Avista Corporation (AVA) Q2 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Avista Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Stacey Walters, Investor Relations Manager. Please go ahead.

Good morning. Thank you for joining us. Joining me today is Avista Corp. President and CEO, Heather Rosentrater, who will speak briefly in a few moments on current events. Senior Vice President, CFO, Treasurer and Regulatory Affairs Officer, Kevin Christie, is also here and will be available for questions. As I'm sure you can appreciate, we are going to focus this earnings call on the fires that occurred in Spokane over the weekend. Please refer to our earnings press release and second quarter 10-Q for information that was filed premarket this morning relating to our financial results for the quarter. You can find this information online. Heather, please go ahead.

Thank you, Stacey. As you may have seen in our press release yesterday and the related Form 8-K filed this morning, multiple wildfires are burning near Spokane, Washington. Fueled by dry and windy conditions, these fires spread rapidly and have devastated our community. Thousands of people, including many of our employees, have been displaced and many are still facing great uncertainty. Our hearts are with everyone who has had to evacuate their homes, everyone who has suffered loss and all who continue working on the front lines. Our facilities were not involved in starting any of these fires in the Spokane area. We have restored service to customers whose outages were solely related to the public safety power shutoffs. However, we still have electric and natural gas outages in parts of our service territory because of damaged infrastructure, evacuation restrictions and ongoing safety concerns associated with the fires. At this time, about 7,300 of our 429,000 electric customers are out of power and about 5,300 of our 386,000 natural gas customers are without service. And to reiterate, in areas that were part of the public safety power shutoff event, any remaining outages are no longer tied to that event. They are related to active wildfire conditions and the damage those fires caused. As a result of the fires, we have identified significant impacts to our transmission and distribution infrastructure serving parts of West Spokane. Multiple transmission lines in the area sustained damage from wildfire activity, and the transmission system was operating with reduced capacity due to the damage. I am happy to share that our crews repaired and energized a key transmission line earlier this morning that significantly reduces the risk of new customer outages due to system capacity constraints. However, we are still assessing the full extent of the damage as emergency responders provide access to impacted neighborhoods and fire conditions allow. The situation is still very dynamic and the fires in the Spokane area have yet to be contained. We have shared as much as we currently know. And right now, our primary focus is on assessing damage to our facilities, planning for restoration and supporting our customers and employees have been impacted by this tragic event. We will work to provide additional information as it becomes available. Our first priority throughout these events is the safety of our customers, employees, contractors and the communities we serve. We remain focused on assisting impacted communities, coordinating with emergency responders and community partners and restoring electric and natural gas service as quickly and safely as conditions allow.

At this time, we will take questions.

[Operator Instructions] Our first question will come from the line of Shar Pourreza with Wells Fargo Securities.

This is Whitney Mutalemwa on for Shar. Yes, definitely, our thoughts are with the Spokane people. Just to -- can you give us a sense of the extent of the damage to the transmission system? How are you thinking about the cost recovery and insurance treatment while this cause is still under investigation?

I can talk about the extent of the damage. We still have -- we have had repairs, like I said, to one of the critical lines and then a couple of other lines that were damaged, we've been able to repair. But we still have a couple of lines that are out, and we do have access to the areas now. And so our crews are starting that repair on the transmission system. That shouldn't take as long as the repair likely to the distribution system. So that damage is still being assessed, and we'll know more in the upcoming days, the extent of that damage and how long it will take.

And then I'll build on that, Whitney. Of course, many of these assets are long-lived assets. And so from a regulatory lag perspective, there shouldn't be significant impact there. And as we look forward and once the assessment is complete, we can make some determination of whether we file a petition with the UTC. If that ends up making sense, we'll let you know.

One moment for our next question. And that will come from the line of Michael Lonegan with Barclays.

So on the wildfires, I was going back to the cost recovery. I was just wondering, the legislation in the state allows for securitization of wildfire-related costs, correct? Just wondering, anything you could share about that would be helpful.

Yes, they're in the 2 legislative sessions ago, there was a bill that was passed that ultimately allows for securitization. And again, we've said it's too early to assess. Securitization would be for, I would say, much more impactful events than what we're experiencing now. Of course, I don't want it to seem like it's not impactful to all of us that have been involved in the fires or having the fires around us. But from a sheer monetary perspective on the infrastructure, I wouldn't see us being any remotely close to that need.

Okay. And then shifting to the data center negotiation pause. Just wondering if there's anything you could talk about whether there's been any progress that's addressing customer community member and local leader concerns. And I know the MOU remains in place, but you removed the 500-megawatt project as upside to your capital plan. Anything you could share there would be helpful.

