Avista Corporation (AVA) Q3 2022 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Avista Corporation’s Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today Ms. Stacey Wenz, Investors Relations Manager. Ms. Wenz, please go ahead.

Good morning, everyone. Welcome to Avista's third quarter 2022 earnings conference call. Our earnings and our third quarter 10-Q were released pre-market this morning, both are available on our website. Joining me this morning I have Avista Corp, President and CEO, Dennis Vermillion; Executive Vice President, Treasurer and CFO, Mark Thies; Senior Vice President, External Affairs and Chief Customer Officer, Kevin Christie; and Vice President Controller and Principal Accounting Officer, Ryan Krasselt. 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 third quarter of 2022, both are available on our website. I'll begin by recapping the financial results presented in today's press release. Our consolidated loss for the third quarter of 2022 was $0.08 per diluted share, compared to earnings of $0.20 for the third quarter of 2021. For the year-to-date, consolidated earnings were $1.06 per diluted share for 2022, compared to $1.38 last year. Now I'll turn the call over to Dennis.

Well, thanks Stacey and good morning everyone. After an unusually warm and sunny October, it definitely feels like our typical fall weather has now settled into our region. We're getting some pretty good preset but it looks like our first big mountain snow of the season. So that's a good thing. With the summer season behind us, we're happy with how our system handled this year's peak summer months. The significant investments we continue to make in our system to harden our grid and bolster the reliability and resiliency of our substations and distribution system allow us to better serve our customers. We are also making good progress in achieving our clean energy goals. We're evaluating opportunities in our recent RFP and we're implementing our Washington Clean Energy Implementation Plan that was approved in June. Turning to rate cases. We continue to work our way through the regulatory process for our Washington general rate cases, following the multiparty settlement we reached earlier this year. We expect a decision by the Commission in December of 2022. In Idaho, we expect to file both gas and electric rate cases in the first quarter of 2023. We also plan to file a general rate case in Oregon during the first half of 2023. In Alaska, our interim and refundable rate base -- base rate increase of 4.5% was approved by the Commission and was effective in December of 2022. Now for earnings as we've previously communicated, our strategy is to achieve our 2023 guidance included adequate rate relief and cost management and we've made significant progress on both fronts. Our Washington general rate case settlement demonstrates progress toward attaining the needed rate relief we're striving to achieve and we have identified opportunities to manage our costs for 2023. Despite these great efforts, the goalposts have simply been moved on us. And as a result we are lowering our 2023 consolidated earnings guidance by $0.15 to a range of $2.27 to $2.47 per diluted share. The combined upward cost pressures from inflation and rising interest rates, which accelerated in the third quarter proved too much for our cost management efforts to offset in 2023. In particular, we expect increases in borrowing costs, pension expense and depreciation. Higher borrowing costs and operating expense also impacted 2022. And, therefore, we are lowering our 2022 guidance by $0.05 per diluted share to a range of $1.88 to $2.08. At this time, I'll turn this presentation over to Mark to get into some of the details. Mark.

