Earnings Call Transcript - AVA Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Avista Communications Fourth Quarter 2020 Earnings Conference Call. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question-and-answer session. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program. Mr. John Wilcox, Investor Relations Manager. Please go ahead, sir.

John Wilcox, Investor Relations Manager

Good morning, everyone, and welcome to Avista's fourth quarter and fiscal year 2020 earnings conference call. Our earnings and our 2020 Form 10-K were released premarket this morning and are both 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 which is 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 fourth quarter of 2020 were $0.85 per diluted share compared to $0.76 for the fourth quarter of 2019. For the full year, consolidated earnings were $1.90 per diluted share for 2020 compared to $2.97 last year. Now I'll turn the discussion over to Dennis.

Dennis Vermillion, President and CEO

Well, thanks, John and good morning, everyone. As we continue to work through the COVID pandemic, we hope you're staying safe and healthy. Looking back on the last year, I'm just so proud of our employees for navigating the challenges presented by the pandemic, continuing to provide energy like they always do to our customers and progressing our business plans forward. I would like to thank all of our employees for their dedication and determination throughout the last year. We continue to help those who are struggling and most in need in our communities. In 2020, Avista and the Avista Foundation provided more than $4 million in charitable giving to support the increased need for services that community agencies are still experiencing throughout the areas we serve. Financially, our earnings for 2020 were better than expectations. And Mark will provide further details here in just a few minutes. Operationally, we finished installing nearly all of our smart meters electric, smart meters and natural gas modules across Washington and one of the largest projects in our history. The deployment of this infrastructure will provide customers with more real-time data so they can better manage their energy use. The technology enables us to proactively push high energy alerts to notify customers if they could exceed their preset energy budgets, which of course helps eliminate surprises when their bill arrives at the end of the month. Beyond generating bills, we're using the data from smart meters to run a more reliable and efficient power grid and to deliver a higher level of service for our customers. For example, we now have more visibility into our system which allows us to detect and restore power outages more quickly. We also made strides in meeting our Clean Energy goals as the Rattlesnake Flat Wind farm went online last December. During its construction, the project created clean energy jobs for our local communities and now that it's completed the project's 57 wind turbines will provide an average of 50 megawatts of clean renewable energy for our customers at an affordable price. That's enough energy to power 38,000 homes for years to come. As wildfires continue to have an impact on our region, we implemented a comprehensive 10-year wildfire resiliency plan that aims to improve defense strategies and operating practices for a more resilient system. We expect to invest about $330 million implementing the components of this plan over the life of the plan. We were proud to announce yesterday that Avista has also been recognized as one of the 2021 ‘World’s Most Ethical Companies’ by Ethisphere, a global leader in defining and advancing the standards of ethical business practices. This marks the second year in a row that Avista has achieved this distinction. We are only one of nine honorees recognized in the energy and utilities industry based on their assessment. In 2021, 135 honorees in total were recognized spanning 22 countries and 47 industries. We are honored to receive this recognition because it acknowledges our belief that integrating corporate responsibility into our business builds trust, forges lasting relationships, strengthens morale, reduces risk, and delivers enhanced value to our shareholders and ultimately enables us to more effectively deliver on our vision to provide better energy for life. In January, we published Avista’s 2021 corporate responsibility report on our Avista Corp website. I urge you to check it out when you have some time. This content provides a broad look at our operations and how we're fulfilling our commitments to our people, our customers, our communities, and our shareholders. The website also provides links to Avista’s reporting on a series of industry and financial ESG disclosures. The updated content supports Avista’s long-standing commitment to corporate responsibility and sharing this information with our stakeholders. Switching gears, with respect to regulatory filings, in January, we filed two-year general rate cases in Idaho. As you know, in 2020, we filed general rate cases in Washington, and we continue to work through the regulatory processes in both of these jurisdictions. We take our responsibility to provide safe, reliable energy at an affordable price very seriously. We work hard to make prudent financial investments in our infrastructure, manage our costs, and identify ways to best serve our customers that contribute to keeping energy prices low. For example, our proposed tax customer credit would completely offset an immediate increase in electric and natural gas bills for Washington customers. In Oregon, new rates went into effect on January 16 of this year, and we expect to file another rate case in the second half of 2021 in Oregon. Looking ahead, we remain focused on running a great utility and continue to invest prudent capital to maintain and update our infrastructure and provide reliable energy service to our customers. We are initiating our 2021, 2022, and 2023 earnings guidance with consolidated ranges of $1.96 to $2.16 per diluted share for 2021, $2.18 to $2.38 in 2022, and $2.42 to $2.62 per diluted share for 2023. This puts us on track to earning our allowed return by 2023. Lastly, earlier this month, the board increased our dividend by 4.3% to an annual dividend of $1.69 per share. The dividend increase approved by the Board marks the 19th consecutive year the board has raised the dividend for our shareholders, and I believe it demonstrates the board's commitment to maximizing shareholder value. At this time, I'll turn this presentation over to Mark.

