Good day, ladies and gentlemen, and thank you for standing by and welcome to the Avista Corporation Q1 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to turn the conference over to your host Ms. Stacey Wenz. Please go ahead.

Good morning, everyone. Welcome to Avista’s first quarter 2022 earnings conference call. Our earnings and our first quarter 10-Q were released premarket this morning. Both 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. 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 2021 and 10-Q for the first quarter of 2022 which are available on our website. I’ll begin by recapping the financial results presented in today’s press release. Our consolidated earnings for the first quarter of 2022 were $0.99 per diluted share, compared to $0.98 for the first quarter of 2021. Now I’ll turn the discussion over to Dennis.

Well, thanks, Stacey, and good morning, everyone. We had a real solid start to 2022 as Avista utilities earnings were above our expectations and we are pleased with the results of the first quarter. Our performance was partially the result of the timing of certain expenses. And for the remainder of 2022, we anticipate seeing higher cost based upon current economic environment. However, as we always do, we are proactively managing these issues and we are on track to meet our consolidated earnings targets for the full year. Not unlike what other companies are seeing some of these challenges that we’re seeing include higher inflation than in the recent past, we have increased interest rates. Commodity costs that are higher than we’ve seen in almost 15 years and some supply chain constraints, and competitive labor markets. And of course, that lingering pandemic, which thankfully, looks like we’re on the tail end of that, we’re all really happy about that, obviously, so all these are contributing to a difficult operating environment. To address some of these issues, we do expect to update our authorized power supply costs towards the end of 2022 to our pending electric general rate case, as well as interest costs and other changes in costs in the current and future rate cases. As always, cost management efforts are also fundamental to achieving our results. In addition, as you may have seen, we recently filed out of cycle purchase gas adjustments or PGAS, in Washington, and Idaho to adjust customer commodity rates to take into account the rising cost of natural gas. I’m pleased with our continued progress towards achieving our clean energy goals. In March, we entered the western energy imbalance market or EIM, which really expands our ability to share renewable resources across the regional market…

Thank you, Dennis. Good morning everyone. And two good things happened in the first quarter. Like Dennis said we had a good quarter. And secondly the Blackhawks pain ended. So the season ended and we did not make the playoffs. So when you’re turning on your TV to watch hockey, you won’t see him. For the first quarter of this year, utilities contributed $0.93 per share, as Dennis said compared to 92 last year, and this was above our expectations partially due to timing but some of the we had just had a better quarter. Compared to the first quarter our increases were due primarily to completed rate cases in Washington and Idaho effective in late 2021 and the benefits from those rate cases historically those benefits come through gross margin and the revenue line but because of our the tax customer credit that we’re trying to keep the bills lower the benefit of that gets recorded through income taxes. So you’ll see a higher income tax benefit and that will continue going forward as we have that credit offset in our customer bills which was important to us in that process. We also have in our customer growth we’re in line but we’re about percent and a half. I know others have strong that strong for us. We expect 1% or 1.5% and we’re just over that in the first quarter, and we see good customer growth as we go forward. But we do, as Dennis mentioned, have some headwinds. We have higher power supply costs, gas prices, are really getting impacted primarily by the conflict or, in part by the conflict in Russia and Ukraine, we’ve seen higher gas prices, which causes us to have higher power supply costs which is a negative, which is why as Dennis…

Thanks, Mark. We’re open for questions.

Thank you. [Operator Instructions] And your first question comes from the line of Julien Dumoulin-Smith from Bank of America. Your line is open.

Hey Dennis and Mark, it’s actually Kody Clark off for Julien. Thanks for taking my questions.

Hi Cody. How are you?

Doing well. So you’ve talked a lot about the inflationary environment and previously you pointed to just over 5% cost increases for ‘22 and then kind of back to normal that 2% to 3% inflation and costs in ‘23. How are your actual is trending versus that plan? And I know you mentioned some expense timing. maybe it’d be helpful to get some more color on the drivers of that. And also just how you’re thinking about the customer bill impact from these pressures and the ongoing and upcoming rate cases.