Thanks, Dennis. Good morning, everyone. And while our news on our earnings is down, I do have a positive Blackhawks comment. I know you're all waiting for that. We're a point out of first place nine games into the season. Still very early, but a lot better than I thought that it would be. So compared to the third quarter of 2021, our Utility earnings decreased, primarily due to rising interest rates higher depreciation. We have had some higher capital and increased operating expenses. These increases were partially offset by benefits from increases from rate cases that we completed in both Idaho and Washington. And we also had retail customer growth of about 1.5%, which helps our utility margin as well. The Energy Recovery Mechanism in Washington was a $4.5 million expense in pre-tax expense in the third quarter, compared to $3.8 million in the prior year of an expense. Year-to-date, we've recognized $7.3 million of expense compared to $7.1 million last year. And we do expect to continue to be in the 90% customer, 10% company-sharing band for 2022. With respect to capital, we continue – as Dennis mentioned early in his remarks, we continue to invest necessary capital in our utility infrastructure. And we expect our capital expenditures to be about $475 million in each 2022 and 2023 at Avista Utilities. We expect AEL&P's capital to be $10 million in 2022 and $13 million in 2023. And we expect to invest about $18 million in our other businesses in 2022 and $15 million in 2023. With respect to liquidity as opposed – as of September 30, we have $102 million in available liquidity under our committed lines of credit. And in the fourth quarter, we expect to enter short-term credit facility for up to $50 million to provide additional liquidity going into next year. During 2022, we expect to issue $135 million of common stock including the $93 million we've already issued in the first three quarters. And in 2023, we expect to issue up to $140 million in long-term debt and $120 million of common stock to fund our planned expenditures. Getting to guidance, and as Dennis mentioned, we are lowering our 2022 guidance by $0.05 to a range of $1.88 to $2.08. And we're lowering our 2023 guidance to $0.15 – by $0.15 to a range of $2.27 to $2.47. These increases are all related to Avista Utilities. And as Dennis mentioned, while our regulatory and cost management efforts have been successful, we don't believe they're going to be sufficient to overcome the – as he said the goalpost move the increase – the continued increase in inflation and those costs going up. Interest rates continue to rise, driven by the Federal Reserve, aggressively raising interest rates 5x this year. And we anticipate another – tomorrow I believe another increase continuing that. We expect those borrowing costs to continue to increase next year. We forecast based on forward curves and that's included in our guidance. A portion of our operating expense is also related to the pension expense and our pension asset values have decreased significantly as a result of poor market performance causing increases to our pension expense to outpace the potential decrease due to a rising discount rate from interest rates. Finally, we've increased our capital expenditures, primarily due to inflation in certain new projects that we believe are in the best interest of our customers, which results in an increase in depreciation expense. We do expect these costs to be recoverable through future rate cases. As Dennis mentioned earlier, we have settled in Washington, a 2-year plan. So that – assuming the commission approves it which is the commission still has to approve it, if the commission approves it, Washington rates will be set for December of 2022 through December of 2024, but we do plan to file in Idaho and Oregon in the first quarter and first half of next year respectively. We expect Avista Utilities to contribute in the range of $1.66 to $1.82 per diluted share in 2022 and the midpoint does not include any benefit from there. Our expectation as I mentioned earlier, the ERM would be in the 90:10 sharing band and is expected to reduce our earnings by $0.09 per diluted share, primarily due to the impact of the ERM, we do expect to be at the bottom of the range for Avista Utilities. Looking to 2023, we expect Avista Utilities to contribute $2.15 to $2.31 per diluted share. And our guidance assumes appropriate rate relief in all of our jurisdictions including the approval of the 2022 Washington general rate cases. And for 2023, we anticipate -- just to give you a sense of where we are on our earned ROE, we anticipate unrecovered structural costs to reduce the return by approximately 60 basis points. That's what we'll call structural lag, my term. And then we have a timing lag of about 90 basis points. So we didn't -- we anticipated originally trying to get back to earning our allowed return, but with the increase in interest, pension and depreciation we're not going to get there for this year -- for 2023. We expect that to be about 90 basis points, so that gets our total return on equity to be 7.9%. We expect AEL&P to contribute in the range of $0.08 to $0.10 in 2022 and 2023. And our outlook for AEL&P assumes, among other variables, as always, normal precipitation and hydroelectric generation. We expect the other businesses to contribute $0.14 to $0.16 per diluted share in 2022. And in 2023, we expect those businesses to contribute in the range of $0.04 to $0.06 per diluted share. Our guidance generally includes only normal operating conditions and doesn't include any unusual or non-recurring items until the effects are known. And that's the end of the discussion on guidance. So I'll turn it back to Stacey and we can get the questions.

Thank you, Mark. We are happy to take your questions.

Thank you. [Operator Instructions] Our first question will come from Julien Dumoulin-Smith of Bank of America. Your line is open.

Hey, good morning to you. Thanks for the time. Hope you guys are well.

Good morning, Julien.

Hi, Julien.

Hey, thank you. So I just -- I want to come back to the 2023 guidance. You guys spent a good chunk of time here, but can we break down some of the pieces you alluded to here? Obviously, you talked about cost management efforts. You guys have been talking about that for a bit here. Can you talk about the ability to kind of recapture some of that in some of the subsequent cases, as well as some of the discrete breakout of the other items that you flagged here on the 2023 guidance? Just to quantify the three or four specific points that you called out.

