Avista Corp (AVA) 2015 Q1 法說會逐字稿

Welcome to the first quarter 2015 earnings conference call. My name is Paulette and I will be your Operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Jason Lang, Investors Relations Manager. You may begin.

Thanks, Paulette. Good morning, everyone. Welcome to Avista's first quarter 2015 earnings conference call. Our earnings were released pre-market this morning and the release is available at our website at avistacorp.com. Joining me are Avista Corp's Chairman of the Board, President and CEO, Scott Morris, Senior Vice President, and CFO, Mark Thies, Senior Vice President, and President of Vista Utilities, Dennis Vermillion, VP State and Federal Regulations, Kelly Norwood, and the VP Controller and Principal Accounting Officer, Christy Burmeister-Smith. 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 certainties 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 form 10-K for 2014, which is available on our website. Also, we're planning to file our first quarter 2015 10-Q later today.

To begin this presentation, I would like to recap the financial results presented in today's press release. Our consolidated earnings for the first quarter of 2015 were $0.74 per diluted share, compared to $0.81 for the first quarter of 2014. Now I'll turn the discussion over to Scott.

Thank you, Jason, and good morning. Earnings for the first quarter of 2015 were below our expectations due to weather, that was significantly warmer than normal. However, the impact was somewhat mitigated through the decoupling mechanism in Washington. Excluding the impacts of weather, we had a solid first quarter and I'm pleased how well our utilities have performed operationally. We continue to make significant capital investments to preserve and enhance service reliability for our customers, and in addition, we're maintaining our focus on effectively managing our operating costs and I believe we are well positioned to sustain our long-term earnings growth.

Since acquiring Alaska Electric Light and Power Company last summer, we've spent some time getting to know our service territory in Alaska, participating in economic development conferences and having conversations with key community leaders. The (inaudible) utilities is well respected in Southeast Alaska and we're pleased with the warm welcome we've received and our Alaska operations met our expectations in the first quarter. On Monday, we filed a partial settlement agreement in our Electric and Natural Gas general rate cases with the Washington Commission.

The partial settlement includes agreement among the parties on the cost of capitol, net power supply costs, and rate design among the customer classes, and Mark will provide further details of this settlement later in the call and of course, Kelly is here to answer any questions. On April 16, we had had new rates go into effect in Oregon which are designed to increase annual natural gas revenues by $5 million. On May 1, we filed a natural gas general rate case with the Oregon Commission. We requested an overall increase of natural gas rates of 8%, designed to increase annual natural gas revenues by $8.6 million. We're also planning to file electric and natural gas general rate cases in Idaho before the end of the second quarter. And lastly, were confirming our 2015 earnings guidance with a consolidated range of $1.86 to $2.06 per diluted share.

So at this time, I'm going to turn over the call to Mark, who is all decked out in his Chicago Blackhawks gear this morning. I think he might be having a tad bit of irrational exuberance since we're early in the playoff's and Mark's already wearing his full Blackhawks gear.

Go Hawks. It was an exciting win last night over the Wild. For the first quarter, Avista Utilities contributed $0.71 per share, a decrease from $0.80 in last year and that's due to significantly warmer weather and lower heating loads.

By contrast to the first quarter of 2014 was colder than normal. The decreases in loads were tempered as Scott mentioned by the decoupling mechanism in Washington which was implemented on January 1. For the first quarter, we recognized a pre-tax benefit of $5.7 million under the Energy Recovery Mechanism in Washington, compared to $1.3 million for the first quarter of 2014. For the full year, we still expect to be in the benefit position under the ERM within the 90% customers 10% company sharing band. We continue to be committed, as Scott mentioned, to updating and maintaining our utility systems.

We expect Avista Utility's capital expenditures to be about $375 million in 2015 and $350 million in each of 2016 and 2017. We expect to expend approximately $15 million in each of 2015, 2016 and 2017 related to capital expenditures at AEL&P, our Alaska operations. A significant portion of these capital expenditures are for the construction of an additional backup generation plant. As Scott mentioned earlier, we filed a partial settlement in our Washington electric and natural gas general rate cases. The partial settlement agreement is based on a 48.5% equity layer and a 9.5% return on equity, and that reduces our electric revenues request.

We also reduced our electric revenue request from $33.2 million to $17 million. Our original natural gas revenue increase was from $12 million to $11.3 million, a slight decrease. The revised revenue amounts reflect changes in the Company's power supply model, updated lower contract cost associated with the recently signed power purchase agreement, and agreed upon additional reduction to power supply costs. The majority of the decrease in power supply costs has no impact on the Company's overall gross margin.

