Avista Corporation (AVA)

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Avista Corp. (AVA)

Q3 2010 Earnings Call

October 28, 2010 10:30 am ET

Executives

Jason Lang - IR Manager

Scott Morris - Chairman, President & CEO

Mark Thies - SVP & CFO

Dennis Vermillion - SVP & President, Avista Utilities

Kelly Norwood - VP State and Federal Regulation, Avista Utilities

Analysts

Jim Bellessa - D.A. Davidson & Company

Jennifer Sireklove - McAdams Wright Ragen

Mike Hann - Bryn Mawr Capital

Paul Ridzon - KeyBanc

Eric Beaumont - Copia Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q3 2010 Avista Corporation earnings conference call. My name is Keith and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today Mr. Jason Lang, Investor Relations Manager. Please proceed sir.

Jason Lang

Thanks, Keith. Good morning everyone. Welcome to Avista’s third 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, 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 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 and Form 10-Q for the second quarter of 2010 which are available on our website.

To begin this presentation I’d like to recap the financial results presented in today’s press release. For the third quarter of 2010, our consolidated earnings were $0.22 per diluted share compared to $0.15 per diluted share for the third quarter of 2009.

On a year-to-date basis our consolidated earnings were $1.20 per diluted share for 2010 compared to $1.18 for 2009.

Now, I will turn the discussion to Scott Morris.

Scott Morris

Well thank you, Jason and good morning everyone. We had a strong third quarter and our outlook continues to improve for the full year of 2010 particularly with respect to our utility earnings. We are forecasting a lower power supply cost than the amount included in base rates and we have continued to manage our operating expenses.

The improvement in the second and third quarters has partially offset a very challenging first quarter due to one of the warmest Januarys to March periods on record.

As such, we are confirming our 2010 earnings guidance and this is an improvement from our report at the end of the second quarter when we expect it to be in the lower half of the range. We continue to execute on our regulatory strategy to increase recovery of operating cost and capital investments in our utility business.

In September, we found a natural gas general rate case in Oregon effective on October 1, new electric and natural gas rates went into effect in Idaho with approval of our general rate case settlement by the Idaho Commission. And in August we reached a settlement in the Washington general rate case. The settlement is designed to increase base electric revenues by $29.5 million and base natural gas revenues by $4.6 million.

The settlement is based on overall rate of return of 7.9% with a common equity ratio of 46.5% and a 10.2% return on equity. If approved by the Washington commission new rates would become effective December 1. And we believe that both settlements provide a fair and reasonable outcome for customers and shareholders.

Our economy continues to be challenged. Employment levels throughout our service area remained well below trend after significant and persistent cut backs in the construction and forest product sectors. The mining and manufacturing sectors are above the recession lows but they remain well below pre-recession levels.

The job market Spokane and Coeur d’Alene slowed later in the cycles and in the United States as a whole, well network has been more inline with the nation. Unemployment rates continue to remain high; the latest data for September indicates an 8.2% unemployment in Spokane and 9.3% in Coeur d’Alene and 11.4% in Medford compared to the national average of 9.6%.

The housing markets in Coeur d’Alene and Medford have above national average for closure rates and the majority of our housing market is in the Spokane County and therefore closure rates are well below the national average.

We have revised downward our economic outlook for 2011 and as such we expect lower load growth in our residential and commercial sectors. This has reflected in our 2011 guidance. We expect employment in Medford’s Spokane and Coeur d’Alene to be stable for the next 12 to 18 months with a modest recovery to trend beginning in 2011.

This is a later economic recovery that we previously expected. We are committed to continuing our investment in our utility infrastructure with a focus on increasing capacity and maintaining or improving reliability.

Utility CapEx was a $138 million for the first nine months of the year, and we expect capital expenditures to be about $210 million for 2010 excluding cost for our projects associated with stimulus funding. We continue to be very pleased with the results Advantage IQ. The earnings contribution from this business has grown by over 50% in 2010 as compared to 2009. Advantage IQ is continuing to execute on its strategy to extend the business from a focus on expense management to delivery of energy management services to both the utility and commercial and industrial marketplace.

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