Avista Corporation ($AVA)

Good day, and thank you for standing by. Welcome to Avista Corporation Q1 2026 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 Walters. Please go ahead.

Thank you, and good morning. Thank you all for joining us for Avista's First Quarter 2026 Earnings Conference Call. Our earnings and first quarter Form 10-Q were released premarket this morning. You can find both documents and this presentation on our website. Joining me today are Avista Corp. President and CEO, Heather Rosentrater; and Senior Vice President, CFO, Treasurer and Regulatory Affairs Officer, Kevin Christie. We will be making 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 Form 10-Q for the first 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 first quarter earnings presentation is posted on our website and includes definitions and reconciliations for all non-GAAP disclosures, including non-GAAP utility earnings. Our non-GAAP utility earnings are comprised of results from our Avista Utilities and AEL&P segments the unrealized gains and losses that have historically made up the majority of our nonregulated other business earnings can be significant, but they are difficult to predict and outside management's control. The shift to discussion of non-GAAP utility results and earnings guidance reflects management's focus on the core utility business. And now let me begin with a recap of the financial results presented in today's press release. Our consolidated first quarter 2026 earnings were $1.11 per diluted share compared to $0.98 in the first quarter of 2025. Our first quarter 2026 non-GAAP utility earnings were $1.10 per diluted share compared to $1.01 per diluted share in the first quarter of 2025. Now I'll turn the call over to Heather.

Thank you, Stacey. It is hard to believe the first quarter is already behind us. The year began with real momentum and the pace of activity across our business has only accelerated. In a short amount of time, we've taken meaningful steps to strengthen reliability and resilience, move forward with our growth opportunities and continue delivering value for our customers and shareholders. We continue to advance important grid hardening work, pursue load growth opportunities and support resource adequacy for our customers into the future, all of which contribute to the long-term strength of our utility. Our ongoing investment in grid hardening and resilience, including vegetation management is helping to prevent outages that can occur periodically during inclement weather. Although much of the work is driven by our wildfire mitigation program, we have experienced benefits resulting from these efforts through enhanced system resilience and storm response preparedness year around. We found that the predictive tools we developed to monitor wildfire weather conditions also help us better anticipate other weather-related outage risks. That means we can stage crews and materials earlier and when appropriate, alert potentially affected customers so they can prepare before outages occur. The work we are doing to build a more wildfire resilient system also benefits us day-to-day and smoother operations and results in better outcomes for our customers and the communities we serve. And we saw directly how being better prepared through predictive tools and material prestaging enables faster restoration work just a couple of months ago. In March, nearly 60,000 customers were impacted by outages from high winds. And I commend each of the employees and partners who joined us in the restoration efforts, replacing poles, reconnecting lines, and rebuilding infrastructure to successfully restore power to all customers. And I'm happy to say that our grid hardening and resilience efforts improved the overall response to the storm. Related to the work underway to advance our growth opportunities we remain optimistic about the opportunities ahead. We're planning for the growth identified in our most recent integrated resource plan and potential new large load customer growth in a way that supports customer affordability system reliability and compliance with clean energy requirements. A key part of this work is strategic resource planning, making sure we have the right mix of resources at the right time and in the most cost-effective way. So we can meet reliability and then energy requirements without taking on unnecessary expense. And negotiations continue with one of the prospective data center developer customers looking to locate in our service territory with a projected incremental load of up to 500 megawatts. Ensuring appropriate protection for our current customers is a key element of our negotiations. As we expect a new large load customer to return a significant contribution to support affordability for our existing customers. We are currently targeting a signed memorandum of understanding with this new customer by May 31. In addition to negotiation discussions with the potential data center developer, we continue to discuss these opportunities with community leaders and other stakeholders. We are also engaging with policymakers and the Washington Commission regarding data centers to advocate for policies that ensure appropriate allocation of cost and benefits associated with the integration of these large loads. To support resource codes for our customers into the future, resource planning is a crucial task. As we work with potential new large load customers, we also continue to work toward final contracts with the projects selected from our recent request for proposal including the build transfer for a battery energy storage project included in our base capital plan and targeted to come online in 2028. At Avista, several related processes together inform our decision-making about these future resources as we consider the timing of integrating potential new large loads. Work has already begun on our 2027 electric integrated resource plan for IRP. We've made progress with key data plans for the IRP like our clean energy implementation plan. which was recently updated and approved by the Washington Commission. Long-term affordability is essential to our planning practice as we evaluate the resource needs into the future. And overall, I'm optimistic about the opportunities ahead. And now I'll hand the call to Kevin for additional discussion of earnings.

