Avista Corporation

Hello, and thank you for standing by. Welcome to the VISTA Corporation fourth quarter 2023 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 the question during this session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Stacey Wentz. You may begin.

Good morning. I'm pleased to welcome you all to Avista's fourth quarter 2023 earnings conference call. Our earnings and 2023 Form 10-K were released pre-market this morning. You can find both on our website. Joining me this morning are Avista Corp CEO Dennis Vermillion, President and COO Heather Rosentrader, Senior Vice President, CFO, Treasurer, and Regulatory Affairs Officer, Kevin Christie, and Vice President, Controller, and Principal Accounting Officer, Ryan Crosshold. Today, we will make certain statements that are forward-looking. 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 10-K for 2023, which is available on our website, for a full discussion of these risk factors. To begin, I'll recap the financial results presented in today's press release. Our consolidated earnings for the fourth quarter of 2023 were $1.08 per diluted share, compared to $1.05 for the fourth quarter of 2022. For the full year, consolidated earnings were $2.24 per diluted share in 2023, compared to $2.12 last year. Now, I'm happy to turn the call over to Dennis.

Well, thanks, Stacy, and good morning, everyone. I'd like to start by saying how proud I am of what we accomplished in 2023. We really had a great year. Our 2023 earnings at Avista Utilities show significant improvement from 2022, and reflect the benefits of improved cost recovery resulting from our general rate cases, as well as our success in managing our costs through the headwinds of increased interest rates and the impact of higher power supply costs. Our improved earnings demonstrate the team's commitment to delivering results. This teamwork is core to Avista's values, and there are many examples I could point to to touch on one. In November, we faced the largest natural gas outage in our company's history. Nearly 37,000 natural gas customers were impacted when a gas pipeline that transports gas to a VISTA system was damaged by a third-party dig-in. Our people, along with mutual aid workers from eight utilities spanning eight states and contract employees, worked safely to restore service to every impacted customer in less than one week. That we were able to achieve 100% restoration in such a short timeframe is a testament to the determination and drive of our people and the people who came alongside of us to help. I'm thankful for each one and for the resilience and understanding of our customers. We're thankful for the safety of all involved, as well as the regular regulatory support from our commissions. We received approval to defer the costs of the incident for recovery to be addressed in a future regulatory proceeding. And I wouldn't be a utility guy if I didn't take this opportunity to say this. Please call 811 before you dig. Although much of the winter season has been milder than normal, we experienced very cold temperatures in mid-January. At the same time, two operational issues impacted our system and the natural gas system throughout the Pacific Northwest. Mechanical issues at both a third-party transmission pipeline and the natural gas storage facility we partially own reduced the capacity of natural gas in the region. These challenges, combined with the extreme cold, resulted in very high commodity prices. Just as with the gas outage, I'm proud of the resilience of our customers and our operational decisions as we navigated these issues. Although we had to purchase energy during this period of higher commodity prices, these costs will be included under various deferral mechanisms for power and gas costs. We continue to make progress on our clean energy goals on the natural gas front with the four renewable natural gas supply contracts we've executed so far. We expect to purchase 9.7 million therms of natural gas annually from renewable sources. We're also partnering with school districts in our service territory to work toward fleet electrification. And by the end of 2024, we expect to be working with nine school districts on this effort. So whether it's improving the carbon profile of our natural gas operations or assisting our customers with electrification initiatives, we're building on our foundation of clean hydropower to work towards an even cleaner energy future for our region. In December, we published our 2023 Corporate Responsibility Report. The latest report includes progress updates regarding the VISTA's aspirational goals for clean energy and workplace equity inclusion and diversity, including supplier diversity. And I really encourage you to check out the report if you haven't done it already. Great report. You can see recent examples that demonstrate our longstanding commitment to doing the right thing for our environment, our people, our customers, and communities, along with our shareholders. Earlier this month, the Board increased our annual dividend to $1.90 per share. The Board has a longstanding commitment to maximize shareholder value, and we strive to target a competitive dividend for our shareholders. We are committed to providing affordable and reliable energy to our customers, and we make customer-focused investments in our infrastructure to improve reliability and maintain the safety of our operations. Periodically, this requires us to request adjustments to customer rates to reflect the actual costs of providing service. So in January, we filed two-year general rate cases in Washington, electric and gas, We've asked for increases in the first year of our plan of $77.1 million for electric and $17.3 million for natural gas. Coal strips exit from our generation portfolio will occur at the end of 2025 in compliance with the clean energy regulations in the state of Washington and the resulting change in the projected power supply costs when netted with the changes resulting in the elimination of coal strip costs results in a total request of $53.7 million in the second year of our plan for electric. On the natural gas side, we've asked for an increase of $4.6 million in the second year of our plan. Kevin will share more about our Washington filing in a moment, and at this time, I'll hand the call over to Kevin.

