Avista Earnings Call Nuggets: Ecova, Power Supply Costs

On Wednesday, Avista Corporation (NYSE:AVA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Paul Ridzon – KeyBanc Capital Markets: I’ve a couple questions on Ecova, what’s driving the revenue timing issues? Secondly, are the merger, integration and acquisition costs, was that a 1Q event, so should that not flow into the rest of the year, and then the depreciation of intangibles, I assume that’s an ongoing impact?

Scott L. Morris – Chairman, President and CEO: You’ve asked three questions, and I’ll try to take them in order. On the revenue side, we did get $5.2 million of additional revenues related to the acquisition. Recall that in the first quarter, LPB was closed at the end of January, so that only recognizes 2 months not 3 months, so it’s not necessarily the fall, and that’s part of our $37 million in revenues. Our revenues – they come, and we have certain revenues on the expense management side and energy management side of the business that have a long consistency, but with certain projects on the utility side those can ebb and flow as we continue to do work on those projects, so we don’t – it’s not always consistent with our revenues, and we – but we do expect as we said in the – earlier in the remarks that we do expect to have consistent organic growth with last year. So, we are expecting our revenues for 2012 to show that double-digit growth in 2012. Now with respect to certain other costs, we forecast cost over the course of the year. We accelerated some of those costs or most of those costs into the first quarter. That doesn’t mean that we won’t have some additional integration as we continue to go. We’re not completed with the integration, we just did these transactions, so we may have some additional costs. We don’t expect them to be significant as in the first quarter, but there may be some costs that continue to occur throughout the year as we integrate these businesses. With respect to the amortizations, those will continue. Those are intangible assets that we acquired as part of the transactions and we’ll amortized those over the course of a certain period, and that could be any number of years depending on the timing or the type of intangible asset. We’ll fully disclose the different classifications in our 10-Quarter, which we’ll file later this week. Did that answer all your questions, Paul? I believe I did, but if I missed one, please let me know.

Paul Ridzon – KeyBanc Capital Markets: Yes, you did, and I have one follow-up just, your guidance at the Utilities assumes no ERM benefit at the midpoint, but assuming we’re in the 90%-10% sharing band, that’s about $0.07 at least that we can add on top of that correct?

Scott L. Morris – Chairman, President and CEO: Well, what it – to get to the 90%-10%, again I’ll remind you the bands, it’s $4 million on the first one, on the dead band, and then we get 25% of the next $6 million, so that’s a $1.5 million. So, it’s $5.5 million, and then you need to do the calculation for we are expecting to issue some equity this year up to $45 million, and we did issue equity last year, so on an average basis, you can do the calculation for the cents per share. We didn’t say it in that terms. We just said what the amount is.

Paul Ridzon – KeyBanc Capital Markets: Those are pre-tax or after-tax?

Scott L. Morris – Chairman, President and CEO: Pre-tax.

Paul Ridzon – KeyBanc Capital Markets: Pre-tax, okay. Thank you very much.

Power Supply Costs

Michael Klein – Sidoti & Company: Quick follow-up to that, just talked about with Ecova, I guess, can you just talk a little bit more about maybe the seasonality of the business, and the – I guess, the businesses that you acquired, and how that overlays with the organic business, and in terms of what to expect throughout the course of the year?

Scott L. Morris – Chairman, President and CEO: Sure. Michael, the exciting thing about the acquisitions of both LPB and Prenova is it really adds to the suite of products and services that we can cross-sell with a broader range of customers. That really was one of the key drivers strategically why we wanted to acquire those businesses. There were some like services that they provided, like (Go Pay), but we’ve got such a suite of products and services beyond bill pay now that when we can sell into those customers, we know the cross-sell and that’s why as Mark mentioned we’re confident that we will achieve the double-digit organic growth that we had in 2011 and 2012. From a seasonality perspective, remember a lot of the revenue is recurring, and that’s one of things we like about the business. I think, some of the seasonality happens primarily in the utility side of the business. As Mark mentioned, some of contracts roll in or roll out. We do some of the work depending on when the utility wants us to do it. A lot of times that goes into the fourth quarter. We’re really excited about where Ecova is and how these two acquisitions really set Ecova up for success for the future.

Michael Klein – Sidoti & Company: Okay, and kind of shifting gears to the utility side, I apologize if you talked about this in more length, I might have missed it, but the proposed change for power supply costs, can you talk about that a little bit?

Kelly Norwood – VP, Avista Corp. and VP of State and Federal Regulations, Avista Utilities: Are you referring to the change to the ERM, the Energy Recovery Mechanism, our rate filing?

Michael Klein – Sidoti & Company: Yes.

Kelly Norwood – VP, Avista Corp. and VP of State and Federal Regulations, Avista Utilities: Yeah, this is Kelly. We were required from a settlement agreement, five years ago to after 5 years make a proposal to the commission related to the ERM to provide all parties the opportunity to propose changes, continuation, and so on. So in this filing, we addressed that. As part of the filing we are proposing to eliminate the dead bands and go to a 90%-10% sharing from $1 which is consistent with what we have in place today in the State of Idaho in our power cost adjustment mechanism. As you probably remember in the last couple of years, we’ve had good hydro conditions and we’ve also experienced in the past several years declining natural gas prices, all of which have worked in our favor long-term. We’re in this for the long-term. That may not occur and costs are going to go both ways, and so we believe long-term that a 90%-10% sharing is the most appropriate place to be, given that most of these changes are beyond our control in terms of changes in hydroelectric conditions, as well as market prices.

Michael Klein – Sidoti & Company: Can you just remind us on the timing of additional rate cases aside from Washington, which is obviously filed?

Kelly Norwood – VP, Avista Corp. and VP of State and Federal Regulations, Avista Utilities: Right, in Idaho we agreed to not file for rates to effective prior to April 1 of 2013, so our plan at this point is to file later this year in Idaho. We do not have specific plans related to Oregon. We’ll certainly be taking a look at that later in the year.