Ladies and gentlemen, thank you for standing by, and welcome to the Avista Corporation Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your speaker today, John Wilcox, Investor Relations Manager. Please go ahead, sir.

Good morning, everyone, and welcome to Avista's Third 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, CFO and Treasurer, Mark Thies; Senior Vice President, External Affairs and Chief Customer Officer, Kevin Christie; and Vice President, Controller and Principal Accounting Officer, Ryan Krasselt. Just want to let you know that some of us are remote due to the pandemic. 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 that -- which could cause actual results to differ materially from those discussed in today's call, please refer to our 10-K for 2019 and 10-Q for the third 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 third quarter of 2020 were $0.07 per diluted share compared to $0.08 for the third quarter of 2019. For the year-to-date, consolidated earnings were $1.04 per diluted share for 2020 compared to $2.21 last year. Now I'll turn the discussion over to Dennis.

Well, thanks, John, and good morning, everyone. As we begin the ninth month of working through the COVID-19 pandemic, we hope you are staying safe and healthy as we see the numbers of cases climb across our country. Avista continues to support our customers and communities. Recently, Avista and the Avista Foundation approved another round of funding as community agencies experience an increased need for services, which now boosts our charitable giving this year to more than $2 million throughout the areas we serve. And when numerous communities throughout our region were devastated by the Labor Day windstorm, we partnered with community leaders to quickly galvanize resources to help those who were impacted. Today, we continue to look for ways to support affected communities as they work to repair the damage and rebuild. Amidst the stress and the strain of these uncertain times, the safety of our customers, our employees and our communities continues to be our top priority, and I continue to be amazed and inspired by our employees who work safely and diligently to provide the energy that is so essential to our customers. Despite these trying times, we continue to make significant progress across our business. In September, Avista Chairman Scott Morris' vision to create the 5 smartest blocks in the world became a reality with the grand opening of the Catalyst Building and the adjacent Morris Center for Energy Innovation. These 2 new buildings are the latest examples of Avista's rich history of innovation. A centralized plant located in the Morris Center will provide the energy to power both buildings through a shared energy model we call an Eco-district. This type of innovation will be essential to achieve a clean, reliable and affordable energy for all of us. Also, a majority of our Washington smart meter…

Thanks, Dennis. Good morning, everyone. I always love to start out with my usual Blackhawk comment, and we got rid of 2x Stanley Cup Champion goalie Corey Crawford, which is a sad day for me. Crow was a great goaltender and really led us to a couple of championships. So we'll see how we do in this upcoming season. But with that, I'll start talking about Avista now, which is what you want to hear about. The third quarter of 2020, Avista Utilities contributed $0.08 per diluted share compared to $0.09 in the prior year. And compared to our third quarter, our earnings decreased due to higher operating expenses, as Dennis mentioned, primarily related to bad debts and decreased loads resulting from COVID-19. This was partially offset by higher utility margin due to lower supply -- power supply costs and rate relief in Washington and Oregon. In addition, we also had some customer growth, which helped out margins. The Energy Recovery Mechanism in Washington was a slight pretax benefit in the third quarter of $0.3 million compared to an expense in the prior year of $2.4 million. For the year-to-date, we've recognized a benefit pretax of about $6 million compared to just over $1 million in 2019. With respect to the COVID-19 impact on our results, we have recorded an incremental $8 million of bad debt expense year-to-date, and we expect an additional $3.5 million for the full year as we compare to our original forecast. In July, Idaho issued an order that allows us to defer certain costs net of any decreased costs and other benefits associated with COVID. For the year-to-date, we deferred $2.5 million of that bad debt expense associated with the order. Now with that, so the third quarter had we had orders in Washington and…

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

[Operator Instructions]. Our first question comes from Richard Ciciarelli with Bank of America.

First question, just on the regulatory front in Washington. You ultimately elected not to file the multiyear rate plan, but seem to find a convenient solution with a tax credit. Just curious if any initial feedback from stakeholders there in the state? And any precedents for the accelerated flowback for customers on the tax credit side?

Good morning, Rich, it's Kevin Christie. Good to hear from you. The -- we talked in advance with our commissioners in Washington and gave them a heads-up. But no, we haven't had any conversations with any of the parties since we filed.

Okay. Got it. It's still early there.

Richie, with respect to the tax position, we did file also with our rate cases, we filed petitions for a change in accounting, which we need approval from all of our commissions to change the accounting on certain of those tax strategies that we are -- we're completely able to do, but we will need their approval. And that allows us to accelerate the flowback of those deferred tax items to the benefit of our customers.

Okay. Got it. That's helpful. And then just on the COVID deferral docket in Washington. I know the commission there was taking more of a wait and see approach, but it sounds like you're confident you'll get something in 4Q here. I guess, what gives you confidence in that outcome?

Yes, this is Kevin again. The -- we expect the commission to take action in a meeting in November. And as we went through the process to proceeding with the parties, we saw the commission take the steps to move forward with this first aspects, and no pun intended, deferred the deferral part of it till a subsequent meeting. But everything we've seen in the process and as we've worked with the parties, we would expect the commission to move forward with approval on that.