Mark Thies, CFO

Thank you, Dennis, and good morning everyone. We had low expectations coming into this year, not the company, the Blackhawks. And the Blackhawks have really started off pretty good. After a slow first four games, we've had five rookies score their first goals ever in the NHL. So pretty exciting times for all your hockey fans out there. For the company in the fourth quarter, Avista Utilities contributed $0.81 per diluted share compared to $0.67 last year. Our earnings increased primarily due to higher utility margin and customer growth. Also in the fourth quarter, the Oregon and Washington commissions joined the Idaho commission to allow for the deferral of certain COVID-19 related expenses for possible future recovery. Additionally, Avista Utilities earnings were better than expectations due to higher utility margin and lower income taxes, which were partially offset by higher operating expenses. With respect to COVID-19, as I mentioned earlier, we have now received accounting orders in each of our jurisdictions to defer the costs and benefits associated with COVID-19. Those will be addressed in future proceedings with each of those commissions. We expect a gradual economic recovery that will still have some depressed load and customer growth in 2021. We expect that to start improving in the second half of 2021. We do have decoupling and other regulatory mechanisms which mitigate the impacts of changes in load for our residential and certain commercial customers; over 90% of our revenue, as you recall, is covered by regulatory mechanisms. As Dennis mentioned, we continue to be committed to invest in the necessary capital in our utility infrastructure. We expect our capital expenditures in 2021 to be about $415 million; at AEL&P, we expect about $7 million and about $15 million in our other businesses. With respect to our liquidity, as of December 31, we have $270 million of available liquidity under our committed credit line at Avista Utilities. In 2020, we issued about $72 million in stock. In 2021, we expect to issue about $75 million of equity or stock and up to $120 million of long-term debt. As Dennis mentioned, we are initiating guidance not only for 2021, but also for 2022 and 2023. And as he mentioned those ranges are to get us back to earning our allowed return by 2023. Our guidance does assume timely and appropriate regulatory relief in each of our jurisdictions relative to the capital expenses that we have going forward. We experienced regulatory lag during 2020 and expect this to continue through the end of 2022 due to our continued investment in infrastructure and our delayed filings. We again delayed last year due to the pandemic in Washington and Idaho. We expect our cases in Washington and Idaho, along with new rates, to provide some relief in 2021 and begin reducing that regulatory lag. Going forward, we'll strive to continue to reduce that and closely align our returns to those authorized by 2023. After 2023, we expect to grow at 4% to 6% in our earnings. Our 2021 guidance reflects unrecovered structural cost estimated to reduce the return on equity by approximately 70 basis points. Additionally, our timing lag has reduced this by about 100 basis points. This results in an expected return on equity for Avista Utilities of approximately 7.7% in 2021. We are forecasting operating cost growth of about 3% and customer growth of about 1% annually, which is slightly improved from prior numbers on the customer growth side. For 2021, we expect Avista Utilities to contribute in the range of $1.93 to $2.07 per diluted share. The midpoint of our guidance does not include any expense or benefit under the ERM. Our current expectation for the ERM is in the benefit position within the 75% customer and 25% company sharing band, which is expected to add $0.05 per diluted share. For 2021, we expect AEL&P to contribute in the range of $0.08 to $0.11 per diluted share. Our outlook for both Avista Utilities and AEL&P assumes, among other variables, normal precipitation and hydroelectric generation for the year. We expect to see a loss between $0.05 and $0.02 per diluted share for our other businesses as we continue to develop opportunities for the future. We'll spend a little bit of money in the next couple of years to continue to get those earnings up over the next five years. We look forward to those opportunities, both in our service territory and in funds. Our guidance generally includes only normal operating conditions and does not include any unusual or non-recurring items until effects are known and certain. So now I'll turn the call back to John.