There’s a lot there. So I’ll start and then I’ll let also Kevin to talk a little bit about customer impact. But from an inflationary perspective again, we had a good first quarter. We didn’t see a significant as significant of an impact there. But we do recognize that that’s coming. And we have put that in our forecast. When we talked about the impact, we did forecast 5% inflation, but that’s over a broad cost basis. We haven’t seen significantly higher than that, as we look at our forecast. Now that could come. We’ve updated all of our interest rates to current interest rates. The Fed moves today that could change that. But where we are today, it’s based on current interest rates going out and we did our $400 million bond deal, all that’s factored in to our forecast. And then there’s we’ve gone through our union agreements on our wages, that’s all incorporated. We have a brand new union agreement. We’ve updated our wages for our employees. So that factor is incorporated into our forecast already and was included in that 5%, when it looks at costs that directly impact us. Some of the other costs we’re seeing is trying to manage the cost of materials and supplies. That probably impacts capital more than it does on ERM But it does impact on ERM to some level. And we’ve incorporated that. To the extent inflation lingers longer and stays higher, we will have to work through that. And we’ll work on either managing our costs or getting that in to future regulatory proceedings. So there could be some challenge there. If it increases high in ‘23 and we can’t quite get the recovery as quickly. But we don’t at this point, we believe that we can manage through that through managing our costs to offset the impacts of inflation with the customer bill impact. I’ll turn that to Kevin.

Kody. It’s Kevin Christie. Thanks for the question. All I can really add to what Mark has said is that we provided the commission with an opportunity to use additional tax offset customer tax credit offset, and it won’t, it wouldn’t mitigate the full impact of the case. But it certainly would help out. And the commission ultimately gets a chance to decide how to use that. They have used in the past the flat rate case, effectively. And I think they would look at that in this instance. So again, inflationary pressures are tough from a customer perspective. But we’re trying to give tools to help mitigate where we can.

Got it. Yes, definitely understood. And you gave some thoughts on the power backdrop and the move to the $0.09 impact from the ERM from the $0.07 prior. You also mentioned snowpack being healthy, and that can be a driver to some of the offset of the drag. But I’m curious if you have any views on how participation in EIM is playing into the ERM dynamic thus far. Have you included any benefits from participation there in that $0.09 figure?

Well, yes, but again, we’ve just part of it is included in our expected power supply cost, was an amount from our rate case when we got that approved. We had an amount that we needed to achieve and I want to say on a system wide basis, I believe it was just over $5 million. And then when you back it down to Washington for the ERM it was 3.5 to 4, I don’t remember the exact numbers but that’s already incorporated that we need to get to get to the expectations. And we’ve been in for a couple of months now. It’s been at or better than our expectations, but not significantly enough. And we’ve incorporated some of that into the ERM. But when you’re in the 90/10, even if we get Kody let’s say we get some benefit additional, I’m using this as a hypothetical, if we got an additional $5 million of benefit, where we are in the ERM at the $0.09 we would only get 10% of that. So we get a half a million dollars as an example if we continued. And that’s just because of where we sit in the ERM. That doesn’t take away from the great work that they’re doing, and the real benefit to our customer bills that we believe that will be in that market like Dennis said in his opening comments we’re able to provide that energy and benefits our customers and our company when we’re not in the 90/10.

Got it. Okay. And then one last one, if I can just squeeze it in just on the other segment and I’m wondering if you have any additional detail on how we should be thinking about shaping that over the course of the year. I know, your edge pilot program is still early stages. So some drag there as it ramps, but anything else that you can point to would be helpful?

I don’t, unfortunately, I don’t think I really have a great shaping for that from my perspective. It really depends, what we’ve seen is the investments that we have there have been consistently performing and the markets been fairly strong in the clean tech we look at our investments through energy iImpact partners, there’s a number of things in clean tech and technology that has been strong. We expect that to continue to be strong. But there’s nothing out there that says you shape it. It’s all based on individual company investments and we can’t shape it. We forecast over the course of the year. But from a quarterly shaping, we don’t really spend a lot of time on other than the fact like you said, we may see a little bit of pressure and have that’s included in the first quarter and second quarter as we have the edge pilot. But that’s not significant to move us at this point.

Okay, understood. Thanks for the time. I’ll jump back in the queue.

Thank you. And your next question comes from the line of Anthony Crowdell from Mizuho. Your line is open, sir.

Hey, good morning, Dennis. Good morning, Mark. Mark, I feel your pain on the Blackhawks. But you could be a ranger fan and be very tired this morning.

Well, I was I was watching it. Fortunately, I’m three hours earlier than you that was painful in the third overtime.

