Welcome to the Fourth Quarter 2016 Earnings Conference Call. My name is Sophia 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 Lauren Pendergraft. Lauren, you may begin.

Thank you, Sophia, and good morning, everyone and welcome to Avista's fourth quarter and fiscal year 2016 earnings conference call. Our earnings and our 2016 Form 10-K were released pre-market this morning, and they are both 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; and Vice President and Controller, 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 2016, which is 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 for the fourth quarter of 2016 were $0.62 per diluted share compared to $0.61 for the fourth quarter of 2015. For the full year, consolidated earnings were $2.15 per diluted share for 2016 compared to $1.97 last year. Now, I'll turn the discussion over to Scott.

Well, thank you, Lauren, and good morning, everyone. I'm excited about our 2016 results as we had a great year. We saw increased earnings at Avista Utilities due to increased electric and natural gas gross margin. This was partially offset by increased operating expenses, depreciation and interest expense, which were expected. Our strong operational performance in 2016 resulted in reliable service for our customers and high customer satisfaction ratings. We also continued making capital investments in our utility infrastructure. With new generating units going into service that our Nine Mile and Little Falls hydro plants, we view our capital investments as critical for the safety and reliability of our system and to meet the needs of our customers into the future. In addition, we strengthened our commitment to our communities through further development of innovative technologies in our service area. As we look to 2017, as previously announced, our earnings will be challenged due to the rate order we received from the Washington Commission in December. This rate order denied our request for increased electric and natural gas rates. We were surprised and we were very disappointed in this order. As a response, we have filed a petition for reconsideration and/or rehearing of these general rate cases. The Commission has indicated it expects to enter a order no later than March 16 resolving our petition. If we are not successful in obtaining rates that are fair to both customers and the company, we expect that current order will result in significant regulatory timing lag. We had reduced this timing lag in recent years through regulatory orders that provided for the timely recovery of costs. Our guidance for 2017 includes this timing lag. We believe we should continue investing the necessary capital to maintain a safe and reliable system and to…

Thank you, Scott. Good morning, everyone. Just want to start out with a little hockey news. Jonathan Toews got Patrick last night as the Blackhawks beat the Wild, so I’m a happy guy this morning. And for 2016, Avista Utilities contributed $2.07 per share, which is an increase from $1.81 last year. For the fourth quarter, Avista Utilities contributed $0.59 a share, compared to $0.51 in 2015. The fourth quarter and annual earnings per share increased primarily due to lower resource costs, general rate case decisions in Washington, Idaho, and Oregon and the decoupling mechanisms in each of these states, which help mitigate the act of lower retail loads during the year. These were partially offset by higher operating expenses, depreciation and interest all of which were expected. As Scott previously said, we believe we need to continue to invest in necessary capital into our utility infrastructure. We expect Avista Utilities capital expenditures to be about $405 million in 2017 and at AEL&P we expect to spend about $7 million in 2017. As of December 31, we had $120 million of cash borrowings and $34 million of letters of credit, leaving $246 million of available liquidity under Avista Corp’s committed line of credit. At AEL&P, there were no borrowings outstanding under their line of credit at 12/31. In December, we issued $175 million of 35-year Avista Corp. first mortgage bonds. From next year, in the second half of the year, we expect to issue approximately $110 million of long-term debt for 2017 and up to $70 million of common stock in order to fund capital expenditures and maintain an appropriate capital structure. As Scott mentioned earlier, Avista is initiating its 2017 guidance for consolidated earnings to be in the range of $1.80 to $2 per diluted share. We expect Avista…

Thanks, Mark. Sophia, we’d like to open up this call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Julien Dumoulin-Smith from UBS.

Hi, good morning.

Good morning, Julien.

Hi, Julien.

Hi. So first quick question and I don't really talk about 2017 guidance, but I wanted to talk a little bit about 2018 and the timeline for getting new rates in effect. Can you talk a little bit about what your anticipated in service – not in service, but effective date for new rates would be? And how you might think about that beginning to impact 2018 as it stands today?

