Avista Corp
NYSE:AVA
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Avista Corp
Earnings Call Analysis
Q2-2024 Analysis
Avista Corp
Avista Corporation reported a solid financial performance for the second quarter of 2024, with consolidated earnings reaching $0.29 per diluted share, compared to $0.23 in the same quarter of 2023. On a year-to-date basis, earnings improved significantly to $1.20 per diluted share from $0.96, showcasing the company’s operational strength and commitment to delivering value to stakeholders.
Avista Utilities experienced an increase in utility margins, primarily driven by ongoing general rate cases in Washington. The company recognized a pretax benefit of $1.3 million under the Energy Recovery mechanism, improving the year-to-date position to a $4.7 million pretax expense. Despite this improvement, earnings are expected to be negatively impacted by $0.07 per diluted share as it anticipates sharing earnings in a 90% customer, 10% company sharing band.
In a significant development, Avista started serving a new large electric customer effective August 1, which is expected to offset most of the higher power supply costs in 2024. This integration is anticipated to bring approximately $5 million to the company, contributing to the margin and balancing out the expense impact from the energy recovery mechanism.
Avista is committed to investing in its utility infrastructure to ensure safe and reliable energy delivery. The company has earmarked $500 million for capital expenditures in 2024, with $245 million already spent in the first half of the year. Investments will focus on enhancing system resilience and supporting customer growth amidst rising demand.
Avista has confirmed its earnings guidance for 2024, projecting consolidated earnings in the range of $2.36 to $2.56 per diluted share. Specific contributions from Avista Utilities are expected between $2.23 and $2.39 per share. The company also forecasts long-term earnings growth of 4% to 6% starting from a 2025 base year, assuming favorable outcomes in ongoing rate cases.
The ongoing regulatory environment remains a focal point for Avista. The company is working through rate cases in Washington and expects to file its next case in Oregon later in 2024, followed by another in Idaho in the first quarter of 2025. The results of these cases will influence future power supply costs and, consequently, margins.
Given recent extreme weather patterns and increased energy demand, Avista is prioritizing wildfire mitigation and grid enhancements. The company’s proactive strategies include ongoing risk assessments and legislation to combat potential threats, with highlighted efforts in vegetation management and advanced safety measures during extreme conditions.
Avista is in the process of developing its next Integrated Resource Plan (IRP), with a draft strategy released in July and finalization expected by January 2025. The IRP emphasizes the necessity for increased transmission capacity and renewable resources as early as 2029 to accommodate growing customer demand efficiently.
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Good day, and thank you for standing by. Welcome to the Avista Corporation Q2 2024 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 first speaker today, Stacey Wenz, Investor Relations Manager. Please go ahead.
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.
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 1 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 4 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. 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 1 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.
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 2 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 teeth.
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.
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 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 a 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 2-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 Instructions] Our first question comes from [ Julian Dublin Smith ] from Jefferies.
It's actually [indiscernible] on for Julian. 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?
Yes, 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.
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?
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 or [indiscernible] we'll jump into those discussions. We'll let you know if something comes of it.
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?
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. .
Our next question comes from Willard Grainger from Mizuho.
Just 1 on the 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?
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 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.
Understood. I appreciate that. Most of my questions have been answered, so I'll get back in queue.
I am showing no further questions at this time. I will now turn it back over to Stacey Wenz for closing remarks.
Thank you all for joining us today and for your interest in Avista. Have a great day.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.