Avista Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Amistar Communications Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Mr. John Wilcox, Investor Relations Manager. Please go ahead, sir.

Good morning, everyone, and welcome to Avista's fourth quarter and fiscal year 2020 earnings conference call. Our earnings and our 2020 Form 10-K were released pre-market this morning and are both available on our website. Joining me this morning are Avista Corp President and CEO, Dennis Vermillion, Executive Vice President, Treasurer and CFO, Mark Theis, Senior Vice President, External Affairs, and Chief Customer Officer, Kevin Christie, and Vice President, Controller, and Principal Accounting Officer, Ryan Krasold. I would like to remind everyone that some of the statements that will be made today are forward-looking statements that involve assumptions, risks, and uncertainties which are subject to change. For reference to the various factors which could cause actual results to differ materially from those discussed in today's call, please refer to our 10-K for 2020, which is available on our website. To begin this presentation, I would like to recap the financial results presented in today's press release. Our consolidated earnings for the fourth quarter of 2020 were 85 cents per diluted share compared to 76 cents for the fourth quarter of 2019. For the full year, consolidated earnings were $1.90 per diluted share for 2020 compared to $2.97 last year. Now I'll turn the discussion over to Dennis.

Well, thanks, John, and good morning, everyone. As we begin 2021, continuing to work through the COVID pandemic, we hope you're staying safe and healthy. Looking back on the last year, you know, I'm just so proud of our employees for navigating the challenges presented by the pandemic, continuing to provide energy like they always do to our customers, and progressing our business plans forward. I would like to thank all of our employees for their dedication and determination throughout the last year. We continue to help those who are struggling and most in need in our communities. In 2020, Avista and the Avista Foundation provided more than $4 million in charitable giving to support the increased need for services that community agencies are still experiencing throughout the areas we serve. Financially, our earnings for 2020 were better than expectations, and Mark will provide further details here in just a few minutes. Operationally, we finished installing nearly all of our smart meters, electric smart meters and natural gas modules across Washington in one of the largest projects in our history. The deployment of this infrastructure will provide customers with more real-time data so they can better manage their energy use. The technology enables us to proactively push high energy alerts to notify customers if they could exceed their preset energy budgets, which of course helps eliminate surprises when their bill arrives at the end of the month. Beyond generating bills, we're using the data from smart meters to run a more reliable and efficient power grid and to deliver a higher level of service for our customers. For example, we We now have more visibility into our system, which allows us to detect and restore power outages more quickly. We also made strides to meeting our clean energy goals as the Rattlesnake Flat Wind Farm went online last December. During its construction, the project created clean energy jobs for our local communities, and now that it's completed, the project's 57 wind turbines excuse me, will provide 50 average megawatts of clean, renewable energy for our customers at an affordable price. That's enough energy to power 38,000 homes for years to come. As wildfires continue to have an impact on our region, we implemented a new comprehensive 10-year wildfire resiliency plan that aims to improve defense strategies and operating practices for a more resilient system. We expect to invest about $330 million implementing the components of this plan over the life of the plan, which as I said was 10 years. We were proud to announce yesterday that Avista has been recognized again as one of the 2021 World's Most Ethical Companies by Ethisphere, a global leader in defining and advancing the standards of ethical business practices. This marks the second year in a row that Avista has achieved this distinction. We are only one of nine honorees recognized in the energy and utilities industry based on their assessment. In 2021, 135 honorees in total were recognized spanning 22 countries and 47 industries. We are honored to receive this recognition because it acknowledges our belief that integrating corporate responsibility into our business builds trust, forges lasting relationships, strengthens morale, reduces risk, and delivers enhanced value to our shareholders, and ultimately enables us to more effectively deliver on our vision to provide better energy for life. In January, we published Avista's 2021 Corporate Responsibility Report on our avistacorp.com website, and I urge you to check it out when you have some time. This content provides a broad look at our operations, and how we're fulfilling our commitments to our people, our customers, our communities, and our shareholders. The website also provides links to Avista's reporting on a series of industry and financial ESG disclosures. The updated content supports Avista's longstanding commitment to corporate responsibility and sharing this information with our stakeholders. Switching gears, with respect to regulatory filings, In January, we filed two-year general rate cases in Idaho, and as you know, in 2020, we filed general rate cases in Washington, and we continue to work through the regulatory processes in both of these jurisdictions. We take our responsibility to provide safe, reliable energy at an affordable price very seriously, and we work hard to make prudent financial investments in our infrastructure, manage our costs, and identify ways to best serve our customers that contribute to keeping energy prices low. For example, our proposed tax customer credit would completely offset an immediate increase in electric and natural gas bills for our Washington customers. In Oregon, new rates went into effect on January 16th of this year, and we expect to file another rate case in the second half of 2021 in Oregon. Looking ahead, we remain focused on running a great utility and continue to invest prudent capital to maintain and update our infrastructure and provide reliable energy service to our customers. We are initiating our 2021, 2022, and 2023 earnings guidance with consolidated ranges of $1.96 to $2.16 per diluted share for 2021. $2.18 to $2.38 in 2022, and $2.42 to $2.62 per diluted share for 2023. This puts us on track to earning our allowed return by 2023. Lastly, earlier this month, the Board increased our dividend by 4.3% to an annual dividend of $1.69 per share. And the dividend increase approved by the Board marks the 19th consecutive year the Board has raised the dividend for our shareholders, and I believe it demonstrates the Board's commitment to maximizing shareholder value. At this time, I'll turn this presentation over to Mark.

