Avista Corp (AVA) 2015 Q4 法說會逐字稿

Welcome to the Q4 2015 Avista Corporation earnings conference call. My name is Cynthia and I will be your operator for today's call. (Operator Instructions) Please note that this conference call is being recorded. I will now turn the call over to Jason Lang, Investor Relations, Manager. Mr. Lang, you may begin.

Thank you, Cynthia, and good morning, everyone. Welcome to Avista's fourth-quarter and fiscal year 2015 earnings conference call. Our earnings in our 2015 Form 10-K were released pre-market this morning and are both available on our website at AvistaCorp.com.

I have just been informed that there are some issues going on with the webcast right now, so if you are having issues, they are trying to fix that. And also, we will have a replay of this call so you will be able to see the slides then.

Joining me this morning are Avista Corp. Chairman of the Board, President and CEO Scott Morris; Senior Vice President and CFO Mark Thies; Senior Vice President and the President of Avista Utilities, Dennis Vermilion; and the Vice President, Controller, and Principal Accounting Officer, Ryan Krasselt.

I would like to remind everyone 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 Form 10-K for 2015, 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 2015 were $0.61 per diluted share compared to $0.51 for the fourth quarter of 2014. Results for the fourth quarter of 2015 included $0.07 per diluted share and the fourth quarter of 2014 included $0.03 per diluted share related to discontinued operations, which resulted from the sale of Ecova in 2014.

For the full year, consolidated earnings were $1.97 per diluted share for 2015, compared to $3.10 last year. Results for 2015 included $0.08 per diluted share and 2014 included $1.17 per diluted share related to discontinued operations, which resulted from the sale of Ecova in 2014.

Now I will turn the discussion over to Scott.

Thank you, Jason, and good morning, everyone. We had a strong year, and I am pleased with our financial and operating performance in 2015. We made significant progress in achieving our goals of investing in our infrastructure, upgrading our technology, and preparing our utility to effectively and efficiently serve our customers.

In 2015, weather played a significant role in our operations. On November 17, an historic windstorm occurred in our service territory, which caused severe damage to our electrical system. Included in our 2015 results are costs for power restoration of $22.9 million for capital repairs, and $2.9 million for incremental utility operating and maintenance costs.

I would like to take this opportunity to say thank you again to everyone involved in the storm restoration effort. This was a monumental task that took thousands of hours to complete, and I am extremely proud of the way the Company, the community, and our contract and mutual aid crews rallied together to make this historic recovery possible. Thankfully, we were able to restore power without one single safety incident.

Turning back to the financial results, our Juneau operations at AEL&P had a strong year and its results met our expectations. We are very pleased with how the Company's performing.

Now I would like to give you an update on the additional business opportunities we are working on in Alaska.

As we discussed in our last fall, we have made progress in our evaluation of bringing natural gas to Juneau. Currently, we believe that lower oil prices may make it more difficult for customers to justify converting to natural gas. In addition, we have yet secure a mechanism to provide funds that are needed to help customers with the conversion costs, thus challenging the economics of the project. We will continue to engage the community with the opportunity and evaluate the project. We will keep you updated each quarter on our progress.

In addition, our subsidiary, Salix, was notified by Alaska Industrial Development and Export Authority in December 2015 that its proposal to build an LNG liquefaction plant to serve the interior energy project, specifically to serve Fairbanks, Alaska, was selected as one of two finalists. A decision by the AIDEA board is expected in the first quarter of 2016.

With respect to regulatory matters, in December the Idaho Commission approved in all-party settlement in our Idaho Electric and Natural Gas general rate cases that resulted in new rates beginning January 1. The Idaho agreement includes electric and natural gas to coupling mechanisms, similar to Washington.

In January, the Washington Commission issued an order that concluded our electric and natural gas rate cases that were originally filed with UTC in February of 2015. New electric and natural gas rates were effective on January 11.

Subsequent to the UTC order approving our new rates, three motions were filed by interested parties for the UTC to consider. On February 19, UTC issued an order denying those motions filed by the interested parties and affirmed their original January order approving new rates.