John Wilcox, Investor Relations Manager

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

Operator, Operator

Our first question comes from Richard Ciciarelli from Bank of America. Please go ahead with your question.

Richard Ciciarelli, Analyst

Hey, good morning. Thanks for taking my question.

Dennis Vermillion, President and CEO

Hey Richie.

Richard Ciciarelli, Analyst

Yes, just the first one. Can you speak to the progress in your rate case filings in Washington and Idaho? I guess what percentage of the revenue requirement asks are you assuming to get to the midpoint of your 2021 guidance range?

Kevin Christie, Chief Customer Officer

Hey Richie, it’s Kevin Christie. How are you?

Richard Ciciarelli, Analyst

Doing well, thanks.

Kevin Christie, Chief Customer Officer

As far as the rate case progress goes, we're really just underway. In both cases, in Idaho, the most recently filed case, we have not established or have not seen the procedural schedule yet. That should happen in the next few weeks. The procedural schedule has been established in Washington, and we've been going through the discovery process thus far. We have our first settlement conversation coming up on March 10. As far as your latter question goes, what we typically see as constructive outcomes from a regulatory get versus ask perspective is in that 55% to 65%. Again, we think we've spent prudent capital and would expect fair recovery from the regulators as we move forward.

Richard Ciciarelli, Analyst

Got it. That's very helpful. Thanks for the color there. And I guess just in terms of your forward-looking outlook for 2022 and 2023, your CapEx was relatively unchanged. Obviously two rate cases now that sound like you're kind of in the early stages. I guess what gives you the confidence that you'll be able to earn closer to your allowed return on equity throughout the company? And how do you plan on executing to get there? Does that embed any multi-year rate plans or anything like that within the outlook?

Kevin Christie, Chief Customer Officer

We need to achieve reasonable results in our commissions from our filings and believe we have filed appropriate cases. We have invested wisely for our customers, and our costs are managed as we serve them. We are addressing timing delays and expect to gradually make progress over the next couple of years, rather than all at once. We filed a multi-year case in Idaho and currently have a two-year case there. For Washington, we opted for a single-year filing due to the pandemic and major projects like the AMI project, which is one of our largest. We can consider multi-year filings in the future to reach our objectives. Our plan is to present an appropriate case that has been reviewed by the staff and involved parties, and we believe we can return to earning our allowed return.

Richard Ciciarelli, Analyst

Got it. No, that makes sense. And then you're talking about still the structural lag there of roughly 70 basis points.

Kevin Christie, Chief Customer Officer

That's correct, we expect that. We've had that for a long time and we just want to emphasize that. So yes, we anticipate that to be the case.

Richard Ciciarelli, Analyst

Got it. Sorry, go ahead.

Dennis Vermillion, President and CEO

And then going forward, we're working with the other parties that we typically work with in Washington along with the commission and the other utilities. There’s a piece of legislation that's sitting in the Senate right now that's intended to help guide and actually require multi-year rate plans of at least two years and up to four years. If that were to move forward, we feel like it's a really constructive piece of legislation that would allow us to have that multi-year rate plan option and requirement. It would help us get the first year right and the transitions from year-to-year right as well. So that would be something we look towards the future after this particular case in Washington.