Yes. I was fortunate enough to go and I’m on my fourth Diet Coke this morning. So I’m struggling. So hope you guys can help. Just a couple quick questions I guess. We looked at the CapEx slide. I’m just wondering whatever the other companies that reported or mentioning some supply constraints, not just on renewables, but also on just some transformers, some core stuff that they’re seeing in the business. Is there anything that really you think could impact your CapEx projections?

Well, I don’t think it impacts necessarily our CapEx projections. It may impact the timing of getting those done and the amount of work as cost there is some inflationary cost pressures to on the goes like I said, transformers and others, that we will spend our capital, we may not get as much done, but we will do the analysis to make sure that we’re still economic to our customers with what we’re doing, obviously. But what we have seen and Dennis mentioned in his early comments that there is some timing constraints. And we’ve actually had to switch and look for additional suppliers and in transformers. That was one of those examples where we did get a new supplier. It’s worked very well, they are international, but we’ve vetted and we’ve done very well there. So we’re working very hard. Our supply chain folks work very hard to make sure that we can get the goods necessarily. We may carry a little more inventory as well to be able to get our projects done. But all of that is, it’s not negatively impacting our forecast, as we look forward. They are working very hard. I don’t want to take anything away from that. But we believe we’ll be able to source our equipment to do our capital projects. And the timing of our other projects it does push out the time to get it. But we’ve been able, we’ve been successful at this point and we expect that to continue.

Great. And then if I could switch gears, obviously rates are really gone up so far this year. I believe you guys have a $20 million to $50 million bond coming due soon. Just if you could talk to us on what you’re seeing rates for that to refi that?

Well, we did so we did refi it in the first quarter. We did $400 million in the first quarter late March. And rates were up some and then also we’ve seen on a short term side as we borrow to manage working capital rates are up some there. All that’s incorporated into our forecast. And we would expect to include that or look to include that as we go through our regulatory processes to update our capital structure for known and measurable items. I mean, we do have a known and measurable item with that $400 million bond deal that we think we can incorporate into our regulatory procedures. Now, that does take commissions have to approve that, but we believe it’s reasonable.

Got it. And just last for me, I’m just wondering your thoughts. I know that you already filed January filed in Washington. You did a settlement in March. Alaska you’re going to file, but it seems that its rates have moved. I haven’t seen management teams actually changed their requested ROE. If you think about the move that we’ve seen in the tenure since the end of the year, you have already seen like the settlement Oregon right now, nine for kind of is in line with what you’ve seen the national average. But yet treasuries have almost doubled since the beginning of the year, just as you think about the filing and Alaska going forward. Could investors start to see maybe utilities ramping up the requested ROE because of the move in rates?

Well part of it that’s a great question. But part of it is a challenge, in that we’ve seen rates over the last 10 years moved down significantly and ROE have moved down somewhat. So I don’t think we’re going to be fast to rise up and I don’t think the commission’s at least in our jurisdictions, were fast to move down. We did incrementally move down as rates came down. We did. We went, when I started so 13 years ago, we were at 10/2 in Washington and Idaho. And now we’re at 9/4 but rates from then probably went from treasuries, I don’t know, six, six or so percent or higher, down to sub two for a while. So I don’t think while incrementally they are moving up I don’t think that commission’s now we would love it. If they did, don’t get me wrong. But I don’t think they’re going to jump too quickly to move up when they didn’t jump too quickly to move down. They’re still looking at value to customers. And we’ll have to see what that does. Kevin, I don’t know if you’d add anything to that.

Yes, just one quick item in our Washington case. We did increase the request of the ROE of 10.25%. And we did that in recognition. And our witness spent a fair amount of time and detail around inflation and other factors that influenced us to ask for that 10.25. That’s higher than what we’ve asked in the past. And in part is the tool available to the commission in this kind of environment where we have this uncertainty. So we really wanted to make that available to them. So they can move forward and work with us as we want to recover in an authorized return.

Great. Thanks so much for taking my questions. And hopefully, Mark, we have a better Thursday night.

Thank you. And your next question comes from the line of Brian Russo from Sidoti. Your line is open.

Hi, good morning.

Morning Brian.

Hey I just want to understand kind of the seasonality of the ERM the 1.1 plus million benefit in the first quarter. But yet, you’re going to be well above the baseline by an expense for the full year. What’s the seasonality? I mean, if you have a little above normal hydro conditions and normal runoff will most of that expense kind of hit in the fourth quarter when you have less hydro, and you’re in the market procuring power at higher prices? Is that kind of the way to look at it?

