Avista Corp (AVA) 2016 Q2 法說會逐字稿

Welcome to the Q2 2016 earnings conference call. My name is John and I'll be your operator for today's call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session. Please note that this conference is being recorded. And I'll turn the call over to Jason Lang.

Thank you, John. Good morning, everyone. Welcome to Avista's second quarter 2016 earnings conference call. Our earnings and our second quarter 10-Q were released pre-market this morning and 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 10-Q for the second quarter of 2016; both 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 second quarter of 2016 were $0.43 per diluted share compared to $0.40 for the second quarter of 2015. For the year-to-date, consolidated earnings were $1.34 per diluted share for 2016 compared to $1.14 last year. Now, I'll turn the discussion over to Scott.

Thank you, Jason, and good morning, everybody. I am pleased with our second quarter performance as our results continue to be slightly above our expectations. During the quarter we continued to invest in our utility infrastructure to enhance the safety and reliability of our system for our customers and to support both electric and natural gas customer growth. The timely recovery of these costs continues to be essential to earning an adequate return on our shareholder's investment. Based on our earnings for the first half of the year and our expectations for the second half, we are confirming our earnings guidance range. We currently have pending general rate cases in Washington and Idaho and we anticipate filing general rate cases in Oregon and Alaska during the second half of the year.

In Juneau, AEL&P's performance continued to meet our expectations and is expected to meet its earnings target for the year. With respect to Salix's LNG project for Fairbanks and the possibility of bringing natural gas to Juneau, we are continuing to work on these opportunities, but we do not have any additional information to share at this time. We will continue to keep you updated each quarter on our progress for both of these projects. To demonstrate our commitment to the future and offer additional services to our customers, during the second quarter we launched a pilot program to install electric vehicle charging stations throughout our Washington service area.

Under the program that was approved by the Washington Commission, we plan to install over 270 Avista owned charging ports at various residential, commercial, and public locations. We will use this program to help us understand emerging electric vehicle charging needs as well as support electric vehicle adoption. I'm also pleased to announce that we recently placed our Nine Mile Falls hydroelectric generation facility back into service. This is a 100-year old facility that we recently upgraded including replacing two of the vintage turbines alongwith a new warehouse and a crane pad and I'm very proud of all the hard work from our dedicated employees that went into planning and completing this very important project. And now, I'd like to turn the call over to Mark.

Thank you, Scott. Good morning, everyone. For the second quarter of 2016, Avista Utilities contributed $0.42 per diluted share compared to $0.39 last year. On a year-to-date basis, Avista Utilities contributed $1.29 per diluted share, an increase from $1.10 last year. The increase for the quarter and year-to-date was due to general rate increases and customer growth, partially offset by increased operating expenses and depreciation. We continue to be committed, as Scott mentioned, to updating and maintaining our utility systems. We expect Avista Utilities' capital expenditures to total about $375 million in 2016 and we expect AEL&P's capital expenditures to be about $17 million in 2016.

Now, I'd like to talk about our liquidity and financing plans. As of June 30, we had $194 million of available liquidity under our corporate committed line of credit. In May, we exercised an option to extend this agreement by two years to 2021. There were no borrowings or LCs outstanding as of June 30 under AEL&P's line of credit. In the first half of 2016, we issued 1.2 million shares of common stock for net proceeds of about $46 million under our sales agency agreements. We have 2.6 million shares remaining under these agreements. For 2016, we expect to issue approximately $75 million in common stock and $175 million in long-term debt. Both of those numbers increased about $20 million from our prior expectations and we're doing this in order to fund our capital expenditures, refinance the $90 million maturity, and most importantly maintain an appropriate capital structure.

We expect to extend $70 million of our $90 million term loan to December of 2016 when our new long-term debt is issued. With respect to our guidance, as Scott said, Avista Corp. is confirming its 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 for 2016. Our range for Avista Utilities encompasses expected variability in power supply cost and the application of the Energy Recovery Mechanism in Washington to that power supply cost variability. The midpoint of our guidance at Avista Utilities assumes no benefit or expense under the ERM. In 2016 we expect to be in a benefit position under the ERM within the $4 million deadband and this results in about $0.02 to $0.03 of earnings per diluted share.

Our outlook for Avista Utilities assumes among other variables normal precipitation and temperatures for the remainder of the year. 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 rest of the year. We expect our other businesses to continue to be between a loss of $0.02 to $0.04 per diluted share, which includes the cost of exploring 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 are known. I'll now turn the call back over to Jason.

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

Thank you. And now I'll begin the question-and-answer session. (Operator Instructions) Paul Ridzon, KeyBanc.

If you earn above the $4 million deadband, those excess earnings get deferred, is that correct?

No, the deadband is just it's a sharing. If you're within the deadband, it's a 100% company risk either way benefit or expense and if we are above the deadband in the benefit position; it's shared to 75% customer, 25% Company.

Saw something in your Q as a temporary measure that these would be deferred, did I read that wrong?

No, When we have items under the ERM, they don't necessarily go back to the customer immediately, but we've taken care of that generally in our rate cases. But we [still] report that as income, that is customer dollars.

(Operator Instructions) There are no further questions.

Perfect. 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 and you may now disconnect.