Well, there -- I mean, it really is rising interest rates, we do borrow money under our -- it's largely our short-term credit facility; we will issue some bonds later in 2023. On a long-term basis, we have $140 million of debt we expect to issue on a long-term basis. But really the short-term interest rates have increased significantly. As I mentioned, we have a -- just to give a sense we have a $400 million credit facility and we have $100 million at September of available liquidity. If that liquidity goes consistent, you assume we have $300 million borrowed and interest rates have moved substantially over the course of where we were to now in 2023, where we expect to be. And we're just looking at forward curves there on interest rates. We borrow very short-term week to two weeks under that credit facility. So that has caused it to go up. Our pension expense, as I mentioned, our asset values went down significantly. We see the market values, with what's happened in the stock market. We have a certain portion of equity. We do have some fixed income as well on that, but interest rates rising there hurts the returns on the fixed income portion of the portfolio. So we're down in our assets over 20% in our pension. And that's too much to overcome relative to the increase in the discount rate. And I'm not trying to get in, Julien, to pension accounting because I don't want to and nobody wants to hear it, but that's -- overall, our pension expense is expected to be higher for 2023 based on that -- based on what we see today. And that's what we have to go on for our guidance. The increase -- we mentioned earlier we had -- on an earlier call we had some increase in inflation in our CapEx. And our CapEx is higher than what we have filed for in Washington. We will expect to file in Idaho and Oregon in -- early in 2023 first quarter for Idaho and first half for Oregon. So there is an opportunity there to pick up some amounts in those future rate cases, all subject to that process. And in Washington our cases before the Commission, right now we've reached a multiparty settlement. One party did not settle, public council. That's still being going through that process. But we expect that we will be able to get approval on the Washington case, but that still has to be determined by the Commission. So that's not up to us. So those are the three primary drivers. Our other cost management efforts really offset the other impacts of inflation. We've seen inflation in wages. We've seen inflation in goods and services in different contractors that we use to do a lot of our work. We were able to offset that with our cost management. I'm not going to go into specific details there, but the effort we did offset all that. And it was just the faster rise and I guess that attributed to higher inflation for longer that the Fed has had to then move and the market reaction to that. Those are really the drivers we were not able to offset in our expectations. We do believe that that will all be recoverable in future rate cases assuming we can demonstrate that we did this prudently and I believe we absolutely can.

Got it. Actually can we talk can we try to quantify a little bit more on the pension impact reflected here in 2023 as well as if you don't mind going back to the cost management equation. Like how do you think about maybe 2024 at this point in reflecting some of these pieces? Maybe also if you don't mind on interest expense thoughts on refinancing terming that out et cetera such that again how you think about that on a more structural basis into 2024. Again I know that you keep trying on cost management. I've heard this ever for a while. How do you think about kind of giving another color just to try if you will into the 2024 time period?

Well, we're always doing that. I mean, that will be consistent and we will expect to continue those efforts. I don't have anything specific to report for 2024, but we've done that. 2023 wasn't an unusual. We had a little bit higher effort in 2023 because we knew we had a little bit higher hurdle. But going into 2024 -- we always are trying to manage our cost to run it efficiently. And we need to demonstrate that as we go in for rate cases. We have to demonstrate how are you trying to manage your cost. So we do that consistently. 2024 won't be any different in that with respect to that effort. With respect to the -- putting down the pieces we kind of laid out what our borrowings were. If that was an average borrowing you can look at rates and determine what that is. The pension dollars I'm not going to get into specifics because those can move around. Coming into 2024, if interest rates come down a little bit that could help 2024 right? If market performs better going into the end of 2023 or we get into 2024 and the market performs better than our pension can have a lower expense that's a future opportunity as well. But none of those things are known at this time. All we can give you is what we expect at this time which is where we're at. So if you look at it I won't say one-third, one-third, one-third, but that's probably as close of an estimate without getting into great detail of depreciation pension and interest.

Got it. And one-third, one-third, one-third of the delta in guidance reduction here in systems.

Delta, $0.15.

Yes, exactly. Thank you for quantifying that. And to be clear on the 2024 rate activity though, how do you think about going back here to true that up? Just sorry I tried to ask that perhaps encode earlier just to clarify on that and I'll pass it.

Well so with respect to 2024 we can -- we expect to file in 2023 in Oregon and in Idaho. That's about 40% of our business. Washington represents about 60% of our Avista Utilities business. And so in Washington we're not going to be able to refile until the -- in 2024 effectively for 2025. I mean it might possibly get into December. Rates can't change before December in our expectations. So it will Oregon and Idaho that we will be able to – look to recover. And again we got to go through the process in Oregon and Idaho to demonstrate that these are approvals and then we have to -- we will continue to have our cost management. We'll continue to look at where the market goes.

Excellent. Thanks for your patience guys. Thank you.

Thanks, Julien.

Thank you. One moment please for our next question. Our next question shall come from Shar Pourreza of Guggenheim Partners. Your line is open.

