Good morning. And welcome to the Fourth Quarter 2018 Earnings Conference Call. My name is Brandon, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note this conference is being recorded. And I will now turn it over to Jason Lang. You may begin, sir.

Thank you, Brandon. Good morning, everyone. Welcome to Avista’s fourth quarter and fiscal year 2018 earnings conference call. Our earnings were released pre-market this morning and are available on our website. Joining me this morning are Avista Corp. Chairman of the Board and CEO, Scott Morris; Senior Vice President and CFO, Mark Thies; Avista Corp. President, Dennis Vermillion; Vice President, External Affairs and Chief Customer Officer, Kevin Christie; and 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 2017 and 10-Q for the third quarter of 2018, 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 fourth quarter of 2018 were $0.70 per diluted share, compared to $0.42 for the fourth quarter of 2017. For the full year consolidated earnings were $2.07 per diluted share for 2018, compared to a $1.79 last year. Now, I will turn the discussion over to Scott.

Well, thank you, Jason, and good morning, everyone. To start off, I want to express my deepest gratitude to everyone who worked with us on the Hydro One transaction over the last 18 months. Throughout this process, we were able to achieve remarkable collaboration with the various parties involved, including the staffs in Washington, Idaho and Oregon, Public Council in Washington, as well as the parties in Montana and Alaska, just to name a few. And because of this joint effort by all parties, we were able to reach agreements that were unprecedented in our industry. We were committed to ensuring the transaction would best serve the interest of our stakeholders and the agreements reflected this commitment and while we are disappointed that we were not successful in obtaining timely regulatory approval, I want to celebrate the tremendous effort by everyone involved. The agreements that we reached emphasized our values and as a company -- and as who we are as a company, dedicated to innovative thinking and serving the interests of all of our stakeholders, our customers, our employees, our communities and our shareholders. The agreements reached contain unprecedented safeguards and outstanding benefits to all our stakeholders. We believe the agreements would have allowed us to operate as an independent utility and continue to provide the same level of service. Hydro One would have been a great partner. We enjoyed collaborating with their employees on the transaction and I want to thank all of them for their outstanding effort over the past 18 months and we wish them well in the future. Lastly, I want to thank our employees, who never let this transaction distract them from providing safe and reliable energy and unequal dedication to our customers and our communities, and even though the transaction was not completed,…

Thank you, Scott. Good morning, everyone. I always like to start out with my hockey reference Blackhawks have won six in row and we are back into playoff discussion, so things are looking up. For the fourth quarter of 2018, Avista Utilities contributed $0.66 per diluted share, compared to $0.44 per diluted share last year. For the full year, Avista Utilities was $2.04 per diluted share an increase from a $1.77 per diluted share last year. The increase in the fourth quarter and in the year-to-date was primarily due to general rate increases, customer growth and a decrease in transaction costs spent in 2018 versus the cost in 2017, partially offset by increased cost, interests and depreciation and operation maintenance. As Scott said, we continue to be committed to invest in the necessary capital in our utility infrastructure and we expect Avista Utilities’ capital to be about $405 million and AEL&P’s capital to be about $9 million in 2019. For liquidity, in January we received $103 million termination fee from Hydro One for the purpose of reimbursing our transaction costs, including related income taxes and we had $51 million of these costs incurred from 2017 to 2019. The balance of the termination fee will be used for general corporate purposes and reduces our need for external financing. In 2019, we expect to issue $165 million of long-term debt and up to $50 million of equity in order to finance -- to refinance maturing long-term debt, fund our plan capital and maintain an appropriate capital structure. I want to spend a little bit of time on our earnings guidance this year and just to be -- just to make thing -- make sure things are clearer. Scott mentioned, we are initiating guidance to be in the $2.78 per diluted share to…

Thanks, Mark. Brandon, we would like to open the call up for questions.

Thank you. [Operator Instructions] And from ExodusPoint we have Andrew Levi. Please go ahead.

Hi, guys. Can you hear me?

Yeah. We can Andy.

How are you, long time?

Good. Yourself. Yeah. Long time.

Good as well. Welcome back. Just a couple of questions if you don’t mind, first is just on the balance sheet, because I see you do issuing 50 ml, where should your, I guess, whether we focused on, I don’t know if you are more focused on the equity ratio at the utility or your FFO to debt, but can you kind of just talk about that, where are you going to be at the end of the year and what metrics you are focused on and where -- what the metrics should be.

