Avista Corp (AVA) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen, welcome to the Avista Corporation first quarter 2009 earnings conference call. My name is Mary, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn presentation over to your host for today's call, Mr. Jason Lang, Manager of Investor Relations. Please proceed.

Thanks, Mary. Good morning, everyone. Welcome to Avista's first quarter 2009 earnings conference call. Our earnings were released pre-market this morning, and the release is available on our website at AvistaCorp.com.

Joining me this morning are Avista Corporation Chairman of the Board, President, and CEO, Scott Morris, Senior Vice President and CFO, Mark Thies, Vice President of Finance and Treasurer, Ann Wilson, Vice President, State and Federal Regulations, Kelly Norwood, Vice President, Controller, and Principal Accounting Officer, Christy Burmeister-Smith, and the President and CEO of Advantage IQ, Stu Stiles.

Before we begin, I would like to remind you that some of the statements that will be made today are forward-looking statements that involve 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, I would direct you to our Form 10-K for 2008, which is available on our website. To begin this presentation, I would like to recap the financial results presented in today's press release. For the first quarter of 2009, our consolidated net income was $0.57 per diluted share, compared to net income of $0.47 per diluted share for the first quarter of 2008.

Now I will turn the discussion over to Avista's Chairman of the Board, President, and Chief Executive Officer, Scott Morris.

Thank you, Jason. Good morning, everyone. We had a strong first quarter, and we are off to a great start in 2009. We saw approximately 1% growth in both electric and natural gas customers during the first quarter of 2009, as compared to the first quarter of 2008, even with the decline in the economy.

Hydroelectric generation during the first quarter of 2009 was significantly better, as compared to the first quarter of 2008. Based upon current snowpack conditions, and projected stream flows, we expect hydroelectric generation to be near normal for 2009, assuming normal precipitation for the rest of the year. We are also experiencing lower purchased power fuel and power prices, as well as a decrease in natural gas costs, and we had a benefit of $2.7 million in the first quarter of 2009 under the Energy Recovery Mechanism.

We remain focused on diligently managing our operating costs, finding additional operating efficiencies, and providing reliable energy to our customers, such measures include aggressively managing our employee head count through attrition, and restrictions on hiring. I would like to comment about the economy in our service territory. We are observing declines in employment throughout our service area, due to cutbacks in the construction, forest products, mining, and manufacturing sectors. Unemployment rates are higher than a year ago, in our eastern Washington, northern Idaho and southern Oregon service areas.

The housing market in Coeur d'Alene and Medford has declined, whereas the housing market in Spokane remains stable. For the first quarter of 2009 our capital expenditures were approximately $42 million. Our capital expenditures are expected to be approximately $210 million for the full year of 2009. We are planning to upgrade certain hydro projects, and we will continue to enhance our natural gas and electric distribution system.

As we continue to invest in the growth and upgrade of our Company's generation, transmission, and distribution infrastructure, we will continue the timely filing of general rate cases to recover our costs of doing business, and to more closely align our rates of return, with those allowed by regulators. We are actively pursuing the identification of projects that could be funded under the American Recovery and Reinvestment Act. Our focus is to identify opportunities that will match the goals of the Stimulus funding, and benefit our stakeholders.

And now I would like to turn this presentation over to Mark Thies, who will provide details on performance of Avista Utilities, liquidity, and our financing activities.

Thank you, Scott. Good morning, everyone. Avista Utilities contributed $0.56 per diluted share for the first quarter of 2009, compared to $0.44 per diluted share in the first quarter of 2008. This was primarily the result of increased gross margin, due to the implementation of new rates in our Washington and Idaho service territories.

Also contributing to the increased gross margin was a benefit of $2.7 million in the first quarter of 2009 under the Energy Recovery Mechanism, and this compares to $3.4 million absorbed in the first quarter of 2008. Lower electric resource costs during the first quarter, was the result of better hydroelectric generation, as Scott mentioned, as well as lower purchased power and fuel costs. We have seen natural gas prices come down significantly since last year. Utility revenues decreased $11.4 million, as a result of a $25.6 million decrease in natural gas revenues, partially offset by an increase in electric revenues at $14.2 million.

