Avista Corporation Q3 2026 Earnings Conference Call - AVISTA CORP

Good day, and welcome to the Avisa Corporation Q3 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question, you will need to press star-1-1 on your touch-tone telephone. Please note, this call may be recorded. I would now like to turn the call over to Stacey Walters, Investor Relations Manager. Please go ahead. Good morning. Thank you for joining us for Avista's 3rd Quarter 2026 Earnings Conference Call. Our earnings and 3rd quarter Form 10-Q were released pre-market this morning. You can find both documents and this presentation on our website. Joining me today are Avista Corp President and CEO, Heather Rosentrader, and Senior Vice President, CFO, Treasurer, and Chief Strategy Officer, Kevin Christie. We will make forward-looking statements during this call. 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 2025 and our Forms 10-Q for the third quarter of 2026 for a full discussion of these risk factors. Both are available on our website. On this call, we will also discuss non-GAAP utility earnings. Our third quarter earnings presentation is posted on our website and includes definitions and reconciliations for non-GAP disclosures. Our non-gap utility earnings are comprised of results from our VISTA Utilities and AEL&P segments. The investment gains and losses that have historically made up the majority of our non-regulated business earnings can be significant, but they are difficult to predict and outside management's control. Non-GAAP utility earnings facilitate meaningful evaluation of our operating performance across periods and reflect management's core utility focus. We believe it is important to discuss these utility results in addition to our GAAP results. Let's begin this morning with a recap of the financial results presented in today's press release. Our consolidated earnings for the first three quarters of 2026 were $2.11 per diluted share, compared to $1.51 for the third quarter of 2025. Our consolidated third quarter 2026 earnings were $0.57 per dilute share, compared to 0.36 in the third-quarter of 2025 Our non-GAAP utility earnings for the first three quarters of 2026 were $1.76 per diluted share compared to $1 and 67 cents for diluted share in the first 3 quarters of 2025. Our third quarter 2026 non-GAP utility earning were 38 cents per dilute share compared to 37 cents for the diluted chair in the third quarter of 2025 now I'll turn the call over to Heather. Thank you, Stacy. I first want to provide a follow-up to our second quarter earnings call where we discussed the devastating Spokane complex wildfires our community has experienced in August. Although it is clear that recovery will be a long road, I am happy to share that our community has experienced an incredible amount of support and that our committee has been able to our community itself has shown up in a wide variety of ways to help those impacted. Our hearts continue to be with those who are starting that long road to recovery. And with the third quarter now complete and with a welcome transition to fall, I'm encouraged by the progress we've made advancing the priorities that support reliable service for customers and sustainable long-term value. Through the first three quarters of the year, we continued to strengthen reliability and resilience through grid hardening, wildfire preparedness, and enhanced outage response capabilities. We also advanced resource planning and clean energy solutions, including progress on our 2027 integrated resource plan. Through strong strategic execution and performance at Abista Utilities through the first three quarters of the year, we are well positioned to deliver on our commitments for the remainder of the year. Given that the Spokane complex wildfires were still active during our second quarter earnings call, we didn't have a full understanding of the overall impact to our facilities at that time. While the overall community impact has been devastating, ultimately the impact to our facilities was not material we also understand that each of these fires was human caused and we are confident that our facilities were not involved as i mentioned for the neighborhoods affected recovery and rebuilding will be a lengthy process and some of our own infrastructure can't be replaced until rebuilding begins we anticipate that in some cases customer rebuilding efforts could take multiple years and we stand ready to reconnect customers when it's possible to do so Throughout recovery, our focus will remain where it always is, providing safe, reliable, and affordable service to meet customers' needs when they arise. Affordability continues to be a top priority at Avista. Understanding the financial pressures our customers face is fundamental to developing effective strategies to provide assistance where it's needed most. With enhanced data, we have better insights to guide resource allocation, as well as direct the programs we support and future investments across our service territory. As we look ahead to a changing energy landscape, this focus on affordability better enables us to meet customers' needs today and prepare to serve them in the future. We appreciate that identifying ways to support customer affordability is a shared priority among our investors, our customers, and ourselves. It is important to note that one of our key strategies to support customer affordability is responsible growth. And to support long-term responsible growth, after listening to customer and community feedback and to allow time for us to participate in a broader coordinated planning effort, we announced in September that we have paused processing new large data center applications that require significant new generation transmission investments. This pause respects the moratorium in place in several