Avista Corporation Q3 2026 Earnings Conference Call - AVISTA CORP

Financial Performance:

• Consolidated earnings per diluted share (EPS) for Q3 2026 were $0.57, up from $0.36 in Q3 2025; Year-to-Date (YTD) EPS for the first three quarters reached $2.11, compared to $1.51 in the prior year.
• Non-GAAP utility earnings for Q3 2026 were $0.38 per share, slightly up from $0.37 in the prior year; YTD non-GAAP utility EPS was $1.76, up from $1.67.
• Non-regulated businesses reported net income of $29 million for YTD 2026, a reversal from a $13 million loss in the prior period, driven by market value recoveries and a $230 million long-term debt issuance.
• Capital expenditures for Avista Utilities through September 30, 2026, totaled $496 million against a full-year target of $615 million; future base capex (2027–2031) is projected at $3.6 billion.
• Liquidity management included $58 million in common stock issuances YTD; management plans a short-term loan of up to $100 million in Q4 2026 to address regulatory deferrals and delayed cost recovery.

Guidance and Future Outlook:

• Management reaffirmed non-GAAP utility earnings guidance for 2026 at $2.52–$2.72 per share, expecting results to align with the midpoint.
• Long-term growth outlook targets a 4–6% earnings increase annually from the 2025 midpoint through 2026, driven by rate base growth and cost management.
• Long-term Return on Equity (ROE) guidance is approximately 9% for Avista Utilities, excluding Energy Recovery Mechanism (ERM) impacts, assuming a structural lag of roughly 60 basis points.
• The 2027 Integrated Resource Plan (IRP) is expected to be filed late 2026 or early 2027, with an all-source RFP for peaking resources anticipated shortly thereafter.
• Next rate case filings are scheduled for Idaho in Q1 2027 and Oregon in Fall 2027 under a new multi-year rate plan structure.

Business Segments and Product Lines:

• Avista Utilities is prioritizing grid hardening, wildfire preparedness, and outage response improvements following the August Spokane complex wildfires.
• The company has paused processing new large data center applications requiring significant new generation and transmission investments for at least 12 months to align with state and local regulatory frameworks.
• Growth opportunities outside the paused data center sector include commercial, manufacturing, and mining loads totaling approximately 85 megawatts of prospective capacity.
• Progress is underway on a distributed energy RFP, with demand response agreements expected to contribute up to 35 megawatts toward a 40-megawatt goal by 2030.
• The North Plains Connector project remains in development; a definitive agreement is now expected in the first half of 2027, representing a potential 10% stake in a ~$6 billion infrastructure project.

Market and Competitive Landscape:

• The utility sector faces evolving regulatory frameworks, specifically regarding multi-year rate plans in Washington and Oregon, and power supply cost forecasting mechanisms.
• Power supply costs and market volatility remain a key variable, with the ERM mechanism creating a potential $0.09 per share drag in guidance if the "dead band" is breached.
• Demand for reliable energy is outpacing earlier predictions, necessitating incremental peaking resources and transmission investments to meet peak day loads.
• The company remains engaged with stakeholders to ensure new industrial loads contribute to the affordability of existing customers, distinguishing its approach from pure growth maximization.

Risks and Challenges:

• Community recovery from the Spokane wildfires will be lengthy; while facility damage was not material, infrastructure replacement depends on customer rebuilding timelines.
• Regulatory lag in cost recovery is a primary financial risk, necessitating short-term borrowing to maintain liquidity.
• The decision to pause data center processing introduces uncertainty regarding near-term load growth, though the company views it as a strategy to protect long-term customer affordability.
• Structural lag of approximately 0.6% over the long term remains a challenge to achieving full authorized returns on equity.
• Unforeseen variables in power supply markets could impact the ERM mechanism, affecting earnings volatility.

Management Commentary and Tone:

• Tone was described as constructive, confident, and empathetic, particularly regarding the wildfire impact and community recovery efforts.
• Management emphasized "responsible growth" and affordability as primary strategic pillars, explicitly linking new investment decisions to existing customer protection.
• Executives expressed confidence in the utility's ability to execute its capital plan and manage costs despite regulatory complexities.
• The pause on data centers was framed not as a retreat, but as a necessary step to strengthen governance and regulatory compliance before scaling.

Analyst Questions and Answers:

• Power Cost/Eerm Drag: Management indicated that if regulators adopt the proposed power cost forecasting method, the $0.09 earnings drag in guidance could be largely eliminated in 2027, potentially returning the ERM impact to the "dead band."
• Rate Case Outlook: In the Washington rate case, key debates centered on the four-year term under new legislation, Return on Equity (ROE), and capital recovery mechanisms; management anticipates a decision in mid-December.
• Financing Mix: While current equity issuance is below the 50-50 debt-equity target due to specific market conditions, the long-term goal remains a balanced approach, with future needs likely to be split evenly.
• Capital Project Timing: The North Plains Connector definitive agreement is expected in the first half of 2027, and incremental capex RFPs will follow the 2027 IRP filing.
• Growth Drivers: To hit the top end of the 4-6% earnings growth range, the company identified the successful execution of transmission investments, bringing on ~10% incremental peak load from industrial sectors, and the North Plains project as key factors.

Other Key Points:

• The company remains committed to providing safe, reliable, and affordable service, with affordability programs supported by enhanced data insights.
• Regulatory engagement is ongoing in Washington, Idaho, and Oregon, with specific focus on coordinating with local jurisdictions during the data center pause.
• The company expects to issue up to $110 million of common stock and $220 million of long-term debt in 2027.
• All investments in new large loads will require the customer to cover their own costs and make significant contributions to existing customer affordability.