So what we strive to do is maintain a prudent capital structure and achieve an equity ratio for our jurisdictions that is in line with what’s allowed it or authorized by each of our commissions and those vary by jurisdiction. But that’s how we look at how much equity we need to raise in a given year and so that’s really the metrics that we look at. We also look at our FFO on our rating agencies to make sure that we are maintaining investment grade, strong investment grade credit ratings and that takes part of it. But the level of equity really is designed to maintain the equity ratio for our utility jurisdictions.

I understand. So, again, I didn’t look at your balance sheet, I apologize. But so, I guess, looking at where you are at your end and then you had the $100 million coming of that tax and that whatever it was. But between that and the $50 million that kind of gets you where your equity ratio need to be on a regulatory basis? And then as you look in the ‘20 and ‘21, can you give us any guidance there on, how we should kind of be modeling the equity, if there isn’t?

We haven’t really given, Andy -- we haven’t really given guidance on what we need for equity there. A lot of that we continue to depends on our --as we continue to deploy capital and what type of relief we get from our jurisdictions. So we give that on an annual basis. We historically don’t give that farther than that. We can consider that…

Okay.

… in future calls, but we have not done that.

Got it. And then just make sure, I mean, you were pretty clear on the guidance, but so we are using $1.88 midpoint and then we take the $1.88 and grow that 9%, 10% every year or is that only in 2020 that we grow off of 2020 9%, 10%?

Again this takes -- and this takes some relief in our jurisdictions with that...

Yeah. Of course.

…but that’s annual growth -- that’s an annual growth rate to allow us to get back to earning our allowed return by the end of ‘21 and end of ‘22.

But is that off the $1.88 is ‘19 or off what you ever, what you earn in 2020?

I think it’s a $1.87 -- $1.87, $1.88, yeah.

Okay.

Yes.

Okay.

Yes.

Okay. So $1.87 -- okay. So that has you chugging around $2 in 2020 and I don’t know, sorry.

You can do the math, Andy.

Yeah. Yeah. Okay. So it’s like 220 [ph] type number for ‘20 and ‘21. Okay. That’s very, very clear and that assumes, what type -- just on the rate relief portion, would you be filing for like kind of larger cases than you have in the past, because of the lag and lack of filings or how should we think about the size of the cases?

Hi, Andy. This is Kevin Christie. We will be moving forward. We need to finalize our numbers and get a better handle on exactly what the filings will look like both on the electric and gas side in each jurisdiction. But we are making up for rate lag, timing lag related to capital that we do not have in rates yet. So we can’t share our number with you right now, but that’s what we are going to be doing as we move forward assuming that we get support from our commissions.

Okay. You guys were very clear. I really appreciate it and I guess that you guys will be up in Boston for Julian’s thing?

I don’t know, I know that’s coming up, I don’t know for what conferences.

Yeah. Come on. Come with the conference. Come on we got to meet with you, time to get back on the road, but thank you very much.

Thanks Andy.

Yeah.

From KeyBanc we have Paul Ridzon. Please go ahead.

Thank you. So in the third quarter you said you needed about $110 million of equity. You are getting $52 million from the breakup fee and now you are telling us you only need $50 million kind of what backfill deal was, it just the strength of 2018 where that finally came out?

No. There was, so if you recall, Andy --Paul, sorry. Got to get to my next question, sorry, Paul…

Oh! Man, man, that hurt…

I know I apologize, Paul, that’s -- I apologize. So when we had our guidance last year in the third quarter, we were assuming that the transaction would close in the year in 2018, with the closure of that transaction there was significant other costs associated with the transaction, which would have reduced our equity and we would have needed more of an infusion from Hydro One to balance our capital structure, so those costs didn’t occur, right, because we didn’t…

So that’s the rate relief that you would have booked?

No. It’s not rate relief, it’s equity, it was an equity contribution and we had expenses associated with the transaction that we would have had to pay at that time and they didn’t occur, so that was included in our equity needs last year in that $110 million. So right now, this is the equity we need and we got the termination payment less of fees and then you know we expect to issue an additional $50 million this year to balance our capital structure.

Got it. And then, just a little confused on wording and I got more confused after the last question. The 9% to 10% earnings growth is ‘20 to ‘22 or is that ‘19 to ‘22? So I am trying to get the…

‘19 is the base year, right. And then you will grow in ‘20, ‘21 and ‘22.

But between ‘19 and ‘20, is that -- does that also incorporate the 9% to 10%?

