Avista Corporation Q3 2026 Earnings Conference Call - AVISTA CORP

Explicit Guidance:

• Non-GAAP Utility Earnings 2026: Affirmed range of $2.52–$2.72 per diluted share; expected to be in line with the midpoint. Includes a negative impact from the Energy Recovery Mechanism (ERM) of $0.09 (within the 90/10 customer-company sharing band).
• Long-Term Earnings Growth: Earnings expected to grow 4–6% annually from the midpoint of the 2025 guidance through 2026.
• Long-Term Return on Equity (ROE): Expected long-term ROE for Avista Utilities is approximately 9%, excluding ERM impact. This reflects a structural lag of 0.6% (60 basis points).
• Capital Expenditures (CapEx):
  • 2026: Total expected at Avista Utilities of $615 million ($496 million incurred through Q3). No compute-related growth included due to the data center pause.
  • 2027–2031: Base capital expenditures expected at $3.6 billion, including projects selected from the 2025 RFP expected in 2028.
• Debt and Equity Financing:
  • 2026: No further long-term debt issuances expected; up to $15 million in additional common stock issuance subject to market conditions.
  • 2027: Expect to issue approximately $220 million of long-term debt and up to $110 million of common stock.
  • Liquidity: Plan to obtain a short-term loan of up to $100 million in Q4 2026 to offset increased regulatory deferrals and delayed recovery.

Business-Segment Outlook:

• Washington Rate Case: Expect the Washington Commission decision in mid-December 2026. Anticipate a four-year multi-year rate plan, with years 3 and 4 being relatively modest in impact.
• Idaho Rate Case: Filing expected in the first quarter of 2027.
• Oregon Rate Case: Next filing scheduled for fall 2027 under new multi-year rate plan legislation, involving a five-year rate plan.
• Integrated Resource Plan (IRP): The 2027 IRP is expected to be filed late 2026 or early 2027. The draft strategy includes additional peaking resources; an all-source RFP for these resources is expected to launch within the next few months after filing.
• Load Growth: Prospective load from commercial, manufacturing, and mining expansion opportunities totals approximately 85 MW (excluding paused large data centers). This represents a potential increase of almost 10% in average day load if realized.
• Distributed Energy: Projects selected from the all-source RFP (including demand response) expected to provide up to 35 MW toward the 40 MW distributed energy goal by 2030.

Market and Competitive Outlook:

• Data Center Moratorium: A 12-month pause (starting September 2026) on processing new large data center applications requiring significant new generation/transmission investments. This aligns with local jurisdiction moratoriums (Spokane City/County) and Washington PSC proceedings.
• Growth Strategy Post-Pause: No withdrawal from growth opportunities; future large data center projects will proceed only if customers cover full costs plus contribute significantly to existing customer affordability.
• Transmission Investment: Potential for incremental transmission investment identified both within and outside the service territory to support peak day resource needs and regional load growth.

Macro / Industry Outlook:

• Power Supply Costs: Anticipates the current $0.09 drag from the ERM will largely be eliminated in 2027 if regulators accept the new forecasting period method and baseline updates, resetting the ERM to near zero (within the dead band).
• Regulatory Lag: Structural lag of 0.6% is expected to persist long-term due to costs unable to be recovered through rates.
• Clean Energy & Policy: Continued focus on clean energy solutions and responsible growth amidst changing energy landscape; engagement with regulators to strengthen governance and customer qualification for large loads.

Strategic Initiatives:

• North Plains Connector: Expected to deliver a definitive agreement in the first half of 2027. Project total build-out estimated at $6 billion, with Avista's potential stake at roughly 10%.
• Grid Hardening & Resilience: Ongoing investments in wildfire preparedness, grid hardening, and enhanced outage response capabilities.
• 2027 Integrated Resource Plan: Focused on addressing peak day resource needs that are outpacing earlier predictions.
• Customer Affordability: Strategic pause on large data centers and exploration of state-level tariffs or policy mechanisms to ensure existing customers are not burdened by new large load costs.

Risks and Headwinds to Outlook:

• Wildfire Recovery: Customer rebuilding in affected areas (e.g., Spokane complex wildfires) could take multiple years, delaying infrastructure reconnection and revenue recognition.
• Regulatory Uncertainty: Outcomes of the Washington, Idaho, and Oregon rate cases (including ROE, multi-year plan duration, and capital recovery) are subject to regulatory decisions; disagreement on the four-year plan duration in Washington is noted as a variable.
• Data Center Expansion: The 12-month pause creates a potential upside risk to earnings growth if the regulatory framework limits future large data center approvals or delays.
• Power Supply Volatility: Future power supply market conditions remain a variable that could impact the ERM mechanism and cost recovery.
• Project Timing: The North Plains Connector agreement timeline has slipped; previously hoped for end of 2026, now expected in H1 2027.

Management Tone on the Future:

• Confidence: Management expresses confidence in delivering commitments for the remainder of 2026 and into 2027, citing strong strategic execution and cost discipline.
• Focus: Emphasis on "responsible growth," "safe, reliable, and affordable service," and "sound financial performance."
• Stance on Data Centers: Tone is cautious but not pessimistic; framed as a "pause" to strengthen planning and customer protections rather than a withdrawal.
• Financial Strength: Commitment to maintaining investment-grade ratings and balanced debt/equity financing (nominally 50/50) to support long-term value.

Miscellaneous:

• Investment Segment: The non-regulated business (EIP fund) recognized a $29 million net income in the first three quarters of 2026, a recovery from a $13 million loss in the same period of 2025, driven by a valuation increase following the IPO of a portfolio company (EROC, Inc.) in June 2026.
• Fire Impact: Confirmed that the impact of the Spokane complex wildfires to Avista facilities was not material, though community recovery is long-term.