Good day and thank you for standing by. Welcome to the Avista Corporation’s Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today Ms. Stacey Wenz, Investors Relations Manager. Ms. Wenz, please go ahead.

Good morning, everyone. Welcome to Avista's third quarter 2022 earnings conference call. Our earnings and our third quarter 10-Q were released pre-market this morning, both are available on our website. Joining me this morning I have 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. Today, we will make certain statements that are forward-looking. These 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 third quarter of 2022, both are available on our website. I'll begin by recapping the financial results presented in today's press release. Our consolidated loss for the third quarter of 2022 was $0.08 per diluted share, compared to earnings of $0.20 for the third quarter of 2021. For the year-to-date, consolidated earnings were $1.06 per diluted share for 2022, compared to $1.38 last year. Now I'll turn the call over to Dennis.

Well, thanks Stacey and good morning everyone. After an unusually warm and sunny October, it definitely feels like our typical fall weather has settled into our region. We're getting some good precipitation, and it looks like our first big mountain snow of the season is on its way. That's a positive development. With the summer season behind us, we're pleased with how our system managed this year's peak summer months. The significant investments we continue to make in our system to strengthen our grid and enhance the reliability and resilience of our substations and distribution system have allowed us to better serve our customers. We are also making good progress in achieving our clean energy goals. We're evaluating opportunities in our recent RFP, and we're implementing our Washington Clean Energy Implementation Plan that was approved in June. Turning to rate cases, we continue to work our way through the regulatory process for our Washington general rate cases, following the multiparty settlement we reached earlier this year. We expect a decision from the Commission in December of 2022. In Idaho, we plan to file both gas and electric rate cases in the first quarter of 2023. Additionally, we aim to file a general rate case in Oregon during the first half of 2023. In Alaska, our interim and refundable base rate increase of 4.5% was approved by the Commission and took effect in December of 2022. Regarding earnings, as we've communicated, our strategy is to achieve our 2023 guidance which includes adequate rate relief and cost management, and we've made significant progress in both areas. Our Washington general rate case settlement shows progress in attaining the needed rate relief we're striving to achieve, and we have identified opportunities to manage our costs for 2023. Unfortunately, despite our efforts, the goalposts have been moved, and as a result, we are lowering our 2023 consolidated earnings guidance by $0.15 to a range of $2.27 to $2.47 per diluted share. The combined upward cost pressures from inflation and rising interest rates, which accelerated in the third quarter, proved too much for our cost management efforts to offset in 2023. Specifically, we expect increases in borrowing costs, pension expenses, and depreciation. Higher borrowing costs and operating expenses also impacted 2022, leading us to lower our 2022 guidance by $0.05 per diluted share to a range of $1.88 to $2.08. Now I will turn the presentation over to Mark for some detailed insights.

