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Good day, and thank you for standing by. Welcome to the Avista Corporation First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stacy Wentz, Investor Relations Manager. Please go ahead.

Good morning. Welcome to Avista's first quarter 2023 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. 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 2022 and 10-Q for the first quarter of 2023, 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 2023 were $0.73 per diluted share, compared to $0.99 for the first quarter of 2022. Now, I'll turn the call over to Dennis.

Well, thanks, Stacy, and good morning, everyone. Before we discuss our earnings, I'd like to say congratulations to Mark. You may have seen the press release we issued this morning announcing Mark's upcoming retirement. It's an important decision, and we're so happy, Mark, for you and your family. Mark's responsibilities will transition next week on May 11, following our annual meeting. Even though he'll stay on as Executive Vice President until his official retirement on October 1, today will be his last earnings call. I'd like to thank you, Mark for your 15 years of dedicated service to Avista. He joined the company in 2008 during [indiscernible] during the great recession, you helped us successfully navigate through that global financial crisis and of course, the recent pandemic during your tenure. Those are some pretty significant achievements [indiscernible] your time and listen, I could go on and on, all the great things in the middle of that, but we will save that for another time in the interest of time. Throughout the year, you've earned respect of many in our industry. I've watched you, Mark, as you've applied all your experience in finance and in the utility sector to build and lead a strong finance team at Avista that will carry on your legacy long after you've retired. Mark is always the voice in the room that's advocating for our investors. And Mark, you've built trusted relationships with bankers and investors to ensure that Avista has access to the capital necessary to fund our business and ongoing investments, the investments that we need to make to maintain and upgrade our utility as we serve our customers. You've also been instrumental in overseeing the financial success of our other businesses, including the sale of our subsidiary, Ecova and there's so much more in that space as well. Your actions have helped build Avista's financial strength and flexibility to position us for the future as we transition this role. So Mark, we are grateful for everything that you've done, and we wish you all the best in your retirement as you begin your next chapter in your life. So, with Mark retiring, you saw that we've named Kevin Christie to become our new CFO, Treasurer and Senior Vice President of Regulatory Affairs. He'll assume these responsibilities next Thursday at the close of our annual meeting on May 11. So, congratulations, Kevin. Many of you already know, Kevin, from his participation on these earnings calls. He’s been on them for a while, ever since he stepped into his role as Senior Vice President of External Affairs, which included the regulatory affairs portion and then also as Chief Customer Officer for the company. Kevin has extensive experience in finance in the energy industry. After earning a Bachelor's of Arts degree in accounting from Washington State University [indiscernible], he joined GTN or Gas Transmission Northwest as an accountant and then progressed into leadership. Since joining Avista in 2005, Kevin has held numerous leadership roles, including Senior Director of Finance in 2012; Vice President in 2015; and Senior Vice President in 2019. In addition to his finance experience, Kevin brings expertise from across our business. Kevin, in one of your more recent accomplishments, while leading our regulatory affairs team, you worked effectively with regulators to secure the approval and implementation of our multi-year rate cases to help provide long-term financial stability and success for the company. Your experience and credibility in the regulatory arena, along with the trusted relationships that you've built with our commissions over the last several years, these are obviously critical assets as you step into the CFO role. As part of this leadership transition, we made some strategic organizational changes that leverage our relationship and trust, Kevin, and his regulatory team have established with our commissions and other key external stakeholders. At the same time, it also formalizes the alignment between our internal functions of regulatory affairs, finance, and accounting, and we're grateful for how effectively these teams already work together because they play a vital role in Avista's ongoing success as we strive to achieve our allowed returns. In the coming days and weeks, we'll be reaching out to all of you to introduce you to Kevin and if you plan to attend the AGA Financial Conference in a couple of weeks, the American Gas Association Financial Forum, you'll get an opportunity to spend some time with Kevin and all of us. So, we look forward to that. So congratulations, Kevin, you have our full-support. Now moving on. In April, we announced the results of our 2022 All Source RFP, a 30-year agreement for 100 megawatts of wind. When combined with our recent agreements with the Chelan County PUD that we signed at the end of 2021 and our 2022 agreement with Columbia Basin Hydro, more than 70% of our peak generating capability will be produced from non-emitting resources in 2026. We also announced two renewable natural gas contracts and the extension of our power purchase agreement with the Lancaster Generating Facility. The RNG projects contribute to our aspirational clean energy goals within our natural gas operations, and the extension of the Lancaster deal meets an important need for our cost-effective, reliable generation, and ensuring adequate resource supply during a dynamic energy market, which we have been seeing lately. Each of these agreements contribute to achieving our clean energy goals and implementing our clean energy implementation plan. So, with rate cases, our strategy to return to earning our allowed return includes filing timely rate cases and we are executing on that strategy with a multi-year rate plan that's been filed in the Idaho Commission. We did that in February and a general rate case that we filed in Oregon in March, and we continue to work our way through the regulatory processes for both of those proceedings. With respect to earnings, we are off to a solid start in 2023. Our results are slightly ahead of our expectations for the first quarter as we work to manage our costs. We always do a good job of that, we continue to, especially in the face of continuing inflation and increasing interest rates. We expected commodity prices to remain elevated throughout the winter and they did. So, as a result, our net power supply costs were high in the first quarter of the year. We expect lower net power supply cost for the rest of the year, resulting in a net benefit under the ERM for 2023. So, we are confirming our annual consolidated guidance for 2023 with a range of $2.27 to $2.47 a share. However, on a quarterly basis, our earnings will differ from recent years, and Mark can get into that and share a little bit more about what that will look like for us. So with that, I'd like to now turn this presentation over to Mark. One last time. Mark, take it away.