Thanks, Dennis, and good morning, everyone. We've executed meaningful steps in our strategy at Avista Utilities that show in our results. Our core utility operations are strong and demonstrate significant earnings growth of over 35% in 2023 when compared to 2022. As Dennis mentioned, this increase at Avista Utilities is largely the result of improved cost recovery, successful cost management, and lower net power supply costs. For the full year of 2023, the energy recovery mechanism was a pre-tax expense of $8.4 million compared to a pre-tax expense of $10.9 million in 2022. AEL&P had a strong year as well. Their results met the high end of our expectations for the year. Our consolidated results came in below our expectations. This was the result of losses in our other businesses driven by the periodic valuation of our investments. We continue to invest the necessary capital in order for us to provide safe and reliable service for our customers. and to comply with clean energy regulations. And we are getting timely recovery of that investment. This is in part due to the multi-year rate plan structure in Washington, which allows us to place capital and rate base prospectively, as well as filing rate cases on a timely basis. A significant portion of our Washington electric rate request, more than half in year one and nearly 70% in year two, is related to the reset of power supply costs the removal of costs related to coal strip from customer rates, and recovery of costs we previously deferred, all of which we expect to fully recover. Our improved cost recovery in 2023 is partially the result of deferral mechanisms we've been successful in developing with our commissions, such as wildfire and insurance costs. We continue to focus upon additional regulatory mechanisms that improve cost recovery. To that end, in our Washington General Rate case, we are requesting a modification to the IRM. We propose a straight 95% customer, 5% company sharing of power supply costs. The IRM was introduced in 2002, and the energy markets have evolved since then. We believe this is the appropriate time to refresh the mechanism to better reflect current market dynamics. We are committed to investing the necessary capital in our utility infrastructure. Our capital expenditures at Avista Utilities were $485 million in 2023. So that we can continue to support customer growth and maintain our system to provide safe, reliable energy to our customers, our planned capital expenditures are $500 million in 2024, $525 million in 2025 and $575 million in 2026. Our planned expenditures for 2026 have increased to $25 million, primarily due to projects planned for wildfire mitigation. AEL&P's capital expenditures were $14 million in 2023 and $21 million of capital expenditures are expected in 2024. We also invested $17 million in other investments during 2023 and we expect to invest $22 million in 2024. On the liquidity front, as of December 31st, we had $146 million of available liquidity under our committed line of credit and $30 million available under our letter of credit facility. We issued $112 million of common stock and $250 million of long-term debt in 2023. In 2024, we expect to issue approximately $85 million of long-term debt and $70 million of common stock to partially fund our capital spending for the year. Improved cash from operations will help fund the remainder. We are initiating our guidance for 2024 with a consolidated range of $2.36 to $2.56 per diluted share. We expect the VISTA utilities to contribute within a range of $2.23 to $2.39 per diluted share in 2024. We expect the impact of the IRM on earnings to be negative during the first quarter of in the 50% customer, 50% company sharing band. For the full year, we expect the IRM to be neutral to earnings as we anticipate a positive impact in the latter part of the year, which will offset the early negative impact. Our guidance for Avista utilities in 24 reflects unrecovered structural costs, which we estimate reduce the return on equity by 70 basis points. We expect 60 basis points of regulatory timing lag in 2024. This results in an expected return on equity at Avista Utilities of 8.1% in 2024. In 2023, the distribution of earnings between quarters differed from our typical historical results due to the impact of customer tax credits being returned to customers, reducing customer bills, and income tax expense. We expect the distribution of earnings between quarters in 2024 to more closely align with the results prior to 2023, with the first and fourth quarters representing the largest contributions to our annual earnings. We expect AELP to contribute in the range of $0.09 to $0.11 per diluted share in 2024, and we expect our other businesses to contribute in the range of $0.04 to $0.06 per diluted share in 2024. Assuming a constructive outcome in our 2024 Washington general rate case filings, we expect our earnings to grow over the long term in the range of 4% to 6% from a 2025 base year. Now we'll be happy to answer questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tanner James with Bank of America. Your line is open.

