Earnings call: Avista Corporation reports robust Q2 2024 results

Avista Corporation (NYSE: NYSE:) has announced its second-quarter earnings for 2024, revealing a consolidated earnings increase to $0.29 per diluted share from $0.23 in the same quarter of the previous year. The company’s year-to-date earnings have also risen to $1.20 per diluted share, up from $0.96 in the prior year. These results put Avista on a confident path to achieving its annual earnings guidance range of $2.36 to $2.56 per diluted share for the full year 2024. Avista’s investments in infrastructure, wildfire mitigation, and clean energy are significant contributors to this performance.

Key Takeaways

• Avista Corporation’s Q2 2024 earnings per diluted share increased to $0.29 from $0.23 in Q2 2023.
• Year-to-date earnings have risen to $1.20 per diluted share compared to $0.96 last year.
• The company is on track to meet its 2024 earnings guidance of $2.36 to $2.56 per diluted share.
• Avista is investing in infrastructure, wildfire mitigation, and clean energy.
• The company plans to transfer its interest in the Colstrip coal-fired plant by the end of 2025.
• Earnings are expected to grow 4% to 6% from a 2025 base year, assuming favorable outcomes in rate case filings.

Company Outlook

• Avista expects to meet its consolidated earnings guidance for 2024.
• The company anticipates earnings growth of 4% to 6% from a 2025 base year, pending positive rate case outcomes.
• Discussions about the regional transmission project, Grid United North Plains Connector, are ongoing.
• Avista is considering monetizing some nonregulated business investments in the future.

Bearish Highlights

• A negative impact of $0.07 per diluted share is expected due to the 90% customer, 10% company sharing band.
• Unrecovered structural costs and regulatory timing lag are projected to reduce the return on equity by 130 basis points in 2024.

Bullish Highlights

• The impact of a new large electric customer is expected to offset forecasted power supply cost increases in 2024.
• AEL&P’s contribution to earnings per diluted share for 2024 is estimated to be between $0.09 and $0.11.
• Other businesses are expected to contribute between $0.04 and $0.06 per diluted share in 2024.

Misses

• There are currently no reported misses in Avista Corporation’s earnings call.

Q&A Highlights

• Avista is in discussions regarding the ownership structure of the Grid United North Plains Connector project.
• The window for a settlement in the Washington rate cases has not yet closed, though further engagement before filing a rebuttal case appears unlikely.
• The company has disclosed a large electric customer that offsets a portion of ERM expense, providing additional revenue for the year.

Avista Corporation’s recent earnings call underscores the company’s effective strategy and focus on long-term growth. The company’s proactive investments in infrastructure and clean energy initiatives, coupled with its commitment to wildfire mitigation, are expected to sustain its financial performance. While there are challenges such as the anticipated negative impacts on earnings and return on equity, Avista’s management is actively engaged in strategic discussions and rate case filings to mitigate these effects and capitalize on growth opportunities. As Avista approaches the transfer of its coal-fired plant interest and explores the potential monetization of nonregulated investments, the company remains poised for continued success in the evolving energy landscape.

InvestingPro Insights

As Avista Corporation (NYSE: AVA) demonstrates robust financial performance with its recent earnings report, key metrics from InvestingPro offer additional insights into the company’s valuation and growth prospects. With a market capitalization of approximately $2.98 billion, Avista is trading at a P/E ratio of 15.65, reflecting investor sentiment on its earnings potential. This valuation is supported by the company’s revenue growth, which stands at a healthy 9.49% over the last twelve months as of Q1 2024.

InvestingPro Tips indicate that Avista has a strong track record of returning value to shareholders, having raised its dividend for 21 consecutive years. This consistency is further highlighted by the company maintaining dividend payments for 54 consecutive years. Moreover, analysts predict that Avista will remain profitable this year, as evidenced by its profitability over the last twelve months.

Notably, Avista’s PEG ratio, which measures the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected growth, is at 0.53. This suggests that the stock may be undervalued relative to its earnings growth potential. Additionally, the company has experienced a strong return over the last month, with a 13.33% price total return, indicating positive market momentum.

