Avista Corp (AVA) 2016 Q1 法說會逐字稿

Welcome to the Q1 2016 Avista Corporation earnings conference call. My name is Jason and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Jason Lang, Investor Relations Manager. Mr. Lang, you may begin.

Thank you, Jason. Good morning everyone. Welcome to Avista's first-quarter 2016 earnings conference call.

Our earnings and our first-quarter 10-Q were released pre-market this morning. They are both available on our website at AvistaCorp.com. Joining me this morning is our CEO Scott Morris, our CFO Mark Thies, President of Avista Utilities Dennis Vermillion, Vice President State and Federal Regulation Kelly Norwood and the Vice President and Controller Ryan Krasselt.

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 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 2015 and our 10-Q for the first quarter of 2016 which are 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 first quarter of 2016 were $0.89 per diluted share compared to $0.74 for the first quarter of 2015.

Now I will turn the discussion over to Scott.

Well thank you, Jason, and good morning everyone. We're off to a great start and I'm pleased with our solid operational performance and financial results for the first quarter of 2016.

Our earnings were a little better than expected and at this point we're on track to hit our earnings targets for the year. We expect to have another successful year delivering on our strategies of providing exceptional service to our customers and a fair return to our shareholders. This is demonstrated by the award we recently received from CS Week for the successful implementation of our customer information system.

The Expanding Excellence Award honors outstanding contributions and innovation in a utility customer service. Receiving this award is a tremendous honor for Avista and everyone involved with this implementation.

We're proud of our employees and consulting partners who all contributed to not only meeting our goal of a successful implementation but exceeding it. The success of this year's four-year project established a project management model that has now been leveraged across Avista for other major technology projects.

Turning back to financial results, during the first quarter gross margin was better than expected. Also the decoupling mechanisms we have in place mostly offset lower than expected electric and natural gas loads as a result of warmer than normal weather.

With regard to hydro conditions, we had above normal hydro generation for the first quarter due to the early runoff. As a result, we now expect hydro generation for June and July to be below normal, although we expect hydro generation for the full year to be around normal.

In Juneau, AEL&P's first-quarter results met our expectations. And we continue to be pleased with its operating and financial performance.

Regarding the possibility of bringing natural gas to Juneau, we continue to evaluate the feasibility of this project. The opportunity continues to be challenged by lower oil prices and a fiscal situation in Alaska.

We're focused on identifying ways to reduce or eliminate the upfront cost for customers to convert from heating oil to natural gas. We will continue to engage the community with the opportunity and we will keep you updated each quarter on our progress.

Our subsidiary Salix was notified that its proposal to develop an LNG plant to serve the Interior Energy Project was selected as the finalist by the AIDEA RFP evaluation committee. Salix must now receive approval from the AIDEA board before it can begin the process of front-end engineering and design and negotiation of the contracts to build the plant.

The LNG plant is only one of the components of the full supply chain needed to provide natural gas to interior Alaska. All components must come together in an economically feasible manner for the entire project to move ahead.

With respect to regulatory matters in March, Washington's Public Counsel filed a petition for judicial review. This relates to our 2015 Washington electric general rate case. The petition disagrees with several aspects of the Washington commission's final decision.

On April 29, this matter was moved to the Court of Appeals. We cannot predict the outcome of this matter nor the timing of the resolution. We continue to believe the commission's order finalizing our electric general rate case provides a reasonable end results for all parties.

In March we received an order from the Oregon commission concluding our natural gas general rate case that was originally filed in 2015 and in Idaho we expect to file an electric-only general rate case during the second quarter. Based on our first-quarter earnings and our outlook for the remainder of the year we are confirming our 2016 earnings guidance with the consolidated range of $1.96 to $2.16 per diluted share.

At this point I'd like to turn it over to Mark.

Thank you, Scott. Good morning everyone.

I am singing the blues this morning as St. Louis took out Chicago in the first round so the Blackhawks are done. No jersey for me today.

For the first quarter of 2016 Avista Utilities contributed $0.85 per diluted share compare to $0.71 in 2015 again as Scott mentioned due to increased gross margin that was partially offset by some increased operating expenses and depreciation. We continue to be committed to updating and maintaining our utility system.

So we expect Avista Utilities capital expenditures to total about $375 million in 2016 and we expect AEL&P to spend about $17 million in 2016. A significant portion of AEL&P's capital are related to the construction of an additional backup generation plant that is planned to be completed later this year.

At this point I will talk about some liquidity and financing plans. As of March 31, we had $263 million of available liquidity under Avista Corp.'s committed line of credit. We expect to extend this committed line of credit by two years to 2021 in the second quarter.