Hi, good morning. Good morning. Just a quick one-size. Hi, good morning, team.

Just a quick one-sizing the IRM and the ongoing support that updated bans might provide. What would the IRM impact have looked like for 2023 with the updated bans as requested in your 2024 rate case filing? And then also regarding precision of your annual EPS guide, would implementation of a less volatile IRM encourage you to tighten the typical EPS guidance range you provide?

Yeah, thanks for the questions, Tanner. I don't have the exact numbers off the top of my head here, but obviously with a ERM that was negative or a power supply cost that was negative to the tune of $0.09, if we had a 95.5 mechanism in place, it would have shrunk that significantly. My off-the-cuff estimate would be in the range of a couple of cents. And then to your second question, we'll continue to evaluate as we move through the Washington case. how successful we are in modifying that mechanism and what comes out the other side before we can really say how we would narrow guidance on a go-forward basis, if we would narrow guidance on a go-forward basis.

Great. Thanks. And thank you for the disclosure of the wildfire-related increase to the CapEx. For the cumulative T&D spend and guide, can you deconstruct what might be allocated towards typical maintenance versus wildfire resiliency? on a go forward basis, just trying to figure out the run rate system need for wildfire resiliency going forward.

Well, when we plan our capital spending, we have allocated the capital for 2024 on a basis based on need that we received from the business. And so those dollars are more well known or understood by project and program as we look forward for 2025 and beyond. We have not yet allocated all the dollars among all the potential programs and projects. Generally speaking, though, we would expect our capital for wildfire in 2025 to be about $35 million or so and closer to $60 million in 2026.

All right, great. Thank you so much. Really appreciate it.

Thank you. Please stand by for our next question. Our next question comes from the line of Willie Granger with Missoula. Your line is open. Willie Granger Hi. Good morning, team.

Tim Stenzel Hey, good morning. Willie Granger Thanks for taking my question. Maybe just a question on the financing plans. I see previously for 2024 you're guiding to about $60 million of equity, and it's come up modestly to $70 million. I just kind of wanted to understand what's driving that. I saw capex is staying the same across utilities, but just any color on that would be super helpful. Thank you.

Yeah, that's really, thanks again for the question. We are rebalancing debt and equity as we move forward with this case and as the regulators consider what we filed there. And so it's really just fine tuning the numbers at this point in time. As you pointed out, capital hasn't changed planning-wise for 2024. We've had changes in expenditures, a little bit higher run rate for winter given power supply costs and what have you.

Understood. And then maybe just one on kind of how are you thinking about I know you said weather's been challenging from an ERM perspective so far in Q1, and in your guidance you expect that to kind of balance out towards the end of the year. Are you assuming that you just have more control over some of the variables and the hydrology here, or what's kind of the puts and takes to that, if you can unpack that a little bit for us?

Sure. We are building into our forecast the expectations of current hydro, which is below normal. And at the same time, we believe we have the opportunity to optimize our resources on a go-forward basis. And if we're able to optimize the resources like we plan, that would help offset the first quarter negative.

Understood. Thank you very much, Tim. I'll leave it there.

And I also want to add that, of course, that assumes that we have a reasonable melt in our hydro, in our snowpack, and that the flow comes over and we can optimize in our hydro facilities. To the extent that we have a hydro outcome that looks similar to 2023, it'll be tougher to do that.

Thank you. Great. Please stand by for our next question. Our next question comes from the line of Brian Russo with Sadoti. Your line is open.

Hi, good morning.

Hey, Brian.

Hey, you mentioned the two buckets of regulatory lag that support the 2024 guidance. Just remind me, what can be mitigated with new Washington rates in 2025? Is it the Is it the 60 basis points of timing or is it the 70 basis points of structural?