Hi, guys. It's James Ward [ph] on for Shar. How are you?

Hi, James. Good.

Good. So I wanted to clarify are you still projecting long-term growth of 4% to 6% off of 2023, or how should we think about that aspect the later years aspect in the forecast period?

Yes, I think, that's consistent. Again that would be that's our looking at our rate base growth and as we would go in a normalized period we are -- as we are going to be under earning and have some continued timing lag, we would like to see that we could chip away at that. But that's going to take a period of over 2024 and 2025 to have that opportunity. As I just mentioned earlier really because of the again, regulatory process in Idaho and Oregon, able to possibly chip away at 2024 and then Washington for 2025. So we would expect that to be a normalized growth, based on current expectations of where our rate base growth is. But we would look to add to that some incremental growth to offset this reduction we have and this timing lag that we have identified today.

Got you. So would a fair way to put it be sort of think of rebasing as 4% to 6% still off of 2023 off of this lower 2023, but maybe more of a bias to the top end of that rather than the midpoint, as you look for incremental opportunities to normalize as you're saying and to catch back up. Is that fair, or...

I think I would look at -- we have an incremental opportunity. The base that makes sense right go off the 4% to 6% off of the revised 2023. I would say that makes sense. The incremental opportunity is we're going to have to see. I would say yes, there is an opportunity for again 40% of the business in Oregon and Idaho, if you're going to look at that versus the Washington. So 60% of that we don't believe -- we're going to continue to do cost management. We're going to continue to look at running our business efficiently. We'll have continued impacts of market forces as we go forward, but we can possibly pick up to 40% of that in 2024 and then the remainder in 2025 is our opportunity. And we'll have to work through those processes with our commissions.

Got it. Got it. And in terms of incremental opportunity, we had $0.04 to $0.06 as the other businesses initial guidance for the past couple of years. And then obviously, that segment has exceeded expectations repeatedly. Understood that investment gains have driven that. But what sort of the potential that we could see an upside surprise similar to what we've seen in the last couple of years in say 2023 that might if not close the gap, but make up some of the $0.15 difference…

Again, we don't -- we look at the forecast James on -- with respect to where we see those market valuations. They can go up and down. We actually saw some third quarter wasn't a significant -- it was pretty flat. So it's -- we don't forecast significant market upsides in those. We just kind of forecast a normalized return that we see based on our investments there. Is there a possibility, it could go up? Yes. Is there a possibility, it could go down? Yes. I mean, there are valuations that can move there. So we don't -- we try to -- I think I would say we try to forecast conservatively in that area, but it can go both ways. Market valuations can go down as well as we've seen in the stock market.

Certainly. The last two questions I have well one on that note of asset valuations declining. Now in our pension survey back in the summer, you'd mentioned that you have regulatory mechanisms that allow you to record a regulatory asset for the portion of the pension and other post-retirement benefit funding deficiency that you'd have relative to what you're recovering in rates. How does that play in here? And is that something that can help to offset, or it seems like it isn't if pension headwinds are going to be weighing on 2023, how should we think about the regulatory mechanisms and regulatory recovery that you have related to pension?

Yeah. We don't -- I mean that's assets versus liability for an unfunded component of it, but that's not -- we're largely funded in our pension. And so I don't think that there's an issue there. It's not with respect to the expense. We don't -- we get recovery of the Avista expense based on an annual calculation there. And so that ability to change that. We don't have a tracker for that mechanism at all at this point. It's a gap...

So this is more like you've exceeded like the corridor and it pushes out into a 2023 impact, or could or it looks like it might? Is that more of the way to think about this?

Well as we look at it, we can forecast what the market is going to do, what our pension is going to earn and what the discount rate is and we can run an actuarial calculation on that that says here's what pension expense would be forecasted, based on what we know today. Those numbers change and we don't value it. We value it at the end of the year for the next year. But where we see it today is going to be a higher expense.

Yes. Understood. That makes sense. And just to clarify as well on the ERM. Obviously, the midpoint of guidance does not include an impact from the ERM. So we understand the $0.09 weighing this year. But just so we can understand when thinking about next year do you have any sort of early indication given the components that go into the ERM of -- essentially is it just a reset to 0 at Gen 1 or is there any sort of early indication of whether things are looking more positive or negative relative to coming in flat or 0 I should say not flat?