Also on February 19, we filed electric and natural gas general rate cases in Washington, primarily to cover increased capital costs. The requests are for an 18-month rate plan. As for Oregon, we continue to work through the general rate case process related to our case filed in 2015.

I am pleased to report that, earlier this month, Avista's Board of Directors raised the quarterly common stock dividend by 3.8%.

This marks the 14th consecutive year the Board has raised the dividend for our shareholders. And lastly, I believe we are well-positioned to continue our long-term earnings growth. We are initiating our 2016 earnings guidance with consolidated range of $1.96 to $2.16 per diluted share.

So at this time, I am going to turn the call over to Mark.

Thank you, Scott. Good morning, everyone, and consistent with past practice, I do try to wear a jersey during these calls, so today I have my Peyton Manning jersey on, in honor of his and the Broncos, more the Broncos defense win in the Super Bowl.

So, for 2015, Avista Utilities contributed $1.81 per diluted share, which is down slightly from $1.83 last year. The 2015 earnings per share decreased primarily due to weather that was warmer than normal in the first and fourth quarters, and that was all partially offset by decoupling mechanisms in Washington. We do expect to have decoupling mechanisms, as Scott mentioned, for 2016 in Washington and Idaho, and we've requested that mechanism in Oregon.

We also had higher operating expenses, depreciation and amortization, and taxes, other and income -- all of which were expected.

During the fourth quarter of 2015, Avista Utilities contributed $0.51 per diluted share compared to $0.45 in 2014. Those earnings increased primarily due to a general rate increase in Washington. This was partially offset by decreased heating loads, as I mentioned, due to warmer weather and an increase for provision for earning sharing, and all of the weather was offset by decoupling mechanisms.

We continue to be committed, as Scott mentioned, to updating and maintaining our utility systems. We expect Avista Utilities capital expenditures to be about $375 million in 2016. And we expect about $17 million at AEL&P in 2016. A significant portion of AEL&P's capital are for construction of an additional backup generation plant that is expected to be completed in 2016.

I will turn to liquidity and financing plans now. As of December 31, we had $105 million of cash borrowings and $45 million of letters of credit outstanding, leaving $250 million of available liquidity under our committed line of credit. There were no borrowings or letters of credit outstanding as of 12/31 under AEL&P's line.

In December of 2015, we issued $100 million of 30-year first mortgage bonds for Avista Corp. In 2016 we expect to issue about $155 million of long-term debt, and approximately $55 million of common equity in order to fund our capital expenditures and maintain a prudent capital structure. As Scott mentioned, we are initiating our 2016 guidance for consolidated earnings to be in the range of $1.96 to $2.16 per diluted share. We expect Avista Utilities to contribute in the range of $1.91 to $2.05 per diluted share. Our range for Avista Utilities encompasses the expected variability of power supply costs in the application of the interim to that power supply cost variability.

The midpoint of our guidance does not include any benefit or expense under the ERM. In 2016, we currently expect to be in a benefit position with the ERM within the $4 million deadband.

Our outlook for Avista Utilities assumes, among other variables, normal precipitation, temperatures, hydroelectric generation for the remainder of the year, and includes the expected impact from decoupling. We estimate that our 2016 Avista Utilities guidance range encompasses a return on equity of approximately 8.6% at the bottom end of the range to 9.2% at the top end of the range.

For 2016, we expect AEL&P to contribute in the range of $0.09 to $0.13 per diluted share. Our outlook for AEL&P assumes, among other variables, normal precipitation and hydroelectric generation for the remainder of the year.

We expect our other businesses to be between a loss of $0.04 and a loss of $0.02. That includes the cost associated with exploring strategic opportunities.

As always, our guidance generally includes only normal operating conditions, does not include unusual items such as settlement transactions, impairments, or acquisitions or dispositions until the effects are known. I will now turn the call back to Jason.

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

(Operator Instructions) Michael Weinstein, UBS.

