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Good day, and thank you for standing by. Welcome to the Avista Corporation Q3 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Wenz, Investor Relations Manager. Please go ahead.

Good morning. Welcome to Avista's third quarter 2023 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 are Avista Corp.'s CEO, Dennis Vermillion; President and COO, Heather Rosentrater; Senior Vice President, CFO, Treasurer and Regulatory Affairs 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. Various factors could cause actual results to differ materially from the expectations discussed in today's call. Please refer to our 10-K for 2022 and 10-Q for the third quarter of 2023, which are available on our website for a full discussion of these risk factors. To begin, I'll recap the financial results presented in today's press release. Our consolidated earnings for the third quarter of 2023 were $0.19 per diluted share compared to a loss of $0.08 for the third quarter of 2022. Year-to-date, consolidated earnings were $1.14 per diluted share for 2023 compared to $1.06 last year. Now, I'll turn the call over to Dennis.

Well, thanks, Stacey and good morning everyone. I hope you're enjoying some nice fall weather wherever you're at here in Spokane and the inland Northwest. The leaves are showing their brilliant colors and we even experienced our first light snowfall last week, first one of the season. I'd like to begin by welcoming Heather Rosentrater to our earnings call this morning. In September, you may have seen we announced that Heather would become Avista's 15th President. She is the first female President in our company's 134-year history. You all get a chance to meet Heather at the EEI Financial Conference coming up in November in a couple of weeks. When you meet Heather, you'll see that she's a dynamic leader who's built a deep understanding of the utility business. Over the years, she's established a reputation as a thought leader who has the uncanny ability to strategically anticipate what's next. I believe we have the right leadership team in place to successfully lead us forward through a rapidly changing energy landscape and the complex challenges we're facing as a business and as an industry. As we look to the future, I'm confident that we'll be -- that we'll continue to tap into our rich history of innovation and ask ourselves how might we do things differently. Commitment to our strategy and innovation landed as 1 of only 10 connected communities grants awarded by the Department of Energy. We recently completed the first year of this five-year grant that allows us to work with partners to engage customers about their energy usage at a deeper level. Part of this brand work includes using our grid simulator in Avista's Energy Innovation Lab to explore how to make the best use of the existing grid. And at the same time, we're continuing to ask ourselves, how might we possibly expand our owned generation portfolio? How might we meet the demand for transmission assets as we move toward our clean energy future? And how might we partner with building owners and operators to actively manage not only how much energy these buildings use but when they use it. Ideas like these tap into the built environment to create a battery of sorts, moving us closer to achieving our clean energy goals and can help make energy more affordable for everyone. As we explore options rest assured, we will be prudent and wise with our decisions. Turning to regulatory outcomes. Our results so far this year reflect significant progress we've made on the regulatory front and includes the benefits from our 2022 Washington rate cases. New electric and natural gas rates went into effect in September in Idaho, the first of a new two-year rate plan. Our Oregon general rate case was approved by the commission last week and new rates will be effective January 1st. We look to continue executing our strategy with the next multiyear rate plan to be filed in Washington in early 2024, which will allow us the opportunity to earn our allowed return. With respect to earnings, our third quarter results are ahead of our expectations. At Avista Utilities, we're seeing the benefit of our cost management efforts. AEL&P &P is also ahead of our expectations for the year. Year-to-date, we've experienced losses in our other businesses, which are driven by valuations of investments. There's value that comes from these investments beyond their expected contribution to earnings. These investments can create opportunities for learning, economic development within our service area and help propel us towards energy innovation and transformation necessary to meet our clean energy goals. Now, I'd like to turn this presentation over to Kevin, who will share more about our earnings.