Yes. It does. It’s an annual growth…

Okay.

…an annual growth rate.

The way you phrase it -- the release said ‘20 to ‘22, so I wasn’t sure what’s the bridge between ‘19 and ‘20, but thank you for the clarification, it’s helpful.

Thank you.

And kind of that other -- you are exploring other opportunities, can you give us some flavor, is that all energy related and energy efficiency type of stuff that you have explored in the past?

Yeah. Yes, Paul. This is Scott. Yes. We are looking at some opportunities around -- primarily around distribution, automation, innovation and some other things that we have our engineering teams and others working on, there are some interesting things out there in the marketplace, so we will continue to investigate some of those.

Thank you very much.

Thanks, Paul.

And from Glenrock Associates, we have Paul Patterson. Please go ahead.

Hey. Good morning.

Good morning, Paul.

A lot of questions are answered. But just want to touch base on a few of these things. The ROE, the 90 basis point structural deficit so to speak you will see the change in that, is that correct.

No. We expect that that’s been historically there for a long time, it went up a little bit, it used to be a little lower but because of Tax Reform we get less of a tax benefit from it. So at the end of the day those costs didn’t really change, but it ended up being slightly higher. I think we used to have it at 70 basis points or 80 basis points and now its 90 basis points, but that’s all due to Tax Reform.

And you will see that changing over the next few years.

No. Those costs are kind of historical…

Okay.

… it doesn’t mix up primarily as executive incentives, more of directors costs and…

I understand. I got you.

Okay.

But then the just sort of looking forward here, I mean, you guys obviously went through a major transaction effort, any sort of thought we should have in terms of lessons learned or the outlook in the future for possible combinations or activity that you would like to share with us.

What I would say is this is that the Hydro One deal was an extraordinary opportunity for all of our stakeholders. I mention that the safeguards that we were able to get were unprecedented in the industry. We got tremendous value for our shareholders, but we also got tremendous values for our customers, our employees and our communities. Being a utility that operates in five states and having some of those states being net benefit states, it’s extremely challenging to do anything in our states and you have to be very focused and have to have an absolute commitment to all four legs of those that stool to get anything accomplished in our five states. And even having unprecedented safeguards and value it still was not accepted. So we will continue to work really hard on our strategies. We like our future and we are going to continue to stay focused on what we need to do to move this company forward.

Nonetheless, it was kind of an unusual situation with the sort of political developments in Canada and I am just wondering that seem to factor somewhat, I would say, perhaps, not insignificantly in the regulatory outcome. So, I guess, what I am wondering is that sort of -- does that mean that you might again pursue something like that perhaps without the potential political issues.

We -- I don’t want to speculate, because we really need to stay focused on what we want to do to get this company back on track from the regulatory lag perspective. I can just say that in, we operate in five states with some very different political agendas right now from particularly from an energy perspective. So, you have got Washington and Oregon very different from Idaho, Montana and Alaska is different there. So there’s a lot going on multiple levels not just from a regulatory perspective, but from an environmental perspective, from a community expectation perspective. And all of that has to be added into any kind of thing that we do in regards to doing something successfully from a regulatory perspective and getting it approved. So, while yes there was an agenda in Toronto that was disappointing for us and how it turned out. I would just say that it’s a challenging environment no matter what we do in five states given the diverse ideas and objectives of our stakeholders.

Okay. Great. And then, just finally on the 2019 regulatory filings, after those filings, after this initial Feb 2019 filings. What is your expectation for going in for rate relief during this forecast period that you laid out for? In another words how many times

Yeah. This is Kevin…

In other words how many times, I mean, like you guys said that you are holding back basically during the Hydro One merger, after this initial fillings, what do -- how should we think about it going forward, do you follow me, how often do you expect to be back in the regulatory arena after this first initial set of filings?

This is Kevin Christie. Due to the rules within each state it varies. We’d expect to need to be back in Washington somewhat soon after the next case in Idaho yet to be determined, Oregon we have to work through what our fillings looks like this time around and then we will go from there.

Okay. Thanks so much.

Thanks Paul.

From Guggenheim we have Shar Pourreza. Please go ahead.

Hi. Good morning. It’s actually Constantine Lednev for Shar. Thanks for taking the questions.

Good morning.

Since lot of the stuff was already -- good morning. A lot of the stuff was already answered and I just wanted to clarify a little bit. When you talk about an appropriate rate relief and kind of going in for these rate cases, are there any kind of broad assumptions that we can think of in terms of the ask that’s going to be put in front of the commission like ROE’s capital structure, because that staying relatively the same or what’s the plan there?