Richard Ciciarelli, Analyst

Yes, absolutely. That would be helpful. Okay, cool. And then just the last one I had here was I think that in your press release, you mentioned looking at strategic opportunities in 2021. Can you just describe what specifically you're looking at? You mentioned some increased costs there as well. Just curious, what are the costs...

Mark Thies, CFO

It's a minor increase in costs, Richie. We're focusing on the University District in Spokane. We continue to develop our five smartest blocks in the Eco-District, investing some funds there. We're also exploring pilot opportunities in regional communities that we believe could be beneficial for us. Additionally, we're allocating resources to a couple of funds where we've maintained consistent investment. While these costs are nominal at this stage, we see potential opportunities for the future. These investments align with the innovative nature of our company, as we have a history of innovation and allocate funds to leverage market opportunities.

Richard Ciciarelli, Analyst

Okay, this is all in the other businesses not at the utilities, just...

Mark Thies, CFO

Right.

Richard Ciciarelli, Analyst

Okay, thank you. That’s all I had.

Mark Thies, CFO

Thanks, Richie.

Operator, Operator

Thank you. Our next question comes from the line of Brian Russo from Sidoti. Your question, please.

Brian Russo, Analyst

Hi, good morning.

Mark Thies, CFO

Good morning, Brian.

Brian Russo, Analyst

Hey, you mentioned an upcoming Washington IRP in 2021. Is that the second half or fourth quarter?

Dennis Vermillion, President and CEO

I believe that's April. We'll have to check on that. We filed in Idaho last year, and with a progress report in Washington. But to line up the sequencing with the new Clean Energy Transformation Act in Washington, that’s why we did the progress report. I believe it's, we can double check that but I believe it's in a couple of months.

Brian Russo, Analyst

Yes, okay. I was just curious, what can we expect from that, pursuit of more PPAs when Colstrip is retired and the Lancaster PPA expires, I believe in 2025? Or will there be any self-built scenarios in any competitive RFP going forward?

Dennis Vermillion, President and CEO

Yes, you're correct. We will be exiting our portfolio with Colstrip in 2025 and Lancaster the following year. This means we will be looking to acquire new resources. Currently, we have an RFP for renewables underway. We anticipate acquiring assets based on the Integrated Resource Plan we filed in 2020, and I don’t expect a significant change in 2021. Our approach will involve a mix of upgrades to generation plants, additional clean energy sources, renewables, storage solutions, energy efficiency improvements, and demand response initiatives. Our goal is to satisfy our customers' needs in the most cost-effective manner while considering risk and ensuring reliability is a key factor in our decisions. It will be a competitive process, and we will assess whether our self-build options are viable at that time. Ultimately, our aim is to provide the lowest cost on a risk-adjusted basis for our customers.

Brian Russo, Analyst

Okay, and is the wildfire investment 10-year plan included in this rate case, or is that a separate docket to be approved?

Mark Thies, CFO

The wildfire plan. Kevin, do you want to talk about that? Is it included in this case or is it a separate docket?

Kevin Christie, Chief Customer Officer

Yes, let me go through both states. In Idaho, it was its own docket. It's been filed and approved. It allows for a deferral mechanism that includes expense, depreciation, and capital. In Washington, we filed it under a separate docket with the latest GRC in Washington, and it was consolidated with our GRC. That will play out over the length of those 11 months, or we expect that to be the case. What that includes is for 2021, deferral of O&M, and then going forward post-effective rate effective period for the rate case of October 1 that would include both expense and capital.

Brian Russo, Analyst

Okay, great.

Dennis Vermillion, President and CEO

And Brian, we just checked and the IRP, the next IRP in Washington will be filed in April of this year. So I was right on that.