Thanks, Dennis. Thanks for your nice words. And good morning, everyone. And even though this is my last call, I still have to start with the Blackhawks comment and really May 11 is when I transition out of my role and Kevin takes over, but May 8 is really the key date, which is the drawing for the lottery in the NHL to see if the Blackhawks can pick up [indiscernible]. The hockey playoffs have been interesting as the – both the President's Trophy and Defending Champion are out of the hockey playoffs this year. So, it will be exciting and I'll continue to watch. Before I talk about earnings, I want to thank everybody, investors and analysts and people at, you know bankers that have all followed Avista over the years, and it's been a long run for me at Avista and then also prior to that at Black Hills, getting to know many of you, and I've really appreciated all that. I do look forward to being away from all of that. I will say and spend time with my family. We have a new granddaughter, and I'll be very excited to do that. I get – I have to at least thank my wife, Betsy, for putting up with me all these years. It's been terrific throughout my career. I want to make sure that I thank and recognize all the people at Avista that I've had the privilege to work with. It's been an honor. Dennis mentioned the strength of our accounting team, our finance team, our tax team and strategy and nothing could be more true. They're terrific teams, and it's been my pleasure and honor to work with them for the last 15 years. So with that, I'll get into the first quarter and probably the start – I know we missed expectations from what people had, and we probably – listen, I'll take responsibility for that. I should have thought about that when we came out with guidance. We knew that the way it would play out because of the allocation of how taxes are spread over the year and how our tax credits impact our earnings, that our quarterly differences were going to be there. We just had never given quarterly guidance before. So that, I will take accountability for – we beat our expectations in this quarter. And when we model it out, we decided that we're going to come out and put quarterly expectations out there. So, in our guidance, we have those quarterly expectations. I'll get to that a little bit later, but I really wanted to start with that. So, also in the first quarter, our earnings were down. We had increases in our margin, due to general rate cases that we've completed last year and this year, and then also customer growth, and they were offset, as Dennis mentioned, by higher net power supply costs, which we expected coming into the first quarter. The Energy Recovery Mechanism in Washington was a pre-tax expense of 7.6 million in the first quarter, compared to 1.9 million. So that's almost $0.10 difference from the prior year. But for the year, as we look forward, we expect the ERM to come back and be a positive within the deadband and about $0.03. So, while it was a negative in the first quarter, we do expect that to come back later in the year. We did file – we've talked about this before. We did file our rate cases in 2021 for Idaho and Washington. So that had an impact of our tax customer credits and that is rolling off at the end of this year in the third quarter. And that's what really causes the difference in our utility margin and our effective tax rate. So, when all that moves, we end up spreading more of our income from the first quarter into primarily the fourth quarter. So, when we look at our guidance and I'll really just get back to the guidance, if you – excluding the ERM. The first quarter was 35% of our earnings, our annual expected earnings at Avista Utilities, excluding AEL&P and other, they're small and pretty ratable over the year. But then we wanted to come out and say, we expect the distribution of the remaining quarters to be 5% of our earnings in the second quarter, 10% of our earnings in the third quarter and 50% in the fourth quarter and that's all primarily due to the allocation of income taxes. So, like I said, we did make our first quarter, and we're happy with that. And I know it's – we've never given quarterly guidance before. I think it's important to do that. And so that's how those amounts will be spread. Moving on to kind of the capital committed. As Dennis mentioned, we continue to fund the necessary capital in our utility infrastructure, and we expect Avista Utilities to spend $475 million this year, AEL&P to spend about 19 million and other business is about 15 million. From a liquidity perspective, we did close a bond offering in the first quarter, and we have $264 million of available liquidity under our committed lines of credit and $26 million under a separate letter of credit facility. And in the second quarter, we do expect to increase the capacity on our line for our credit facility from $400 million to $500 million. With respect to equity, we do expect to issue $120 million, of which we issued 30 million in the first quarter. So, now moving on to the earnings guidance. As Dennis previously mentioned, we are confirming our guidance – 2023 guidance of $2.27 to $2.47 a share on a consolidated basis. And for Avista Utilities, this is where we have a little bit of more detail for you, we expect Avista Utilities to contribute $2.15 to $2.31 per share, which is consistent. The midpoint of that range does not include the ERM, which while negative in the first quarter, we do expect to be $0.03 positive for the year. And our first quarter earnings, I said this earlier, but I want to repeat it because I think it is important, it's a change for us, our first quarter earnings represent 35% of our forecasted annual utility earnings, and that excludes the impact of the ERM. So, you have to add back the negative $0.08 in the ERM in the first quarter and then the math gets you there 35%. We expect 5% of our earnings in the second quarter, 10% in the third quarter, and 50% in the fourth quarter. And again, all of those exclude the impacts of the ERM in each quarter. And as historically we've done, we will continue to report on where we are in the ERM each quarter and where we expect to be for the year. Our guidance also assumes timely and appropriate rate relief in all of our jurisdictions within the utility. And then we also expect AEL&P consistently to contribute $0.08 to $0.10 and our other businesses to contribute $0.04 to $0.06, which is consistent with our past guidance. Our guidance generally only includes normal operating conditions and doesn't include any unusual or nonrecurring items until the effects of those are known. So, now I will turn the call back over to Stacy for questions one last time.

