Avista's (AVA) CEO Scott Morris on Q2 2016 Results - Earnings Call Transcript

| About: Avista Corporation (AVA)

Avista Corporation (NYSE:AVA)

Q2 2016 Earnings Conference Call

August 03, 2016 10:30 AM ET

Executives

Jason Lang - IR

Scott Morris - CEO

Mark Thies - CFO

Dennis Vermillion - President of Avista Utilities

Kelly Norwood - VP State and Federal Regulation

Ryan Krasselt - VP & Controller

Analysts

Paul Ridzon - KeyBanc

Operator

Welcome to the Q2 2016 Earnings Conference Call. My name is John and I will be your operator for today’s call. [Operator Instructions] I will now turn the call over to Jason Lang.

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, 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 second quarter of 2016, both of 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 $34 per diluted share in 2016 compared to a $14 last year. Now, I will turn the discussion over to Scott.

Scott Morris

Well, thank you Jason and good morning everyone. I’m pleased with our second quarter performance as our results continue to be slightly above our expectation. During the quarter we continue 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 cost continues to be essential to earning an adequate return on our shareholders investment.

Based on our earnings for the first half of the year and our expectations for the second half we're confirming our earnings guidance range. We continue -- 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 keep you updated on 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 planned 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 along with 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.

Mark Thies

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 a $1.29 per diluted share and increased from a $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 from net proceeds 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 extend 70 million of our 90 million term loan to December of ’16, when our new long term debt is issued.

With respect to our guidance as Scott said, Avista Corp is confirming it’s 2016 for consolidated earnings to be in the range of $1.96 to $2.16 per diluted share. We expect Avista Utilities to contribute in a range of a $1.91 to $2.05 per diluted share for 2016. Our range for Avista utilities encompasses the expected variability and power supply costs in the application of the Energy Recovery Mechanism in Washington to that power supply cost variability. The midpoint of our guidance and Avista Utilities assumes no benefit or expense under the year. In 2016 we expect to be a benefit position under the year within the $4 million debt band and this results in about $0.02 and $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 the other businesses to continue to be between a loss of $0.02 and $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, acquisitions and dispositions until the effects of such are known.

I will turn the call back to Jason.

Jason Lang

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And my question from Paul Ridzon from KeyBanc

Paul Ridzon

Had a quick question, if you earn above the four debt band those access earnings get differed is that correct?

Mark Thies

No the debt band is just, it’s a sharing, if you’re within the debt band it’s a 100% company risk either benefit or expanse and if we’re above the band in the benefit position, it’s a share to, 75 customer, 25 company.

Paul Ridzon

As I saw something in your Q that, as a temporary measure that they would be differed, did I read that wrong?

Mark Thies

No when we have items under the earning [ph] don’t necessarily go back to the customer immediately, but we’re taking care of that general in our rare cases. But still report that as income, that is customer dollar.

Paul Ridzon

I’ll circle back for clarification. Thanks.

Operator

[Operator Instructions]. There are no further question.

Scott Morris

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

Operator

Thank you. Ladies and gentleman this concludes today’s conference. Thank you for participating. You may not disconnect.

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