Ladies and gentlemen, thank you for standing by and welcome to the Avista Corporation First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to your speaker Mr. John Wilcox, Investor Relations Manager. Please go ahead sir.

Thank you. Good morning, everyone, and welcome to Avista's first quarter 2020 earnings conference call. Our earnings were released premarket this morning and are available on our website. Joining me this morning are Avista Corp. President and CEO, Dennis Vermillion; Executive Vice President Treasurer and CFO, Mark Thies; Senior Vice President External Affairs and Chief Customer Officer, Kevin Christie; and Vice President Controller and Principal Accounting Officer, 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 on today's call please refer to our 10-K for 2019 and 10-Q for the first quarter of 2020 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 2020 were $0.72 per diluted share compared to $1.76 for the first quarter of 2019. Now, I'll turn the discussion over to Dennis.

Well, thanks John and good morning everyone. First of all, we want to express our deepest sympathies to everyone who is suffering unprecedented hardships during the COVID-19 pandemic. We know that many people are hurting businesses are hard hit and communities are challenged as a result of this pandemic. Like other businesses and utilities, our primary focus is the safety of our customers and employees while providing reliable energy service during this difficult and uncertain time. And I'm so proud and inspired by the way our company has risen to this challenge with flexibility humility courage and a caring heart. We're doing everything we can to anticipate the needs of our employees customers and communities while making sure we can successfully manage through this crisis. We've taken precautions concerning employee and facility hygiene imposed travel limitations on employees and directed our employees to work remotely whenever possible. Protocols have been established and implemented to protect employees and the public when work requires public interaction. And we have informed our retail customers and state regulators so that disconnections and late fees for nonpayment are temporarily suspended. We also believe it is extremely important to continue to support our communities during this health crisis. So, we're honoring all of our financial contributions and commitments to nonprofit organizations and corporate sponsorships even though many community events have been canceled. Our foundation's charitable giving across our service territory totals more than $1.1 million and includes more than $865,000 towards relief from the impacts of COVID-19. Along with other utilities and businesses across the region and country, we continue to plan for the future and what it might look like and how we can best serve our customers moving forward. We believe that we will continue to be able to conduct our utility operations effectively…

Thank you, Dennis, and good morning, everyone. I want to first echo Dennis' thoughts on our concern for everyone who may be suffering hardship due to the pandemic. I hope everyone is safe and healthy. I always also start out with a little hockey reference. Since we're not playing hockey, now you can use your hockey stick to socially distance. It's about six feet, if you hold it extended. For the first quarter of 2020, Avista Utilities contributed $0.68 per diluted share compared to $1.70 in 2020. And as you recall, the first quarter of 2019 included the termination fee from Hydro One, which was approximately $1 per share. So compared -- also compared to the prior year, our earnings benefited from lower power supply costs rate relief in Oregon and some customer growth. These increases were mostly offset by refunds from the remand case, the disallowance under replacement power and an unplanned outage at Colstrip. We also had higher operating expenses as Dennis mentioned. The ERM in Washington was a pretax benefit in the first quarter of $5.2 million compared to a pretax expense of $2.5 million in the prior year. With respect to the COVID-19 impacts on our results, during the first quarter, we did not experience a material reduction in overall customer loads or retail revenues as the economic restrictions and closures didn't take effect in our service territory until about mid-March. We did record an incremental $1.6 million of bad debt expense in the first quarter and expect about $3.4 million increase for the remainder of the year as compared to our original forecast. So originally we expected about $3 million in total for the year and we've moved that. We expect throughout the year we'll get to $8 million in bad debt expense. In the…

And now we would like to open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from Richard Ciciarelli with Bank of America. Your line is now open.

Hey, good morning. Hope you guys are healthy and safe out there.

We are, thanks, Richard. Good morning.

I appreciate you taking my question. Just on the 2020 guidance, I know $0.10 is more onetime items and you have $0.02 there related to COVID. What are you baking in in terms of your expectations for industrial load decline on an annualized level for 2020? And how does that compare to what you were previously including in your guidance for the year?

Well, we include – our normal guidance is normal loads for the year given normal weather is our normal guidance. We included about 5% reduction in overall load. And then it just depends on – so we have – we expect in our guidance that it will start opening up mid- to late summer, the economy will start opening up. So it really does depend on the length and the severity of the recession. We expect in the second quarter it will be bad. And then as we move forward it will start – we'll start to come out of it. If that does not occur and it continues longer we'll have to look at it. We do have like we mentioned regulatory mechanism to cover most of it. We are not decoupled on industrial as you mentioned. So we will – recession through mid-summer.