Yeah, the structural lag, Brian, can't change. It's in place because of rule or law. So we're focused on the timing lag, that 60 basis points. And with the constructive outcome in the Washington case, ongoing fair treatment on our deferral mechanisms. And keeping in mind that we need to file rate cases or we'll likely file rate cases in Idaho and Oregon as we move forward. Assuming we manage our costs, all of that would allow us to reduce that 60, the majority of that 60 basis points.

Okay, got it. So the way to look at your earnings trajectory in 2025 versus 2024 is, you know, ROE improvement on a growing rate base, as simplistically as that is.

Yeah, and assuming we continue to manage our costs appropriately and we get that good regulatory treatment or constructive regulatory treatment.

Yep. Okay, great. And then, you know, in past calls, you've talked about longer-term transmission and renewable investment opportunities. And then I see on slide nine, there's a bullet evaluating opportunities for expansion on the generation side, I think. Could you maybe elaborate on that? And that just kind of ties into, you know, this, it looks like a 575 million run rate, CapEx and 26 to support a 5% rate base growth, right, on a growing rate base. Is that kind of the optimal CapEx level, you know, to manage growth? customer rates and maybe that balance of purchase power agreements versus stealing the ground that you have now?

Yeah, the way I would look at it, Brian, is that the run rate that we've given you on capital is the capital we need to spend to continue to run the utility and balance customer rates. To the extent that we have an opportunity to invest further in clean generation that may be incremental to our current capital plan. And the way I've been thinking about it is we have more near-term opportunities to potentially invest in clean generation that's not in our rates right now through ownership. And there may be something out there that we could purchase that would make sense both for customers and for the company as we move forward. And then on the transmission side, I think about it this way. There is the opportunity to enhance or build around our current system. That's more of a near-term opportunity. And when I do say near-term, I don't mean this year or next year, but nearer. And then when we think about transmission really across the entire region and perhaps the country, there's a longer-term opportunity or really a requirement if we're going to deliver all this clean energy to all the locations that it needs to be delivered. And that takes quite a bit more time.

Okay, great. And then just to follow up on the IRM, I think it's been many years since you've actually tried or proposed adjustments to that. You know, when was the last time you did request an IRM adjustment? And would you say that the adjustments you proposed puts you kind of on a more comparable, you know, level relative to your regional peers?

Yeah, good question. Yeah, it was in the late 2000s, I think the last time we filed to adjust the IRM, or we put in adjust the IRM. And when we're watching closely regional peers, there's been some change in power supply treatment in Oregon, and there's a filing in Washington that we're keeping a close eye on as well. And we think that if we're able to move forward with this change, it would position us at par with our peers.

Okay, great. Thank you very much.

Thank you.

Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. I'm showing no further questions in the queue. One moment. We do have a question from Alan Roach. Mr. Roach, your line is open.

Good morning. Appreciate the conference call. I'm curious as to the two wildfires that happened in the summer of 2023. Does that have a negative impact on your bottom line?

Yeah, I mean, with regard to the wildfire, I think you're referring to the fire north of the Spokane area, and then there was one west of town. With regard to both of those, our facilities were impacted by the fire on the West Plains and Medical Lake area. We lost some of our infrastructure out there. However, we were not involved in any way, shape, or form with the start of that fire. Then with the other fire that was north of the Spokane area, that happened and originated well away from all of our facilities. In fact, none of our infrastructure was damaged in that fire. really no impact at all to the bottom line. We had to spend a little bit of money fixing all the stuff that was lost out on the West Plains there, but that was definitely manageable.

Got you. That's good news. One other quick question. If the breachment of the Four Snake River dams happens to occur, How is that going to affect your bottom line?

Well, the Forest-Nick River dams are federal projects, and the power output from those facilities is managed by the Bonneville Power Administration. We do not have any ownership stake or any off-take agreements for generation from those facilities, so it really won't impact us at all from a power supply perspective. However, regionally, you'd be taking 1,000 megawatts of supply out of the system. So until that's replaced in some manner, you could see an impact on commodity prices, on power prices in markets, but no direct impact to our company from removal of those facilities.

Okay. Thank you.

Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Stacey for closing remarks.

