Avista Corporation (AVA)

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Avista Corporation (AVA)

Q1 2010 Earnings Call Transcript

May 6, 2010 10:30 am ET

Executives

Jason Lang – Manager, IR

Scott Morris – Chairman, President and CEO

Mark Thies – SVP and CFO

Dennis Vermillion – SVP and President, Avista Utilities

Christy Burmeister-Smith – VP, Controller and Principal Accounting Officer

Kelly Norwood – VP and VP, State and Federal Regulations, Avista Utilities

Analysts

Brian Russo – Ladenburg Thalmann

Paul Ridzon – KeyBanc

James Bellessa – D.A. Davidson & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Avista Corporation earnings conference call. My name is Stacey and I will your conference moderator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator instructions) As a reminder this conference is being recorded for replay purpose.

I would now like to turn the presentation over to you host for today’s call, Mr. Jason Lang, Investor Relations Manager. Please proceed.

Jason Lang

Thank you, Stacey. Good morning everyone. Welcome to Avista’s first quarter 2010 earnings conference call. Our earnings were released pre-market this morning and the release is available on our website at avistacorp.com.

Joining me this morning are Avista Corp. Chairman of the Board, President and CEO, Scott Morris; Senior Vice President and CFO, Mark Thies; Senior Vice President and the President of Avista Utilities, Dennis Vermillion; Vice President of Finance, Jason Thackston; Vice President, State and Federal Regulations, Kelly Norwood; and the Vice President and Controller and Principal Accounting Officer, Christy Burmeister-Smith.

Some of the statements that will be made today are forward-looking statements that involve risks and uncertainties, which are subject to change. For a reference to the various factors, which could cause actual results to differ materially from those discussed in today’s call, please refer to our Form 10-K for 2009 which is available on our website.

To begin this presentation I’d like to recap the financial results presented in today’s press release. For the first quarter of 2010, our consolidated earnings was $0.52 per diluted share compared to $0.57 per diluted share for the first quarter of 2009.

Now I’ll turn the discussion over to Scott Morris.

Scott Morris

Thanks, Jason, and good morning everyone. We had a challenging first quarter because our region experienced one of the warmest January to March periods on record combined with low precipitation and snowpack. This weather pattern reduced our retails loads, hydroelectric generation, and net income largely due to warmer than normal weather, residential electric use per customer was down 11% and residential natural gas use per customer was down 21% as compared to the first quarter of 2009. Commercial use per customer decreased 8% for electric and 23% for natural gas.

Even with normal precipitation for the remainder of the year, current conditions lead us to expect below normal hydrogenation for 2010. However, we are expecting a benefit under the Washington Energy Recovery Mechanism for 2010 due to lower wholesale electric and natural gas fuel prices and the amount included in base retail rates. And while we can't control the weather, we will continue to aggressively manage our business and we are still confident about our future. We continue to execute on our regulatory strategy to recover cost and capital investments in or generation, transmission, and distribution infrastructure. We’ve reset general rates in each of our jurisdictions since last August, and in March we filed new general rate cases in Washington and Idaho.

The Washington filing is designed to increase annual base electric revenues by $55.3 million and increase annual base natural gas revenues by $8.5 million. The Idaho filing is designed to increase annual electric revenues by $32.1 million and increase annual natural gas revenues by $2.6 million. We requested a return on equity of 10.9% in both states. We are planning to file a natural gas general rate case in Oregon by the end of the third quarter.

As I’ve done in previous quarterly reports, I’d like to provide a brief update on the economy in our service territory. The construction and forest products, and mining and manufacturing sectors are providing modest job growth and job improvement, but this has been offset by employment declines in retail, trading, and government. Unemployment rates in March were 10.5% in Spokane, 10% in Coeur d'Alene, Idaho, and 13.6% in Medford, Oregon, compared to the national average of 10.2%.

Housing starts in Spokane, Coeur d'Alene, and Medford are showing year-over-year increases in permits. Highway and bridge construction activities continue to grow as stimulus money continues to fund project. Commercial construction markets remain weak due to rising vacancy rates in retail and office facilities.

We are committed to continuing our investments in generation, transmission, and distribution systems with a focus on increasing capacity and maintaining or improving reliability. Utility capital expenditures were $43 million for the first quarter. And we expect capital expenditures to be $210 million for 2010, excluding the costs for our projects associated with stimulus funding.

As I mentioned in the previous call, we were selected to negotiate two awards for smart grid projects under the federal stimulus program. With these funds, we plan to install updated equipment and continue to use technology to create system efficiencies and enhance service to our customers. And although the weather hurt our first quarter results, we are confirming our 2010 earnings guidance with an expectation that we will be at the low end of the range. We continue to be well positioned for the future. And as evidence of that the Board – and of the confidence we have in our company, the Board increased our quarterly dividend by $0.25 in February.

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