Avista Corporation

good day and thank you for standing by welcome to the avista corporation q3 2025 earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 1 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star 1 1 again 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, Investor Relations Manager. Please go ahead.

Good morning. It's great to have you with us for Avista's third quarter 2025 earnings conference call. Our earnings and third quarter Form 10-Q were released pre-market this morning. You can find both documents on our website. Joining me today are VistaCorp President and CEO, Heather Rosentrader, 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 2024 and our Form 10-Q for the third quarter of 2025 for a full discussion of these risk factors. Both are available on our website. I'll begin with a recap of the financial results presented in today's press release. Consolidated earnings year to date in 2025 were $1.51 per diluted share compared to $1.44 year to date in 2024. For the third quarter of 2025, Our consolidated earnings were $0.36 per diluted share compared to $0.23 per diluted share for the third quarter of 2024. Now, I'll turn the call over to Heather. Thank you, Stacey.

I want to start by highlighting that our third quarter results underscore the strength of our core utility operations and our disciplined approach to cost management. Year-to-date results at Avista Utilities of $1.63 per diluted share reflect a nearly 15% increase over 2024's year-to-date results. This reflects the constructive regulatory outcomes and diligent capital deployment that continue to enhance our financial performance and advance our long-term strategy. As we pursue our strategic initiatives, including the projects shortlisted in our 2025 Request for Proposals, or RFP, we remain firmly committed to supporting reliable and affordable customer service, community investment, and shareholder value. Today, we are affirming our earnings guidance with Avista Utilities expected to be at the upper end of its guidance range and consolidated results expected at the lower end of the range due to valuation losses in our other businesses during the first half of the year. The 2025 wildfire season has ended, and I'm pleased with the significant progress we've made with our wildfire resiliency program. We concluded the season without needing to initiate a public safety power shutoff, fortunately, but we were well prepared to elevate our system into risk-responsive levels as conditions warranted. This success is the direct result of strategic grid and process improvements, continued collaboration with communities and first responders, and the dedication of our team. This summer, we completed pilot projects for both strategic undergrounding and installation of covered conductor. We'll be building on this work going forward with the lessons learned and forming our key decision-making about where and how to deploy these technologies as we advanced towards our grid-hardening goals. In addition, we began installation of weather stations throughout our service territory. These stations bring critical, real-time data to our operations teams and inform future system design decisions. Our goal was to have a weather station installed on every circuit by 2029. We also expanded our network of AI-enabled cameras giving our teams and first responders greater access to wildfire monitoring and early detection tools. By the end of 2026, we expect to have coverage of a majority of our high-risk areas through these technologically advanced cameras. All these tools continue to improve and expand the data that goes into our fire weather dashboard, which enables us to react faster to changing conditions and better understand and mitigate risk. This month, we will submit our wildfire mitigation plan to the Idaho Public Utilities Commission. We've been filing our wildfire mitigation plans with the commission for many years now. However, this will be the first wildfire mitigation plan filed after the Wildfire Standard of Care Act was passed by the Idaho legislature earlier this year. The new legislation establishes a standard of care for wildfire risk mitigation and utilities reasonably implementing their plans will now have protection against liability for wildfire in Idaho. And in Washington, we're working through the rulemaking process with other stakeholders following the Washington legislation also passed earlier this year around filing and approval of wildfire mitigation plans. We kicked off our 2025 All-Source RFP back in May. looking for up to 425 megawatts of new capacity and at least 5 megawatts of demand response. As I mentioned in last quarter's earnings call, we saw a positive response to the RFP receiving over 80 bids, with 69 supply-side bids totaling nearly 14 gigawatts of capacity and 17 demand response projects offering almost 300 megawatts. We've narrowed the responses down to a short list, And these bidders sent in more detailed proposals in October. There's one final chance for bidders to refresh their prices this month. From there, we'll make our final project selections and start negotiations before the year ends. The shortlist has diverse options with supply-side resources like wind, solar, storage, standalone and hybrid, and thermal, as well as demand response projects. There's a mix of ownership options too, including self-builds, build transfer agreements, and power purchase agreements, which gives us more financial flexibility. Some projects are in Montana and could leverage our existing transmission resources in the state as modeled in our integrated resource plan. A big focus is on taking advantage of federal tax credits before they expire. To fully qualify, selected projects need to begin construction by July 2026 and be online by 2029 to 2030. We are working with shortlist bidders to make sure everyone's on track to meet those deadlines and get the most out of any applicable tax credits. I continue to be optimistic about the opportunities ahead, particularly as we engage with potential large load customers. These conversations are increasingly central to our long-term planning and investment strategy. Our RFP is helping us evaluate new generation resources and system capacity and is playing a key role in informing our discussions with large industrial customers who are exploring expansion opportunities within our service territory. We're working closely with several of these potential customers to assess how incremental load can be integrated into our system in a way that supports reliability, affordability, and long-term value. Serving this level of demand will require not only new generation, but also regional grid expansion. System impact studies show we have capacity to accommodate a portion of these requests, with these near-term opportunities best suited to serve customers with scalable implementation capability. We are committed to being competitive in attracting these loads. and we view them as an important tool to support customer affordability and as a catalyst for innovation, infrastructure investment, and long-term value creation. We'll continue to update you on our progress and future calls. Now, I'll hand the call to Kevin for more discussion of our earnings.