Thank you all for joining us today and for your interest in Avista. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. you Bye. Thank you. Hello, and thank you for standing by. Welcome to the VISTA Corporation fourth quarter 2023 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 the question during this session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Stacey Wentz. You may begin.

Good morning. I'm pleased to welcome you all to Avista's fourth quarter 2023 earnings conference call. Our earnings and 2023 Form 10-K were released pre-market this morning. You can find both on our website. Joining me this morning are Avista Corp CEO Dennis Vermillion, President and COO Heather Rosentrader, Senior Vice President, CFO, Treasurer, and Regulatory Affairs Officer, Kevin Christie, and Vice President, Controller, and Principal Accounting Officer, Ryan Crosshold. Today, we will make certain statements that are forward-looking. 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 10-K for 2023, which is available on our website, for a full discussion of these risk factors. To begin, I'll recap the financial results presented in today's press release. Our consolidated earnings for the fourth quarter of 2023 were $1.08 for diluted share, compared to $1.05 for the fourth quarter of 2022. For the full year, consolidated earnings were $2.24 per diluted share in 2023, compared to $2.12 last year. Now, I'm happy to turn the call over to Dennis.

Well, thanks, Stacy, and good morning, everyone. I'd like to start by saying how proud I am of what we accomplished in 2023. We really had a great year. Our 2023 earnings at Avista Utilities show significant improvement from 2022, and reflect the benefits of improved cost recovery resulting from our general rate cases as well as our success in managing our costs through the headwinds of increased interest rates and the impact of higher power supply costs. Our improved earnings demonstrate the team's commitment to delivering results. This teamwork is core to Avista's values and there are many examples I could point to to touch on one. In November, we faced the largest natural gas outage in our company's history. Nearly 37,000 natural gas customers were impacted when a gas pipeline that transports gas to a VISTA system was damaged by a third-party dig-in. Our people, along with mutual aid workers from eight utilities spanning eight states and contract employees, worked safely to restore service to every impacted customer in less than one week. That we were able to achieve 100% restoration in such a short timeframe is a testament to the determination and drive of our people and the people who came alongside of us to help. I'm thankful for each one and for the resilience and understanding of our customers. We're thankful for the safety of all involved, as well as the regular regulatory support from our commissions. We received approval to defer the costs of the incident for recovery to be addressed in a future regulatory proceeding. And I wouldn't be a utility guy if I didn't take this opportunity to say this. Please call 811 before you dig. Although much of the winter season has been milder than normal, we experienced very cold temperatures in mid-January. At the same time, two operational issues impacted our system and the natural gas system throughout the Pacific Northwest. Mechanical issues at both a third-party transmission pipeline and the natural gas storage facility we partially own reduced the capacity of natural gas in the region. These challenges, combined with the extreme cold, resulted in very high commodity prices. Just as with the gas outage, I'm proud of the resilience of our customers and our operational decisions as we navigated these issues. Although we had to purchase energy during this period of higher commodity prices, these costs will be included under various deferral mechanisms for power and gas costs. We continue to make progress on our clean energy goals on the natural gas front with the four renewable natural gas supply contracts we've executed so far. We expect to purchase 9.7 million therms of natural gas annually from renewable sources. We're also partnering with school districts in our service territory to work toward fleet electrification. And by the end of 2024, we expect to be working with nine school districts on this effort. So whether it's improving the carbon profile of our natural gas operations or assisting our customers with electrification initiatives, we're building on our foundation of clean hydropower to work towards an even cleaner energy future for our region. In December, we published our 2023 Corporate Responsibility Report. The latest report includes progress updates regarding the VISTA's aspirational goals for clean energy and workplace equity inclusion and diversity, including supplier diversity. And I really encourage you to check out the report if you haven't done it already. Great report. You can see recent examples that demonstrate our longstanding commitment to doing the right thing for our environment, our people, our customers, and communities, along with our shareholders. Earlier this month, the Board increased our annual dividend to $1.90 per share. The Board has a longstanding commitment to maximize shareholder value, and we strive to target a competitive dividend for our shareholders. We are committed to providing affordable and reliable energy to our customers, and we make customer-focused investments in our infrastructure to improve reliability and maintain the safety of our operations. Periodically, this requires us to request adjustments to customer rates to reflect the actual costs of providing service. So in January, we filed two-year general rate cases in Washington, electric and gas, We've asked for increases in the first year of our plan of $77.1 million for electric and $17.3 million for natural gas. Coal strips exit from our generation portfolio will occur at the end of 2025 in compliance with the clean energy regulations in the state of Washington, and the resulting change in the projected power supply costs, when netted with the changes resulting in the elimination of coal strip costs, results in a total request of $53.7 million in the second year of our plan for electric. On the natural gas side, we've asked for an increase of $4.6 million in the second year of our plan. Kevin will share more about our Washington filing in a moment, and at this time, I'll hand the call over to Kevin.