The decrease in natural gas revenues was primarily the result of decreased wholesale revenues of $22.4 million, due to decreased prices. This was offset partially by increased volumes, and a decrease in natural gas revenues, retail revenues of $3.7 million. The increase in electric revenues was primarily due to increased retail revenues of $17.8 million, primarily resulting from the implementation of new rates in Washington and Idaho. And this was partially offset by a decrease in wholesale revenues of $1.5 million, and sales of fuel of $2.6 million.

Utility and other operating expenses increased $6 million for the first quarter of 2009 as compared to 2008. This was primarily due to an increase of $2.8 million in operating and maintenance expenses at our generation facilities, as well as an increase of $2.5 million in pension and other post-retirement costs.

Interest expense decreased due to the effective long term debt maturities and redemptions during 2008, which were funded primarily with proceeds from the issuance of long term debt issued in 2008, as well as borrowings under our $320 million committed line of credit, both at lower interest rates.

On April 1st of this year we redeemed the total amount outstanding, $61.9 million of our junior subordinated debt securities, held by AVA Capital Trust III, and currently AVA capital Trust III, redeemed al of the preferred trust securities issued to third parties, $60 million, and all of the common trust securities issued to us of $1.9 million. The net redemption of $60 million was funded by borrowings under our $320 million committed line of credit.

We had a combined $354.1 million of available liquidity under our our $320 million committed line of credit, our $200 million committed line of credit, and our our $85 million revolving Accounts Receivable facility. We have a sales agency agreement to issue up to 2 million shares of common stock from time to time, and in 2008 we issued 750,000 shares under this agreement.

We continue to evaluate issuing common stock in future periods, however we are not currently planning on issuing common stock in 2009. Due to the market conditions and the decline in the fair value of pension assets, we are planning to contribute $48 million to the pension plan in 2009. 16 million of this was contributed in the first quarter of 2009. Our annual contribution represents a significant increase, as compared to the $28 million we contributed last year in 2008. We have adequate liquidity to meet all of our obligations in 2009. We feel very good about that.

I will now turn the presentation over to Stu Stiles to review the operations of Advantage IQ.

Thanks, Mark. Good morning. Advantage IQ's net income attributable to Avista Corporation for the first quarter of 2009 was lower than the first quarter of 2008. This was primarily due to a decrease in interest earnings on funds held for customers, due to lower interest rates.

Our reduced ownership percentage in the business as a result of the acquisition of Cadence Network, effective July 2nd, 2008, and the amortization of intangible assets related to the Cadence acquisition. However, our contribution of $0.02 per diluted share, still met our earnings expectations for the first quarter of 2009.

For the first quarter of '09 total revenues increased 38%, from service revenues that increased 57%, partially offset by a 74% decrease in interest revenue. First quarter 2009 revenue increases, include revenue as a result of the acquisition of Cadence Network in July 2008. In the first quarter of 2009 we managed bills totaling $4.6 billion, an increase of 1.2 billion, or 35%, as compared to the first quarter of 2008.

The acquisition of Cadence Network added $1 billion in managed bills for the first quarter of 2009. During the full year of 2009 we are expecting slower internal growth than had been expected, as some of our customers are experiencing bankruptcies, and store closures in these tough economic times. Additionally, interest revenue is expected to be lower for the full year of 2009, due to the historic low short term interest rate environment that we are currently experiencing. And that is expected to continue throughout 2009.

However the overall services provided by Advantage IQ are considered valuable to current and potential customers, as Advantage IQ is able to assist them in reducing costs in these difficult economic times. We are pleased with the way the business has started in 2009. Advantage IQ had a strong Q1 in closed business, as our core invoice processing prospects continue to recognize the value provided in allowing Advantage IQ to manage their energy expense. During the first quarter of 2009 Advantage IQ signed contracts that should add over $2 million in new revenues annually.