Thanks, Dennis. Good morning, everyone. While our earnings news is down, I do have a positive Blackhawks comment to share. I know you're all waiting for that. We're just a point out of first place nine games into the season. It's still very early, but it's a better start than I expected. Compared to the third quarter of 2021, our Utility earnings decreased primarily due to rising interest rates and higher depreciation. Higher capital costs and increased operating expenses contributed as well. These increases were somewhat offset by benefits from rate increases resulting from completed rate cases in Idaho and Washington. We also experienced retail customer growth of about 1.5%, which positively impacted our utility margin. The Energy Recovery Mechanism in Washington resulted in a $4.5 million pre-tax expense in the third quarter, up from $3.8 million in the prior year. Year-to-date, we recognized $7.3 million of expense compared to $7.1 million last year. We expect to remain within the 90% customer, 10% company-sharing band for 2022. With respect to capital, as Dennis mentioned earlier in his remarks, we continue to invest essential capital in our utility infrastructure. We expect our capital expenditures to be approximately $475 million for both 2022 and 2023 at Avista Utilities. For AEL&P, we plan $10 million in 2022 and $13 million in 2023, and we expect about $18 million invested in our other businesses in 2022 and $15 million in 2023. Regarding liquidity, as of September 30, we had $102 million in available liquidity under our committed lines of credit. In the fourth quarter, we expect to enter a short-term credit facility for up to $50 million to provide additional liquidity going into next year. During 2022, we anticipate issuing $135 million of common stock, including the $93 million issued in the first three quarters. In 2023, we expect to issue up to $140 million in long-term debt and $120 million of common stock to fund our planned expenditures. Addressing guidance, as Dennis mentioned, we are reducing our 2022 guidance by $0.05 to a range of $1.88 to $2.08. We are also lowering our 2023 guidance by $0.15 to a range of $2.27 to $2.47. The majority of these revisions are attributable to Avista Utilities. Although our regulatory and cost management efforts have been effective, they are insufficient to counteract the ongoing increases in inflation and costs. Interest rates continue to rise, primarily due to the Federal Reserve's aggressive monetary policy this year, and another increase is likely soon. We foresee continuing increases in borrowing costs next year. Based on forward curves, we've incorporated these expectations into our guidance. Part of our operating expenses is linked to pension costs, and the decline in our pension asset values due to poor market performance has caused an increase in pension expense, which outpaces any potential decrease from rising discount rates. Furthermore, we have raised capital expenditures primarily due to inflation affecting several new projects, resulting in increased depreciation expenses. We expect these costs to be recoverable through future rate cases. As Dennis mentioned earlier, we have established a two-year settlement in Washington. Assuming the commission approves it, Washington rates will be set from December of 2022 through December of 2024. However, we do plan to file in Idaho and Oregon in the first quarter and first half of next year, respectively. We anticipate Avista Utilities will contribute in the range of $1.66 to $1.82 per diluted share in 2022, excluding any benefits from other initiatives. As I mentioned earlier, we expect the ERM to remain within the 90:10 sharing band and reduce our earnings by approximately $0.09 per diluted share, due primarily to the impact of the ERM. We expect to be at the lower end of the range for Avista Utilities. For 2023, we project Avista Utilities will contribute $2.15 to $2.31 per diluted share, based on anticipated rate relief across all our jurisdictions, including the approval of the 2022 Washington general rate cases. Additionally, we foresee unrecovered structural costs decreasing our return by about 60 basis points and a timing lag of approximately 90 basis points. Initially, we anticipated returning to our allowed return, but with soaring interest, pension expenses, and depreciation, we now expect the total return on equity to be around 7.9%. We expect AEL&P to contribute between $0.08 and $0.10 in 2022 and 2023 while our outlook for our other businesses anticipates contributions of $0.14 to $0.16 per diluted share in 2022, diminishing to the range of $0.04 to $0.06 in 2023. Our guidance projects normal operational circumstances and excludes any unusual or non-recurring items until their effects are assessed. That concludes my discussion of guidance, and I will now turn it back to Stacey for questions.

Thank you, Mark. We are happy to take your questions.

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

Hey, good morning to you. Thanks for the time. Hope you guys are well.

Good morning, Julien.

Hi, Julien.

Hey, thank you. I just want to go back to the 2023 guidance. You guys spent a good chunk of time on that, but can we break down some of the pieces you alluded to? Obviously, you talked about cost management efforts. Can you discuss the ability to recapture some of that in subsequent cases, as well as breaking down a few specific items you highlighted in the 2023 guidance?

Well, there is rising interest rates; we do borrow money under our short-term credit facility. We will issue some bonds later in 2023. On a long-term basis, we have $140 million of debt we expect to issue. Short-term interest rates have increased significantly, as I mentioned earlier, and we have a $400 million credit facility with $100 million available liquidity at September 30. This has caused our borrowing costs to rise. Our pension expense has increased too as a result of significant declines in asset values from the stock market. Overall, we see increased pension expenses for 2023 based on current forecasts. Additionally, we saw inflation impacting our capital expenditures, exceeding what we filed for in Washington. We plan to file in Idaho and Oregon in early 2023, which may allow us to recover costs, but that is contingent on regulatory processes. Our cost management efforts met inflation increases but could not offset the rapid rise in costs experienced more broadly. We believe those costs will ultimately be recoverable in future rate cases, provided we demonstrate prudence in our costs.

Can you quantify the pension impact reflected in 2023 as well as give perspectives on cost management efforts for 2024? What thoughts do you have on refinancing or terming that out?