Thank you, Heather. I'm pleased to report a beat to market expectations with our third quarter financial results. Our third quarter results reflect significant growth from the same period in 2024. The strength of our consistent operational execution, including constructive regulatory outcomes, customer load growth, and our continuing commitment to cost discipline drive our success. Alongside our other initiatives, regulatory outcomes are key to our progress, and in the third quarter, we implemented constructive, approved settlements of both our Oregon and Idaho general rate cases. We expect to file our next Washington general rate case in the first quarter of 2026. In Washington, we were required to file multi-year rate plans of at least two and up to four years. While many of the details of the case are still in development, we are evaluating whether we file a two-year, three-year, or four-year rate plan. With good regulatory alignment, we are confident that a longer rate plan can be beneficial for us and our customers. The law also provides us with the ability to file a new plan during a three or a four year rate plan, if necessary. We continually invest in our utility infrastructure to support customer growth and maintain our system so that we can safely and reliably serve our customers. Capital expenditures at Avista Utilities were 363 million in the first three quarters of 2025. We expect capital expenditures of 525 million in 2025. From 2025 through 2030, we expect capital expenditures of $3.7 billion, resulting in an annual growth rate of 6%. In addition to this base capital, our current estimate of the potential capital opportunity for both our RFP and the addition of a potential large load customer is up to 500 million from 2026 through 2029. If these opportunities materialize, we expect the potential capital to be weighted approximately 75-25 between a potential new large load customer and self-build opportunities. We also expect that this potential investment would be spread somewhat evenly throughout the four-year period. These estimates do not include any incremental capital requirements that could result from incremental transmission projects like regional grid expansions. In July, we issued 120 million of long-term debt and we do not expect further debt issuances this year. We expect to issue up to 80 million of common stock in 2025. That includes 45 million, which was issued during the first three quarters of the year. In 2026, we expect to issue approximately 120 million of long-term debt and up to 80 million of common stock. We are confirming our consolidated earnings guidance with a range of $2.52 to $2.72 per diluted share for 2025. As a result of the $0.16 of losses associated with our investment portfolio year to date, we expect to be at the low end of the consolidated range. We expect Avista Utilities to contribute toward the upper end of the range of $2.43 to $2.61 per diluted share. Our guidance for Avista Utilities includes an expected negative impact from the energy recovery mechanism of $0.14 in the 90% customer, 10% company sharing band. we have incurred 12 cents under the IRM year to date. Due to the staggered timing of rate cases throughout our multiple jurisdictions, going forward, our expected return on equity at Avista Utilities is 8.8%. AEL&P continues to perform well, and we expect it to contribute 9 to 11 cents per diluted share. Over the long term, we expect that our earnings will grow 4 to 6% from the midpoint of our 2025 guidance, I'd like to finish by saying that at Avista, we have positive momentum, our core business is performing per our expectations, and we have much to be optimistic about as we look to execute upon our business plans. Now, we'll be happy to take your questions.

Thank you. At this time, we will conduct the questions and finish. As a reminder, to ask a question, you can reach us at R11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please wait while we compile the Q&A roster. Our first question comes from the line of Char Pereza with Wells Fargo. Your line is now open.

Hey, good morning, everyone. It's actually Alex on for Char. Thanks for taking our questions. Hi there, Alex. Good morning. Hey, good morning. Good morning. Good morning. So just on the 80 million equity needs you have out there for 26, you know, you have a lot of incremental CapEx opportunities you've highlighted. So just want to get a sense on additional funding sources. Would you look at other avenues and, you know, maybe what about a divestiture of your other business to fund the growth at the utilities? That's something you'd consider. Thanks.

Yeah, thanks for the question, Alex. Yeah, we're indicating an expectation of up to 80 million for 2026. as we mentioned, and if we are fortunate enough to have additional spending opportunity or capital investment opportunity for the RFP large customer or both, then that might change the equity needs, but not significantly so, and I would continue to expect that we would use our periodic offering program as the vehicle. It's not a significant enough increase in equity needs that we would need to do something more dramatic by making a sale of some business or something like that.