Thank you. We welcome your questions.

[Operator Instructions] Our first question comes from Brian Russo with Sidoti.

Hi, good morning.

Good morning, Brian.

Hey, thank you for the quarterly dispersion of earnings, very helpful. When we think about the ERM and the reversal of the expense as we move through the year. When might the bulk of that occur? Is it going to be – it seems as if hydro where snowpack is high. And so, assuming normal runoff, would you get the biggest benefit or reversal of that expense in the second quarter?

No. I mean it's – we'll speak to those each quarter, we'll come out with it. What we do expect is some of that reversal in the second and third quarters. But we haven't given the specific guidance for the year. We will each quarter, as we always have, Brian, come out and say, here's what the impact was. And then here's where we expect it to be for the full-year. We'll continue to do that. But we're not giving guidance on this one as to specifically when and how much it comes off, but we do expect it to come off for the most part in the second and third quarters. And I'm not going to go further than that.

Can you – what are the water supply levels like in your major areas?

Well, for us, we're around normal on hydro, and we expect – right now, it all comes down to how does it melt off. And we're just starting – I mean, really, it's been a long cold spring. Those are good long, cold springs are good. It keeps a snow up in the mountains. We're just starting to hit some heat now, so we're getting some of that hydro. We don't – we expect normal hydro at this point, assuming that we don't have anything significant with two extended period of high heat, but that's always the case. And it looks like we'll be there right now.