local jurisdictions, including the City of Spokane and Spokan County and the proceeding at the Washington Commission. We expect the pause to last at least 12 months as state regulators and local governments advance policy and regulatory frameworks. This is not a withdrawal from potential growth opportunities. As I shared, it is one of our main strategies to support affordability. We remain engaged with regulators, policymakers, local jurisdictions, and other stakeholders even as we strengthen our own governance, customer qualification, and planning processes to support informed investment decision-making into the future. As we take the time to strengthen these areas, we remain committed to protecting existing customers and maintaining safe, reliable service. Even after the pause, we won't move forward with a new large data center customer unless we are confident they will cover their own costs and, in addition to covering their own cost, that they will make significant contributions to support affordability for our existing customers. And we won't move forward with the new large load customer unless we're confident that our customer's reliability will be maintained or enhanced. Any future projects must meet regulatory and public interest requirements while supporting responsible growth that benefits our communities over the long run. In order to strengthen assurances related to these customer protection commitments, we are exploring regulatory mechanisms and other policy options that can provide existing customers with more confidence that they won't be burdened with costs associated with serving potential new large data centers. Although we have paused processing new large data center requests that require significant new generation and transmission investments, we are fortunate to have other growth opportunities associated with customers evaluating expansion, representing commercial, manufacturing, and mining sectors. Each of these opportunities has a different timeline and taken together over the long term, prospective load associated with these opportunities would be approximately 85 megawatts. We are grateful to be part of these activities that strengthen the local economy and existing customer affordability and which could be additive to our normal organic growth. As we plan for the future, we remain focused on reliable, affordable energy that meets customer needs and supports our clean energy goals. We are moving forward with a project selected to advance through our all-source request for proposal, or RFP, including demand response agreements expected to provide up to 35 megawatts toward our 40-megawatt distributed energy goal by 2030, along with key renewable energy projects. Work began this year on our next integrated resource plan, or IRP. We expect to file the 2027 IRP late this year or early next year. As our peak day resource needs continue to outpace earlier predictions, the draft preferred resource strategy includes additional peaking resources. We expect another RFP to occur soon after the filing of our 2027 and IRP. Together, this progress on our operational priorities and effective cost management reinforce our confidence. We remain focused on executing the priorities that support reliable and affordable service for customers, constructive long-term growth, and sound financial performance. With that, I'll turn the call over to Kevin for additional discussion of our financial results. Thanks, Heather. We continue to execute well across our business through the third quarter. with a focus on delivering results at the utility and managing our costs. Our utility earnings in 2026 reflect the benefits of our cost discipline and improved cost recovery. We remain on track as we move into the final quarter of the year. At our other businesses, net income was $29 million in the first three quarters of 2026, compared to a loss of $13 million inthe first three-quarters of 2025. Market values have recovered from the valuation losses experienced in 2025. In June of 2026, one of the businesses in an EIP fund, EROC, Inc., conducted an initial public offering. Our third quarter consolidated results reflect the associated increase in valuation. Among our initiatives, regulatory outcomes are key to our progress. For our 2026 Washington general rate case, we appreciate the party's engagement in constructive hearings in September. Final briefs have been filed, and we expect the Commission to issue a decision in mid-December. As we look ahead, we anticipate filing our next general rate cases in Idaho in the first quarter of 2027. Our next filing in Oregon will take place under the state's new multi-year rate plan legislation and is slated for the fall in 2027. In accordance with Oregon Commission rules, we will file a five-year rate plan. We continue to invest in our utility infrastructure to support customers. We expect capital expenditures at Avista Utilities of $615 million in 2026. Through September 30, we have invested $496 million in our capital projects this year. For 2027 through 2031, we expect base capital expenditures of $3.6 billion. This includes the projects selected from our 2025 RFP expected in 2028. We continue to evaluate incremental capital investment opportunities that support serving our customers safely and reliably, including addressing the growing peak day resource needs Heather mentioned. Given the pause, we have taken in both our existing MOU with the data center developer and in processing any large data center applications. We do not include any compute-related growth in our capital plan at this time. Turning to liquidity, we issued $58 million of common stock in the first three quarters of the year. Subject to market conditions, we expect to issue up to $15 million of additional common stock in 2026. We issued $230 million of long-term debt