For investors seeking a deeper analysis and more InvestingPro Tips, Avista Corporation has additional insights available on the InvestingPro platform, totaling six tips that could help inform investment decisions.

With a forward-looking perspective, Avista’s commitment to infrastructure, clean energy, and shareholder returns positions it as a company worth watching in the dynamic energy sector.

Full transcript – Avista Corp (AVA) Q2 2024:

Operator: Good day and thank you for standing by. Welcome to the Avista Corporation Q2 2024 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your first speaker today, Stacey Wenz, Investor Relations Manager. Please go ahead.

Stacey Wenz: Good morning. Welcome to Avista’s second quarter 2024 earnings conference call. Our earnings and second quarter Form 10-Q were released premarket this morning. You can find both on our website. Joining me this morning are Avista Corp’s CEO, Dennis Vermillion; President and COO, Heather Rosentrater; Senior Vice President, CFO, Treasurer and Regulatory Affairs Officer, Kevin Christie; and Vice President, Controller and Principal Accounting Officer, Ryan Krasselt. Today, we will make certain statements that are forward looking. These involve assumptions, risks and uncertainties which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today’s call. Please refer to our Form 10-K for 2023 and our Form 10-Q for the second quarter of 2024, which are available on our website for a full discussion of these risk factors. I’ll begin with a recap of the financial results presented in today’s press release. Our consolidated earnings for the second quarter of 2024 were $0.29 per diluted share compared to $0.23 for the second quarter of 2023. Year-to-date, consolidated earnings were $1.20 per diluted share compared to $0.96 last year. Now I’ll turn the call over to Dennis.

Dennis Vermillion: Well, thanks, Stacey, and good morning, everyone. Wherever you’re listening to this call, I sure hope you’re having a good summer. It’s certainly been a warm one around here recently. For the second quarter, Avista utilities delivered earnings in line with our expectations. Our financial results for the quarter and the year and year-to-date speak to our core strength, our utility operations. Because of the work we do every day, we’re positioned well to deliver on our commitments to our customers and our shareholders. We’re making the right investments in our infrastructure through enhanced reliability, we’re mitigating risk through execution of our wildfire mitigation plan, and we’re keeping our focus on achieving our clean energy goals, and Heather is going to have some more on these in a moment. In June, we celebrated the 40th anniversary of our Kettle Falls biomass generating station. This award-winning power plant produces energy from wood waste. When we brought the facility online, it was the first utility-owned generating station of its kind in the United States. The Kettle Falls facility embodies our innovative spirit and our commitment to stewardship of the environment while contributing to our mission of providing reliable, affordable energy. It’s a showcase of the exceptional partnerships established four decades ago between Avista, the timber industry and the communities we serve. Around the same time as Kettle Falls, Colstrip, the coal-fired generating plant in Eastern Montana was brought online. And in 2023, as you know, we entered into an agreement to transfer our interest in the plant to Northwestern (NASDAQ:). We hand over the keys to Northwestern, so to speak, at midnight on December 31, 2025. And that transaction remains on track in light of the recent deal between Puget Sound Energy and Northwestern. Colstrip’s exit from our generation portfolio is included in our ongoing Washington general rate case, one of the many important considerations impacting power supply cost through the proposed rate-effective period. And Kevin will have more — have a bit more on power supply in his portion of the call. We continue to be on track to meet our consolidated earnings targets for 2024. I’m proud of the diligence of our team as we work to achieve these results. Today, we are confirming our consolidated earnings guidance of $2.36 to $2.56 per diluted share for 2024. Now I’ll turn the call over to Heather.