Thank you, Dennis, and good morning, everyone. We had low expectations coming into this year. No, not the company, the Blackhawks. And the Blackhawks have really started off pretty good after a slow first four games. We've had five rookies score their first goals ever in the NHL. So pretty exciting times for all you hockey fans out there. For the company in the fourth quarter, Vista Utilities contributed $0.81 per diluted share compared to $0.67 last year. Our earnings increased primarily due to higher utility margin and customer growth. Also, in the fourth quarter, the Oregon and Washington Commissions joined the Idaho Commission to allow for the deferral of certain COVID-19-related expenses for possible future recovery. Additionally, Avista Utilities' earnings were better than expectations due to higher utility margin and lower income taxes, which were partially offset by higher operating expenses. With respect to COVID-19, as I mentioned earlier, we have now received accounting orders in each of our jurisdictions to defer the costs and benefits associated with COVID-19, and those will be addressed in future proceedings with each of those commissions. We expect a gradual economic recovery that will still have some depressed load and customer growth in 21. We expect that to start improving in the second half of 21, our economy. We do have decoupling and other regulatory mechanisms which mitigate the impacts of changes in load for our residential and certain commercial customers. Over 90% of our revenue, as you recall, is covered by regulatory mechanisms. As Dennis mentioned, we continue to be committed to investing the necessary capital in our utility infrastructure. We expect our capital expenditures in 2021 to be about $415 million. And at AEL&P, we expect about $7 million and about $15 million in our other businesses. With respect to our liquidity, as of December 31st, we have $270 million of available liquidity under our committed credit line at Avista Utilities. And in 2020, we issued about $72 million in stock in 2020. In 21, we expect to issue about $75 million of equity or stock and up to $120 million of long-term debt. As Dennis mentioned, we are initiating guidance not only for 2021, but also for 2022 and 2023. And as he mentioned those ranges, this is to get us back to earning our allowed return by 2023. And our guidance does assume timely and appropriate rate relief in each of our jurisdictions relative to the capital expenses that we have going forward. We experienced regulatory lag during 20 and expect this to continue through the end of 22 due to our continued investment in infrastructure and our delayed filings. We again delayed last year as we talked about with the pandemic in Washington and Idaho. Dennis mentioned those earlier. We expect our cases in Washington and Idaho along with new rates to provide some relief in 2021 and begin reducing that regulatory lag. Going forward, we'll strive to continue to reduce that and closely align our returns to those authorized by 23. After 23, we expect to grow at 4 to 6 percent, our earnings. Our 21 guidance reflects unrecovered structural costs estimated to reduce the return on equity by approximately 70 basis points. And in addition, our timing lag, which is what we're trying to reduce with rate cases, has reduced it by about 100 basis points. This results in expected return on equity for Avista Utilities of approximately 7.7% in 2021. We are forecasting operating cost growth of about 3% and customer growth of about 1% annually, which is slightly improved from prior numbers on the customer growth side. For 2021, we expect Avista Utilities to contribute in the range of $1.93 to $2.07 per diluted share, and the midpoint of our guidance does not include any expense or benefit under the IRM. Our current expectation for the IRM is in the benefit position within the 75% customer, 25% company sharing band, which is expected to add $0.05 per diluted share. For 2021, we expect AEL&P to contribute in the range of $0.08 to $0.11 per diluted share, And our outlook for both the VISTA utilities and AELP assumes, among other variables, normal precipitation and hydroelectric generation for the year. We expect a loss between $0.05 and $0.02 per diluted share for our other businesses as we continue to develop opportunities for the future. We'll spend a little bit of money in the next couple of years to continue to get those earnings up over the course of the next five years. And we look forward to those opportunities. They're both in our service territory and in funds. Our guidance generally includes only normal operating conditions and does not include any unusual or non-recurring items until the effects are known and certain. So I'll now turn the call back to John.