Okay. Got it. And then also just in your effort to improve your earned ROE or returns in Washington, what is the rate case strategy? I know we had some time before you'd actually file. But I mean, are you looking to file for new rates to be effective for the full-year of 2025?

Hey Brian, this is Kevin Christie. Thanks for the question. Yes, we'll put together our rate case strategy over the next few months. We're already entering into the test period. And we'll leverage the last case that we put forth to achieve the two-year rate plan. The idea, I think, is to get it filed as soon as we feel we need rate relief, which will be pretty darn close to that first date after the two-year period of the last case.

Okay. Got it. And then just in Idaho, can you remind me what did – what was the requested ROE that you filed for? And what was the most recently approved ROE in Idaho?

Yes, Brian, we filed for a [10.25] [ph] ROE in Idaho and in the prior case, it was [9.4] [ph].

Okay, great. That's all I had. And Mark, good luck in the future. It was a pleasure working with you.

Thanks, Brian. You as well.

Our next question comes from Sophie Karp with KeyBanc.

Hi, good morning. Thank you for taking my question. And Mark, you will be missed, but I'm sure you have better things to do then to go to all the conferences with us.

May not get as many Blackhawks comments.

Yes. So, a couple of questions for me. First, like are you guys thinking of given actually quarterly guidance maybe going forward because [indiscernible] read in lines of your remarks, and it's very helpful to get some breakdown ex-ERM, but is that something that you would consider?

I think we have to look at it this year because of the allocation of – and this all comes back to those tax customer credits and then how taxes are allocated across the year through the accounting principles. And I'd love to have Ryan Krasselt talk to that, but we don't have time for this call to go through all those accounting items. But to the extent they are significantly off where we think normal expectations would be, we have to consider it. And like I said, I should have done it. We should have done it at the start when we came out with our guidance and did not, I take responsibility for that. We probably should have done it. I'm not a fan of quarterly guidance because things can move around a little bit, but it was so significant this year, we needed to do it. To the extent next year turns [down] [ph] and if there, we'll have to consider that, but that's a future consideration that I'll defer to Kevin and Dennis and the team to think about that. I don't – as a matter, of course, I'm not a fan of it consistently because there's just enough variability that I don't want to have to try to explain quarterly differences when we're still on track for a year, would be my sense.

Got it. Got it. Thank you. And then on the ERM recovery, I have it in my notes that you were supposed to file for it in April. Can you just remind us if you have indeed filed for that and what the cadence is from here on of, kind of like deferred cost – power cost recovery, filings and the actual recovery, I guess?

Yes. Hi Sophie, it's Kevin. Thanks for the question. We did make the filing as scheduled, and we're in the middle of the process moving towards recovery of the costs related to what we call the bucket, the $30-plus million that we had. And so, that's in place, and we would expect the commission to move forward and approve it.

Okay. Is there like a process where you could propose some,. sort of a more automatic recovery of that or is that just still going to be a part of the rate case?

No, it's outside of rate case, it’s still on filing. We've made that filing, and we would expect the commission to approve it outside of a rate case, and we would see that filing in the near future for new rates in effect this summer.

Okay, got it. Thank you. That’s all from me.

Thank you, Sophie.

[Operator Instructions] Our next question comes from Alex Mortimer with Mizuho.

Hi, good morning. So just on the side of Avista Utilities, the 2023 guidance of $2.15 to $2.31 would represent a pretty significant increase from the $1.61 million from 2022. Can you provide any color on where you expect to be within that range, if there's a bias towards the high, middle and low. And then, sort of what are the drivers that are going to allow you to make up that pretty significant [gap] [ph]?

