Good day, and thank you for standing by. Welcome to the Avista Corporation Q3 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Stacey Wenz. Please go ahead.

Thank you. Good morning, everyone, and welcome to Avista’s Third Quarter 2021 Earnings Conference Call. By way of introduction, I have been with Avista since 2009, working in our accounting group. I’m very excited to be taking over from John for my first earnings call, and I look forward to working with all of you in the coming year. Our earnings were released pre-market 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 in today’s call, please refer to our 10-K for 2020 and 10-Q for the third quarter of 2021, 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 2021 were $0.20 per diluted share compared to $0.07 for the third quarter of 2020. For the year-to-date, consolidated earnings were $1.38 per diluted share for 2021 compared to $1.04 last year. Now I’ll turn the discussion over to Dennis.

Well, thank you, Stacey, and welcome to the IR team. Thanks for heading up the team for us. As you heard, this is Stacey’s first call today, and we’re just so happy to have her in this role, and she’s going to be with us at EEI too. So you’ll -- everybody will have a chance to meet Stacey and get to know Stacey a little bit. So good morning, everyone. I’d like to start our conversation this morning by acknowledging that it’s been more than 1.5 years since we started this pandemic journey. And unfortunately, looks like we still have a ways to go. We will, no doubt, face more challenges as we move forward. Our region and our nation, we’re recovering and rebuilding from this, and we’re ready for the challenge. I continue to be extremely proud of our employees, and I’m just so grateful for the resolve and resiliency that they’ve all demonstrated and the flexibility they’ve displayed. And then the commitment and concern they have for our customers and communities just really fantastic. And just so proud of our team. I’m confident that no matter what the future brings, that we have the team and we have what it takes to manage through whatever the future may bring. Now, let me turn to our earnings results at Avista Utilities. Our earnings were above expectations primarily due to the timing of the recognition of income taxes. And over at AEL&P, their earnings remain on track to meet the full year guidance. And in our other business, we’ve had a great year so far, and we are pleased with our investments. They produced significant gains in 2021, exceeding expectations. We continue to expect these investments to contribute $0.05 to $0.10 per diluted share going forward. In regards to…

Thank you, Dennis. Good morning, everyone, and welcome Stacey to the team. We look forward to seeing everybody down at EEI as well and talking about our company, which we’re excited about. For everybody’s reference, the Blackhawks are on a one game winning streak. I can only say that because it’s the only game they won this year. We’ve had a tough start. But for us, at Avista, the third quarter has been a good quarter for us. As we mentioned, Avista Utilities is up, we have $0.13 a share compared to $0.08 in the prior years. But this is really primarily due to income taxes and how we record the timing of such income taxes, and we expect that outperformance to offset in the fourth quarter to back to normal performance for Avista Utilities. The ERM, the energy recovery mechanism in Washington had a pre-tax expense of $3.8 million in the third quarter compared to a benefit in the prior year. And for the year-to-date, we’ve recognized an expense of $7.1 million compared to a benefit of $5.9 million. But when we look at it for the year compared quarter-over-quarter, last quarter, we expected for the full year to be a negative $0.08, and we currently expect it to be a negative $0.09. So it’s really just a slight move in our expectations over the year, within the year, and we had a big recognition in the quarter though. For capital expenditures, we continue to be committed to investing the necessary capital, as Dennis mentioned, in our utility infrastructure. We currently expect Avista Utilities to spend about $450 million in 2021 and $445 million in ‘22 and ‘23 to continue to support customer growth, and maintain our system to provide safe, reliable energy to our customers. To fund that…

Thanks, Mark. Now, we will open the call for questions.

[Operator Instructions] Your first question comes from the line of Kody Clark of Bank of America.

So first, just wondering what gives you confidence in reiterating your 2023 guidance? You’re implying 24% growth year-over-year, which is a large step-up in rates paired with this increasing power supply cost backdrop. So can you provide some color on what sort of rate relief you’re assuming in ‘23? Any specific assumptions there would be helpful. Or are you just kind of assuming you would get to your allowed ROE minus structural lag?

This is Kevin Christie. Thanks for the question. I’ll start by saying we’re, of course, still formulating that case. But it’s important to point out that as we formulate the case we’re visiting with the Commission and consulting with them as we consider how to best move forward. But we do know we will include all capital in the case from 2021 to 2022, which will bring us up to the rate effective date. And from the rate effective date through the rate period, the 2-year period, if we do in fact file a 2-year, we have the requirement. As you might recall from the legislation to file a 2 or 3 or 4-year rate plan at our election, and we’re still analyzing that. We’ll take advantage of the legislation that we worked with the commission and other parties on to formulate the methodology to move from the first year through subsequent years of that rate case. And we will, again, absolutely include all the capital that we have spent in ‘21, will spend in ‘22, and what we expect to spend within the rate effective period. And we are also including for the legislation an approach that will allow us to properly capture our expenses up into the rate effective period and through those rate periods as well. So we are leaning on the legislation. We think it gives us the opportunity. And if you look back at this last case, the Commission offered good support for our capital, as Mark highlighted. And so, we think it’s very viable, very likely. I should rephrase that, it’s very possible that the Commission will come along with us with the plan as we optimize or utilize that legislation.