And now we would like to open up this call for questions.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Richard Ciccarelli from Bank of America. Your question, please.

Hey, good morning. Thanks for taking my question. Good morning, Richie. Good morning. Yeah, just the first one. Can you speak to the progress in your rate case filings in Washington and Idaho? And I guess what percentage of the revenue requirement, ask, are you – assuming to get to the midpoint of your 2021 guidance range?

Hey, Rich, it's Kevin Christie. How are you?

Doing well, thanks.

As far as the rate case progress goes, we're really just underway in both cases. In Idaho, the most recently filed case, we have not established or have not seen the procedural schedule yet. That should happen in the next few weeks. The procedural schedule has been established in Washington, and we've been going through the discovery process thus far. We have our first settlement conversation coming up on March 10th. As far as your latter question goes, what we typically see as constructive outcomes from a regulatory get versus ask perspective is in that 55 to 65 percent range. And again, we think we've spent prudent capital and would expect fair recovery from the regulators as we move forward.

Got it. That's very helpful. Thanks for the color there. And I guess just in terms of your forward-looking outlook for 22 and 23, your CapEx was relatively unchanged. Obviously, you have two rate cases now that sound like you're kind of in the early stages. I guess what gives you the confidence that you'll be able to earn closer to your allowed ROEs and throughout the company and how you plan on executing to kind of get there? Is that in bed any multi-year rate plans or anything like that within the outlook?

Well, so a couple of things on that. It does, we do need to get, you know, fair results or reasonable results in our commissions and from our filings, but we also believe that we filed appropriate, you know, cases. We've got prudent capital we spent for our customers and our costs are prudent as we go to serve our customers, we're catching up on timing lag. So we believe that we'll be able to catch up incrementally in the next couple of years, not all at once. We think that'll take, you know, a couple of years. We did file a multi-year case in Idaho. We have a two-year case in Idaho right now. And we would look, you know, as we go forward, we'll go through, we looked at it for Washington, but felt with everything going on in With the pandemic and certain large projects, as Dennis mentioned, the AMI project, one of our largest projects in history, is going into this case. We didn't feel a multi-year made sense, so we filed a single year. We can file multi-year in the future, and that can get us to where we need to be. And that's really what our plan is, is to put forward an appropriate case reviewed by the staff and the parties, but we believe we can get back to earning our allowed return.

Got it. No, that makes a lot of sense. And then you're talking about Still the structural lag there of roughly 70 bits.

Yeah, we expect that. We've had that for a long time, and we just point that out. So, yes, we expect that to be the case.