Brian Russo, Analyst

Okay, great. And it looks like last year you issued $72 million of equity. I think you're planning approximately $75 million in 2021. Could you just talk about the balance sheet capacity relative to your CapEx and then the unique structure of this rate proposal with the tax credits that may pressure cash flows in the near term? Just wondering what your target FFO-to-debt or debt-to-cap structure for credit rating purposes is?

Mark Thies, CFO

Again, we have, our target is to maintain our current ratings. We looked at that tax customer credit and looked at the impacts to FFO and believe that we should be able to maintain our current credit ratings. It's just a short term. It's an interim rate relief. The rate relief is for up to two years, depending on where we end up in each of those cases, but we then returned to normal cash flows after that. We don't believe we should have, we might have a slight degradation in the current year post-effective rate. But we don't believe that should change our ratings, as we get right back quickly to having a normal cash flow from that. We don’t expect our ratings to be off. We continue to raise the capital, the equity, and the debt that we do to fund our capital expenditures, but the result is maintaining a prudent capital structure for regulatory purposes. We believe that we will have that now. We'll have to walk the rating agencies through that and go through that process as we normally do. But we've had a look at it, and we've had an outside review of that as well, and we believe that shouldn't change our ratings.

Brian Russo, Analyst

Okay, I understand. You mentioned some pending legislation in the Senate that permits multi-year rate cases. How does this relate to the Clean Energy Transformation Act, which gives the commission various tools, including the ability to earn a return on PPAs for up to 48 months? Is this an additional measure, or does it replace CETA? I'm looking for clarification.

Dennis Vermillion, President and CEO

Yes, great question, Brian. CETA is still in effect and all the information we've previously provided remains relevant. This development offers more clarity regarding the commission’s capacity and focus on multi-year periods. It is advantageous because many utilities submit rate cases annually, and this allows the commission to stagger these cases. Additionally, it clarifies what is involved in securing that first-year approval and how this transitions each year. The utility has the choice to file for a period of two to four years if this legislation progresses, which would enable the commission to make determinations based on those submissions.

Brian Russo, Analyst

Okay, and I suppose the expectation is for that legislation to be passed or not, in this legislative session, when does this legislation session end?

Dennis Vermillion, President and CEO

Yes, that's correct. It might come out of the house, I'm sorry, the Senate this week, and then it would move over to the house. They would go through the normal process that transpires in Washington. So it should be by the end of the session, if not before, if it moves through.

Brian Russo, Analyst

Okay. And just to follow up on an earlier question; is the expectation that you will file a second Washington rate case to include either what's in CETA or what's in this legislation for new rates to close that regulatory gap beginning in 2023 or with a constructive rate case outcome in the pending case that gets you there?

Dennis Vermillion, President and CEO

We'll likely file in the first part of next year. If this legislation moves forward, and even if it doesn't, we may still move forward with a multi-year. That would include all the capital that's being spent now that's not yet in the current case.

Mark Thies, CFO

Brian, because Idaho, our filing, it's a two-year case.

Brian Russo, Analyst

Yes. Correct. Just the multi-year guidance and the losses you're incurring in the other businesses this year, is there an expectation for the losses to reverse and start generating positive earnings and/or monetizing some of the investments through the multi-year guidance period?

Mark Thies, CFO

Well, in the multi-year we didn't breakout our guidance, and I'm not going to breakout right now between Avista Utilities, AEL&P, and others for 2022 and 2023. We gave consolidated guidance but we have said in the past and we stand by that, that's why we're making the investments we're making; that we expect, we started in 2019 to say that in three to five years we expect to start making earnings out of that, $0.05 to $0.10 of earnings and we still believe that we're going to do that. By the 2023, 2024 timeframe, we're looking to have earnings in those other businesses. When we come out with guidance on that, we will lay that out. We do expect as you're looking at it by 2023 or 2024 to start generating earnings from those businesses.

Brian Russo, Analyst

Right. I get it. So the way to think about it is the $15 million you're investing this year. The expectation is you'll earn some sort of return on that $15 million over the next several years?