Thanks, Dennis, and good morning, everyone. We've executed meaningful steps in our strategy at Avista Utilities that show in our results. Our core utility operations are strong and demonstrate significant earnings growth of over 35% in 2023 when compared to 2022. As Dennis mentioned, this increase at Avista Utilities is largely the result of improved cost recovery, successful cost management, and lower net power supply costs. For the full year of 2023, the energy recovery mechanism was a pretax expense of $8.4 million compared to a pre-tax expense of $10.9 million in 2022. AEL&P had a strong year as well. Their results met the high end of our expectations for the year. Our consolidated results came in below our expectations. This was the result of losses in our other businesses driven by the periodic valuation of our investments. We continue to invest the necessary capital in order for us to provide safe and reliable service for our customers and to comply with clean energy regulations. And we are getting timely recovery of that investment. This is in part due to the multi-year rate plan structure in Washington, which allows us to place capital and rate base prospectively, as well as filing rate cases on a timely basis. A significant portion of our Washington electric rate request, more than half in year one and nearly 70% in year two, is related to the reset of power supply costs the removal of costs related to coal strip from customer rates, and recovery of costs we previously deferred, all of which we expect to fully recover. Our improved cost recovery in 2023 is partially the result of deferral mechanisms we've been successful in developing with our commissions, such as wildfire and insurance costs. We continue to focus upon additional regulatory mechanisms that improve cost recovery. To that end, in our Washington General Rate case, we are requesting a modification to the IRM. We propose a straight 95% customer, 5% company sharing of power supply costs. The IRM was introduced in 2002, and the energy markets have evolved since then. We believe this is the appropriate time to refresh the mechanism to better reflect current market dynamics. We are committed to investing the necessary capital in our utility infrastructure. Our capital expenditures at Avista Utilities were $485 million in 2023. So that we can continue to support customer growth and maintain our system to provide safe, reliable energy to our customers, our planned capital expenditures are $500 million in 2024, $525 million in 2025 and $575 million in 2026. Our planned expenditures for 2026 have increased to $25 million primarily due to projects planned for wildfire mitigation. AEL&P's capital expenditures were $14 million in 2023 and $21 million of capital expenditures are expected in 2024. We also invested $17 million in other investments during 2023 and we expect to invest $22 million in 2024. On the liquidity front, as of December 31st, we had $146 million of available liquidity under our committed line of credit and $30 million available under our letter of credit facility. We issued $112 million of common stock and $250 million of long-term debt in 2023. In 2024, we expect to issue approximately $85 million of long-term debt and $70 million of common stock to partially fund our capital spending for the year. Improved cash from operations will help fund the remainder. We are initiating our guidance for 2024 with a consolidated range of $2.36 to $2.56 per diluted share. We expect Avista Utilities to contribute within a range of $2.23 to $2.39 per diluted share in 2024. We expect the impact of the IRM on earnings to be negative during the first quarter of in the 50% customer, 50% company sharing band. For the full year, we expect the IRM to be neutral to earnings as we anticipate a positive impact in the latter part of the year, which will offset the early negative impact. Our guidance for Avista utilities in 24 reflects unrecovered structural costs, which we estimate reduce the return on equity by 70 basis points. We expect 60 basis points of regulatory timing lag in 2024. This results in an expected return on equity at Avista Utilities of 8.1% in 2024. In 2023, the distribution of earnings between quarters differed from our typical historical results due to the impact of customer tax credits being returned to customers, reducing customer bills, and income tax expense. We expect the distribution of earnings between quarters in 2024 to more closely align with the results prior to 2023, with the first and fourth quarters representing the largest contributions to our annual earnings. We expect AELP to contribute in the range of $0.09 to $0.11 per diluted share in 2024, and we expect our other businesses to contribute in the range of $0.04 to $0.06 per diluted share in 2024. Assuming a constructive outcome in our 2024 Washington general rate case filings, we expect our earnings to grow over the long term in the range of 4% to 6% from a 2025 base year. Now we'll be happy to answer questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tanner James with Bank of America. Your line is open.