Well, I mean, the seasonality yes, from a availability of supply perspective, when we have, if we have assuming we have normal hydro we have a lot more power in the spring and into the summer and how far that goes depends on how quickly it melts off. And then we still have hydro. It’s a run of the river plant, we still have hydro, just not as much. And we then become more subjected to gas prices. The seasonality isn’t as much due to availability of supply this year as it is due to the significant volatility and natural gas prices. So we’ve seen again largely I’ll say largely due to Ukraine, Russia conflict, I don’t know that that’s 100% what it is, but everybody’s saying that that does definitely impact it. And so the significant increase in gas prices has really caused that to become a challenge because that increases our cost to serve our load and our customers. If we haven’t fueled our plants fully, and we don’t we tend to leave them open through time, as you know, to take advantage of lower gas prices. We don’t feel 100% And that’s what the ERM, the ERM catches that movement and in this case, it’s largely, I would say it’s largely due to natural gas prices, and the increase there than anything else than a timing to try to say there, I mean, there is a normal seasonality to the availability of our power. And there is a normal seasonality to our loads. If we had unusually hot or cold weather that does impact our loads but we haven’t seen. It’s been a little cool. But we haven’t seen any significant volatility with respect to loads due to weather.

Right, understood. So then maybe, it seems like that dynamic you just described was in play during the first quarter of 2022. So I’m just curious how you’re able to optimize your generation portfolio and market purchases to actually benefit?

Well, we were actually, Brian we’re actually down 2.5 million from last year. That first quarter, I mean, so if there is a little bit there in the way that’s shaped based on current prices our first quarter last year was over 4 million, and this year, we’re under 2. So yes, we did have a slight benefit in the actual recording of it. But we were down in the first quarter as well year-over-year.

Got it. Okay. And that 400 million bond deals that closed in late April for the refinancing. What was the interest rate on that? And how does that compare with kind of your late March? How does that borrowing rate on that and how does that compare with your average borrowing rate?

Well, it was right around 4%. I think it was 4%, I believe, but it was and in that overall, our average borrowing cost is higher than that. I want to say it’s 5.5%. I don’t know what we include in our total cost of borrowing, but it did overall, lower the cost of borrowing. It just was slightly higher than we had expected coming into the year. Rates have really ticked up lately. So we did get a little bit of a negative there. And we would expect to update that as we go forward in our regulatory filings as I mentioned is a known and measurable item, we may or may not get that that’s up to the commission but it was slightly higher than we expected, but still lower the overall cost to our customer.

Okay, and then just lastly, on the other business the $0.04 to $0.06 of EPs in ‘22 and 2023. I mean, how sensitive are those estimates to market volatility? I’m just curious. Are these just forecasted net gains on positions that are monetized? Or is there also kind of a market element function to that?

No, there’s a lot of different things that we have a lot of different investments. It’s not when we look at our business it’s not necessarily tied to gas prices or interest rates or that. I mean these are investments that are growing early stage or onward businesses and in clean tech. So is it what conditions are out there to the extent there’s a continued investment in getting back to zero carbon emissions or clean tech investments there have had a lot of benefit going forward. We expect to see that to continue as many companies say, we have our own clean energy goals, as Dennis mentioned. A lot of companies throughout the country, you’re trying to have those goals. These investments are around to try to help achieve those. So we believe there will be strengthened funding and we’ve seen that there’s a lot of money coming into there. That is a benefit. Does that continue forever? I have no idea. I mean, over the next couple of years, we believe that we’ll be able to get there and achieve our results. But it’s not based on monetization of any particular investment. It’s included in there. But there is a valuation impact to as we move forward. And again, these are very small. I know we spend some time on it but it’s $0.04 to $0.06. The focus is, our focus is primarily getting the utility back to earning our allowed return and price for our customers.

All right, thank you very much.

Thank you. [Operator Instructions] And presenters, I’m showing no further question at this time. I would like to turn the conference back to Ms. Stacey Wenz for any closing remarks.

Thank you very much for joining us today. We look forward to seeing many of you in a few weeks in Florida. Have a great day.

Thank you. Ladies and gentlemen this concludes today’s conference call. Thank you all for joining you may now all disconnect.