Mark Thies, CFO

Some of these are new ventures. As we invest in the University District, some might not yield returns for several years, while others could generate returns sooner. It's not like a bond where you'd receive returns annually. These are startup investments and they require time, with varying timelines for returns. We have already seen some earnings from the fund investments and short turnaround times, but others will take longer. It's a matter of balance. It will take some time, and I don't have specific details for you at the moment. When we provide guidance for the upcoming years, we will outline that information. However, we do expect to start generating earnings from those businesses by 2023 or 2024.

Brian Russo, Analyst

Okay. You're expecting to maintain a 75% to 25% sharing on the ERM, which has been the trend for at least the last four or five years. What is influencing the ERM this year compared to last year? Also, what is your current outlook on hydro based on the weather patterns we've observed in the Pacific Northwest and the forecasts for the upcoming weeks or months?

Dennis Vermillion, President and CEO

Yes Brian, this is Dennis. The things that have been driving the ERM over the last several years have been a combination of a couple of things. One is just lower gas prices in general from what we've seen before, and then our team's ability to optimize or manage our resources efficiently. It's a combination of those things continuing that I think put us in a real good position to be in the benefit in the ERM for this year. Obviously, future looking, if we saw a dramatic run-up in natural gas prices, things might change on that. But as long as gas stays where it is, we're sitting pretty good. And then your second question?

Mark Thies, CFO

Hydro.

Dennis Vermillion, President and CEO

Hydro, it's now almost the end of February. We still have a couple of months left for snow accumulation in the mountains. Currently, we are anticipating normal conditions moving forward. According to the Northwest River Forecast Center, the runoff forecast for April through September is expected to be around average, or roughly 100% with minor variations based on different basins. Overall, we are anticipating normal hydro conditions this year.

Mark Thies, CFO

And remember, Brian, the importance of temperatures and how quickly it melts. We may have snow in the mountains. If it melts really fast, that's bad. If it’s a long, cold spring and it melts off slowly, that’s really good. Anywhere in between, as Dennis mentioned, we expect normal because we have good snowpack, but we also need to see how that melts off.

Brian Russo, Analyst

Right, of course. You want average temperatures in that April.

Mark Thies, CFO

And that's what we assume in our expectations.

Brian Russo, Analyst

Yes, okay. And then just lastly, just curious, interest rates have been rising lately and there's concerns with inflationary pressures. How does it impact number one, maybe the timing of your 2021 financing plans on the debt side and then that 3% O&M expense growth that you mentioned earlier as part of the 2021 assumptions? Just curious what your thoughts are there?

Mark Thies, CFO

Regarding the growth in operating and maintenance costs, we are focused on managing our expenses. We set a target and aim to stay within it as much as possible. However, we want to share our expectations because we've experienced increases in various costs, such as insurance and pensions. It's important for us to keep those costs in check, and that's our outlook. On the topic of interest rates, while they have increased slightly, the change isn't significant. We are considering issuing 30-year debt and have taken steps to hedge some of it. We're not trying to time the market amidst the recent developments. The Federal Reserve Chair is currently addressing Congress, and we anticipate him to reaffirm our expectations for low rates. We're monitoring the situation closely and will evaluate the possibility of handling our debt slightly earlier if it makes sense. As of now, we believe it would be more appropriate to proceed, as we typically do, in the second half of the year.

Brian Russo, Analyst

Okay, great. Thank you very much.

Mark Thies, CFO

Thanks, Brian.

Operator, Operator

Thank you. Our next question comes from the line of Chris Ellinghaus from Siebert Williams. Your question, please? Chris, you might have your phone on mute.

Dennis Vermillion, President and CEO

Chris, are you there?

Chris Ellinghaus, Analyst

Sorry. How are you? Good morning.

Dennis Vermillion, President and CEO

We're not even in video Chris, we couldn't tell you you're on mute.