We're really waiting for -- so we've got a filed rate case in Washington which is where the ERM is. We have a PCA in Idaho but that's more of a 90-10 so that's not as impactful as the ERM from an earnings perspective. And in Washington when we filed our case we reset to December or January of that year. I don't remember the exact dates that we reset, but we reset our power supply cost in that case but have not reset for any current amount. So until we get that case through the Washington Commission, I'm not comfortable saying where we expect to be. We will come out in February because we'll assume that in December, we will have an order from the Commission. And so when we give our guidance when we refresh our guidance for '23 in our fourth quarter call next year we will have a view of where that ERM is based on the market conditions at that time.

Understood. Thank you very much. Thanks again for the question.

Thank you [indiscernible].

Thank you. And one moment please for our next question. Our next question will come from Sophie Karp of KeyBanc. Your line is open.

Hi, good morning.

Good morning Sophie.

A couple of questions. I'm looking closely at the numbers here in your 10-Q right? And it seems to me that your interest expense has gone up by about $3 million so it would have been like $0.04 delta year-over-year in your EPS. I just wanted to confirm that this is the totality of it because you've rolled it up as a major driver. It seems like O&M was a way to the driver. Is there another interest expense somewhere like there in other line somewhere?

Again for '22 but also in interest expense and as we look at it I'm looking more to '23 than '22 as we look at that. '22 we just moved guidance in '22 by $0.05 which included interest and operating expenses, but it really didn't move significantly in '22. '23 was what I was trying to address there Sophie. So when I said the interest pension and depreciation was really a '23 expectation.

Got it. Got it. Okay. And so the increase in O&M versus I guess the prior run rate that we are seeing this year this is basically your expectation that it stays the same going into 2023 or are you contemplating some kind about acceleration or deceleration in the rate of inflation in O&M like...

Again with respect to our cost management we expect it to try to keep our O&M relatively flat in '23 compared to '22, but we're going to see a higher cost in our pension. And we are going to see some -- the drivers really for the change in our guidance go back to again pension depreciation and interest costs. We did have higher debt in '22 compared to 2021. We expect to continue that as we go forward into '23. So it's a combination of the rate going up and plus our increase to fund our capital budget. We're funding $175 million capital budget. So that increases as well. So that we are -- some of that you don't see in there Sophie is the effects of our cost management. I mean we are trying to manage our cost to keep that rate of growth below inflation.

Great. So I'm going to ask you this. So you mentioned that you hope to recover -- you have a 2-year element that hopefully will get approved like in December in Washington. You mentioned that you hope to recover extra O&M costs I guess maybe above and beyond what was contemplated in this 2-year rate case in future rate cases. So how does it work? Do you have like some kind of mechanism to track those costs in excess of what's in the settlement? Because it's a black box element too, right? So it's – can you help us understand how this would work?

Sophie, this is Kevin Christie. I'll jump in here and focused primarily on capital. The capital that, we're incurring that creates timing lag will pull into the next case, when we build the test period and pro forma into the rate effective date. Any expenditures expense operating expense will be treated like it always is. We'll develop a test period, and that test period will poll then current O&M, and we'll pro forma any additional O&M we think might be appropriate. So we have the ability to take what we expect to have from an expense perspective at that time in, and any capital that, we're spending now that isn't recovered or might not be recovered in that case will be pulled into the next case as well.

Okay. So it's the capital. It's the way – your comment relates to capital not on the O&M?

Yes not on O&M.

Okay.

O&M unless it's covered in a tracker like what we hope to have for insurance expense. That's part of the settlement in the Washington case and anything related to wildfire for example, which is a current tracking mechanism, we have that in the state of Washington as well.

Got it. One last one, if I may mostly a philosophical question, I guess, with respect to your regulatory strategy here. So, is there a way to have some kind of limited reopener for this settlement to account for these incremental costs, which I'm assuming a row's after you reached the settlement, because of the time line of this it seems to me.

Yeah, I think you're right on. That's when we mentioned the goalpost moving on us in that what we had in test period and what we knew of at the time when we've reached the settlement a number of things have occurred negatively since then. And with the state of regulation in Washington, we really don't have an opportunity to go back, unless it's captured in a tracker that I just mentioned and reopen. With the new legislation in Washington that we are utilizing here, if the case we filed was longer three or four years, which is an option we didn't do that here then there's a reopener, if you're under earning below a certain level. But that doesn't really apply here given the timing of this case just being two years.

Thanks. Got it. Thank you.