in 2026, and we do not expect further issuances of long term debt this year. Due to increased regulatory deferrals and delayed recovery, we plan to obtain a short-term loan of up to $100 million during the fourth quarter. In 2027, we expect to issue approximately $220 million of long-term debt and up to $110 million of common stock. We are affirming our non-GAAP utility earnings guidance with a range of $2.52 to $2,72 per diluted share for 26. We expect our earnings to be in line with the midpoint. Our guidance includes an expected negative impact from the Energy Recovery Mechanism, or ERM, of $0.09 in the 90% customer, 10% company sharing band, which we have recognized in the first three quarters of the year. Our expected long-term return on equity at Avista Utilities is approximately 9%, excluding any impact from ERM. This reflects expected structural lag of 0.6%. percent over the long term we continue to expect that our earnings will grow four to six percent from the midpoint of our 2025 earnings guidance throughout 2026 we've kept our focus on delivering results at the utility and that focus won't shift as we look to the remainder of the fourth quarter and on into 2027 we remain committed to financial strength making smart investments in our infrastructure that deliver long-term value to both the communities we serve as well as our shareholders now we'd be happy to answer your questions thank you as a reminder to ask a question please press star 1 1 if your question has been answered and you'd like to remove yourself from the queue press star one one again our first question comes from Shar Perez with Wells Fargo Securities Your line is open. Good morning, team. This is Whitney Motilema on for SHAR. Hey, Whitney. Good morning. Good morning Yeah, so on the power cost, so staff was constructive on your new forecasting period method and on updating the baseline every year. If the order adapts that, how much of that roughly $0.09 of power cost drag in this year's guidance should likely go away in 27 well it's certainly difficult to predict what might happen in power supply markets as we look forward and if we were able to see a commission order supporting our power supply costs as filed then we would see largely an elimination of that nine cents now again there are a number of variables that could come into play as we forward, but the intent would be to get the IRM back to closer to zero, certainly within the dead band. Of course. And then just another one. So obviously this update flags incremental capital for growing peak day resource needs. With the RFP projects moving forward and the 27 resource plan underway, could you just give us an overview of what we can expect and timing of that opportunity? Are you asking particularly around the 27 IRP? Yeah. Yeah. So, with the 27IRP, it's important to note that it's in draft form at this point in time. We'd expect to file the final version toward the end of the year or the beginning of next year, and then what would happen, and assuming that the current draft preferred resource plan moves forward into that final filed copy, we would then expect to need incremental resources on a peak day basis, and we would go out within the next few months after that with an RFP, all-source RFP to help bring on those peak day resources. Sounds good. Thank you. Thank you, our next question comes from Michael Lonegan with Barclays. Your line is open. hi morning thanks for taking my question um good morning michael good morning hi morning uh so you touched on the erm but just more broadly in the washington rate case is you know you concluded post-hearing briefs we're coming up on a final decision next month and i know there's some disagreement on the multi-year rate plan just wondering if you know broadly you could touch upon some of the key debates and how you're feeling about them supporting your plan? Yeah, thanks for the question. We have had, I would say, a very constructive process as we've worked with the parties throughout the case, and I'm proud of what our company has done for putting forth a high-quality case, a case that supports what we need to support our customers overall, and certainly there are issues. You highlight one of them. The back and forth there between the four-year and perhaps a two-year was a pretty significant one, but not surprising at all, given that this is the first four- year that's been filed under the multi-year legislation. And as we all know, when you move into something that's new and different, there are different perspectives that come forward. And so we appreciate how the parties have looked at it and are a little uneasy about the four year nature of the case. We would point out years three and four, although don't want to diminish the importance from an affordability perspective, years three, and four are relatively modest. And given the preponderance of evidence that we put forth, we think we've given the commission an opportunity to approve that four year. The other issues that come up are pretty normal things in our rate cases. ROE, and you know, there's a lot of attention on ROE right now. We have given, I think, through our expert witnesses and the need from a risk perspective, the commission an opportunity to approve what we put forth there. And we'll just see how that shakes out. And the rest of it's generally around capital recovery. We've got a good track record in the past around what's called provisional capital, but that got a fair amount of attention. And then we had some tracking mechanisms either existing or a new tracking mechanism that had attention as well. So those were all discussed in the hearing and we briefed on those and then fortunately in the next six weeks or so we'll hear from the commission thank you and then you know you talked about uh potential incremental