Yes, I appreciate the question. And I know there's a lot of questions about the data centers, and I want to take the opportunity to just be clear in how we're viewing it. I do appreciate that customer affordability is a shared priority with our investors, our customers and ourselves. And the shared -- that shared interest to support affordability has been front and center to our response to these data requests that we received. And as we've consistently communicated, we will not move forward with a new large data center customer unless we're confident that they will make significant contributions to support affordability for existing customers. And we won't move forward with them unless we are confident that our current customers' reliability will be maintained or enhanced. We expect that there needs to be a net benefit for our current customers, and we want to ensure that there are protections in place for our current customers. And so those things have guided the conversations that we have been having internally related to potential updates to our internal processes. They've guided the conversations that we've had externally with those other stakeholders because as we shared, we know that we are just one part of multiple entities that are required to consider these kinds of requests. And so we have been participating in a broader process, engaging with regulators. There's workshops going on in the Washington regulators, commissioners are holding those. We've been engaging with local partners who are also working through just appropriate new considerations for planning and coordination because the scale of these projects is so unprecedented. So we've appreciated the customer questions that we've gotten. And again, as you noted, that pause in the MOU has helped us to have more time to explore those internal and external processes. And so we are also working on related to ensuring -- providing the appropriate assurances for customers that they will not -- existing customers will not cover any costs. We're considering updates to potential tariffs, hybrid tariff special contract potentially at the regulatory level that we think could provide additional assurances to customers and potentially working at the state level through policy that has already been brought up last year and will likely be brought up this year. And we think it's a good thing to have those assurances for our customers. So those are the kinds of things, kinds of conversations we're having that will inform how we might move forward with any of those large data center requests that we have.

And then lastly for me, on the Washington rate case, just wondering if you could share how you're feeling coming out of staff testimony in the settlement conference, key debates, where they could head, likelihood of a settlement. Do you think it's going to be hard to reach a settlement because it's the first 4-year plan filed in the Washington state?

Mike, it's Kevin. Thanks for the question. Yes, we've been saying all along that there's pretty key or fundamental differences in points of view on the term of the case. We feel strongly about the 4-year. Others, as you can see through their testimony, do not. And so I think that's proving out that settlement will be quite difficult. But as we look forward and see the positions of the parties, for example, if you look at staff and where they're at, there's a discrepancy on how we got there, but they're not that far from where we're at. And so we think that's constructive as the commission contemplates how to resolve the case at the end of the regulatory process. And even if you look at the position of public counsel, which seems very stark when compared to where we're at, the lion's share of the difference, there are 2 items. One is return. We think they have a return level that is unacceptable. We think the commission will likely see it the same way based on past practice or history. And then they also did not go along with any adjustment to power supply, which, again, I think power supply is proving that over the last several years, unfortunately, we've got pretty clear knowledge of what's been going on. And so with all that data in mind, I think the commission is in a good spot there. Staff's perspective on power supply, again, a little bit of a discrepancy on how we get there, but it's relatively close to where the company is at. So again, I don't believe we'll see a settlement take place. We will go ahead and file our rebuttal case here on the 7th, so Friday. And then we'll have a hearing in September -- September 17 through 18, likely. And then the commission will think about the case, and we'll get an order towards the middle of December. And again, I just want to reiterate that I think from our position, how we position the case overall, the data that we've provided throughout the pendency of the case and as we think about rebuttal and what will be publicly available to you, it's a strong case. And again, the parties for a couple of key issues aren't that far apart from us.

Our next question that will come from the line of Chris Ellinghaus with Siebert Williams Shank.

Do you have any sense from what you've been able to ascertain so far, how long you think it will take to normalize your infrastructure?

It's hard to tell right now. Again, we're still getting into the areas that have been affected. And our first priority is the transmission, and we think that we have a good sense of the damage there. And so that should be -- in the near term, we should be able to get that restored. And then with the distribution and there's a significant structure losses has been shared. And so working through how we support the areas that remain, that's what we're trying to understand better right now and how long that will take. So it's still to be determined.

Okay. Kevin, vis-a-vis the quarter, can you give us any color for the nonregulated benefit for the quarter? What was going on with presumably mostly funds?