Okay, got it. And just sort of just the messaging just around, it looks like the rate-based outlook from five to six, you're now expecting that 6% at the utility. Can you just remind us if that includes the incremental CapEx opportunities you've highlighted or that push you past that 6%? And can you just walk us through what that means to your four to six earnings range over the long term? Thanks.

As we continue to have opportunity to add to our capital plan, and if it comes in the form of the items we highlighted and or additional transmission, that would help take us toward the top end of our growth range that we stayed at 4% to 6%. I don't believe it would take us above that, but let's see what happens with large loads. And as Heather indicated, there's a lot of great conversation going on with potential developers.

Great. That's super helpful. I'll leave it there. Thank you. Thanks, Alex.

Thanks. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Our next question comes from the line of Julian Dumoulin-Smith with Jefferies. Your line is now open.

Yeah. Hi. Good morning. It's Brian for Julian. Hi, Brian.

Good morning.

Hey, just on, on the, um, the upcoming, uh, Washington NYRP filing, um, you know, you mentioned you're evaluating the two or three or four year plan, just, you know, curious, how do you manage around, you know, um, external risks of, of inflation and interest rates and even, uh, power costs while, while under, uh, more than, uh, you know, the two year plan that, um, that you're currently in. Would you need to seek IRM modifications to kind of insulate yourself from power costs?

Well, there's a few aspects here that I want to get into with you, Brian. First, after a two-year period, so let's say, hypothetically speaking, that we file a four-year and we move our way through the first couple of years or even just the first year and we find that we're off track either because of inflation or we've had additional investment opportunities that aren't reflected in the case, then we have the opportunity to refile. So that case then becomes a two-year and you, in essence, start over. So we've got a wonderful set of optionality to move forward if we need to. by, in essence, cutting that case back from three or four years to a two-year case. In addition, as we think about how we would proceed, and again, these pieces are all coming together, so it's all preliminary, we would expect to have power supply resets in each subsequent year. At least that would be our objective as we go into the case. So when you ask about the IRM, that's how we would address that. Now, I'll just proactively answer a question about the IRM. We have talked about how the outcome from the last case wasn't quite what we had hoped it would be in Washington. And we've gone through that workshop process that we felt we were obligated to do, had great conversations with the parties that get involved in these workshops. And our approach going into this next case is to likely not try to modify the IRM itself And that's because of the order that we heard from, in our last case in the commission, the words that they used. And Puget is still out working on a proceeding that comes, well, I think towards the middle of next year, we'll have a better idea of whether or not Puget had success modifying the ERM-like mechanism. So we're going to set the ERM aside for now, and then we're going to look to see if Puget has success. And if they do, then we'll we'll try to move forward with something similar. And what we're going to focus on is resetting power supply costs at a more appropriate level. And we think we have a path to setting power supply at that more appropriate level. And if we're able to do that, then the impact of the IRM is somewhat muted.

OK, great. I think, are we still assuming a power cost drag in 2026 per your most recent disclosures?

Yeah, I think our disclosures have covered that pretty well. I'll reinforce that without a change to the IRM, and given how our supply was set in the last case, that we would expect a

a drag from the erm now hopefully because of weather and other factors it won't be as severe as it is in 2025 but it's too soon to be able to predict that okay great and just can you remind us again on the other businesses how the mark to market works i think there's a quarter lag right so this september quarter actually reflected june mark to market values It's possible, hypothetically, in your year-end update, that could capture September market clean energy investment values, which arguably were well off their lows following the old BBB and executive order, etc.,

Yeah, you're following it pretty well, Brian. And yeah, there is a quarter lag for some of our investments, a fairly significant amount of the investments. And so this quarter reflects second quarter for those investments. And we'll see how it turns out for the rest of the year. We're, as we've mentioned before, not able to call the bottom, but we're encouraged that we saw the impacts in the first half of the year. And then this quarter, it flattened out to some extent. And the dust seems to be settling around some of the clean energy narrative that had been out there. So we're optimistic. But again, it's hard for us to be able to call whether or not that will completely turn around by the time we are talking to you next quarter.

Okay, great. And then just lastly, on the increment, potential incremental capex, how should we think about kind of the mix of debt and equity financing? Is it 50-50 or something different than that?

Well, our base capital plan that we've described and the amount of debt versus equity for base capital for this year and as now we're describing for next year is 120 million debt, 80 million equity. And then if we have incremental spending opportunities after that, There's, of course, a lot of complexities that we would have to work our way through, but generally speaking, I'd expect an incremental capital to be in roughly 50-50. Okay, got it.

Well, thank you very much. Thank you, Brian.

Thanks, Brian. Thank you. I am showing no further questions at this time. I would now like to turn it back to Stacey Walters for closing remarks. Thank you all for joining us today and for your interest in Avista. Have a great day. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.