Last month the EPA recognized Advantage IQ as a sustained Excellence Award for their continued work with the Energy Star program. In 2008 Advantage IQ played a significant role in the energy efficiency efforts of American businesses. The Company processed energy performance ratings for over 31,000 buildings, approximately 81% of all automated ratings nationally, provided energy management solutions to seven clients who were recognized as Energy Star leaders, and supported several others, who were named Energy Star Partners of the Year. This is the third consecutive year that Advantage IQ has received the Sustained Excellence Award.

Now I will turn this presentation back over to Mark Thies, to review our other businesses, dividend information, and earnings guidance.

Thanks, Stu. In the first quarter of 2009 we absorbed some market losses on our venture fund investments due to overall economic conditions, these were the primary drivers in the net loss attributable to Avista Corporation of $724,000 in our other businesses.

Over time as opportunities arise, we plan to dispose of assets and phase out operations that do not fit with our overall corporate strategy, however we may invest incremental funds to protect our existing investments, and invest in new businesses that fit with our overall corporate strategy.

As we have indicated in past calls, management intends to recommend that the Board consider gradually increasing the dividend payout ratio, to become more in-line with the average payout ratio for the utility industry, which currently is approximately 60 to 70% of earnings. The Board considers the levels of dividends on a regular basis, taking into account numerous factors, including financial results, business strategies, and economic and competitive conditions. The declaration of dividends is within the sole discretion of the Board. Our Annual Meeting of shareholders will be held on May 7th of this year.

We are confirming our 2009 guidance for consolidated earnings to be in the range of of $1.40 to $1.60 per diluted share. We expect Avista Utilities to contribute in the range of $1.30 to $1.45 per diluted share for 2009, our outlook for Avista Utilities assumes among other variables, normal precipitation, temperatures, and hydroelectric generation. We expect Advantage IQ to contribute in the range of $0.12 to $0.14 per diluted share, and the other businesses to be between a loss of $0.02 and a contribution of $0.01 per diluted share.

Now I will turn the call back over to Jason.

Thanks, Mark. Now we would like to open this call up for questions.

Ladies and gentlemen, (Operator Instructions).

Your first question comes from the line of Paul Ridzon from KeyBanc.

Good morning, congratulations on the quarter.

Thank you, Paul.

Do you anticipate the 2.5 million incremental pension and OPEB costs, should that be levelized through the year?

Yes, we have included that in our expectations and it is a levelized cost for us.

And you mentioned you are exploring opportunities under the Stimulus package. Can you talk about some of the in-service dates, and how you are thinking about that with what kind of projects you are looking at?

Sure, Paul. Well, what we are looking at is obviously, there are some opportunities around energy efficiency, as well as not smart meters, but some Smart Grid opportunities, particularly with line losses, that we think are pretty attractive for the Company. So we have been looking at projects that not only help drive efficiencies, but also meet the standards of the Act.

So we think that given where the new standards came out, with projects up to $20 million is really in our sweet spot, that we really weren't looking at some of the projects that some other utilities were looking at, in the 500 million to $1 billion range, so we think some of those projects really will fit quite nicely with us and really benefit all of our stakeholders so we are feeling hopeful, that perhaps we might get a project or two.

Can you talk about how the economics of these would work, and how they would flow through the income statement?

Well, at this point it is really speculation, Paul. I am not really sure. At this point, it depends really on the project, the capital expense. We are not too concerned about the regulatory consequences of it, because we do our due diligence, and would make sure that it was beneficial to all of our stakeholders, so from a regulatory perspective, we are not concerned about how it would be treated.

Okay. I understand. Thank you.

Thank you. (Operator Instructions). There are no other questions at this time. I would like to hand the call over to Jason Lang for closing remarks.

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

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.