The remaining issues to be revolved in the case include among other things, our capital investments in infrastructure improvements, as well as recovery of utility operating costs. Now, I'll talk about our liquidity and financing plans. Avista Corporation has a $400 million committed line of credit with various financial institutions that expires in April of 2019. As of March 31, 2015, there were $65 million of cash borrowings and $35.6 million of letter of credit of outstanding, leaving almost $300 million of available liquidity.

AEL&P has a committed line of credit in the amount of $25 million that expires in November of 2019, and has no borrowings outstanding on that agreement as of March 31. You may recall that we initiated a stock repurchase program beginning on January 2, which expired on March 31, 2015, for the repurchase of up to 800,000 shares of our common stock. We repurchased 89,400 shares at a total cost of $2.9 million, and an average cost of $32.66 per share. For 2015, we expect to issue up to $125 million of long-term debt in order to obtain the appropriate capital structure and to fund our planned capital investments.

As Scott mentioned earlier, we're confirming our 2015 guidance for consolidated earnings to be in the range of $1.86 to $2.06 per diluted share. Due to the significantly warmer than normal weather and reduced heating loads in the first quarter, we expect a reduction to annual consolidated earnings of approximately $0.08 per diluted share including the impacts of the decoupling in Washington. We expect this to be partially offset by a benefit under the ERM of approximately $0.06 to $0.07 per diluted share. And in addition, because we did not reach the targeted level of repurchases for our stock repurchase programs, we expect earnings delusion to be approximately $0.03 per diluted share in 2015 and this is consistent with what we reported to you in our February call.

We expect Avista Utilities to contribute in the range of $1.81 to $1.95 per dilute share in 2015. In 2015, we expect a growth in operating expenses of approximately 3% and as Scott mentioned, we'll continue to work to manage those operating costs. Also, due to the warmer than normal first quarter we expect a reduction in our utility earnings of a similar $0.08 per diluted share. Our range for Avista Utilities encompasses expected variability in power supply costs and the application of the ERM to that power supply cost variability. The midpoint of our guidance does not include anything related to the ERM, and as I mentioned earlier, we expect to be in a benefit position within the 90% customer 10% company sharing band and that results in $0.06 to $0.7.

So our outlook for Avista Utilities among other variables assumes normal precipitation and temperatures for the remainder of the year and includes the expected impact from decoupling. But we're also expecting normal, or below normal hydroelectric generation for May through August and normal hydroelectric generation for the remainder of the year. Due to the strong generation through April, we're expecting above normal hydroelectric generation for the full year. We estimate that our 2015 Avista Utilities earnings guidance range encompasses a return on equity range from approximately 8.4% to 9.0%.

Now I'll move on to AEL&P. We expect AEL&P to contribute in the range of $0.08 to $0.12 per diluted share and our outlook for AEL&P assumes, among other variables, normal precipitation, temperatures, and hydroelectric generation for the remainder of the year. We expect our other businesses to be between a loss of $0.03 and a loss of $0.01 per diluted share, which include the costs associated with exploring our strategic opportunities. Our guidance generally includes only normal operating conditions and does not include unusual items such as settlement transactions, impairments, or acquisitions and dispositions, until the effects of such activities are known. I'll now turn the call back to Jason.

Thank you, Mark. Paulette, we would now like to open the call up for questions, please.

Thank you. (Operator Instructions). Our first question comes from Michael Weinstein from UBS. Please go ahead.

Mike?

Good morning. Sorry.

Good morning.

So I was wondering, could you describe the impact of the two settlements, the one in Oregon and the partial settlement in Washington on regulatory lag? I understand the authorized ROE's that you've negotiated. I'm wondering if regulatory lag gets an improvement from the two settlements?

Yes, this is Kelly. With regard to Oregon, the rates went into effect April 16, of this year and that will improve the lag in Oregon a little bit. Oregon tends to cut us off on capital during the period just before the time rates goes into effect, and so we still expect to see some lag in Oregon going forward, which is part of why we turn around and filed May 1, just last week. And then with regard to Washington, if you look at our results there, we're actually in pretty good shape. The commission has moved toward allowing us to use an attrition type of adjustment, which allows us to reflect in rates of the future costs. So with this partial settlement that we have, we've addressed the cost of capital, as well as some power supply issues which allows us to update our power supply costs just before rates goes into effect. And then lastly, we settled rate spread and rate design among the customer classes.

Okay. I'm taking it that there will be no more stock buy backs this year now that you're issuing debt? What kind of equity ratio do you expect to have at the end of the year?

We expect to have a prudent capital structure as we always have. We haven't set out a targeted equity ratio. We try to manage our equity ratio to be at or around our authorized equity in each off our jurisdictions. We have different layers in each jurisdiction, and we consolidate. And that's how we have our prudent capital structure. We will target that again.

Thank you very much.

Thanks, Mike.

(Operator Instructions). And we're showing no further questions. I will now turn the call over to Jason Lang for closing comments.

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

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.