Well, Julien, as you know, Washington has 11-month rate process. So we plan on filing in the second quarter, so you could expect to have some kind of resolution late first quarter, early second quarter of 2018 depending on the date of when we file it. So, we would probably miss the first couple of months of weather in January, February-ish, so that might impact 2018 a little bit because we wouldn’t be able to include that in the overall recoverability, but going forward after that we would expect to be back hopefully taking that timing regulatory lag out of our rates.

Got it. So, perhaps this might be a two-part question. In thinking about this prospective rate case to come, what is your expectation in terms of your ability to earn your ROE under what you look to file and/or expected as a function of the process with the Staff and Commission, if you can begin to comment?

I will let Mark kind of go deeper, but what I would just say there is really since 2013 we've been able to work on with our Washington Commission, we took covering some of those costs more timely through our attrition adjustments and the other mechanisms that we've been able to work on with Washington. So our expectation is that we'll continue to work with them on that timing lag and we're hopeful that in this next case we'll be able to get back to being able to take that out of our earnings. I know Mark…

I don’t know that I’d add much to that Julien. As Scott said, I mean, part of it too is we still don't have – we have an open petition for reconsideration and rehearing before the Commission right now. So when they provide their order – and we expect that to be prior to March 16, when they provide their order, we would anticipate learning some additional based on what they write in that order. And then, as Scott mentioned, when that order is done and this case concludes, we have the opportunity to seek a meeting with them and we intend to do that to again further discuss with the Commission what they're thinking about and what we can do so we can work with them to file that next case and make sure we're doing it with what their expectations are. We just need to find what that is, we don't know at this point. And we will work with them and we believe that we are spending the capital to benefit our system and they did not – in our order, did not disallow any of our capital. So we believe we're on the right track, but we just need to work with them and see if we can work to again have some sort of attrition adjustment or attrition like adjustment that allows us the opportunity to earn our allowed return, and we believe that may take into the 2019 or 2020 timeframe.

Got it. And maybe just a hit on attrition more specifically, when you’re thinking about the pace of CapEx, has the latest outcome in Washington change your thinking about forward-looking CapEx and/or potentially applying that for attrition?

I would just say Julian that kind of back to both market I said is we absolutely are convinced and believe that the capital spending we are making is necessary for safe and reliable system. We have lot of demands on the system, we are spending but I would just call fundamental blocking and tackling types of capital. These are not any capital that’s unusual by any stretch of imagination. It’s working on things like our renovating our hydro facilities and other generation facilities, it’s working on our distribution and transmission systems. So it’s all capital that needs to be spent. So we need to work with our commissioners to better understand their concerns, but we also need to make sure we provide a safe and reliable system. So until we get new information, we’re going to continue to do that.

Got it. And lastly, Avista also doesn’t change anything with regards to Smart Meter deployment?

We believe we do that as well.

Great, excellent. Thank you all very much. Good luck.

Thanks, Julian.

Our next question comes from Chris Ellinghaus from Williams Capital.

Good morning guys, how are you?

Good. Thanks, Chris.

With the rangers, Mark…

Let’s go, rangers.

Rangers.

All right, you can vote [ph] for him so that’s okay.

Does the guidance include what look to be like a pretty good start to January?

No. Our guidance is based on normal for the year, so January – remember January may have been colder than normal but we also have decoupling mechanisms in each of our states. So that takes out some of the variability. Where we are, with our guidance, I will make one point of that, by including the ERM in the 90/10, we really have limited our downside with respect to that because any further degradation is 90% customers, 10% shareholders but we have greater upside if that improves and we get into the other sharing bands or the dead band, that does benefit – that may benefit if that occurs to shareholder.

Yes, go-ahead.

Right now, I have Dennis update on hydro.

The water situation is looking pretty good as of this morning, the Northwest River Forecast Center shows the Spokane River for April through September at 100% normal and on the Clark Fork River which is where our two big projects are, that’s at 99% of normal. So we are sitting pretty good right now. Of course that can change and will fluctuate depending on weather and weather nature, but we like where we sit right now.