Okay. But to be clear, so is that assuming some recovery of the operating expenses that were disallowed in this rate case? Is that what is implied with that step up?

Let me offer -- let me clear that up a bit. The expenses were not disallowed. They weren’t placed into rates yet. We expect to bring the expenses that weren’t placed into rates in as well as the items I just described as we look forward.

Okay. Thanks, Kevin.

Kody, one thing to add to that. Just one thing to add to that for a little clarity. When we file, which will be early in 2022, that will give you a sense, obviously, of size and what we’re looking at. So we’re not going to come out with a number prior to that. Well, as Kevin mentioned, we’re working on it. But early in ‘22, we expect to file, so you’ll have a number there, and it will give you a sense. And by the end of ‘22, we expect it. If the normal timing of 11 months in Washington go through it, we expect it too. By the end of ‘22, we will have an order or a clear adjudication of this case.

Okay. Got it. And then you stated that you expect $0.05 to $0.10 of other contribution going forward. I think this is a change from prior commentary. I know the gain was previously contemplated for 2021 consolidated guidance given sale of some assets, but to be clear, are you embedding this in ‘22 and ‘23? And can you remind us what you’re assuming previously for run rate other contribution? I seem to remember that it was breakeven to $0.05 and increasing over time. But if you could just clear that up, that would be great.

We have -- so I have said -- I don’t remember the exact time I started this statement. I said in 3 to 5 years, we expect it to be $0.05 to $0.10 of earnings. We’re in that period now. So we expect to be $0.05 to $0.10 in earnings. We’ve been making investments in a number of different investments on the other category, and it’s been between $15 million and -- I’ll say, between 10 and $20 million over the last several years, and those investments are starting to mature and produce earnings. We continue to expect to make similar investments as we go forward. And so, we do expect -- when we make those investments, we do expect to have earnings. So it’s -- our expectation going forward is $0.05 to $0.10 in earnings. It’s not -- I don’t believe it’s a change. We’re just moving through the cycle of timing, and we’re there now. This was an outperformance. There’s no question this year. Those investments have done significantly better, which is a positive, but that’s not always going to be the case. So we want to have a reasonable expectation for our return on capital as we continue to deploy capital in those businesses.

Okay. Thank you. And last one, if I can just sneak it in there. Can you touch on the increased equity needs in ‘22? What was the driver here as CapEx kind of stayed the same?

Well, we’re -- we’ve been slightly under-equitized overall. Not significantly from our regulatory, and we’re expecting to file a larger case in this next case in a multiyear, and we want our capital structure to be appropriate to what’s currently allowed, which is in Idaho and Oregon, 50-50. And in Washington, it’s 48.5% equity and 51.5% debt. And Alaska is separate, but it’s not overly material to that. So we did have to increase slightly our equity to get to that level. So when we have our case and get to our rate effective period, we are having our cap structure where we are to our currently allowed cap structure. If the Commission gives us a higher, we would raise additional equity to match that, and -- but we’re just trying to get to our allow. So it’s slightly higher than it has been in the past.

[Operator Instructions] Your next question comes from the line of Richie Ciciarelli of Schonfeld.

Just following up on Kody’s question. Just given the other business, you’re expecting that to be $0.05 to $0.10 per year. I guess, what does that imply for Utility growth year-over-year relative to your guidance this year?

Well, Rich, we haven’t come out. We’ll come out. When we file our case, we expect to file our next Washington case early in the first quarter. So in our next call, we’ve typically given the segment guidance. So we’ll follow that history, and we expect to come out with our segment guidance in the first quarter, in our February call. So we haven’t -- we’ve given consolidated guidance going forward to give you a sense of how we’re trying to get back to earning our allowed return. We’ll come out with our segment guidance for ‘22 once we file that case, and we’ll have more color then.

Okay. Thanks. And then just to be clear, you’re -- are you still expecting to earn your allowed return in ‘23?

Yes.

Okay. And I guess, what does that imply in terms of a step-up in rates from ‘22 to ‘23?

Again, we haven’t come out with a number in our rate case. When we file our rate case, you’ll have a sense of what we’re filing for. We always have some offset. The commission doesn’t allow everything that we ask for. We have some offset. But we’ll need -- like Kevin said earlier, we’ll need to get the capital and the expenses to that rate effective period or the rate plan period however we’re calling it. So I’m not going to give you a number. The number that you see is a significant increase in our earnings per share, over 20%, around 25%, I don’t have the exact number right in front of me. But it is an increase in earnings, but we’ve been under earning. That gets us back absent -- as Kody said, absent structural lag to earning our allowed return.

[Operator Instructions] There are no further audio questions at this time. Please continue.

I want to thank everyone for joining us today. We appreciate your interest in our company, and we look forward to seeing a number of you at EEI. Have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.