Heather Rosentrater: Thank you, Dennis. I look forward to sharing some updates about our operations. As Dennis said, I hope everyone is enjoying the summer. It’s definitely been warm and dry out here. In fact, July was the hottest month on record for the Spokane area and many other locations nearby. We set a record for having 20 straight days above 90 degrees. The fact that it’s been hot and dry underscores the importance of our wildfire mitigation efforts. We’re making great progress towards this year’s goals for grid hardening and vegetation management as well as completing our survey of 100% of identified risk trees, something we do every year. We’re leveraging our fireweather dashboard to implement progressively more sensitive levels of fire safety mode as weather conditions warrant. And again, if extreme conditions are forecasted, we have the systems in place to implement a public safety power shop as a tool of last resort. We’re prepared, and we’re making great progress. Our risk mitigation and proactive operations are just two prongs of our strategy to address wildfire risk. Legislative support is also critical. In both Washington and Idaho, we expect to advance legislation addressing wildfire risk in the upcoming legislative sessions. I’m happy to share that our system performed well during the recent heatwave. The investments we’ve made in our grid since 2021 Heat Dome event helped us to ensure strong and stable performance of our system throughout the prolonged heat. Whether we’re talking about periods of extreme cold like we experienced in January or the extreme heat in our region this last month, these weather events are happening more often in both winter and summer. These events have resulted in a higher peak demand on our system than previously forecasted and demonstrate the growing need for additional generation on our system and throughout the Pacific Northwest. We’re committed to meeting the growing energy needs of our customers, and I’m excited about the opportunities that we have. Taking entire system peaks into account, we’re in the process of developing our next integrated resource plan, or IRP. We shared the first draft of our preferred resource strategy in July and expect to finalize our IRP in January 2025. We’re continuing to work through the planning process, and I’d like to share a few of the highlights we’ve identified so far. As clean energy projects are constructed, transmission is needed to move that energy around. We, along with other utilities in the area, are in conversation with Grid United regarding part ownership of the planned transmission line connecting North Dakota to Colstrip, Montana. We already own transmission from Colstrip into our service territory, and we designed our Colstrip exit to keep these transmission rights. Our draft preferred resource strategy identifies this line as a key transmission opportunity. In addition to transmission capacity requirements beginning in 2030, new renewable resources will be needed as early as 2029 to ensure we can continue to meet our customers’ needs with low-cost renewable energy. We expect to begin a request for proposal process shortly after finalizing our integrated resource plan in January of 2025. And as part of that request for proposal, we expect to include ownership options through fill and build transfer options. And with that, I’ll turn it over to Kevin for a discussion of the financial results.

Kevin Christie: Thank you, Heather. I want to begin by reinforcing what Dennis said earlier. Our earnings are on track. Both on a consolidated basis and at Avista utilities, our second quarter 2024 earnings increased compared to the second quarter of 2023. At Avista utilities our utility margin increased due to the effects of our general rate cases. In the second quarter, we recognized a pretax benefit up $1.3 million under the Energy Recovery (NASDAQ:) Mechanism. And as a result, our year-to-date position improved to a $4.7 million pretax expense. Despite this, we still anticipate ending the year in the 90% customer, 10% company sharing band with a negative impact on earnings of $0.07 per diluted share. Last quarter, we mentioned we were in the process of finalizing agreements with a new large electric customer. Effective August 1, we began serving this customer. We continue to expect this load to offset higher power supply costs in 2024. AEL&P’s results for the second quarter were also right in line with our expectations. At our other businesses, we recognized a $0.03 loss per diluted share due to the result of periodic market valuations within our portfolio of investments. These investments create opportunities for learning, contribute to economic development within our service territory and help propel us toward energy innovation and the transformation necessary for meeting our strategic goals. Turning to the regulatory front. We are currently working through our general rate cases in Washington, which we filed earlier this year. In response to our testimony, the parties to our proceeding filed their first round of testimony in early July. We will file rebuttal testimony in mid-August, responding to the parties and updating our case accordingly. In addition, all parties met in May and July to see if we can settle some or all of the issues. After good faith negotiations by all parties, we simply were not able to reach terms. After reviewing the positioning of the parties, we believe that our case on rebuttal should be supported by the commission. The two-day hearing before the commission will start on September 30, and we expect an order in mid-December. As a reminder, we expect to file our next general rate case in Oregon in the fourth quarter of this year, and our next general rate case in Idaho in the first quarter of 2025. We are committed to investing the necessary capital in our utility infrastructure. Capital expenditures at Avista Utilities were $245 million in the first half of 2024. Our planned capital expenditures are $500 million for the year. This investment ensures we can continue to support customer growth and maintain our system to provide safe, reliable energy to our customers. We expect capital expenditures at AEL&P to be $21 million and investments at our other businesses to be about $11 million in 2024. On the liquidity front, as of June 30, we had $251 million of available liquidity under our committed line of credit and $44 million available under our letter of credit facility. We expect to issue approximately $70 million of common stock in 2024 to fund our capital spending. Through June 30, we issued $17.6 million of common stock. In April, we remarketed $84 million of tax-exempt bonds, and we do not expect to issue additional long-term debt in 2024. We are confirming our earnings guidance for 2024 with a consolidated range of $2.36 to $2.56 per diluted share. We expect Avista utilities to contribute within a range of $2.23 to $2.39 per diluted share. As mentioned previously, we expect the impact of the energy recovery mechanism on the full year for 2024 to be a negative $0.07 per diluted share in the 90% customer, 10% company sharing band. As also previously mentioned, we expect the impact of the new customer to offset substantially all of the forecast impact higher power supply costs in 2024. Our guidance for Avista utilities in 2024 reflects unrecovered structural costs, which we estimate will reduce the return on equity by 70 basis points. We expect the continuing effect of regulatory timing lag will further reduce our return on equity by 60 basis points for the year. This results in an expected return on equity at Avista utilities of 8.1% in 2024. We also expect AEL&P to contribute in the range of $0.09 to $0.11 per diluted share. As we move through the remainder of the year, we expect to see improvement in the private equity markets. And as a result, we continue to expect our other businesses to contribute in the range of $0.04 to $0.06 per diluted share in 2024. Assuming a constructive outcome in our 2024 general rate case filings, we expect our earnings to grow over the long term in the range of 4% to 6% from a 2025 base year. Now we’ll be happy to take your questions.

