Good day and thank you for standing by. Welcome to the Avista Corporation Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Stacey Wenz, Investors Relations Manager. The floor is yours.

Good morning, everyone. Welcome to Avista's second quarter 2022 earnings conference call. Our earnings and our second quarter 10-Q were released pre-market this morning, both are available on our website. Joining me this morning are Avista Corp, President and CEO, Dennis Vermillion; Executive Vice President, Treasurer and CFO, Mark Thies; and Senior Vice President, External Affairs and Chief Customer Officer, Kevin Christie. Today, we will make certain statements that are forward-looking. These 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 10-K for 2021 and 10-Q for the second quarter of 2022, which are available on our website. I'll begin by recapping the financial results presented in today's press release. Our consolidated earnings for the second quarter of 2022 were $0.16 per diluted share compared to $0.20 for the second quarter of 2021. For the year-to-date., consolidated earnings were $1.15 per diluted share for 2022 compared to $1.18 last year. Now I'll turn the discussion over to Dennis.

Well, thanks Stacey, and good morning everyone. I hope you're enjoying your summer so far. After a cool wet spring, summer finally hit our region with a vengeance actually here recently. We had triple-digit temperatures across the entire Pacific Northwest region and it made national news. Of course, the ongoing investments we've made to our system help keep our customers safe and cool during the excessive heat and we were relieved to see these temperatures give way to a more normal summer weather pattern this week as the heat wave moves - moved eastward to share with everybody else across the country. Our second quarter consolidated earnings met our expectations. We continue to be on track to meet our full-year consolidated guidance. Our performance was primarily the result of increased net investment gains by our other businesses. Through the second quarter, the utility continued to be challenged by higher costs, particularly rising interest rates and inflation. We are very pleased to have reached a multi-party settlement in our - reached a settlement - multi-party settlement in our multi-year Washington general rate cases, both electric and gas. If approved by the Washington Commission, this outcome provides a positive framework for our Washington operations that benefits both our customers and our shareholders. As part of the settlement, we wrote off $4 million in cost related to the dry ash disposal project at Colstrip during the second quarter. We expect inflation to decrease from current levels in 2023 that combined with the rate relief and cost management efforts positions us to earn our allowed return in 2023. We're proud to be the first investor-owned utility to reach approval of our clean energy implementation plan with the Washington Commission, we did that in June of this year. Avista's plan is a roadmap of specific…

Thank you, Dennis, and good morning everyone. Thanks for joining us today. So, like Dennis said, we've got a lot of great things that have occurred in the quarter and as we look forward I'm very excited about that. The one thing I'm not excited about is the Blackhawks are in a major rebuild. We are dumping everybody and getting almost nothing for it. So I might even be able to get season tickets this year if they come down low enough. So that's a tough one, but compared to the second quarter of '21 as Dennis mentioned Avista Utilities was down primarily due to the write-off of that dry ash disposal system at Colstrip. We believe that, that was - the outcome of that settlement is a positive for customers and shareholders and that was just one part of the overall negotiation, so we took that charge. We are also have higher operating and maintenance costs, depreciation and interest expense and these increases were partially offset by benefits from our completed rate cases previously in Idaho and Washington, which were effective late in 2021. The benefits from the rate cases are recognized through lower income tax expense, so you don't see that necessarily through margin, it come through because of the customer tax credit that's where we see the benefits is in a lower income tax expense. We also continue to have strong customer - retail customer growth at about 1.5%, which is better than our previous amounts of 0.5% to 1%, we are showing continued strength there. The Energy Recovery Mechanism as Dennis mentioned had a pre-tax expense of $4.8 million compared to $7.6 million of expense in the prior quarter and for the year-to-date, we were at about $2.8 million versus $3.3 million. All that said is…

Thank you, Mark. We are open for questions.

[Operator Instructions] We have a question from the line of Kody Clark with Bank of America. Please proceed.

Hi, good morning. Thanks for taking my questions.

Good morning, Kody.

Good morning, Kody.

Just curious if you can discuss more of the drivers behind the CapEx increase. Was that a function of a pull-forward of work or more inflation on the capital side?

It's probably more inflation Kody. I mean there - our capital projects, they change, just as we continue to work through, but it's slight inflation, it's not a significant increase and we just felt it was necessary to put that out there. So I would say it's primarily inflation and then there is some mix of projects in there, but that - those are all fine details for a small increase.

Yes. Understood. And as we think about the impact of inflation in higher rates, can you talk a little bit more about that? How that cascades into 2023 and what's giving you confidence that inflation will abate in 2023? And maybe if you can provide some more color on any major contracts next year that would have to be negotiated, labor, contractors or supply or anything like that, that would be helpful? Thank you.

Well, we just completed - I'm talking about the labor contract Dennis.

Yes, our labor - we just completed a labor contract with IBEW Local 77. It's our biggest union membership group. And so we're locked in with wage increases per that agreement for the next three years. So that was a big one. We did see a little bit of adjustment just given market conditions for skilled craftsman, line workers and other skilled tradesman and we factor that into the contract and that is factored in forward-looking into our budgeting process as we move forward, but that's a big one and it's good to have that one done.

And Kody that was also included in that - in our filing for our rate case. So we did include those costs. So that's probably what was one of the larger contracts, there are all kinds of smaller contract that may come to, but we factor that and we believe that we look at what's out there and what the Fed is saying and where inflation is. I don't know where that's going to be, we tag it around 3% for next year, it's higher this year. Whether things change or not, whether the new bill coming out gets approved and can help to slow inflation, we don't know. What we put in our - in our forecast is we expected to - our economists, we expect about 3% inflation. And we are expecting to manage our cost. What gives us confidence as we look at our ability to manage our cost, which we've done for a very long time. We expect that to continue and we will be able to achieve our forecasted goals.

Right. Okay, got it. So 3% year-over-year increase in O&M that's kind of the assumption you're running within that 2023 guidance?

Well the inflation, it's not just O&M, right, there is inflation all over and we will have to manage our cost to get there. So it's - there will be inflation and then we will let some cost management to get to our - achieve our goals. It will be - it will be less than 3% for our O&M, but there is other cost we have to manage as well. We haven't put out specific all of those, it just August, right. We're still in that process as we go forward to work through our forecasting in our budgets, but we have a confidence that we can get there.

Understood. Okay, thanks for the time.

Thanks, Kody.

Thanks, Kody.

Thank you. One moment for our next question, please. We have a question from the line of Brandon Lee with Mizuho. Please go ahead.

Hi, good morning, Dennis. Good morning, Mark.

Good morning, Brandon.

Good morning, Brandon.

Hi, just a quick question on - do you guys expect to benefit from the Inflation Production Act and if so, can you kind of highlight where you could see potential benefits?

Well, yes. Good question. We're looking through it. Obviously, the bill isn't over the finish line yet. And there is some question whether or not the - we get 50 Democrats on board. And there are some things that look interesting in there for sure, related to the tax package around storage and hydrogen and carbon capture, EVs and some of those other things. As I mentioned, we're just in the process of kind of digging through it, but it is. It's a big bill right and the devils in the details for sure. So we'll just continue to evaluate and then obviously whether not, it ultimately is passed, we'll have to watch that as well.

Great, thanks. That's all I had. Thanks a lot.

Thank you.

Thank you. I'm not showing any further questions in the queue, sir.

Okay. Well, thank you everyone for joining us today. We appreciate your interest in Avista and hope you enjoy the rest of your summer. Have a great day.

And with that ladies and gentlemen, we concludes today's conference call. Thank you for your participation. You may now disconnect.