Thank you, Heather, and good morning, everyone. Our focus on delivering results at the utility is fundamental to our success. Our performance this quarter reflects the continued commitment of our teams to disciplined cost management. We began the year with solid execution across the business and we're well positioned as we move forward. Alongside our other initiatives, regulatory outcomes are key to our progress. The first settlement conference for our Washington GRC takes place on the 22nd of this month, and we'll continue to work through the regulatory process if no satisfactory settlement is reached. We continue to invest in our utility infrastructure to support customer growth and maintain safe and reliable service. Based on updates to project costs, we now expect capital expenditures at Avista Utilities of $615 million in 2026. We expect capital expenditures from 2026 through 2030 of $3.4 billion. We continue to estimate potential capital investment of up to $350 million associated with integrating a new large load customer that would be incremental to the $3.4 billion 5-year capital plan. Integrating that investment in our 5-year projection would result in a rate base growth of 8%. Our base capital plan also does not include incremental transmission projects like regional grid expansion, and any large load customer additions beyond the customer previously mentioned. Turning to liquidity. We expect to issue $230 million of long-term debt and up to $90 million of common stock in 2026 and which includes $14 million issued in the first quarter. This morning, we are affirming our non-GAAP utility earnings guidance with a range of $2.52 to $2.72 per diluted share for 2026. Our guidance includes an expected negative impact from the energy recovery mechanism or ERM of $0.10 in 90% customer, 10% company sharing band. Our current hydro forecast shows above normal levels of generation for the year, we do not expect a material change to our position in the arm. The ERM resulted in $0.01 expense in first quarter, and we expect to recognize the remaining $0.09 will be spread evenly over the second and third quarters expected long-term return on equity at Avista Utilities is approximately 9%, excluding the impact on the ERP. This reflects expected struggle lag of 0.6%. Over the long term, we continue to expect that our earnings will grow 4% to 6% from the midpoint of our 2025 earnings guidance. Our first quarter results are a strong start to delivering on our commitment to financial strength. Heather and I are excited to build on this strength as we look ahead. Now we'll be happy to take your questions.

[Operator Instructions] Our first question comes from Shar Pourreza from Wells Fargo Securities.

This is Whitney Mutalemwa on for Shar. On the electric margin, how should we think about electric utility margin from here now that the quarter has lapsed the coal strip related revenue effect, does 1Q represent a cleaner baseline for the rest of '26? Or are there still a few unusual comparison items that we should keep in mind?

Yes. Thank you, Whitney. Good question. We would consider the first quarter a more clean quarter as we go forward, but we'll have to go through the whole year as we compare quarter after quarter from '25, which had Colstrip in it for the entire year and of course, '26 will not. But I think the first quarter of the year is a pretty good representation.

Okay. And then on the regulatory side and in Oregon, just in relation to the Fair app transition and as Oregon moves towards the multiyear rate plan, what is the most important element in these discussions that you need to preserve during the transition? Is it the ability to file in late '27 for '28 rates, continued access to interim recovery tools or some form of indexing to avoid a larger first year catch up?

That's another good question, and it's hard to prioritize the 3. They're all very important. If we're going to need to stay out longer while we're working through the proceeding, we, of course, would need some interim rate relief as we continue to make capital investments. And then as we look forward, we've got a lot of success with multiyear in other states like Idaho and Washington to have a quality first year with a strong quality multiyear with a strong first year starting point. That is also equally as important as we look forward. And then, of course, earning a fair return for our shareholders.

Our next question comes from Michael Lonegan from Barclays.

Regarding the large load customer that put you on a deposit, how are you feeling about reaching an MOU? Or when can we expect that? I think you said at 90 days or so on your last earnings call. And then subsequent to that, how long would the process take to reach an ESA and potentially formally enter your capital program?

Yes. Great question. Thank you. So we shared that by -- we're working towards a May 31 date for an MOU and the next step time line would be identified through that agreement. So I don't think we have a clear understanding of what that next step will be, but we're looking towards that May 31 date.

Okay. And then you highlighted previously 1.7 gigawatts remain in your queue, previously of potential large load customers. How are you feeling about that pipeline? Is there an update to that number?

