Welcome to the Q3 2015 Earnings Conference Call. My name is Cynthia, and I will be your operator for today's call. At this time, all participants are in a 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 Jason Lang. Mr. Lang, you may begin.

Thanks, Cynthia and good morning, everyone. Welcome to Avista's third quarter 2015 earnings conference call. Our earnings and our third quarter Form 10-Q were released pre-market this morning and are 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, State and Federal Regulation, Kelly Norwood; and the Vice President, Controller and Principal Accounting Officer, Ryan Krasselt. 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 2014 and our Form 10-Q for the third quarter of 2015, 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 from continuing operations for the third of 2015 were $0.21 per diluted share compared to $0.16 for the third quarter of 2014. On a year-to-date basis, earnings from continuing operations were $1.34 per diluted share for 2015 compared to $1.45 last year. In addition for the year-to-date 2014, we had earnings of $1.14 from discontinued operations related to the sale of our former business Ecova that was effective June 30, 2014. Now I'll turn the discussion over to Scott.

Well, thank you Jason and good morning everyone. I'd like to start by welcoming our new Vice President and Controller, Ryan Krasselt. He's been with the company in various leadership roles for about 14 years, most recently as the Director of Risk Management and Assistant Treasurer. He is a great addition to a leadership team and we are very excited to have him in this new role. Turning to financial results, we had a solid third quarter with earnings that were slightly above our expectations. During the quarter, we experienced higher electric loads as a result of warmer than normal weather. However, the revenue from higher loads was mostly offset by electric decoupling in Washington and a provision for earnings sharing in Washington and Idaho. Alaska Electric Light and Power Company had a nice third quarter with results that met our expectations. We're pleased with how they are performing thus far. With respect to regulatory matters in October, we reached a settlement agreement with all parties in our Idaho electric and natural gas general rate cases that, if approved, will result in new rates beginning January 1, 2016. The Idaho agreement includes electric and natural gas decoupling mechanisms, which are similar to the mechanisms in Washington. I'm pleased with the settlement package in Idaho, which gives us the opportunity to continue to provide the safe, reliable energy our customers expect, while earning a fair return for our shareholders. We are continuing to work through the general rate case processes in Washington and Oregon. Turning to strategic developments, I would like to provide you with an update on the LDC opportunity in Juneau. We've made considerable progress and we're very excited about the possibility of bringing natural gas to Juneau and helping our customers lower their heating bills. We estimate that…

Thank you, Scott. Good morning everyone. For the third quarter of 2015, Avista Utilities contributed earnings of $0.20 per diluted share, which is an increase of $0.04 over the prior year. Quarterly earnings increased primarily due to an increase in gross margins as Scott mentioned from favourable weather that was partially offset by expected increases in our operating costs, depreciation and amortization and taxes. On a year-to-date basis, Avista Utilities contributed $1.30 per diluted share, which is a decrease from $1.38 last year. The year-to-date earnings decreased primarily due to significantly warmer weather in the first quarter of last year, which reduced our heating loads of this year. The decrease in heating loads was partially offset by the decoupling mechanism in Washington and favourable weather in the second and third quarters. We also had expected increases in our operating expenses, depreciation and amortization in taxes. We continue to be committed to updating and maintaining our utility systems. We respect Avista Utilities' capital expenditures to be about $375 million in 2015 and 2016 and about $400 million in 2017. This represents a slight increase for 2016 and 2017. AEL&P we expect capital expenditures approximately $14 million in 2015, $17 million in 2016 and $13 million in 2017, a significant portion of these expenditures represent the construction of an additional backup generation plant, which we expect to go into service at the end of 2016. At this point, I'll move on to liquidity and financing plans. As of September 30th there were $130 million of cash borrowings and $44 million of letters to credit outstanding, leaving about $226 million in available liquidity. There were no borrowings or letters of credit outstanding at AEL&P at the end of September. In December, we are going to issue $100 million of 30-year Avista Corp. first…

Thanks Mark. Cynthia, we'd like to open the call up for questions now please.