Well, I mean, part of it is 2022 was a significantly down year. We lowered expectations several times over the course of the prior years and didn't have time to really get a rate case in our jurisdictions in Washington, our largest jurisdiction to get timely relief until we finally at the very end of 2022 got the two-year rate case that Kevin and his team came up with and that really has significantly helped 2023 relative to 2022 with the rate cases from that, a second year in Idaho and then an Oregon rate case. So those – all three of those helped and we had higher costs in 2022 that we weren't able to work through. With those rate cases and some cost management, as Dennis mentioned, we were able to come out with a stronger guidance. The stronger guidance in 2023 versus 2022 is also more consistent with historically where we want it to be. We're not quite all the way back yet because inflation, kind of kicked in right after we settled Washington. But we'll – as Kevin mentioned in the strategy, we'll file again in Washington, and we've already filed in Idaho and Oregon. So, as we go forward, we believe with timely rate relief, which is important, and we need to work with our commissions that we will be able to get back to earning our allowed return. That's just going to take some time. That's really the difference. The ERM, we don't – I don't really – the ERM is, it's negative right now in the first quarter, $0.08, but we do expect it to be for the year back to $0.03. So, if you're looking at – and we generally guide, we give you a range, which implies we're guiding to the midpoint. And so with that, if the ERM ends up in the positive, we would expect to be slightly positive in the upper half of our range is what our guidance is for Avista Utilities at this time.

Okay. Understood. And then I know you mentioned on the fourth quarter call that you expect about 80 basis points of regulatory lag. As you work through rate cases this year, sort of when do you see that getting to ease as most of that related to Washington or as you work through cases this year, do you see that easing in 2023, 2024, 2025?

Well, you'll start to see a little bit of it because, again, if you look, and this is just very high level, 60% is Washington, 30% is Idaho, 10% is Oregon, just at a very high level. There's a couple of percents off on there, but that's listen, Washington, we're not going to – we filed that. We had a very good outcome for that, but then inflation hit right after that. So, it's going to take until that next case that we filed that really affects the end of 2024 and into 2025 is where we'll have the opportunity to get back in Washington. We'll continue to manage our costs. We'll continue to run our business efficiently. But from a regulatory perspective, that's where we are. [Idaho and Oregon] [ph], we just filed, right? We just filed in February in Idaho and in March in Oregon. Idaho rates, we expect to go into service September 1, assuming a normal process with the commissions, and then Oregon would not go into effect until January 1 of 2024. So 2023, we'll get a little bit, and it's included in our expectations from Idaho. And then 2024 we'll have Idaho and Oregon on a more current rate schedule, and then Washington will be what we need to pick-up and that will occur in 2025.

Okay. Understood. And then finally, I know obviously not a large driver of 2023 guidance at this point, but can you touch a little bit on the biotech investment from the end of last year and what led you to report a gain in fair value and then, kind of some of the assumptions that led to that fair value calculation given that it was such a large driver of last year's results and then not a significant driver this year?

Well, again, it was – we value that quarterly. It didn't change significantly in the first quarter. It's valued quarterly. But as we talked about last year, that investment started as a biofuel investment and turned into the biotech because of what they developed and they are in different clinical trials and have created value, but the results of those clinical trials are going to be 12 months to 18 months. So, we don't really expect additional – significant additional news on that so really into 2024, kind of mid-2024 and later is when we would expect more news. So, some of that is just news driven. They got the first round, and there were some value created and we had to report that. We did report that last year, at the end of the year. And then now we just continue to manage that as we go forward. We will report that every quarter to the extent there's anything that goes on with that, and this quarter was a quiet one.

Okay. Understood. That's all for me and look forward to seeing you at [A.J.] [ph]

Thank you.

That concludes today's question-and-answer session. I'd like to turn the call back to Dennis Vermillion for closing remarks.

Well, thank you, and as we sign off today, I hope you all join me in wishing Mark a happy retirement. Mark, I know you're counting down the days and looking forward to having more time with your family and with the granddaughter and doing all the fun things that you'd like to do most. I know there's probably some fishing in your future. Blackhawks, you win and lose with him, I know and that will turn around at some point. It always does. And then, of course, some fine wine. So, cheers to you on a wonderful retirement. Thank you. And to everyone on the phone today, thank you for joining us, and we appreciate your interest in our company, and I wish you all a terrific day and a great week. Thank you.