Thanks Dennis and good morning everyone. I'd also like to extend my welcome to Heather. I very much look forward to working with her in her new role. It's also nice to no longer be the new person in the room. To expand on what Dennis was saying about our earnings, Avista Utilities earnings increased in the third quarter of 2023 compared to the third quarter of 2022. This was largely a result of the beneficial impact of our general rate cases, customer growth, and lower costs under the ERM compared to the third quarter of last year. In the third quarter of 2023, the ERM was a pre-tax expense of $1.2 million compared to a pre-tax expense of $4.5 million in the third quarter of last year. Year-to-date, we've recognized a pre-tax expense of $7.8 million in the ERM compared to a pre-tax expense of $7.3 million in 2022. We expect to end 2023 in the 90% customer, 10% company sharing band with a decrease to earnings of $0.08 per diluted share. We are committed to investing the necessary capital in our utility infrastructure. Our planned capital expenditures at Avista Utilities are $475 million in 2023. So, that we can continue to support our customer growth and maintain our system to provide safe, reliable energy to our customers, we are increasing Avista Utilities expected capital expenditures to $500 million in 2024, $525 million in 2025, and $550 million in 2026. Additionally, we were evaluating opportunities as they come up to explore the expansion of our generation assets as well as potential transmission projects to support the integration of renewables and to propel us towards our clean energy goals. We expect AEL&P's capital expenditures to be $17 million in 2023 and we expect to invest $15 million at our other businesses in 2023. On the liquidity front, as of September 30, we have $275 million of available liquidity under our committed line of credit and $41 million available under our letter of credit facility. We have issued $88 million of common stock through September 30 and during the fourth quarter of 2023, depending upon market conditions, we plan to issue $32 million of common stock. In 2024, we expect to issue approximately $80 million of long-term debt and $60 million of common stock to fund our capital spending for the year. We frequently talk about the importance of our cost management efforts, and that's certainly been true this year. We've been successfully managing our costs, but we're unable to fully offset the impact of higher resource costs as a result of the year's poor hydro performance. Due to these higher resource costs, we are narrowing our 2023 consolidated earnings guidance range to $2.27 to $2.37 per diluted share. Given current expectations, if it were not for these higher resource costs, we would end the year in the upper half of the original guidance range. To recognize the impact of our cost management efforts, we have increased the floor of Avista Utilities guidance by $0.03 and now expect the contribution in the range of $2.18 to $2.24 for the year. We now expect AEL&P to contribute in the range of $0.10 to $0.12 per diluted share in 2023 to reflect the better-than-expected performance of this segment. Year-to-date, we've recognized net losses in our other businesses, primarily due to valuation adjustments. Quarterly valuation of certain investments can cause some volatility in our earnings and it increases the transparency of these investments value. We expect our other businesses to contribute in the range of $0.01 loss to $0.01 gain per diluted share for the year. We are finalizing our 2024 business plans and expect to provide our 2024 guidance on our February earnings call. Now, we'll be happy to answer your questions.

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] And our first call -- excuse me, our first question today is from Tanner James with Bank of America Securities. Your line is open.

Hi, good morning.

Hey good morning.

Good morning Tanner.

Good morning. Could you provide a little bit of detail into the incremental CapEx? What are the specific opportunities you're seeing here? And then longer term, what do you expect will go into financing? So, kind of, how do you look at that year-by-year going forward?

Well, what I can say about the -- thanks for the question. What I can say about the incremental capital going forward, significant portion of it is a continuation of the type of capital we've been investing in over the last many years. And we are seeing some additional opportunities and have been upping the investment in our generation assets as we have some major projects coming due, and we've had assets -- those assets in particular, for more than 100 years in some cases, and we need to make some investments there to modernize. So, that's becoming a bit of a bigger proportion. But generally speaking, we're looking at similar capital as we have been spending in the past. The second question that you're asking there, Tanner, is about our incremental financing plans going forward or financing plans going forward, if I have that correctly. And we'll -- again, we'll be giving guidance next quarter likely. And at that point in time, if there are any changes to what I've shared here, I would share it there. But we typically only do give guidance around our financing plans a year out.

Understood. Thank you. And I might have missed it in the press release or presentation or rather, it might be implied. Are you guys reaffirming the long-term EPS CAGR in line with your rate base growth?

Once we get back to earning our authorized return, we expect to be in the 4% to 6% long-term growth rate.

Great. Thank you very much guys.

You bet. Thanks for the questions.

Thank you. Our next question is from Brian Russo with Sidoti. Your line is open.

Hi. Good morning.

Hey Brian.

Good morning Brian.

Hey. The generation investments that you just referenced for the increase in CapEx. Is this IRP related? Or are the generation expansion opportunities you're evaluating kind of longer term IRP focused?

Yes. So, let me differentiate the two types here. What I was referring to with Tanner's question is the proportion of the capital planning dollars that I described earlier are related -- some of them are related to generation needs to improve or modernize existing generation assets, hydro assets in particular. And so that's part of what I've described. And then Dennis' comments and then some of what I was mentioning is, we'll also try to be opportunistic. As we think about the clean energy future and what is needed, there's a bit of a theme across the country. I'm sure you know where we -- all have clean energy goals or many of us have clean energy goals and that we are looking at the need to invest in clean generation as well as transmission on a go-forward basis to meet those goals. So, it's really two different categories when you think about generation.