Got it. Sorry, go ahead.

Going forward, we're working with the other parties that we typically work with in Washington along with the commission and the other utilities, and there's a piece of legislation that's sitting in the Senate right now that's intended to help guide and actually require multi-year rate plans of at least two years and up to four years. And with that, if that were to move forward, we feel like it's a really constructive piece of legislation that would allow us to have that multi-year rate plan option, I'm sorry, requirement, and it would help us get the first year right and the transitions from year to year right as well. So that would be something we'd look towards the future after this particular case in Washington.

Yeah, absolutely. That would be helpful. Okay, cool. And then just the last one I had here was, I think in your press release, you mentioned looking at some strategic opportunities in 2021. Can you just describe what specifically you're looking at? You mentioned some increased costs there as well. Just curious.

It's a nominal increase to cost, Richie. It's a nominal increase to cost, but we're looking. Some of that's just in the University District within Spokane. We continue to grow out our five smartest blocks in the Edo District. We're spending some dollars there. We're looking at a pilot on some opportunities in some regional communities that we think could have some opportunities for us, and we're also spending money in a couple of different funds that we've had consistent dollars in. So we expect those. They're nominal at this point from a cost perspective, but we think they have opportunities as we go forward, and they really go towards the innovative aspect of our company. We have a history of innovation, and so we spend those dollars because there are opportunities to help in the market.

Okay. This is all in the other businesses, not the utilities, just to be very clear. Okay, thank you.

Some of it's within our service territory, but it is outside of the utility business.

All right, great. Thanks for all the time. That's all I have. Thanks, Richie.

Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press star then 1. Our next question comes from the line of Brian Russell from Sedoti. Your question, please. Hi, good morning.

Good morning, Brian. Good morning.

Hey, you mentioned an upcoming Washington IRP in 2021. Is that second half or fourth quarter?

I believe that's April. We'll have to check on that. We filed in Idaho last year with a progress report in Washington, but to line up the sequencing with the new Clean Energy Transformation Act in Washington, we That's why we did the progress report. I believe it's – we can double-check that, but I believe it's here just in a couple of months.

Yeah, okay. I was just curious, you know, what can we expect from that, you know, pursuit of more PPAs, you know, when Coal Strip is retired and the Lancaster PPA expires, I believe, in 2025, or will there be any, you know, self-built – scenarios in any competitive RFP going forward?

Yeah, I mean, you're right. Obviously, with Coal Strip, we'll be leaving our portfolio in 2025 and then Lancaster a year later. So we will be in acquisition mode. We actually have an RFP for renewables out right now. and what we would expect to do, expect to acquire, and this is based on the IRP that we filed in 2020. I don't expect it to be a whole lot different in 21, but it'll be a combination of generation plant upgrades, additional clean energy, you know, renewables, storage, energy efficiency, and demand response. So the way we would do this, ultimately we want to meet our customers' needs in the most cost-effective way, on a risk-adjusted basis, and reliability will be an essential design element of whatever we choose, but it would be a competitive process. Whether or not we have self-built options that make the cut or not, we'll just have to wait and see when we get there. But ultimately, the objective is lowest cost, risk-adjusted basis to our customers.

Okay, and is the wildfire... investment 10-year plan. Is that included in this rate case, or is that a separate docket to be approved?

The wildfire, Kevin, you want to talk about that? Is it included in this case, or is it a separate docket?

Yeah, let me go through both states. In Idaho, it was its own docket. It's been filed, approved, and it allows for a deferral mechanism that includes expense, depreciation, and capital. In Washington, we filed it with under a separate docket, though, with the latest GRC in Washington, and it was consolidated with our GRC. So that will play out over the length of those 11 months, or we would expect that to be the case. And then what that includes is for 2021, deferral of O and M, and then going forward post-effective rate effective period for the rate case of October 1, that would include both expense and capital.

Okay, great.

And, Brian, we just checked, and the IRP, the next IRP in Washington will be filed in April of this year. So I was right on that one.