[Operator Instructions] And our first question comes from Mike Weinstein with UBS. You may begin.

Could you comment a little bit about the prospects for a settlement in Washington because of the hearings we're in early October, you still have a deadline of January 11, I think right, for the rate case there?

Yes, Michael, this is Kelly. The brief in that case are due today actually, so those will be filed. So in terms of the opportunity for settlement we're really beyond that and as you've followed our company in the past, when there is an opportunity for us to settle, we always work toward that, if we can get an outcome that works for us. In this particular case, we weren't able to get to an outcome that we were satisfied with through settlement discussions. And if you know in the last several years, the Washington commission has deviated from their use of a traditional historical test period with limited pro forma adjustments. They've taken a different approach to ratemaking, which has worked pretty well for us through using an attrition approach, which better reflects future investment, future costs and rates. And in this case, we have filed that approach, commission staff has supported that approach, but yet the parties have opposed that. So that's part of why we didn't reach a settlement in this agreement or settlement in this case. And that's why we think through litigation, we think there is a reasonable opportunity for an outcome that really works for us. So we chosen to litigate this case.

Right. So basically you intend to establish a new precedent through the litigation process for this new?

It can. So we've asked the commission to continue to follow the approach that they've supported in the last two or three cases. And actually one in which into just [ph] last case they took a different approach and used some escalators which better reflected future costs and rates. So we're cautiously optimistic that they'll continue to use that in this case.

Do you have attrition in other states, or is this going to be the first one, if approved?

We continue to use the historical test period that they tend to reflect more future adjustments and so it works pretty well in Idaho. In Oregon they actually use a future test period, so there's three different methods that are being used in each state.

I guess, once if, decoupling is approved in Oregon you'll have decoupling now in all your jurisdiction. Is that correct?

We would. Yes.

Okay. Great. And I missed the very, very beginning of the call and I heard you talk about a project, is that the Juneau project that you were mentioning?

Yeah, we talked about Juneau and feeling pretty optimistic about where we sit. We still have some work to do, but our hope is is that with some continued hard work that we can maybe start the project by first half of 2016.

What's the size in dollar amount?

$130 million over a 10 year period.

And just one brief last question, in terms of rate base regulatory lag going forward, it sounds like you're making a lot of interesting progress on decoupling and future attrition in test years. Is there any way to quantify how much regulatory lag might be mitigated by of all this?

Again, we continue, as Kelly said, we continue to work through those processes. We've made good progress in the past to shrink that lag. We still have some costs that are not allowed by the commission's just either due to law or practice and that again represents about 70 to 90 basis points. That will continue, those costs continue and a lot of those are as in the past marketing certain Board of Directors costs, certain incentives for officers that just aren't allowed historical and lobbying costs, are not allowed, so that's very consistent. But the other, the timing lag of the cost and the capital deployed is really where we believe we're making good progress, working with our commissions and their staffs to explain what we're doing and with the attrition in other methods. We believe that we're really limiting that.

Right. Understood. Okay. Thank you very much.

Thanks Mike.

And our next question comes from Paul Ridzon with KeyBanc. You may begin.

Mark, can you kind of quantify how much of the weather benefit was not offset by Washington decoupling?

Well, so the weather benefit, I mean, we had a negative, for the year we've had a negative $0.08 and that's --

Third quarter specifically, sorry.

Third quarter most of the third quarter was really offset by two things, was the decoupling, but then also the provision for earnings sharing that we provided in most states. And when we earned greater than our allowed return we share that 50-50 with our customers. And so we had booked a provision for both Idaho and Washington for that. So that really offset the weather benefit of the third quarter and we also had a slight positive from Texas. So we are incrementally better than we thought in the third quarter, but not by a significant amount.

I think previously you said the things to think about were $0.08 weather against the midpoint as $0.06 of ERM against the midpoint, then you talk about share count would be higher. You didn't mention that this time?

