Avista on Aug. 7 reported second quarter consolidated earnings of 38 cents per diluted share compared to 39 cents for Q2 2018, and year-to-date consolidated earnings of $2.14 per diluted share compared to $1.22 last year.
Avista Utilities contributed 32 cents per diluted share to the earnings in the quarter compared to 37 cents last year, and on a year-to-date basis contributed $2.02 per diluted share, an increase from $1.21 last year.
Scott Morris, president and CEO, said in an earnings call that the quarter’s results were “strong,” benefiting from lower operating costs and better-than-expected customer growth. This was partially offset, he said, by a $7 million philanthropic commitment made earlier this year to mark the company’s 130th birthday.
He also said he expects Avista Utilities’ several rate cases to provide relief by early 2020 that will “begin reducing the regulatory lag that we have been experiencing.”
The increase in the year-to-date earnings was primarily due to a $103 million termination fee received in January from Hydro One, per their merger agreement after it was called off. The fee was used to reimburse transaction costs incurred from 2017 to 2019 that, including income taxes, totaled $51 million. The balance of the fee was used for general corporate purposes and reduced the need for external financing, the company said.
There were also “positive impacts” from general rate increases and customer growth, according to comments by CFO Mark Thies during the earnings call, that were offset by transaction costs associated with Hydro One, as well as by increased transmission and distribution operations and management costs.
Avista Utilities’ effective tax rate for the quarter was negative 7.5 percent compared to 16.9 percent for the second quarter of 2018, and was 16.7 percent year-to-date, compared to 16.5 percent for 2018.
The income taxes decreased in Q2 2019 primarily because of the settlement agreement in Idaho related to Colstrip depreciation and the use of deferred benefits from the 2018 federal tax-cut act to offset the accelerated depreciation. The company expects the full-year 2019 effective tax rate to be 15 to 16 percent.
The energy cost recovery mechanism in Washington—which is tied to net energy supply costs—provided a pretax benefit of $6 million in the second quarter compared to $1 million in the second quarter of 2018, and year-to-date provided a $3.5 million benefit compared to $5.8 million in 2018.
The utility expects to have an increased capital expenditure of $435 million, which includes a $30 million increase, primarily from additional capital expenditures for renewable integration for a wind project and additional customer growth.
Avista subsidiary Alaska Electric Light and Power was “solidly above our expectations and expected to meet our full year guidance,” and the sale of subsidiary METALfx was completed in the second quarter, resulting in a $2.3 million gain (CU No. 1900 ), Thies said.
Avista Utilities in July reached an all-party settlement for the remaining issues of its natural gas general rate case in Oregon, and expects to file the agreement later in August (CU No. 1909 ).
The company filed an electric general rate case in Idaho in June (CU No. 1906 ), and continues to “work through” the regulatory process in its Washington electric and natural gas rate cases filed in late April (CU No. 1900 ).
Thies noted that a natural gas rate case was not filed in Idaho because the company believes it is earning “at or near” its allowed return.
Avista raised its earnings guidance to a consolidated range of $2.83 to $3.03 per diluted share, an increase of 5 cents on both ends. The increase includes the termination fee and transaction costs related to Hydro One, as well as the gain on METALfx sale.
Avista Utilities is expected to contribute in the range of $2.72 to $2.86 per diluted share.
The outlook for Avista Utilities assumes normal precipitation temperatures and below-normal hydroelectric generation for the remainder of the year, although the company is at 90 percent of average hydro conditions, which has been factored into the guidance.
AEL&P is expected to contribute in the range of 9 to 13 cents per diluted share.
Morris said in the call that he was retiring March 1, 2020, and that Avista President Dennis Vermillion will take over as CEO on Oct. 1, 2019. The company first announced the succession in May (CU No. 1902 [7.5]).