Okay, great. And, you know, it looks like last year you issued $72 million of equity. I think you're planning up approximately $75 million in 2021. Could you just talk about, you know, the balance sheet, you know, capacity relative, you know, to your CapEx? And then... unique structure of this rate proposal with the tax credits that may pressure cash flows in the near term. Just wondering what your target FFO to debt or debt to cap structure for credit rating purposes is.

Again, our target is to maintain our current ratings. So We looked at that tax customer credit and looked at the impacts to our FFO and believe that we should be able to maintain our current credit ratings. It's just a short-term, it's an interim rate relief. The rate relief is for a year up to two years, depending on where we end up in each of those cases. But we then return to normal cash flows after that. So we don't believe we should have, we might have a slight degradation in the current year post effective so it'd be 22 more where that would hit but we don't believe it should change our our ratings because we get right back quickly to having a normal cash flow from that so we don't expect our ratings to be off and we continue to raise the capital the equity you know and the debt that we do to maintain a you know to fund our capital expenditures but the result is maintaining a prudent capital structure for regulatory purposes So that's, you know, we believe that we will have that. Now, we'll have to, you know, walk the rating agencies through that and go through that process as we normally do. But we've had a look at it, and we've had, you know, an outside review of that as well, and we believe it shouldn't change our ratings.

Okay, got it. And you mentioned some legislation pending in the Senate in Washington, you know, allows for, you know, multi-year rate cases, etc., How does that triangulate with the Clean Energy Transformation Act that authorizes to commission, you know, a variety of tools in terms of, you know, up to 48 months of used and useful plant, you know, earn a return on PPAs, et cetera? Is that something additional or does that take the place of CETA? Just want to clarify that.

Good question, Brian. It's in addition to CETA still exists as we know it and all the facts and figures we've shared before apply. This just adds additional clarity to the Commission's ability and focus on a multi-year. It's efficient, too, in the fact that many of the utilities are filing rate cases year after year, and this helps the Commission get to a point where utilities are somewhat staggered with their cases because of the multi-year aspect, and it also provides clarity as far as what's included in getting that first year right and the transitions from year to year as well in. The utility has the option to file between two and four years if this legislation were to move forward, and again, that would give the commission the ability to make a determination based on those filings.

Okay, and I suppose the expectation is for that legislation to be passed or not in this legislative session? When does the legislation session end?

Yeah, that's correct. It might come out of the House, I'm sorry, the Senate this week, and then it would move over to the House, and then they would go through the normal process that transpires in Washington. So it should be by the end of the session, if not before, if it moves through.

Okay, and just to follow up on an earlier question, Is the expectation that you'll file a second Washington rate case to include either what's in CETA or what's in this legislation for new rates to close that regulatory gap beginning in 2023? Or with a constructive rate case outcome in the pending case, that gets you there?

No, we'll need to file, we'll likely file in the first part of next year, and if this legislation moves forward, and even if it doesn't, we may still move forward with a multi-year, and that would include all the capital that's being spent now that's not yet in the, that is not in the current case.

Okay, got it.

Because Idaho is filing as a two-year case.

Yes, correct. Just the multi-year guidance and, you know, the losses you're incurring in the other businesses this year, is there an expectation for the losses to reverse and start generating, you know, positive earnings and or monetizing some of the investments, you know, through the multi-year guidance period?

Well, in the multi-year, we didn't break out our guidance period. and I'm not going to break out right now, between the Vista Utilities AELP and other for 22 and 23. We gave consolidated guidance, but we have said in the past, and we stand by that, that's why we're making the investments we're making, is that we expect, we started, I think, in 2019 to say that, you know, in three to five years, we expect to start making earnings out of that, five to ten cents of earnings, and we still believe that we're going to do that. So probably by the 23, 24 timeframe, we're looking to have earnings in those other businesses. And, you know, when we come out with specific guidance on that, we will put that in there. But we do have that expectation. And that's why we continue to invest dollars in those areas.