Chris Ellinghaus, Analyst

Yes. Well, I make a lot of mistakes. The $75 million kind of run rate you've been at on equity. Can we assume that that's what you've got built in through this guidance period?

Mark Thies, CFO

We've had a history of issuing at that level and we're not changing our CapEx. The only changes will be cash flow.

Chris Ellinghaus, Analyst

Okay.

Mark Thies, CFO

So we don't give guidance forward with that. But that's been our historical expectations for issuing.

Chris Ellinghaus, Analyst

Okay. You didn't say anything about the dividend payout. Can you just address that?

Mark Thies, CFO

Our dividend payout has remained unchanged since we began, and there has been some delay. We have committed to maintaining our dividend, and our goal is to achieve a payout ratio of 65% to 75%. However, we won't reach this target until we return to earning our allowed return. Currently, we are slightly above our normal range, but we expect to see earnings growth. As indicated in the guidance ranges, the growth outpaces the dividend increase, which was around 4% to 5%, specifically 4.3%. The earnings growth will help us align with our desired payout ratio of 65% to 75% once we achieve our allowed return.

Chris Ellinghaus, Analyst

Sure. What was the increase in bad debt expense last year?

Mark Thies, CFO

I want to say $6 million or $7 million.

Chris Ellinghaus, Analyst

Okay. You did mention that you're expecting the pandemic to continue to be a drag through the first half of the year. Can you give us any color on what you think that looks like for this year?

Mark Thies, CFO

I'll just say the color is it's included in our forecast. I mean it's really, you're going to see some load expectations as we've seen it, but we're decoupled largely as I mentioned in my earlier comments. There's un-decoupled load as an impact. To the extent that bad debts are there, we have deferral mechanisms as we mentioned in each of our jurisdictions to be able to defer that and then go after recovery through a future proceeding. If that proceeding comes up differently, we'll have to address it. Our expectation is those are costs that we should recover through those future proceedings.

Chris Ellinghaus, Analyst

So with the deferrals and with the decoupling, you're basically not expecting it to be terribly big?

Mark Thies, CFO

That's our expectation, and it's included in our guidance.

Chris Ellinghaus, Analyst

All right. One last thing, Dennis, can you give us your thoughts on the Electrification Bill in Washington?

Dennis Vermillion, President and CEO

Certainly, Chris. We support the reduction of emissions and are making good progress with our electric initiatives, but it's essential to do this in a way that minimizes costs for our customers and maintains the reliability of our regional energy systems. We aim to approach this comprehensively to avoid any unintended consequences. However, the bill does not fully take into account the wide-ranging impacts we foresee. We have actively collaborated with other utilities in the Northwest and stakeholders to inform legislators about our serious concerns regarding the bill and its potential effects on both our customers and the energy system. I’m pleased to report that our efforts contributed to the bill's defeat early in the legislative session, meaning it won’t proceed this year. Nonetheless, we anticipate that parts of it may resurface in the future, and we need to continue educating lawmakers on our perspective. We believe that natural gas is crucial in the decarbonization of our energy system. This isn't an endorsement for natural gas without thought, as we are also developing plans for renewable natural gas and exploring other technologies. Energy efficiency plays a key role in this context as well. We are committed to addressing the gas aspect while being concerned about the impact of electrification, not just on affordability for our customers but also regarding the implications for our electric system. Our studies indicate that full electrification could require us to double our electric infrastructure, including generation capacity, which raises reliability and cost concerns. That summarizes our current stance, and we plan to keep educating stakeholders on the rationale for the continued use of gas moving forward. Does that clarify your question?

Chris Ellinghaus, Analyst

Yes, that's helpful. Thanks. I appreciate the color.

Operator, Operator

Thank you. And this concludes the question-and-answer session of today's program. I'd like to hand the program back to John Wilcox for any further remarks.

John Wilcox, Investor Relations Manager

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

Operator, Operator

Thank you, ladies and gentlemen for participating in today’s conference. This does conclude the program. You may now disconnect. Good day.