Welcome to the Q3 2013 Earnings Conference Call. My name is John and I will be your operator for today’s call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Jason Lang. Mr. Lang, you may begin.

Thank you, John and good morning everyone. Welcome to Avista’s third quarter 2013 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; Vice President, State and Federal Regulation, Kelly Norwood; and the Vice President, Controller and Principal Accounting Officer, Christy Burmeister-Smith. 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 Form 10-K for 2012 and our Form 10-Q for the second quarter of 2013, both which are 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 were $0.19 per diluted share for the third quarter of 2013, compared to $0.10 for the third quarter of 2012. On a year-to-date basis, our consolidated earnings were $1.32 per diluted share for 2013 compared to $1.06 for 2012. Now, I’ll turn the discussion over to Scott.

Well, thank you Jason and good morning everyone. Our third quarter results were above our expectations and we continue to experience a good year at both the Utility and at Ecova. We are excited about the recent announcement to acquire Alaska Energy and Resources Company, a privately held company based in Juneau, Alaska. We are looking forward to working with our highly skilled and dedicated employees and our management team to being – and being part of Juneau community. The planned acquisition has a purchase price of $170 million less the assumption of net debt. We expect this transaction to close by July 1, 2014 following the receipt of the necessary regulatory approvals and the satisfaction of other closing conditions. This agreement reflects Avista’s strategy to expand and diversify energy assets and to deliver long-term value to the customers and communities, investors that we serve. The primary subsidiary of AERC is Alaska Electric Light and Power Company. In 2012, AEL&P had a total rate base of $111 million providing electric service to approximately 60,000 customers in Juneau. This company is just a great strategic fit for our company. We are excited to move into the State of Alaska and what a better place to do it than the state capital. It’s a hydro-based utility. And as you know that, it’s just our sweet spot. It’s got some great growth potential. We feel fortunate with both the opportunity to grow just residential, but also they have some good mining load that we are excited to investigate. And I am very proud of the team, we kept our discipline and we acquired the property at a fair price. So, overall, a really good deal for the team. Turning to our third quarter results, our earning – our utility earnings increased due to…

Thank you, Scott. Good morning everyone. For the third quarter of 2013 our utility contributed $0.16 per diluted share compared to $0.13 last year. On a year-to-date basis utility earnings contributed $1.27 per diluted share, an increase from $1.10 last year. The increase in quarterly and year-to-date utility earnings was primarily due to the general rate increases and warmer weather during the second and third quarters. This increase was partially offset by higher operating expenses depreciation and amortization and taxes other than income taxes. In addition, the year-to-date results included the net benefit from the settlement with Bonneville Power Administration. In the first nine months of 2013, we have recognized a pretax expense of $0.5 million under the Energy Recovery Mechanism in Washington compared to a benefit of $5.9 million in the first nine months of 2012. The Colstrip outage and higher natural gas fuel prices are expected to move the earned to the ERM to a negative position within the 50% customer and 50% company sharing bands for 2013. We also expect a reduction we have seen in our operating expenses compared to our forecast to partially reverse in the fourth quarter due to timing of certain expenditures. Moving on to Ecova, as Scott said their earnings for the first nine months increased significantly from 2012 contributing $0.09 per diluted share as compared to $0.02 last year. Ecova’s year-to-date revenues increased $17.7 million as compared to 2012 and totaled $133 million. Results for the year-to-date included the recognition of a $2.3 million rebate during the third quarter associated with achieving certain milestones on a five-year contract related to expense and data management services. Ecova’s total operating expenses increased $8.4 million for the first nine months and totaled and $122 million. The increase reflects an increase in operate – other…

Thanks Mark. John, we would now like to open the call up for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Michael Weinstein from UBS. Please go ahead.

Hi, how are you doing?

Good morning Mike.

Hi Mike.

Just wondering on the acquisition, so you are not going to include this Snettisham obligation that’s $74 million, is that correct?

Sounds right, it’s in that range. I don’t know the exact, yes.

Right, so it sounds like the amount of debt actually being assumed is only about $32 million, coming in at that.

What we said was the purchase price of $170 million less net debt, and we expect to issue $145 million of equity. So that's the difference between debt and cash that our expectation is at the time we expect to close by July 1.

Right, but the equity is about $70 million of that is for the acquisition right, $75 would have been issued anyway.

Well, that’s right, but the transaction is 100% equity, 100% well there’s some small amount primarily equity. There is a small amount that's not, but otherwise it's all stock so it will be a stock issuance.

Right.

And then, we already needed that other amount. It slightly accelerates our $75 million because we are looking at doing that over the second half of the year. So assuming we close the transaction that will slightly accelerate our equity issuance, but not by much.

Got it. And the dilution in 2014 does that include one-time fees, things like that?