Right, right. That's helpful. And then on the bad debt piece I mean, ultimately would you expect that to get recovered or at least deferred as a regulatory asset? Is that the expectation for this year?

Well we have filed with our commissions in each Oregon, Washington and Idaho. And we have to work through those processes but it's not just the expectation of getting a recovery. We also looked at our own costs and are managing to reduce those costs to help offset that impact. And what we have in our guidance today, the $0.02 is the net result of that at this point. Now that can – as it goes – if it goes longer or deeper that can change but it's not only, do we expect some regulatory relief we would expect in that filing that we would have that discussion. But we are trying to manage that ourselves to manage our cost to offset it. If we can't offset all of it, we will ask for some relief, yes. But we haven't included that in our guidance what we don't – can't get relief on.

Right, right. That makes sense. And then at the corporate and other side, what's – can you provide some more color on what's driving the $0.07 decline there? And is that something that you expect to keep going continuously, or are you still expecting that sort of $0.05 to $0.10 in the outer years of your forecast?

With respect to the $0.05 to $0.10 in the outer years yes. We have had -- the reason we had the negative, we had a couple of impairments in the first quarter that offset gains that we would normally would have recorded. And so, that was -- we had a negative there and we expect some lower earnings as we go forward. Again because of the pandemic, they're going to be impacted as well. And anything that hits the non-regulated isn't recoverable through any mechanism. So we just included that in our guidance. But I do expect as we go forward, that we will turn that back into earnings. And I completely believe that as we continue to invest in these businesses. It just has -- we're in a recession. I don't know if the economists have called it yet or not, but I'll state that. We absolutely believe we're in a recession. And given the jobs numbers, it could be pretty severe. So, it just depends on how quickly we -- and safely I will say that. We believe we need to get the economy back, but we believe we need to get the economy back safely in any way we can do that. And that's how each of our states are looking at it and they're all different. Washington, Idaho and Oregon, all have different looks at how we're going to come back and we will follow all of those guidelines.

Got it. That's very helpful. And then just last one for me. With your long-term growth aspirations you shifted out the timing of when you expect to close the gap from '22 to '23 in your earned ROEs versus authorized. I guess is that more due to the timing of the rate case filing in Washington, or is there like longer-term implications from COVID that's potentially driving that gap further out?

No. It's very specifically that we are intentionally delaying. Given the impacts of COVID, we are not filing rate cases at this point. We moved it out from middle of the year to end of the year and that could change depending on the severity of the impacts in the economy. This is just our current expectation. We moved it out. By doing that alone, again the process in Washington as an example is an 11-month process. So, it just is going to move out our ability to get back to earning our allowed return until -- for one year. And so that's why we did move that out to 2023.

That makes a lot of sense. Appreciate all the time. That’s all I had.

Thanks, Richard, be safe.

Our next question comes from Brian Russo with Sidoti. Your line is open.

Yes, hi, good morning.

Good morning, Brian.

So the ERM and the 90-10 band that you guys are in or the $0.07 all recorded in the first quarter, I mean any -- going forward for the remainder of the year, there's any more generation portfolio optimization there's really no margin impact right now that you're at that 90-10.

Well yes, 10% to the extent it goes up. You have more downside risk when you're sitting in the 90-10 if gas prices ran or hydro for some reason didn't come off if it came off where it got really, really hot and it came off very fast and we ran out of hydro. There are factors that can cause that as we move forward to go down. The upside is less because we're in the 90-10, but the downside is once you get out of the 90-10, you're in the 75-25 and then the dead band where it's 100% company risk until you go. So we -- our expectation is based on what we know $0.07 a share and most of that was recorded in the first quarter not all but most of it was.

Right. Got it. And so, when I think about the drivers in the first quarter, wind resource was higher on a regional basis. Hydro conditions were near normal. Obviously we had lower gas prices. So I would imagine that that was a big driver of recording such a positive benefit in the ERM in the first quarter as opposed to maybe in a normalized gas price environment or something that would have been maybe spread out a little bit more evenly. Is that just the way to put it in context?

I don't know that it's necessarily evenly. I mean it just depends. It is shaped to what expectations are. And I'm not sure Brian off the top of my head, what our wind resource was versus what we expected in the first quarter. But it is generally gas prices is generally what has benefited the ERM in the first quarter compared to what we have bought the price in rates.