Got it. That's helpful. And one more, if I can just slip in. Any update on the timing of the DNR investigation?

No, we don't really --

Yes, this is...

-- update on that. Dennis, anything?

No. No, we don't have any updates. The -- it would be very difficult to speculate. So I think that would be a question best asked of DNR.

Our next question comes from Brian Russo with Sidoti.

Just to clarify on the midpoint of the guidance, it includes $0.08 for the ERM, and it also includes COVID recovery of deferred bad debt -- of deferred costs in the fourth quarter, correct?

Well, we do expect to be able to cover -- to defer most of the bad debt. There's a calculation there. It may not be 100% of it, but we do expect to defer most of it in that. We do expect to record it in the fourth quarter. But the ERM is only $0.06, Brian, as I mentioned earlier on the call, not $0.08.

Okay. So the midpoint includes the $0.06 benefit from the ERM and assumes COVID -- most of the COVID cost recovery on the bad debt side in the fourth quarter?

Yes. Well, we will record it. We don't -- we're deferring those costs. We don't necessarily get recovery until the commissions in each of our states rule that we can get recovery. We're just allowed to defer it. So it's not an expense in our books. It will reverse an expense we've already recorded. Not to give you an accounting lesson, but my controller here is happy with me right now.

Yes, understood. And then the wildfire plan costs that you're requesting deferral of in the recently filed Washington rate case. Is that just -- is that O&M expense costs that would be incurred that you're looking to defer for recovery of later? Or is that rate base or CapEx or rate base investment that you would seek to defer and recover return of and on at a later date? Just curious.

Yes. Brian, I'll take the latter first. We're including about $2.6 million of capital for the first 10 months -- or, sorry, first 9 months of 2021. And then it's O&M for the tracker balancing account that we are proposing in the filing. And in 2021, that's about $5.4 million. And I think of it as a balancing account mechanism. The idea here is the O&M increases and decreases, initially increases over time and then decreases, levels out a bit. And of course, this is the biggest portion or has the biggest impact on our overall rate lag or rate -- our financial situation by moving the O&M in if approved.

Okay, right. So deferral of that helps your lag relative to historical levels?

Yes, it would.

Yes. Okay. And then just on the increase in CapEx. In 2020, the $430 million at Avista Utilities. Is that just onetime, meaning it's just for 2020? Or is that a step-up in the annual CapEx run rate of about $405 million?

At this point, we just -- we're giving the guidance on this year. We'll continue to look at it as -- if growth accelerates, we'll have to look at that in the future. But in this year, we did see some higher costs associated with customer growth. So we added that in there. So right now, we're not giving guidance for next year. We'll provide guidance for next year in February. And that will include capital -- our capital assumptions. Okay. Brian, just to be clear on your question on the O&M related to wildfire, when Kevin mentioned the balancing account, that's not as much historical lag as it is protecting future cost increases due to our Wildfire Resiliency Plan and the costs associated with that. So we're attempting to defer those costs as opposed to recovering prior year's cost that would slow lag. What it does is protect us from additional lag, but it may not reduce lag because it's really covering additional costs. Just to be -- just to clarify how that works or how we propose it to.

Okay. Got it. And then just on that, the wildfire plan you're referring to is that $270 million I think of 10-year proposal filed with the commission several months ago, that is still pending review. So the two quarterly...

To be clear there, Brian, we filed with Idaho for Idaho's portion previously. And now we're including the Washington portion here.

Okay. Got it. Understood.

[Operator Instructions]. Our next question comes from Sophie Karp with KeyBanc.

Just -- yes. Just [indiscernible] really these quick returns based on the balance sheet, right, with the -- we were just looking at the rate cases that you have in process or planning to file. It looks like you're getting earnings, but not necessarily cash flow in. How are you thinking about balance sheet impacts of that? And is that a concern?

So what we looked at is, given what's going on, we were -- as Dennis mentioned earlier in the call, we were looking at ways -- we know that we need to get recovery of the costs and the capital that we're spending to serve our customers, but we also recognize that significant increases when customers are hurting right now due to employment and economic difficulties associated with the pandemic, it was kind of 2 battles against each other. So we tried to find a way to offset the balance in the near term, and we were able to do that by taking a change in our tax position, and we filed for these accounting changes to allow us to offset in the near term the impacts to the customers, while still being able to maintain the ability to earn our return on the capital that we've deployed to benefit our customers. So we think that's creative. It does cost us some drag in the near-term on our cash flow, but we believe our financial strength is still strong enough that we'll be able to maintain our credit ratings and benefit our customers in the near term. And then presumably things will get better in the years to come, and that will all even out. But that was our strategy, and we think it makes sense to balance the -- getting the return for our shareholders while protecting our customers' bills.

And we're currently showing no further questions at this time. I'd like to turn the call back over to John 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 for participating. You may now disconnect.