Yes, part of it - that’s primarily the reason we have it in little bit of the equity, the equity acceleration is the primary reason we have slight dilution.

Okay, from the accelerated equity, I get it, okay. Alright, and hopefully I won’t take too much time here, a lot of people, but also any future equities beyond that, you mentioned that there is going to be more capital spending?

Yes, we have expected just with the nature of additional capital projects that we find at our utility and they are really good projects we believe that that make sense so we will give out 14 guidance, we don't know give in the future, but as we continue to expand that we would look to have maintain that prudent capital structure that we always do. So that would include some additional equity.

Right. What’s your ROE in Washington and Idaho and how are you earning right now?

Well our allowed ROE is 9.8%.

Right.

On structural lag – structural lag of 70 to 90 basis points, those are just costs, whether they’re marketing or different costs that aren’t allowed by law or by practices that’s what we have. And then our range and our guidance is expected to be from the bottom end about 8.4% ROE and on the top end 9.1% ROE. So we really don't have a significant amount of lag. We will have a little bit of lag in 2014 with because again we have a stay out in Washington and Idaho and we're not – we can’t have rates increased until 1/1/15, but we still expect to spend the additional $75 million in capital projects because we believe it's the right thing to do to spend that capital to maintain our system.

Do you guys have any unfavorable foreign exchange at all coming in (indiscernible)?

We have very little foreign exchange. We have little – we buy some gas in Canada, but we generally try to hedge that foreign exchange risk all the time, so we really don't have significant foreign exchange risk.

One last question, are you guys thinking at all about Ecova spin or sale on the back of this deal, some kind of swap of earnings?

Well, Michael just say this, first of all we’re really excited about where Ecova is right now and we knew that in 2013 we needed to show that the business get itself back on track and as a reminder for 2004 through 2011 this company performed extremely well with great growth and consistently hit its numbers. We really felt 2012 was a blip and the team is proving that. And we also see that we are very fortunate that we’re on track with 2014. We’re excited about that. So as we've already said we’re going to continue to operate this business extremely well, but we understand for the long-term that we think that it might be in our best interest to think about some other strategic opportunities, so really nothing to report there, but the strategy hasn’t changed.

Okay, thank you very much.

Our next question comes from Paul Ridzon from KeyBanc. Please go ahead.

Good morning.

Hi Paul.

Hi Paul. Paul Ridzon – KeyBanc: Can you tell what happened to the ERM in the third quarter of 2013?

So the third quarter and the fourth quarter is expected to go down, part of the third quarter was again we announced our second quarter earnings. Colstrip went down July 1 and that was $6 million-$7 million, it was about $12 million of impact, $4 million went to Idaho, which went through the PCA, the difference through Washington and at a position we were in the ERM we were slightly in the 75-25 band. We took about 100% of that through the interim. So that was the big driver from the third quarter’s perspective. In the fourth quarter its primarily natural gas prices and the shift in natural gas prices somewhat – a little bit associated with Colstrip as its hitting, but it's really the change in gas prices and some slight change to hydro. So that’s why we are going from we are at $0.5 million right now in the negative and we expect to be in the –m into the 50-50 sharing band which that band is $4 million. And then it goes the next 6 up to 10. But that – we expect to be in the 50-50 sharing band, so we know we have lost almost $4 million. Paul Ridzon – KeyBanc: And where were at the end of 2Q?

$4.1 million in the present position. Paul Ridzon – KeyBanc: Positive?

Yes, in the benefit position. And so really the majority of all that is the impact Colstrip, the differential is some slight impacts to hydro and natural gas prices, primarily natural gas prices. Paul Ridzon – KeyBanc: And what’s your outlook for the Colstrip return?

We expect that that continues to be expected to February 1 that hasn’t changed.

And no change there Paul everything is on track. Paul Ridzon – KeyBanc: And I am a little bit wrapped around the axle around what happened to the equity – the planned equity issuance, so how much equity will the existing owners of the Alaskan assets receive?

The expectation at this point $104 million - approximately $145 million, it’s 100% equity acquisition, last net debt. And so our estimate at this time is approximately $145 million will be the purchase price at closing and we are assuming will close by July 1. Paul Ridzon – KeyBanc: So given – excluding this acquisition you are going to do $75 million and you have since raised your CapEx forecast how do those dovetail?

The CapEx forecast included in the $75 million, we have our CapEx forecast. We also in the release we had – we have about well I don’t know if we put it and we have about $50 million that we are going to get a tax cash this year. So on certain tangible property, repairs allowance from federal regulations, we expect to file that this year and get the cash. Well, that help fund our next year I am sorry ’14 to help fund our CapEx. That's why we didn’t need as much additional equity. Paul Ridzon – KeyBanc: And what has AELP earned historically on an ROE basis?