There were no borrowings or letters of credit outstanding as of March 31 under AEL&P's line of credit. For 2016, we continue to expect to issue approximately $55 million of common stock and $155 million of long-term debt in order to fund our capital expenditures, to repay a $90 million maturity and to maintain an appropriate capital structure. In the three months ended March 31, we issued 700,000 shares of common stock under our sales agency agreement for total net proceeds of approximately $27 million.

With respect to guidance as Scott said, we're confirming 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 and our range for Avista Utilities encompasses the expected variability in power supply cost and the application of the ERM to that power supply cost variability. The midpoint of our guidance range for Avista Utilities does not include any benefit or expense under the ERM and in 2016, we expect to be in the benefit position under the ERM within the 75% customer, 25% Company sharing band.

Our outlook for Avista Utilities assumes among other variables normal precipitation and temperatures for the remainder of the year. As Scott mentioned earlier, we do expect slightly lower hydro conditions in June and July because we've gotten that earlier runoff. Our 2016 Avista Utilities earnings guidance range encompasses a return on equity of 8.6% to 9.2% for Avista Utilities.

For 2016 we expect AEL&P to contribute in the range of $0.09 to $0.13 per diluted share and our outlook for AEL&P assumes among other variables normal precipitation and temperatures for the remainder of the year. We expect the other businesses to be between a loss of $0.02 and $0.04 per diluted share which includes the costs associated with looking at strategic opportunities. Our guidance generally includes only normal operating conditions and does not include unusual items such as settlement transactions, impairments, acquisitions or dispositions until the effects of such transactions are known and certain.

So now I will turn the call back to Jason.

Thanks, Mark. Jason, we'd now like to open this call up for questions.

(Operator Instructions) Michael Weinstein, UBS.

Hey, good morning guys. I'm sorry, I might've missed it, I came in late in the call, but could you tell me a little bit on the prospects for an LDC in Juneau? I heard something about equipment being delivered, was that what you were talking about?

No, we're not having any equipment delivered. We continue to evaluate that project. And I will let Dennis talk about it.

Yes, we continue to evaluate the feasibility of the project as Scott mentioned. We're challenged a little bit now due to lower oil prices and just the overall fiscal situation of the state of Alaska. And the focus of a lot of the folks up there are on that type of thing.

So we're continuing to work to identify ways to reduce the upfront costs for customers to convert. We continue to engage with the community and talk to them and we believe that the community is still interested in this and we believe that long term this makes a lot of sense for the community, lower overall energy cost for the community and an environmental upgrade over the current fuel that they use.

So more to come. We will continue to work through the process and we will update you every quarter as things progress.

Are you seeing any change in customer perceptions of LNG versus oil on the Salix side of things as well?

No, on the Salix side it's similar, the issues are similar for the Interior Energy Project is the cost of conversion for the customers and just the overall cost to get that customer to convert. I think customers are still very interested in this and it's an environmental, as Dennis said, an environmental upgrade but you really have to get the upfront cost of converting down to a level where the savings make economic sense for them. So that's where we're focused both in Fairbanks for Salix and in Juneau for the LDC.

All right. Thanks a lot.

John Barta, KeyBanc.

Hey guys, good morning. I guess on the $55 million of equity, is that for full-year 2016 or what's remaining in 2016?

That's the expectation for what we expect to raise for the full year of 2016.

And then Salix, do you have any idea on the timing of that approval?

We know that the AIDEA board meets later this month, later in May but whether they get to an approval this is one component of a number of components of the whole supply chain, ours is one component. So they are really looking at all of the components to be able to approve the project.

But we do know that they have a board meeting coming at the end of the month and we believe they are making progress on all that. But we can't say whether they will have an approval at this board meeting or not. We continue to work with them and do our part to make sure they have all the information they need from us.

Okay. And then are you fully decoupled now in all jurisdictions?

Yes, this is Kelly. We do have decoupling mechanisms for electric and natural gas in Washington, Idaho and Oregon

Not Alaska.

And not Alaska.

All right, that's it. Thank you.

(Operator Instructions) Michael Worms, BMO.

Hey, good morning guys, how are you? Just a quick question. Can you remind us what the issues are related to the contested Washington rate case?

Yes, this is Kelly. We just released our 10-Q this morning and on page 39 plus or minus a page we've identified essentially five issues that public counsel has raised that they are concerned about. And we also listed there and summarized what the remedies that they are after.

Okay fair enough. I will check that out.

That was it for me. That's my question.

We have no further questions in the queue so I will now turn the call back to Jason Lang for closing remarks.

We want to thank everyone for joining us today. We certainly appreciate your interest in our Company and we look forward to seeing most of you at the upcoming AGA Conference. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.