Right, I get it. So the way to think about it is the 15 million you're investing this year, the expectation is you'll earn some sort of return on that 15 million over the next several years.

Well, some of them are new businesses. As we're investing in the university district, some of those may not make a return for several years but come in after that, and others may make returns sooner than that. You're not buying a bond where you're going to get a return every year on it. These are startup investments, and they take some time. Some are quicker than others, and we've seen earnings come out of the fund investments that we've made already and turn around pretty quickly, and we've seen others that will be longer term. So it's a balance there, Brian. It'll just take some time. I don't have specifics for you on that. When we come out with our guidance in those forward years, we'll lay out, you know, but we do expect, as you're looking at it, by 23 or 24 to start generating earnings from those businesses.

Okay. And then, you know, once again, you're expecting to be in the 75-25 range. sharing on the ERM, which I think you've been in a benefit for every year for the last four or five years at least. What's driving that ERM this year relative to last year? And then that would be a segue into a second question. What's your current outlook on hydroconjunctives, given the weather patterns that we've seen in the Pacific Northwest and what's, um, expected, you know, over the next couple of weeks or months.

Yep. Brian, uh, Dennis, I think, you know, the things that have been driving their arm over the last several years have been a combination of a couple of things. One is, uh, just lower gas prices, right. In general, from what we've seen before. Uh, and then also our team's ability to, uh, optimize or manage our resources efficiently. And, you know, so it's a combination of those things continuing that I think put us in a real good position to, you know, to be in the benefit in the Arab for this year. Now, obviously, future looking, if we saw a dramatic run-up in natural gas prices, you know, things might change on that. But as long as gas stays where it is, we're sitting pretty good. And, you know, And then your second question, hydro. You know, here we are, it's mid, almost the end of February, so we still have a couple months, really, left of snow build opportunity in the mountains. You know, right now we're just expecting, on a forward look, normal. And then as it sits today, The Northwest River Forecast Center runoff or water supply runoff forecast for April through September is basically average for us or 100%. Plus or minus just a little bit based on the different basins, but generally speaking, we're expecting normal hydro at this point in time going forward for this year.

And remember, Brian, the importance of temperatures and how quickly it melts. That's always important. You know, we may have snow in the mountains. If it melts really fast, that's bad. If it's a long, cold spring and it melts off slowly, that's really good, anywhere in between. Like Dennis said, we expect normal because we have good snowpack, but you do have to also see how that comes off.

Right, of course. You want average temperatures in that April.

And that's what we assume in our expectations.

And that's what you're seeing today in the marketplace?

Yes. Yes.

Yeah. Okay, and then just lastly, just curious, interest rates have been rising lately, and there's concerns with inflationary pressures. How does it impact, number one, maybe the timing of your 2021 financing plans on the debt side, and then that 3% O&M expense growth that you mentioned earlier as part of the 2021 assumption? Just curious what your thoughts are there.

Well, with respect to the O&M growth, we continue to always look at trying to manage our costs. We put a number out there, and then, you know, can we try to come inside of that? We work to that to the extent we can, but we wanted to, you know, put our expectations. That's where we are because we've seen some higher costs in insurance costs and pension costs and other costs have gone up, and then, you know, we need to continue to work to manage those, but that's our assumption, and we want to put that out there. With respect to interest rates, Yes, they have come up some, but they haven't changed significantly. We're looking at doing 30-year debt, and we've hedged some of that. We're not trying to time the market to the last amount. The Fed chair is just testifying in front of Congress yesterday and today, and we expect him to continue to say that we expect to keep rates low. We're not moving. We're continuing to monitor that, and if it makes sense, we'll look at doing our debt a little bit earlier, but right now we don't think that makes sense, and we would expect to come out like we always have and do it in the second half of the year.

Okay, great. Thank you very much.

Thanks, Brian.

Thank you. Our next question comes from the line of Chris Ellinghaus from Siebert Williams. Your question, please. Chris, you might have your phone on mute.