If you go – you can go back in their Form-1s and calculate that 2012 was a little bit different because they had a sale of power and telephone company and that was a non-operating income that moved their earnings up to $9.1 million other way. And then in 2011 they made $5.7 million on a net income basis. And in ’12 there was that unusual transaction, that’s just from their Form-1. Paul Ridzon – KeyBanc: And are you anticipating any operational synergies here?

No they really operate as a separate. I mean they are electrically an island. They are not interconnected to anybody and they have done a terrific job of managing their business. So they have as Scott mentioned strong hydro that covers their load. They are about an 80 megawatt load and they have you strong hydro. But they also have almost 100% effectively diesel backup and that’s because they are not connected to any – interconnected to anybody. So to serve their customers they need to maintain that and they have done that terrifically.

That’s one of the things Paul. What we really liked about the business was they were extremely efficient. Their management team is really good. When you go up and look at the just the operations the way they have maintained and operated their system, their construction standards, the way they have maintained their hydro all top-notch. So and they have done it with – in a way with a very eye on keeping their cost down. So a good business and really we plan on continuing to have them operate as they are. Paul Ridzon – KeyBanc: And is there a CapEx opportunity within the hydro – could you upgrade any of the hydro?

Yes there is opportunities that some of what we need to consider. There are a couple of opportunities to do some upgrades to some hydro facilities that we will consider in the future as well as continuing to serve some large mining load up there that I know that is currently on diesel. So we will look at those opportunities once it closes and see if there is some way we can grow the business. Paul Ridzon – KeyBanc: And then lastly can you put any bookends on how accretive you think it could be in ’15?

No, I mean, it’s not going to be a significant addition. If that’s what you are looking at, probably by less than $0.05 if that’s a bookend for you, I guess it is. Paul Ridzon – KeyBanc: That’s one kind of a bookend.

Well, the other side is accretive. So I gave you both sides. Paul Ridzon – KeyBanc: Okay, thank you very much.

(Operator Instructions) Our next question comes from Brian Russo from Ladenburg Thalmann. Please go ahead.

Hi, good morning.

Hi, Brian.

Good morning Brian.

I apologize, but I am a still little confused on the financing of AERC, can you run through that again?

Sure. So we expect again with the $170 million of the acquisition just to step back from it, we would expect normally to issue approximately $100 million associated with just our operations in debt – on the debt side. So with this recapitalization, we expect $90 million, an additional $90 million. So there is $90 million. On the equity side again, its $75 million is what our expectations were versus $145 million in the transaction, so that would attribute $70 million. The difference is about $10 million in cash.

Okay, so how much are you actually issuing? How much is the equity portion of this overall $170 million?

$145 million.

Enterprise value, that’s $145 million, okay. Okay. And then you are going to issue, I think you said $50 million to recapitalize?

No, no, we are going to issue $145 million of equity upon the close of the transaction, then only we will rebalance the capitalization, because that’s 100% equity. We are going to – we expect and again this may or may not go in our assumptions we expect to refinance their existing debt.

Okay.

And that would include – that would be up to $90 million, including their existing debt.

Okay, got it. Alright, thank you. And is there a lock-up period with these private – soon to be private holders of your stock?

No.

No lock-up.

No.

Okay. And are there roll-up opportunities with other small privately held Alaska-based utilities that this can be kind of seen as a strategy for you and a platform for growth in Alaska?

Well, just Brian let me just say this. What we want to do is we want to go into Alaska and be great corporate citizens. We want to do the right thing in the capital and really show the state that we are one of the best operating utilities in the country and we think if we just do what we always do, which is stay focused on providing great service, treating our communities well, our employees well and making sure we give good returns for shareholders that, that hopefully other communities will see that and we hope that, that will help drive other opportunities to the future, but we are just going to keep our eye on the ball and just do our normal great job in Juneau that we expect that we always do when we operate a utility.

And it looks like the growth in your O&M expenses is decelerating in 2014, can you comment on kind of the drivers there?

Well, the biggest – the biggest driver is really as we have seen is our costs have gone up and accelerated in the past. It was because of a declining discount rate and declining interest rates that cause our pension expenses to go up, that interest rates have increased. And the expectation is that, that discount rate will increase and that actually lowers our pension cost, so one of the bigger drivers is a lower pension and postretirement costs. And again, we continue to manage our cost. We are focused on that. We did the program at the end of last year to reduce some costs and reduce some headcount. That impact continues to roll through our business. We continue to manage effectively. And we are always looking at trying to manage our costs in an efficient manner. So those are the primary drivers.

Okay, thank you very much.

Thanks Brian. I am sorry, fine.

We have no further questions at this time.

Alright, I would like to thank everyone for joining us today. We certainly appreciate your interest in our company and we look forward to seeing most of you at the upcoming EEI conference. Have a great day.

Thank you, ladies and gentlemen. This concludes today’s conference.