Hi, good morning. Good morning. Hi, good morning, team.

Just a quick one-sizing the IRM and the ongoing support that updated bans might provide. What would the IRM impact have looked like for 2023 with the updated bans as requested in your 2024 rate case filing? And then also regarding precision of your annual EPS guide, would implementation of a less volatile IRM encourage you to tighten the typical EPS guidance range you provide?

Yeah, thanks for the questions, Tanner. I don't have the exact numbers off the top of my head here, but obviously with a ERM that was negative or a power supply cost that was negative to the tune of $0.09, if we had a 95.5 mechanism in place, it would have shrunk that significantly. My off-the-cuff estimate would be in the range of a couple of cents. And then to your second question, we'll continue to evaluate as we move through the Washington case. how successful we are in modifying that mechanism and what comes out the other side before we can really say how we would narrow guidance on a go-forward basis, if we would narrow guidance on a go-forward basis.

Great. Thanks. And thank you for the disclosure of the wildfire-related increase to the CapEx. For the cumulative T&D spend and guide, can you deconstruct what might be allocated towards typical maintenance versus wildfire resiliency? on a go forward basis, just trying to figure out the run rate system need for wildfire resiliency going forward.

Well, when we plan our capital spending, we have allocated the capital for 2024 on a basis based on need that we received from the business. And so those dollars are more well known or understood by project and program as we look forward for 2025 and beyond. We have not yet allocated all the dollars among all the potential programs and projects. Generally speaking, though, we would expect for capital for wildfire in 2025 to be about $35 million or so and closer to $60 million in 2026.

All right, great. Thank you so much. Really appreciate it.

Thank you. Will you stand by for our next question? Our next question comes from the line of Willett Granger with Missoula. Your line is open.

Willett Granger Hi. Good morning, team. Thanks for taking my question. Maybe just a question on the financing plans. I see previously for 2024 you're guiding to about $60 million of equity, and it's come up modestly to $70 million. Just kind of wanted to understand what's driving that. I saw capex is staying the same across utilities, but just any color on that would be super helpful. Thank you.

Yeah, that's really, thanks again for the question. We are rebalancing debt and equity as we move forward with this case and as the regulators consider what we filed there. And so it's really just fine tuning the numbers at this point in time. As you pointed out, capital hasn't changed planning-wise for 2024. We've had changes in expenditures, a little bit higher run rate for winter given power supply costs and what have you.

Understood. And then maybe just one on, you know, kind of how are you thinking about I know you said weather's been challenging from an ERM perspective so far in Q1, and in your guidance you expect that to kind of balance out towards the end of the year. Are you assuming that you just have more control over some of the variables and the hydrology here, or what's kind of the puts and takes to that, if you can unpack that a little bit for us?

Sure. We are building into our forecast the expectations of current hydro, which is below normal. And at the same time, we believe we have the opportunity to optimize our resources on a go-forward basis. And if we're able to optimize the resources like we plan, that would help offset the first quarter negative.

Understood. Thank you very much, Tim. I'll leave it there.

And I also want to add that, of course, that assumes that we have a reasonable melt in our hydro, in our snowpack, and that the flow comes over and we can optimize in our hydro facilities. To the extent that we have a hydro outcome that looks similar to 2023, it'll be tougher to do that.

Thank you. Great. Please stand by for our next question. Our next question comes from the line of Brian Russo with Sadoti. Your line is open.

Hi, good morning.

Hey, Brian.

Hey, you mentioned the two buckets of regulatory lag that support the 2024 guidance. Just remind me, what can be mitigated with new Washington rates in 2025? Is it the Is it the 60 basis points of timing or is it the 70 basis points of structural?