Yes, absolutely, funds. And again, Chris, thanks. I appreciate the question. We had a good quarter from a nonregulated perspective, and it really gets back to what we said 1 year ago on the call where we had some headwinds that materialized for various reasons. And we said that the market needed to levelize. We thought that, that would likely happen. And then once again, we would be -- and an expression you know we've used is to get paid a little bit to learn. And so it's through EIP. We've been clear about that. There is an investment within EIP that went public. And so we acknowledged or had a gain leading up to that IPO. And then as you can see in our documents, we would expect another gain due to the lag that would show up next quarter and it will introduce volatility into that particular investment because that company, ERock has -- is publicly traded, and you can see what's transpired since then. Most of what will be the gain that we're expecting to recognize next quarter, if you look at current stock price, would then reverse. I'd also share that, that's just one fund in amongst that particular or one investment within that fund, and there will be gains and losses within all of those as well. So there's a netting, but you can take a look at ERock stock price and get a reasonable proxy about what might happen in that fund. We do think that net-net, it's beneficial to us, obviously, when we can exit and we can exit or EIP cannot exit due to the lockup that typically happens with an IPO for some time. But when they can, that will be beneficial from a cash flow perspective and will help to alleviate some of our equity needs.

Okay. That's helpful. Lastly, this workshop next week at the UTC, is that going to be particularly helpful to inform your MOU situation? And is that part of the reason why you withdrew so that they could hold this workshop?

Here's what I would say is that, that process has been underway for a bit. And it is something that absolutely should benefit us as we go forward. And working with the community will also be key to all of that. So the commission can help, Heather highlighted the fact that we've historically used the concept of a special contract for any large load, and that has worked for us, but we need to give better clarity to others that we are properly protecting them. And I think the process that will happen with the commission will define that to some extent. And we'll -- if it doesn't, we will make sure we define it. So everybody can have good trust in the process and the protection for existing customers and benefits for existing customers. So again, it will absolutely be helpful. We've said net benefit. I know it's a term that's used mostly in M&A, but we've been using the net benefit expression in both Washington and Idaho for quite some time about how we view large loads and existing customers.

One moment for our next question. That will come from the line of Julien Dumoulin-Smith with Jefferies.

It's Brian Russo on for Julien. Most of my questions were asked and answered. But just maybe you could just talk a little bit about the wildfire mitigation plan and the initiatives, and the benefits that you were able to capture and offer the community over these last couple of days. And then with the PSPS, it seems like they performed very well or as planned, et cetera.

Yes, absolutely. Thank you. I appreciate that question. And that's what we've been sharing is that we believe that our proactive measures have demonstrated that they've been providing value and have been effective. We know it's really hard to -- for the community to be experiencing proactive outages in the public safety power shutoffs. But we did find on at least one of those lines that had been proactively deenergized. We found several trees that fell into the line during our patrol of those lines that we do on every -- on those theaters before we reenergize. And so that's what we've been able to share, and I think it does give our community a better understanding and appreciation, maybe not appreciation, but a better understanding of why we're doing that. And there's been a lot of conversation about prevention. And that's how we see that tool is it's a tool to prevent the start of wildfires. And that's what we've shared as the situation could have been worse. And we're looking to and appreciate the work that our teams have done to put those things in place, and we do think that they were effective in this really high-risk situation, and that is nice to be able to reinforce the work that we've done there. So yes, the work -- all the work we've done around vegetation management, all the work that we've done around these real-time situational awareness and then operational changes that we've made do seem to be demonstrating their value.

Our next question will come from the line of Sophie Karp with KeyBanc Capital.

This is Michael on for Sophie. Does the wildfire and related costs make you rethink seeking a 4-year rate case, specifically around the difficulty with forecasting such events?

I think it's just too soon to say about that. Right now, based on what I know, I think the 4-year continues to make sense for us for all the reasons we've previously elaborated. And as a reminder, if we have some kind of extreme event or situation arise during the 4-year rate plan, we can with not something we want to do, but we can go ahead and refile and replace years 3 and 4. So if something were to occur, and I don't think it's this event, but something else were to occur, then we could go ahead and do that. That assumes the commission sides with the company and does, in fact, put in place the 4 year.

Got it. And then do you expect there will be some opportunity to introduce additional wildfire legislation in the next session?

I don't think we're actively looking at this session. I think we'll have the opportunity to work with our other utilities in the region and other stakeholders and maybe in the future. And there is work at the federal level for legislation that we think would be likely the focus area probably, but in the near term, but that's just more of an ongoing effort to explore what might make sense.

I'm showing no further questions in the queue at this time. I would now like to turn the call over to Stacey Walters for any closing remarks.

This does conclude our call today. Thank you all for joining us.

This concludes today's program. Thank you all for participating. You may now disconnect.