Sorry. My bad. How are you? Good morning. We're not even video, Chris. We couldn't tell you you're on mute. Yeah, well, I make a lot of mistakes, you know. The $75 million kind of run rate you've been at on equity, can we assume that that's what you've got built in through this sort of guidance period?

We've had a history of issuing at that level, and we're not changing our CapEx. The only changes will be cash flow. So, you know, we don't give guidance forward with that, but that's been our historical expectations for issuing.

Okay. You didn't say anything about the dividend payout. Can you just address that?

Well, the dividend payout's been the same since we – you know, started the, you know, having some lag, we've said we're going to continue our dividend and we will get to our stated guidance is to get to 65% to 75%, but we won't get there until we're back to earning our allowed return. So we'll run a little high right now and we'll have our earnings growth. As you see, the guidance ranges, the growth is greater than the dividend increase, which was 4% to 5% on the dividend. As Dennis mentioned, 4.3%, I think it was. And So the earnings growth is greater than that, which will get us back in line with our stated 65% to 75% payout ratio as we get to earning our allowed return.

Sure. What was the increase in bad debt expense last year? I want to say $6 or $7 million. Okay. And you did mention that you're expecting...

uh the pandemic to continue to be a drag through the first half of the year can you give us any color on uh what you think that looks like for this year i'll just say the color is it's included in our forecast i mean it's really you're going to see some some load you know expectations as we've seen it but we're decoupled largely as i mentioned in my earlier comments you know so there's the undecoupled load is an impact and then to the extent that bad debts are there, but we have deferral mechanisms, as we mentioned, in each of our jurisdictions to be able to defer that and then go after recovery through a future proceeding. Now, if that proceeding comes up differently, we'll have to address it, but our expectation is those are costs that we should recover through those future proceedings.

With the deferrals and with the decoupling, you're basically not expecting it to be terribly big. That's our expectation, and it's included in our guidance. All right, one last thing. Dennis, can you give us your thoughts on the electrification bill in Washington? Yeah.

Yeah, good question, Chris. You know, first of all, I guess what I would say is, you know, we support reducing emissions, and obviously with what we're doing on the electric side of things, we're doing that. and making good progress. But we need to do it in a manner that minimizes the cost burdens on our customers and avoids or protects, I guess I would say, the reliability of the regional energy systems. And I think we need to be doing it in a holistic fashion to minimize the unintended consequences. So having said all that, The bill doesn't really fully consider all these broad impacts. Now, I am happy to say that we have been working with our fellow utilities in Washington State and other stakeholders in really trying to educate legislators as to the serious concerns that we have with the bill and the serious impacts that we believe the bill would have on our customers and the energy system. I'm pleased to report that our efforts have led to defeat of the bill early in the legislative session, so that's good. So it's basically done for this year. However, obviously, we can expect that some components of it or that the bill will come back at some point in time in the future, and we just need to continue to... to educate legislators as to what our point of view is. And that is, again, we believe strongly that natural gas plays an important role as we decarbonize our energy system. And I'm not saying that to give natural gas a pass. We're working on plans for renewable natural gas. We're experimenting with other technologies or we're investigating other technologies. And energy efficiency is an important component to that as well. So we're going to do our part on the gas side as well, but we just are really concerned with the effects of electrification, not only what it would do for our customers from an affordability perspective, but what the implications are on our electric system. Our studies have shown that it would require a doubling of electric infrastructure, including generation, to – you know, to meet the increased needs from a full electrification in our system. And there's obviously reliability and cost impacts associated with that that are concerning. So that's kind of where we sit on this right now. I'm, you know, and what we're going to do is spend, you know, the next, well, we'll continue to work on educating stakeholders as to why gas makes sense going forward.

Does that help? Yeah, that's helpful. Thanks. I appreciate the color. Okay.

Thank you. Once again, if you have a question, please press star then 1. And this does conclude the question and answer session of today's program. I'd like to hand the program back to John Wilcox for any further remarks.

I want to thank everyone for joining us today. We certainly appreciate your interest in our company. Have a great day.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.