We’re consistently managing costs and always seeking operational efficiency. However, I do not have specifics for 2024. We anticipate maintaining cost management efforts consistently into 2024. The pension dollars can fluctuate, but we expect higher expenses from our current factors. If interest rates decrease or markets improve entering 2024, our pension expenses could align better. Without precise details, I would estimate that the impact is about one-third each from depreciation, pension, and interest.

I want to clarify on guidance reductions by $0.15 from a one-third perspective. Can we discuss the potential recovery of this guidance as well?

We will file for recovery in Idaho and Oregon, impacting 40% of our business. Washington represents approximately 60% of our business, and we won’t be able to refile until late 2024. We will continue cost management efforts throughout.

For long-term growth, are you still projecting 4% to 6% off of 2023?

Yes, that’s consistent. However, we will have to manage through these timing gaps for 2024 and 2025 after addressing costs effectively and filing rate cases.

What potential upside surprises could we see similar to previous years?

While we forecast conservatively for market valuations, we can experience both upward and downward movement. We do not expect significant upsides at this moment.

Regarding the pension, how do your regulatory mechanisms address funding deficiencies?

We have recovery mechanisms, but we are largely funded in our pension. Our forecasted pension expenses will be based on current market expectations.

So the expenses are impacted by corridor stigmas relative to their expected recovery?

We forecast based on market performance and discount rates to provide anticipated expenses. Each year reflects those changes.

With the ERM, do you have early indications regarding the upcoming reset?

We really need to wait until our filed rate case in Washington is concluded. Based on market conditions at the time, we will adjust our guidance for next year.

Thank you for your responses.

Thank you.

Thank you. One moment please for our next question. Our next question shall come from Shar Pourreza of Guggenheim Partners. Your line is open.

Hi, guys. It's James Ward on for Shar. How are you?

Hi, James. Good.

I wanted to clarify, are you still projecting long-term growth of 4% to 6% from 2023?

Yes, that growth rate still stands, but any growth will require time and effort to work through certain timing issues. We will look forward to recovery with ongoing efforts to manage costs.

Is there a potential for upside surprises consistent with previous years?

We try to forecast conservatively; hence, we manage market valuations cautiously. Upside is possible but not guaranteed.

Regarding pension funding, do regulatory mechanisms allow a recovery for deficiencies?

Pension-related expenses are managed annually, and we don’t anticipate major discrepancies, given our funding levels.

Does the ERM indicate any early positives or negatives for next year?

We will determine ERM impacts after the regulatory process in Washington is complete, based on the market conditions at that time.

Thank you for your time.

Thank you.

Thank you. And one moment please for our next question. Our next question will come from Brian Russo of Sidoti. Your line is open.

Yeah. Hi, good morning.

Hey, Brian.

Just to clarify, with the expectation of the rate case settlement finalizing next month, and the rate increase occurring in late 2022, how soon can you file again?

We can file 11 months prior to December 22,2024, but it's up to the company to time it effectively. We can file sooner, but new rates can't go into effect until then.

Got it. Thanks for the clarification. That's all I had. Thank you.

Thanks, Brian.

Thank you. Our next question will come from Brandon Lee of Mizuho Securities. Your line is open.

Hi. So from the midpoint of $1.74 for 2022 reduced by the ERM of $0.09, I calculate $1.65. You've earned $0.90 so far. Does this mean you'd need to earn about $0.75 in the fourth quarter to meet the midpoint of guidance for Avista Utilities?

Your calculations are correct. The fourth and first quarters are historically our strongest quarters, and we have that expectation.

How is the fourth quarter looking so far?

It’s early in the fourth quarter, and we’re reviewing expected earnings over the coming months without making assumptions at this stage.

Given the rates in Washington and potential improvements, how will you enhance the 2024 projection?

Part of it will be through rate filings in Idaho and Oregon. We expect to manage through challenges and strengthen our business model.

If we see positive responses in Idaho and Oregon, should we lean towards the lower end of the growth range?

Growth management is complex. We aim for 4% to 6% but will keep evaluating the changes in circumstances and regulatory processes.

That’s all I had. Thanks for your input.

Thank you.

I see no further questions in the queue. I would now like to turn the conference back to Stacey Wenz for closing remarks.

Thank you all for joining us today. We appreciate your interest and hope to see many of you at the EEI in the coming weeks. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.