capex just wondering how we should think about the mix of debt and equity financing i think you know in the past we talked about 50 50 um you know i know you're doing a little less equity this year than planned and you issued 27 um do you have an ffo to debt target you know over the course of plan? Yeah, we currently want to, of course, stay at the rating that we're at with the rating agencies. And so we have, as we look to our forecast, the ability to support that comfortably. And so that isn't something barring, something unforeseen that we are tremendously worried about. When it comes to expected equity issuances on a go-forward basis, when we indicate that we have incremental capital expenditure opportunities. It's likely near 50-50, but I do want to highlight that with some of our other investments, as they might return proceeds back in the form of cash, that could lighten the equity needs that we have. And that's why we typically communicate an up-to number for you, so you can have something to model at what might be the high end. Thank you. And then lastly from me, you know, on the North Plains Connector project, I know it likely falls outside your five-year plan. You know, I think, you know, a number of months ago, you signed an MOU. Just wondering when you're expecting a definitive agreement there, and then also the size of your CapEx opportunity on the potential 10% stake. Yeah, that one continues to move out a bit. I think we initially had hoped by the end of this year. I Think it's likely first half of next year at this point in time as we work with all the partners. It's always a little bit more complex when you have as many potential owners as we have, but we're confident that we can find a way to move forward with everyone and then mid-year give you an update, hopefully, on that. And the overall capital for the build-out would be about $6 billion, and we would be roughly 10%. Great. Thank you for taking my question. You bet. Thank You. Thank you. Our next question comes from David Rold with Bank of America. Your line is open. Hey, guys. Thanks for the question. Question on the Washington rate case. Once the new rates are in, how close do you expect to earn to your authorized return in 2027? Is lag still meaningful or does this mostly close the gap? Yeah, as we've mentioned in the past, we would expect once we have a constructive rate case outcome in Washington, we have the Idaho case and the Oregon cases filed, and we get on the proper cadence there, and we continue to manage our costs, importantly, that we would expect a long-term return on equity of 9%. And what that builds in is roughly 60 basis points of structural lag. Those are the costs that we're unable to recover through rates for various reasons. So 9% is our run rate as we look forward. And that also assumes that we're at the midpoint from an ERM perspective, meaning within the dead band and reset power supply costs at an appropriate level. Got it. Thank you. And with rate base growing a little over 7%, what would it take to get you guys to the top end of your 4% to 6% growth range? What are the biggest factors holding you back today? Well, I think what we're going to need to see is some of those or most of those incremental investment opportunities that Heather alluded to and that we've mentioned in the past. We do see transmission investment potential out there in our region, both within and without outside of our service territory. We have incremental customer growth that we're seeing, and we hope to bring that to fruition. Important to point out that, as Heather mentioned, if we were able to bring those on, it's a handful or more of industrial commercial and mining loads that taken in total, again, if we were able to bring them all on, would raise our average day load by almost 10%. So that's an important investment if we're able to bring those over the finish line. And then on top of that, we need to see how both the RFP coming out of the next IRP shakes out and then thinking about that North Plains connector that mentioned already. Great. Thank you very much. Thank you. Thank you. Again, to ask a question, please press star 1 1. Our next question comes from Chris Hark with Mizuho. Your line is open. Hi, good morning. Thanks for taking my questions. Good morning. Good morning. Morning. I just had a question on the data center pause in Washington. Just any protections that would be required just any color you could give us on that and then how large is that data center opportunity sitting behind the pause so related to the pause we we have our commitments but we recognize that our customers may be looking for something stronger than our verbal commitments i mean we have been very clear and consistent on those commitments that any we wouldn't move forward unless it would you know any data center would cover their own costs and provide meaningful additional support for existing customers from an affordability perspective and we are so to help with those assurances we are work exploring whether having some kind of tariff at the state level or just engaging in policy discussions at the state level as well as those could provide additional assurances for our customers related to the level of requests that will likely evolve a lot over the next 12 months so i think it's probably it's challenging to say right now where that might land at the end of 12 months but we'll look to update as we get closer to that to the end of that pause all right that's uh super helpful thank you for taking my questions that's it for me great thank you thank you this concludes the question and answer session i'd like to turn the call back over to stacy walters for closing remarks thank you all for joining us and for your interest in the vista have a great day thank you for your participation you may now disconnect