Yeah, the structural lag, Brian, can't change. It's in place because of rule or law. So we're focused on the timing lag, that 60 basis points. And with a constructive outcome in the Washington case, ongoing fair treatment on our deferral mechanisms. And keeping in mind that we need to file rate cases or will likely file rate cases in Idaho and Oregon as we move forward. Assuming we manage our costs, all of that would allow us to reduce that 60, the majority of that 60 basis points.

Okay, got it. So the way to look at your earnings trajectory in 2025 versus 2024 is, you know, ROE improvement on a growing rate base, as simplistically as that.

Yeah, and assuming we continue to manage our costs appropriately and we get that good regulatory treatment or constructive regulatory treatment.

Yep. Okay, great. And then, you know, in past calls, you've talked about longer-term transmission and renewable investment opportunities. And then I see on slide nine, there's a bullet evaluating opportunities for expansion on the generation side, I think. Could you maybe elaborate on that? And that just kind of ties into, you know, this, it looks like a 575 million run rate CapEx in 26 to support a 5% rate base growth, right, on a growing rate base. Is that kind of the optimal CapEx level, you know, to manage growth? customer rates and maybe that balance of purchase power agreements versus stealing the ground that you have now?

Yeah, the way I would look at it, Brian, is that the run rate that we've given you on capital is the capital we need to spend to continue to run the utility and balance customer rates. To the extent that we have an opportunity to invest further in clean generation that may be incremental to our current capital plan. And the way I've been thinking about it is we have more near-term opportunities to potentially invest in clean generation that's not in our rates right now through ownership. And there may be something out there that we could purchase that would make sense both for customers and for the company as we move forward. And then on the transmission side, I think about it this way. There is the opportunity to enhance or build around our current system. That's more of a near-term opportunity. And when I do say near-term, I don't mean this year or next year, but nearer. And then when we think about transmission really across the entire region and perhaps the country, there's a longer-term opportunity or really a requirement if we're going to deliver all this clean energy to all the locations that it needs to be delivered. And that takes quite a bit more time.

Okay, great. And then just to follow up on the IRM, I think it's been many years since you've actually tried or proposed adjustments to that. You know, when was the last time you did request an IRM adjustment? And would you say that the adjustments you proposed puts you kind of on a more comparable, you know, level relative to your regional peers?

Yeah, good, good question. Yeah, it was in the late two thousands. I think the last time we filed to adjust the arm or we put in adjust the arm and the, when we're watching closely regional peers, there's been some change in, in power supply treatment in Oregon. And there's a filing in Washington that we're keeping a close eye on as well. And we think that if we're able to move forward with this change, it would position us at par with our peers.

Okay, great. Thank you very much.

Thank you.

Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. I'm showing no further questions in the queue. One moment. We do have a question from Alan Roach. Mr. Roach, your line is open.

Good morning. Appreciate the conference call. I'm curious as to the two wildfires that happened in the summer of 2023. Does that have a negative impact on your bottom line?

Yeah, I mean, with regard to the wildfire, I think you're referring to the fire north of the Spokane area, and then there was one west of town. With regard to both of those, our facilities were impacted by the fire on the West Plains and Medical Lake area. We lost some of our infrastructure out there. However, we were not involved in any way, shape, or form with the start of that fire. Then with the other fire that was north of the Spokane area, that happened and originated well away from all of our facilities. In fact, none of our infrastructure was damaged in that fire. really no impact at all to the bottom line. We had to spend a little bit of money fixing all the stuff that was lost out on the West Plains there, but that was definitely manageable.

Got you. That's good news. One other quick question. If the breachment of the Four Snake River dams happens to occur, How is that going to affect your bottom line?

Well, the forced Nick River dams are federal projects, and the power output from those facilities is managed by the Bonneville Power Administration, and we do not have any ownership stake or any off-take agreements for generation from those facilities, so it really won't impact us at all from a power supply perspective. However, regionally, you'd be taking 1,000 megawatts of supply out of the system. So until that's replaced in some manner, you could see an impact on commodity prices, on power prices in markets, but no direct impact to our company from removal of those facilities.

Okay. Thank you.

Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Stacey for closing remarks.

Thank you all for joining us today and for your interest in Avista. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.