I was wondering if -- so, I guess for the -- with the low end of the deadband around the ERM, you are expecting up to $4 million of earnings, but you are not expecting to go into the sharing areas at this point. (multiple speakers)

Go ahead, I'm sorry.

I was wondering if you could tell me what the hydro levels are at this moment.

Currently, the hydro levels look okay for us as of February 22, so Monday, the Northwest River Forecast Center shows the water supplier the runoff from April to September for the Clark Fork River at 86% and the Spokane River is at 80%. And remember that, on an average annual basis, we get about roughly 75% of our generation from the Clark Fork River.

So we are in pretty good shape, I think, right now, and we also need to remember that we -- from this point in time forward, we probably have at least six good weeks of high-level snow accumulation possible. So winter is not over at a higher elevation. So, a lot of things can change between now and then.

All right, have the temperatures been unusually cold or warm? I know I think two years ago it was very cold, so there wasn't a lot of melt, and the ERM was in a low -- a very -- let's see, in 2014, it was a very low position for first quarter. And then in 2016 -- 2015, it was in a very high position because with heavy melt. I was wondering if -- which one of those kinds of conditions seem to be shaping up this year.

Well, we have had warmer temperatures as of late. If you have been following our snowpack, it has come down somewhat over the last couple weeks. Largely that's the lower elevation snow, so that is not unusual. As we start to see spring weather come in, the lower elevation obviously goes first.

One of the other key things to remember is the price of natural gas being so low in our -- in the Pacific Northwest that that is a significant benefit to our overall generation fleet as well. So the impacts of lower than normal generation are not felt as much, basically.

And just to be clear, I am not sure -- I thought you said that we were at the low end of the range. We expect to be in a benefit position under the ERM for 2016, just to clarify that, in case you were thinking it went the other way. We expect to be in a benefit for the year within the $4 million deadband.

Yes, that is what I meant, low end of the benefit side. The new rate case that you just filed in Washington state, that is going to be -- is this the first time you have filed a multiyear rate case?

No. A couple years ago, we filed -- in 2012 we filed for 2013 and 2014 in both Idaho and Washington. And in both of those cases, we did get a two-year rate plan. The last one, the one we filed before was just a one-year and so then this one is an 18-month plan. So it's not -- it's not outside of the realm of normal or possibility. We just have to work with the Commission on that and the staff and all the parties.

Does that help you with regulatory lag, any structural regulatory lag eliminated from there?

I don't think it has any impact necessarily on regulatory lag. It helps us to get a longer term plan so we are not having back-to-back rate cases.

Right. And just one last question before I give it to somebody else. Could you talk a little bit more about Juneau and I guess more about the timing of when you think you might get more of an ability to make decisions there, what's going on with the LNG import?

I will let Dennis weigh in here, because Dennis has done a tremendous job working with the Alaska communities to make this happen. But I just think a lot of it has to do, quite frankly, with market conditions. You see where oil prices are, we want to be prudent and smart about going to Juneau with oil under $30 a barrel, and with our LNG prices right now, it's about a breakeven on a conversion cost.

We have some work to do to make sure that our customers out there could have an opportunity to convert to natural gas if we do choose to go in a way that is cost-effective for them. So, Dennis has a couple of plans that he's working on there.

So I would just say that we are still optimistic. It's just some timing issues and we are going to be prudent and smart about it. Dennis, I will let you take it from there.

Well, that's a good summary, Scott. The only thing I would really add also is we continue to work with the local elected folks and state officials, and I am sure you are aware that just the overall budget situation for the state of Alaska with the price of oil, they have some pretty serious budget issues that they are dealing with.

So a lot of the focus and attention is elsewhere right now as they try to wrestle with some of those issues that they are dealing with. $30 oil is not a good thing. It's a good thing if you're a consumer, but for the state, it has created quite a bit of a problem. So we are continuing to work through that as well and want to make sure that our plans are solid and lasting before we decide to move forward.

Great, thank you very much, guys.

(Operator Instructions)

Do we have any other questions, Cynthia?

We have no further questions at this time. I will now turn the call back to Jason Lang for closing remarks.

I would 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.