Yes. So we do continue to vet through those opportunities, and we're at, I think, about 1.1 gigawatts now in the queue. And we do think as we continue to work with these customers, then we have higher confidence in what may come to be we're excited about the opportunities that are still out there and again, specifically the one customer, but there are other opportunities as well that we're working. And we're continuing to plan as well to be able to go out and have curated opportunities for our customers once we continue to have better understanding of where geographic the best geographic locations are that have available capacity. And we do have some of those areas on our system. And so we're also looking to be more proactive also.

And then lastly for me, regarding the Washington rate case, I know later this month [indiscernible] how are you feeling about the prospects of reaching a settlement or given that it's like your -- or given that it's your first 4-year plan, you're filing in the state, do you expect it to be fully litigated?

Michael, Kevin here. Thanks for the questions. We appreciate that. And with regard to the Washington GRC, we're deep in the discovery process, which helps the parties formulate their positions as we enter into settlement. And of course, we're prepping for settlement. And I'd like to think there's an opportunity for us to settle at least some, if not all, of the case. And that being said, as you highlight, this is the first 4 years that any utility as far as we know, as filed in the state of Washington. And so there's a number of issues to work through from a party perspective that might engage in settlement. It's hard to say how constructive or how well we can come together given that they're going to view risks in a certain way, and we're going to view risks in a certain way. So I can't give you a probability of settlement, but I think everybody is going to give it a shot.

Our next question comes from Julien Dumoulin-Smith from Jefferies.

It's Brian Russo on for Julien. Just a follow up on the 4-year multiyear rate plan in Washington. Just remind us of your confidence or ability to kind of manage within the revenue requirements and the return requirements over the 4-year period, albeit with an off-ramp, I think after 2 years, especially given lately the geopolitical backdrop, fuel inflation, et cetera. How do you -- how can you derisk this plan, if at all, relative to what's been filed?

Yes. Thanks, Brian, for the question. We have -- I guess I'll start with the off ramp that you referred to. We have the ability after the first year to file a replacement for years 3 and 4, given the 11-month process. And that would occur if some form of inflation or if we were able to see additional investments beyond what's built into the case, any additional expenditures. We've been very successful in Washington over the last several years, adding deferral mechanisms that help to hedge some of our risk. And in this particular case, we have a new mechanism that we're requesting which is around employee benefits. That's one of the remaining more volatile, harder to control items for us. And if we were to have success with building that mechanism in and the other mechanisms that we have in place, we should be in pretty good shape. Now when I say that, of course, that's barring some kind of extreme inflation inflationary activity. And then we would have to use that mechanism where we refile if that were to occur. So we feel like we're in a good position to manage the risk that we might see materialize and the company is very, very focused on managing our costs, and we see some opportunities as we look forward. So all of those things, again, combined. So we're optimistic.

Okay. Great. And understanding that you're reporting the non-GAAP utility EPS going forward. I noticed other businesses, there really wasn't any noncash mark-to-market gains this quarter. Just wondering if there's any insight there relative to what we're seeing in the broader market? And then also any additional thoughts on monetizing any of the investments that are more liquid than others?

No. It's nice to see that things have leveled off or appeared to level off a bit from about a year ago. And we think with that coming, we would see relatively minor adjustments overall. You're referring to the bioscience company when you talk about monetization. And to the extent we're excited about the opportunity there. It's a noncore investment, and we'd exit at the point in time that makes sense if there was value created through that exit, then that would help us with our overall equity needs, and hopefully, we would be issuing low or no equity for a period of time, and that would help, of course, boost our overall earnings.

Okay. Great. And then just you mentioned regional transmission opportunities possibly that would be upside to the CapEx. Can you discuss those some more? Understanding North Plains Connector would likely be post 2030. Just trying to get a sense of if there's incremental upside to the CapEx relative to that $350 million that you highlight.

Yes, I'm happy to cover this one, Brian. So as you mentioned, obviously, the North Plains Connector, which we've talked a lot about, has that opportunity probably beyond the 5-year capital budget. But we are continuing to work with peers and just other regional organizations to identify other opportunities for transmission investment that might make sense for us and our customers. And as you -- we see a lot. We see there's a lot of reports out there acknowledging the need for more transmission in our region, and we do feel that we are geographically blessed where we're in between where a lot of the low growth is and where a lot of the new resources are. And so we do see opportunities potentially in the future for additional investment there and just continue to participate in those activities.

I are showing no further questions at this time. I would like to turn it back to Stacey Walters for closing remarks.

Well, thank you all for joining us today and for your interest in Avista. We hope you have a great day.

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