Got it. And market seems like for many, many years you guys have always been in the positive ERM. So, I'm just wondering if you continue to optimize your generation portfolio, ultimately with the 90-10 sharing, you will then rebate customers the excess margin which could present an offset to future base rate increases?

Well Brian, that already happened. In our last case the one we just settled we have the commission the Washington Commission had used and I don't want to guess, its $30 million to $35-ish million I'm not sure the exact number, but to be refunded to customers because we tripped over an amount that's a normal mechanism. And the commission said that we're going to refund those dollars to help offset the impact of the case we just settled the 2019 case that we just settled in March, as we got through all those different regulatory things. At the end of the day, I think that was a positive as it reduced the impact to our customers of that rate increase. But that was what it was. It was accumulated ERM balance was refunded to the customer.

Yes. And that's absolutely. My point is, the whole $35 million is there anything going to be left over to offset the base increase request in the Washington rate case you now plan to file in the fourth quarter of this year?

There's a little bit. Based on where we sit today there's a little bit left to that and we can look to that. We've done that in the past or the commission and the staff has done – has said, can we use this to help offset that? And we're always open to looking at those things. So it's not necessarily specific and we have to wait and see what we file for and all those different factors. But yes that is one of the potential offsets.

Okay. Great. And then when I think about rate relief in 2021 you're basically just going to have the tail of the recently settled rate case in the first couple of months of 2021 the case you're going to file in the fourth quarter of this year. We should assume little, if any rate relief in the fourth quarter of 2021 given the 11-month time horizon and i.e. that's the rate lag is being pushed out a bit. Is that the way to look at it?

Yes. And they're different. Washington is an 11-month process. If we determine to file in Oregon it's a shorter process. And we did file – I'm sorry, Idaho and we did file in Oregon. So if we move through with that we'll have some. But Oregon is our smallest jurisdiction at Avista Utilities. So I don't think there's a significant amount of rate relief expected by pushing these off to the fourth quarter. There will be some but you can model that how you wish pick and what dates you want. I'm not going to tell you what to do there.

Yes got it. And then on the deferral accounting filings you and obviously all your regional peers have done the same. Has there been any movement in Washington or Idaho or Oregon? And – or any schedules set, or what's kind of the next data point that we should be looking at? Maybe just focus on Washington since it's your biggest jurisdiction.

Brian, it's Kevin Christie. Thanks for the question. We – it's too soon to say what will happen. In Washington many, but not all of our peers have filed there. And the commission is still of course taking into consideration the filings and the action they may want to take. In Idaho, we've heard that the commission they want to have a generic proceeding where they bring together all the utilities for – in one docket and the same might happen in Oregon. I haven't heard there though yet.

Okay. And when was the deferral accounting filing made in Washington?

Filed last Monday. This past Monday.

Okay. So right. So it's any cost from that filing going forward that you can recoup but anything prior to that it's just expensed?

No. I think the way we view it to the extent that we have support from our commission for that is that, it's in aggregate book costs and offsets that occurred related to the crisis or the pandemic. So we would expect, if they do approve that mechanism that we could bring in both costs and benefits before and after filing.

Okay. Great. And then just lastly, on the Alaska utility, how it's only a $0.01 revision, $0.01 on $0.10 is nearly 10%. Just out of curiosity you mentioned tourism, but is it given the size of the utility and the sensitivity to changes in sales that are making kind of the earnings impact a little bit more magnified on a percentage basis?

No, it's probably – I mean, there's a little bit of that, but it's somewhat bad debts because their tourism, the way it works there is the sales to the cruise ships really offsets the cost to their other retail customers. That's not really a net benefit to the company per se it's an offset to the other customers. But by not getting that you have higher costs to the other customers. And you have other customers that are going to have businesses that are going to struggle. And it is – their economy is based on some of that tourism. So it's really a – it's just a higher overall expected cost from the impacts to the companies and their ability to bill that to their other customers. So again, yeah, 10%. For us it's $0.01. I don't worry about that as a significant impact to Avista Utilities. They have a strong utility up there. They're working very hard for their customers and doing all the things that we're doing as well. It's just their impact on size to us is not significant.

Right. Got it. Agreed. Thank you very much, guys.

Thanks, Brian.

Thank you. And I'm not showing any further questions at this time. I would now like to hand the call back over to Mr. Wilcox for any closing remarks.

I want to thank everyone for joining us today. We certainly appreciate your interest in our company. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.