Okay. And Scott, you were talking about none of the capital was disallowed but in reading the rate case, it appears that they’re hinting at maybe they want to see some reduction in cost. Is that the way that you read the rate case or am I misreading that?

I think a couple of things, Chris. What we are thinking is that, we did see that there is some rate fatigue, so we want to understand and I think there were some comments about multiyear rate cases which as you know in our last case we felt that 18 month case. Back in 2012, we did file a 24 month case and we’re certainly interested in trying to file multiyear rate cases and that’s part of the conversation we want to have with the commission. As far as the actual capital expenditures themselves, on the one hand, I can see what you’re saying about it maybe they would have some concern about our capital spend but on the other hand again none of our capital was said to be improved and they haven’t disallowed any of it. So a lot of this has to do with when we have a chance to have a conversation with our commissioners to get more clarity on what they said.

Okay, great. Thanks for the color.

Thanks, Chris.

Our next question comes from Brian Russo from Ladenburg Thalmann.

Hi, good morning.

Hi, Brian.

How much of the $0.20 to $0.30 relates to the attrition adjustment or lack thereof in 2017?

It relates to the rate order. What is attrition and what is other factors in the rate relates to the impact of the rate order relative to our ability to earn our allowed return and its all Washington related in this case.

Okay, but there is no way to quantify specifically what the attrition adjustment impact is?

Attrition is just a general adjustment that the commission has the ability to make to our overall rates to give us the opportunity. So you could say it’s probably all of it but specifically if you went down line-by-line and if there a piece here and a piece there, I’m not going to go there. It’s generally most of it, could be all of it.

Understood because it seems when you’re reading the testimony in the order, the commission seems to have issue with your attrition adjustment filing embedded in the rate case, that’s where I was going but I get it.

Okay, yes, that’s correct.

And you guys are a winter peaking utility, correct?

Yes.

So, the first quarter is a seasonally bigger contribution, what would say it’s about 30% of your annual sales or the margin?

It’s our biggest quarter.

Okay.

Generally, it’s our biggest quarter whether its 30% or 29% or 31% I don’t know offhand, but it is our biggest quarter.

Got it. Okay and then the negative $0.07 related to the ERM in 2017 due to the lack of updated power supply cost, will that continue until new rates earn effect? Or are you able to optimize your generation portfolio to mitigate some of that?

The ERM will continue, it is impacted, as Dennis mentioned, we expect normal hydro and then it’s also impacted by natural gas prices. The same impact that we have every year, we have that same variability. It won’t change until we file another general rate case and/or if the commission in their order petition responding to the petition for rehearing or reconsideration updates our power supply cost. So otherwise, we’ll have that normal variability until the next rate case which would reset our power supply costs.

I got it. So unlike some of your northwest peers that have automatic power supply cost adjustments outside of a rate case, the only way for you to adjust the fuel rate in base rates is through a rate case?

Correct.

Okay.

If you recall it Brian, we tried to do that back in 2006 and to file power cost adjustment or the rate case and the Commission rejected that. So we do not have that mechanism in our opportunity, but Puget Sound Energy does. So we tried and it was rejected so we have to file a general rate case to reset power supply.

Okay, got it. And then just if you could elaborate quickly on the unfavorable conditions for a gas LDC development project in Alaska to just commodity prices or is there other drivers?

Yes, this is Dennis, it’s primarily oil prices really when we purchased the company in July 2014, oil prices were well over $100 a barrel and they’re half that now. So that certainly created a bit more of a challenging situation with regard to economics, then there is customer conversion costs that plays into it and access to low cost financing and some other things, but I would say the primary driver since the cost of oil being what it is but we’re going to continue. We spent a lot of time looking at it, next quarter did a lot of really good detailed work, so we will continue as Scott, we’ll continue to monitor the situation if things change, we’ll reassess.

Okay, great. Thank you.

Thanks, Brian.

[Operator Instructions] We have no further questions at this time.

I want to thank everyone for joining us today. We certainly appreciate your interest in our company. Have a great day.