEx to be about $445 million in both 2022 and 2023. We expect AEL&P capital expenditures to be down slightly, about $10 million from our previous estimate. Moving on to guidance, we are confirming our 2022 consolidated guidance with a range of $1.93 to $2.13 and we expect to be in the lower end primarily due to the ERM, which we expect to be about $0.09 negative in 2022. We are also confirming our 2023 guidance of $2.42 to $2.62 per diluted share. Our guidance assumes timely and appropriate rate relief in all our jurisdictions. As we look forward, our power supply costs and inflationary pressures will be managed to achieve our expected results. We expect Avista utilities to contribute in the range of $1.81 to $1.97 a share for '22 and $2.30 to $2.40 a share for '23.

Thanks, Mark. We’re open for questions.

Thank you. Your first question comes from Julien Dumoulin-Smith from Bank of America. Your line is open.

Hey Dennis and Mark, it’s actually Kody Clark off for Julien. Thanks for taking my questions. You’ve talked a lot about the inflationary environment, and previously, you pointed to just over 5% cost increases for ‘22 and then kind of back to normal that 2% to 3% inflation and costs in ‘23. How are your actuals trending versus that plan? And I know you mentioned some expense timing; maybe it’d be helpful to get some more color on the drivers of that, and also just how you’re thinking about the customer bill impact from these pressures and the ongoing and upcoming rate cases.

There’s a lot there, so I’ll start and then I’ll let Kevin talk a little bit about customer impact. From an inflationary perspective, we had a good first quarter; we didn’t see a significant impact as we had forecasted. But we do recognize that that’s coming, and we have incorporated that into our forecast. As we talked about the 5% inflation, that’s over a broad cost basis and the impacts of current interest rates. We have updated to reflect the current interest environment. Some costs we’re seeing—such as materials and supplies—do impact capital more than regulation. To the extent inflation lingers longer and stays higher, we will have to work through that. We believe we can manage through it by offsetting the impacts of inflation with the customer bill impact. I’ll turn that to Kevin.

Thanks, Kody, for the question. All I can really add is that we provided the commission with an opportunity to use additional tax credits to help mitigate customer impacts where we can. Inflationary pressures are tough for customers, but we strive to provide tools to assist.

Got it. You gave some thoughts on the power backdrop and the move to the $0.09 impact from the ERM from the $0.07 prior. You also mentioned snowpack being healthy and that can offset some of the drag, but I'm curious if you have any views on how participation in EIM is playing into the ERM dynamic thus far. Have you included any benefits from participation there in that $0.09 figure?

Yes, part of it has been included in our expected power supply cost. We incorporate various amounts based on rate case approval which we need to achieve. We have been performing at or better than our expectations, but we incorporate some of that into the ERM. When you’re in the 90/10, even if we get some benefit, we would only get 10% of that, which doesn’t mitigate the challenges we face.

Got it. Okay. And then one last question if I can squeeze it in regarding your other segment. I’m wondering if you have any additional detail on how we should be thinking about shaping that over the course of the year. I know your edge pilot program is still in early stages, so some drag there as it ramps, but anything else would be helpful?

Unfortunately, I don’t have a great shaping for that; it really depends on the individual company investments, but we do expect to see that continue to perform well. There’s nothing specific that says how to shape that throughout the year other than some early-stage pressures that are included.

Okay, understood. Thanks for your time. I'll jump back in the queue.

Thank you. And your next question comes from the line of Anthony Crowdell from Mizuho. Your line is open, sir.

Hey, good morning, Dennis. Good morning, Mark. Mark, I feel your pain on the Hawks, but you could be a Rangers fan and be very tired this morning.

Well, I was watching it! Fortunately, I’m three hours earlier than you. That was painful in the third overtime.

Just a couple of quick questions. We looked at the CapEx slide, and I’m wondering if supply constraints might impact your projections.

While it may impact timing, our supply chain folks work very hard to ensure that we can get the equipment needed for our projects. We believe we're on track to achieve our forecasts. However, delay in timing is a possibility.

Great. And if I could switch gears; I believe you guys have a $20 million to $50 million bond coming due soon. What are you seeing regarding rates for refinancing that?

We issued a $400 million bond in late March. While rates were up some, that’s incorporated into our forecast. We believe this can be part of our capital structure in our regulatory considerations.

And just last, do you think investors will start to see utilities ramping up the requested ROE because of the move in rates?

That’s a great question. While ROE has moved down significantly over the last decade, I don’t anticipate a rapid increase now. The commissions are still looking at value to customers, and incremental changes will be gradual.

In our Washington case, we did request an ROE of 10.25%. This higher request was made considering inflation and other factors influencing our approach to the commission.

Great. Thanks for taking my questions.

Thank you. And your next question comes from the line of Brian Russo from Sidoti. Your line is open.

Hi, good morning.

Morning, Brian.

I want to understand the seasonality of the ERM. You reported a $1.1 million benefit in the first quarter but will be above baseline due to other expenses for the year. How should I think about this?

Yes, seasonally, we have normal hydro conditions that impact power pricing. We see challenges due to volatility in natural gas prices largely tied to current external conflicts. This volatility has increased our costs significantly for load service.

What was the interest rate on the $400 million bond deal that closed in late April? How does that compare to your average borrowing rate?

It was around 4%, which is slightly higher than our average borrowing rate of around 5.5%. But overall, it slightly lowered our cost of borrowing.

On your other business segment, how sensitive are those estimates to market volatility?

These estimates are tied to various investments in clean tech rather than market operating conditions. We anticipate continued growth in this area due to the ongoing climate goals being pursued.

Thank you very much.

Thank you. And presenters, I’m showing no further questions at this time. I would like to turn the conference back to Ms. Stacey Wenz for any closing remarks.

Thank you very much for joining us today. We look forward to seeing many of you in a few weeks in Florida. Have a great day.

Thank you, ladies and gentlemen, this concludes today’s conference call. Thank you all for joining; you may now all disconnect.