It also doesn't necessarily make sense for us to withdraw from the settlement and refile, because it's an 11-month process. So we would effectively lose a year to do that just to try to come back. So we don't think that makes sense either. We think the settlement is – as we said earlier, we think the settlement is a good settlement. We think it's a fair settlement, reached with all the parties, and will help us get towards earning our allowed return. Like we said, it's just the market has changed since this time, so we don't have that opportunity in Washington. Idaho and Oregon we'll file.

All right. Thank you. Appreciate the color.

Thanks, Sophie.

Thank you. [Operator Instructions] Our next question will come from Brian Russo of Sidoti. Your line is open.

Yeah. Hi. Good morning.

Hey, Brian.

Just to clarify, with the understanding that you expected the rate case settlement to be finalized next month and then you've got a rate increase in late 2022 and then again in late 2023, when actually can you file again assuming that 11-month time – time clock for a fully litigated rate case? Do you have to rate – you have to wait till December of 2023 when the second year of the rate increase goes into effect, or can you file any time after you reach the settlement agreement?

Well, it's easier to think about it this way. We can file 11 months prior to December 22, 2024. You can file sooner than that, but you're not going to have new rates into effect any sooner than that. So, it's really up to the company to try to time it right up to that point in time. So, if we are continuing to have a lag to fill the gap there right at that 2024 time frame in late December.

Okay. Got it. Thanks for the clarification. That's all I had. Thank you.

Thanks, Brian.

Thank you. [Operator Instructions] Our next question will come from Brandon Lee of Mizuho Securities. Your line is on.

Hi. So from the midpoint of $1.74 for 2022 reduced by the ERM of $0.09 I get $1.65. And so far for the year, you've earned $0.90. Am I thinking about this correctly that you'd need to earn about $0.75 in the fourth quarter to hit the midpoint of your guidance for Avista Utilities sorry?

Again, Avista Utilities, I look at it more on the consolidated. But at the end of the day -- that's right. Second -- or fourth and first quarters are our largest quarters historically. And so that is an expectation that we would -- I'm trusting your math there that without confirming any models. But that sounds appropriate for Avista Utilities to earn that in the fourth quarter.

And now that we're about a month into the quarter, how is the fourth quarter looking so far?

I don't have a sense. Again, it's early in the fourth quarter. And as you look at the fourth quarter, we're looking at earnings. The second and third month of the quarter are the colder months of the quarter. So I'm not going to try to guess at how is it looking for the quarter. We do expect to make that in our quarter.

Okay. Then when we think of the drivers from '23 to '24, I mean you have rates set in Washington. I guess, how do you improve 2024 from here? Is it the Idaho and Oregon rate cases? Are there other drivers?

Yes. So, that's part of it. As I've mentioned earlier on the call, that is part of it. We do expect to be able to file cases there and we'll have to go through those processes and demonstrate that we should get recovery, but we do expect that. We're going to continue our cost management efforts. We're going to have to continue that as we go forward, as well as there are -- can interest rates slow down or reverse some, there are some forecasts out there that show that. We just continue to manage our business. We have a strong business. We've hit a timing issue here. That's going to take some time to get through. But our business model is still very strong and we just have to work through these timing issues to get back to earning our allowed return. That will be through the regulatory process and we're not going to be able to get there in Washington as Kevin just mentioned. Until late '24, will be the opportunity to increase in Washington which is 60% of our business.

Got it. And then in 2024, assuming Idaho and Oregon go well and you get constructive outcomes there, that's about 40% of your business. But you have cost pressures on 100% of the business. Should we be leaning towards the lower end of the 4% to 6% range?

No. I don't know that I'd say that. I haven't really thought that all the way through. We can continue to look at that. We've really focused on '23 and then incrementally as we go forward in '24. We expect to incrementally improve. The 4% to 6%, we expect to be able to achieve that. We included that even in our Washington case and we will get some opportunity there as part of our second year in our Washington case. We're always going to have to continue to manage that 100% O&M. So, we will continue to work for that. So I don't know that, I'd say there's a upward or downward side of the range. We'll have to continue to look at those cost increases and continue our cost management efforts to help offset those. But I don't know that I'd say directionally, I would give guidance on where we are with respect to any possible increase range for '24.

Okay. Great. That’s all I had. Thanks for taking my question.

Thank you.

And I'm seeing no further questions in the queue. I would now like to turn the conference back to Stacey Wenz for closing remarks. End of Q&A:

Thank you all for joining us today. We appreciate your interest in the coming -- see a number of you at EEI in the coming weeks. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.