Okay, got it. And then just on the guidance revisions. There are a few moving parts were the regulatory outcomes what exceeded your expectations, but that offset with the $0.08 ERM headwind, which is now included in your guidance where previously was excluded from the midpoint? Just want to make sure -- I want to -- I'm just trying to get a sense of what's ongoing into 2024. The ERM gets reset to zero where the -- any upside in the regulatory outcomes would carry through into 2024 and beyond?

Yes, I can appreciate the question there, Brian. So, back to your first point or the point around guidance and guidance setting and ERM, we typically don't guide with the ERM included. But for 2023, we've had significant headwinds around hydro -- poor hydro condition in the way the water came off. And so that led us to hear on -- and the prior quarter to acknowledge an $0.08 headwind on hydro. On the actual results are why we're seeing the Utility perform a bit better. When you do exclude the hydro, we have continued to manage our costs pretty successfully. And that has -- that's a big part on why we're showing a bit better. We moved the bottom end of the range up by $0.03 for the Utility segment.

Okay, got it. And what's driving the AEL&P performance up $0.02?

They've had a bit better weather as well as some cost management as well.

Okay, great. And then I know it's early in terms of the upcoming hydro season and water supply levels. But can you remind us what typically occurs with your resource costs in a La Niña-type scenario?

Well, that's funny. We're talking about weather here, Brian and that's a dangerous topic. I would share that I've seen a lot of data from our power supply team that shows that it can be a real mixed bag, whether you're in a La Niña or El Niño. And although I think what many would say is we'd expect a bit warmer and a bit drier than normal in the winter. We've seen many instances where that just hasn't been true and we've seen wetter and colder. And that's--

Understood. Thank you very much. No, I got it. Very good. Thank you very much.

Thanks again for the questions.

Thank you very much. Our next question is from Jamieson Ward with Guggenheim Partners. Your line is open.

Hi good morning. How are you guys?

Jamieson, doing good.

Good morning.

Good. Understood from your prepared remarks that you'll provide 2024 guidance, including segment insights on the fourth quarter call, but higher level, in aggregate, do you expect growth to be linear into 2024?

What I can say there, Jamieson, is that we get our next big bump up in earnings. So, it will be non-linear as we think about 2025. So, this next case that we'll file in the first quarter of 2024 in Washington is a big impact on our expected earnings in 2025. And so we'd see much a bigger increase in 2025 versus the movement from 2023 to 2024.

Got you. Got you. And then as we think about the other business segment going forward, any insights you can give us there on kind of timing and schedule around the potential at least for further valuation-related adjustments or impacts on earnings? Obviously, you can't predict where valuations will be in the future. But just trying to get a sense of magnitude so that we can and have a sensitivity of what could occur in the other segment in the future?

Yes. Again, we'll give guidance next quarter for all segments -- likely give guidance next quarter for all segments when we when we have that conversation with you all. And I think one of the things you're alluding to is one of our investments that we're seeing a little bit more volatility. And what we've shared is that there's a clinical trial that we'd expect to have a better understanding of how things are working out for them in the latter part of next year. And so it's -- there's not much more I can add at this point in time.

Understood. Thank you very much and look forward to seeing you guys at EI.

Same here. Thank you.

Thank you. Our next question is from Willard Grainger with Mizuho Financial Group. Your line is open.

Hi, good morning team. Thanks for taking my question.

Morning.

Just want to understand a little bit, what should we be assuming as the base year for your 4% to 6% EPS CAGR?

Yes, I think it'd be fair to say that the base year is, it wheels off of when we're earning our authorized return, which we would expect to occur. We have a chance to earn our authorized return in 2025. So, I would think of it as going from 2025 forward.

Okay, got it. That's helpful. And maybe just one, and sorry to beat a dead horse here, but you've raised your CapEx guidance and when can we expect some of the financing guidance around that to come out? If you could unpack that a little bit for us here. Thank you.

Well, there's a lot of moving parts, and we've shared our incremental needs for 2024, which would help fund the $500 million that we have described to you here on this call. After that, it will be situational based on, of course, our cash flows. We've had some tax credits that are rolling off, which provides incremental cash. And we have the ERM to continue to manage. We've got the ERM balance that we filed in a rate case -- or I'm sorry, in a rate proceeding not too long ago, middle of the year. We have that coming back to us over two years, and it will really matter what we see on an ERM go-forward basis, too. And we'll have to update you once we see all of those pieces come together on a go-forward basis from 2016 forward.

Got it. I'll leave it there. Thank you very much.

Thank you.

Thank you. I'm showing no further questions at this time. So I would like to now turn it back to Stacey Wenz.

Thank you all for joining us today and for your interest in Avista. We look forward to seeing many of you here in a couple of weeks at EEI. Have a great day.