Operator: [Operator Instructions]. Our first question comes from Julien Dumoulin-Smith from Jefferies.

Brian Russo: It’s Brian actually on for Julien. Just the commentary on the regional transmission and the Grid United North Plains Connector. Where are you in that discussion process? Should we expect any sort of MOU soon? It’s a very large project. I think it’s $3.2 billion, actually received the DOE grant the other day. Any thoughts on what your ownership structure might look like?

Heather Rosentrater: Yeah, we’re working through that right now. So we’re working with the other utilities that are in conversations with them. And as I noted, it fits well with our plans that are identified in our integrated resource plan. And so we’re — we think it’s very promising in terms of us being a part of it, and we’re just continuing those conversations.

Brian Russo: Okay. Great. And then just on the Washington rate cases, has the settlement window closed, or can you still meet with interveners and interested parties ahead of the hearing?

Kevin Christie: Thanks for the question, Brian. Well, the window certainly hasn’t closed. We could continue to have some dialogue as we move towards filing our rebuttal case. But I will tell you that it seems unlikely at this point in time given how close we are to filing that rebuttal. If after that rebuttal, the parties and the company become more engaged or potentially become more engaged to , we’ll jump into those discussions. We’ll let you know if something comes of it.

Brian Russo: Okay. Great. And then lastly, the previously disclosed large electric customer, right, that’s offsetting the $0.07 of ERM expense. I assume that’s about $5 million in margin. Is that outside of this rate case, so you retain that margin in the future or at least through ’25 or even 2026, depending on the outcome of this rate case. Is that how we should look at it?

Kevin Christie: Well, certainly, it’s incremental revenue for this year. And then as you know, with the rate case timing and the fact that power supply is a very significant part of that case, that will get pulled into and be considered part of the overall power supply outcome.

Operator: Our next question comes from Willard Grainger from Mizuho.

Willard Grainger: Just one on the nonregulated business that you have, is there an opportunity to monetize that in some form or fashion to help offset any equity needs in your capital plan?

Kevin Christie: Well, the nonregulated side of our business or what we call other is actually several different investments. And with that, of course, as we mentioned here in the earnings call, to the extent that markets open up, then we could see a monetization event at some point in time in the future for some of those investments. And to the extent that happens, that will certainly help out. But it’s — overall, it’s a relatively small part of our business. The utility is our core. Operator I am showing no further questions at this time. I will now turn it back over to Stacey Wenz for closing remarks.

Stacey Wenz: Thank you all for joining us today and for your interest in Avista. Have a great day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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