We did not. And part of it was, if I want to explain, we had the $0.03 of dilution which we've talked about. But right now we're better, we've had better second and third quarter, so we removed that. I could have said, we have $0.03 of dilution and we offset that with a list of other things and we just chose to eliminate it. So it's still there, the share account is still there, but we've just had better performance in the second and third quarter incrementally to remove that. So we are slightly better than we have been.

Scott, you went through an awful lot quickly. Can you talk about how you're thinking about, what you'll need to get from Alaska to make this LDC work?

Sure. I'll start, but I'd like Dennis Vermillion to add comment because Dennis has really led the charge for us in Alaska and has done some tremendous work, both just visionary strategic work as well as relationships. But overall we've had a great plan and we've been looking at it from an engineering perspective and really feel solid and confident that we have worked through. I would call the technical details of how we're going to operate the system, how we would build it out. And now we're really at a point where we want to make sure we got it, financially, where we'd like to see it. So from a low-cost financing perspective as well as help with customer conversions, those are really the two key areas and that's what Dennis has been working on. So I'm going to let Dennis kind of go from there.

Well, thanks, Scott. And we have made a lot of progress. Our outreach in the community have been strong. We have a lot of support from local business leaders and state officials, but Scott is right. That's kind of what we're looking at now is how do we get the price to the burner tip as low as we possibly can. And when we talk about the financing mechanisms through data that is one mechanism or one way to do that on the debt financing component of that trying to lower that, so that's in progress. We have a team that we're working with state officials to see what might be possible there. And then with the conversions, how do we make it as easy as possible for customers to convert? And that's really the goal there, what kind of mechanisms what kind of options or ideas might we be able to bring to the table to make it as easy as possible. We're working with local officials to flesh that out and the state as well. So too big, two moving parts, but both we're really excited about the prospects of building out the LDC and Juneau, we're excited about it. We've made good progress and we're going to continue to work towards being able to start this early next year as Scott mentioned.

And just rough numbers, the way to think about the ultimate earnings power of this is $130 million with a 50-50 equity layer and 10 plus ROE, $6.5 million round numbers?

Well, we try to give you some sense for that, Paul, again we expect to spend $130 million over 10 years. Half of that in the first five years, but with the two-year construction period and then we've said by the third year of operations we're expected to add $0.05 a share and then it would grow from there as we continue to add customers. As Dennis said, this is a customer conversion type of model where you have to get the continued customers to switch. And so we try to bracket that by the third year of operation or fifth year of the project we expected to be $0.05 a share and then growing from there with customer conversions and additional capital. We look at it as a regulated model. We still have to work with the commission in Alaska to do that in all parties, but that's how we're looking at, so a regulated capital structure, a regulated type return with customer conversions.

This would be $130 million of Avista shareholders and Avista debt and sort of that includes state funds as well.

Well, that's, so how we finance that, that's the total dollars we expect to spend over the 10 years and then we expect to finance it with equity as Avista Equity at a utility like capital structure and then debt. And some of that data we expect to be or we are working towards the low-cost financing that the state, the state agencies provide. We still have to work with those agencies to do that, to get that. But we as Dennis mentioned, he's doing a great job of working with all the people to say, this is a project we want to do and we believe the customers want to have it.

Got it. And then what was the source of the gas?

The gas would be sourced in Vancouver VLNG and then would be arched up from Seattle to Juneau, where we would construct receiving facility from storage and regas facilities and gas in the system in Juneau.

Is that regas in the $130 million?

Yes. It is.

Okay. Thank you very much for your help.

Thanks, Paul.

[Operator Instructions]

No questions, Cynthia?

We have no further questions at this time. I'd like to turn the call back over to Jason Lang for your closing remarks.

I'd like to thank everyone for joining us today. We certainly appreciate your interest in our company and we look forward to seeing you at EEI. Thank you.