I think our requests have historically been consistent there and we wouldn’t anticipate significant movement from that what we -- really the reason for the request, as Kevin mentioned earlier is, the significant capital we have been spending over the last several years and we expect that capital spend to continue as we have needs in our system to maintain the vibrancy of the system. So we are going to have to file rate cases consistently there and I don’t -- we are not looking I don’t think Kevin is a perspective of changing significantly are ask for return or capital.

Yeah. This is Kevin. I would expect that to be pretty consistent with past practices all about capital that’s been spend and recovering that.

Okay. Yeah. And you have guided on rate base. One other kind of small nuance, I think, in the prepared remarks, you mentioned a structural lag and roughly 100 basis points or is that expected to be the 90 basis points.

So 90 basis points was -- the 90 basis points was -- what we refer to is structural and 105 basis points in ‘19 was a regulatory timing lag.

Yeah. Okay. Got it. Thank you for clarifying that.

Thank you. You are welcome.

That’s it for me. Thanks.

Thank you.

From Avon Capital we have Vedula Murti. Please go ahead.

Good morning.

Hi, Vedula.

I am good. When we take a look at the, again, same old topic, I guess, the Avista Utilities to use excluding the $1 your guidance is $1.71 to $1.85. When we think about the 9% to 10% growth rate for three years that you are targeting to normalize your ROE, we should exclude the $0.07 that you anticipate this year from ERM as part of that growth trajectory or do you feel that for some reason that the ERM will be able to be maintained around $0.07 consistently over the forecast period.

When we are guiding -- when we are talking about the growth rate, we are talking about the mid-point of our guidance and we exclude the ERM from that. The ERM is, based on power supply right now. We are not filing for power supply cost based on our last commission order in Washington. But that can change as the teams work on things. So what we guide to is the mid-point of our guidance excluding the ERM and that growth rate is off the mid-point of our guidance on a consolidated basis.

And also kind of a different topic. My understanding is that Westmoreland Coal, who is the coal supplier for Colstrip is currently in a bankruptcy proceeding and there is issue potentially about re-pricing the coal as part of the bankruptcy restructuring for Colstrip that could affect obviously fuel tariffs, so in that type of thing. I am just wondering can you explain me or update me on kind of where that stands and what it may or may not mean for you guys?

Well, that’s an ongoing, I mean, they are bankruptcy is their bankruptcy. You are correct. They are in bankruptcy and that’s an ongoing negotiation between the parties and we don’t really comment on that until we have something to comment on. So to the extent something comes out and if it impacts us and then we will put out future guides on that. Right now we are expecting that we have a contract that we will continue to supply coal to that plant and we will operate until we know differently.

If for some reason, the resolution of the bankruptcy results in higher coal contract price, what would be the mechanism to deal, that would simply be not a regulatory filing or is there -- are there some other ways or it can’t be handled?

Well it goes, I mean, our supply cost, it would run through our power supply costs and that runs through the energy recovery mechanism the ERM. And then to the extent our base power supply cost changed enough, we may add that we would have to consider as part of a general rate filing, filings for that. But that’s all part of a normal filing that runs through the ERM and I don’t know what the resolution of this will be and when we know more and have more color, we will provide information to the market.

So -- if -- so basically if coal prices are -- were to actually at the peak lower as consequence this then that will go through the fuel tariff and would be a net benefit under the current ERM and if resolution and emergence resulted in higher coal contract pricing that again will go to the ERM and would kind of cut the other way?

Yes.

Okay. Thank you very much.

Thank you, Vedula

[Operator Instructions] We do have a follow up from Paul Ridzon. Please go ahead.

When you file in Washington, do you anticipate bringing up a multi-year re-plan again or kind of what’s the strategy there?

Kevin again, no, due to court order in our 2015 GRC, it doesn’t look like it will be feasible to file a multi-year rate plan this time around. So we will file one, that’s how it goes and then go from there.

And then the comment was you look to have rates in place for early 2020. Are you going to ask the commissions to do anything extraordinary as far as regular timing of rate cases to make that happen?

No.

Okay. So you should be filing in fairly short order I would assume, is that fair.

That’s fair statement.

Okay. Thank you again.

Thanks, Paul.

[Operator Instructions]

That seems to be all of our questions. So 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 joining. You may now disconnect.