Jason Lang - Manager, Investor Relations Scott Morris - Chairman of the Board, President and Chief Executive Officer Mark Thies - Senior Vice President and Chief Financial Officer Dennis Vermillion - Senior Vice President and President, Avista Utilities Kelly Norwood - Vice President, State and Federal Regulation Christy Burmeister-Smith - Vice President, Controller and Principal Accounting Officer

Julien Dumoulin-Smith - UBS Paul Ridzon - KeyBanc Brian Russo - Ladenburg Thalmann

Thanks, Shannon, and good morning, everyone. Welcome to Avista's fourth quarter and fiscal year 2013 earnings conference call.

Our earnings were released pre-market this morning and the release is 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; Vice President, State and Federal Regulation, Kelly Norwood; and the Vice President, Controller and Principal Accounting Officer, Christy Burmeister-Smith.

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 2012 and our Form 10-Q for the third quarter of 2013, all these documents are available on our website.

Also, we plan to file our Form 10-K for 2013 later today. To begin this presentation, I'd like to recap the financial results presented in today's press release.

Our consolidated earnings were $1.85 per diluted share for the 2013 compared to $1.32 for 2012. On a quarterly basis, our consolidated earnings were $0.53 per diluted share for the fourth quarter of 2013 compared to $0.26 for the fourth quarter of 2012.

Now, I'll turn the discussion over to Scott.

Thank you, Jason, and good morning, everyone. We had a very good year in 2013.

Our results were above our expectations at utility and we saw a significant improvement in Ecova. We believe we are well-positioned for a strong 2014.

We are making progress towards completing the acquisition of Alaska Energy and Resource Company. This transaction reflects our strategy to expand and diversify energy assets and deliver long-term value to the customers, communities and investors we serve.

The transaction is expected to close by July 1. Turning to our fourth quarter results, our utility earnings increased due to colder weather and strong cost management.

As you will recall, the fourth quarter of 2012 was unusually warm and we also incurred expenses under our voluntary severance incentive program. In 2013, we successfully contained the growth in our utility operating cost and we will continue to manage to those cost going forward.

Ecova met our expectations for 2013 and we're very pleased with the rebound they experienced from a challenging 2012 and Ecova is well-positioned for the future. We're committed to updating and maintaining our utility system.

In 2013, we spent $294 million on CapEx and we expect utility CapEx to be about $335 million for 2014 and $355 million in 2015. On the regulatory side, earlier this month, we filed a general rate case in Washington, requesting an overall 3.8% increase in base electric rates and an overall 8.1% increase in base natural gas rates.

In the second quarter, we're planning to file a request to increase base electric and natural gas rates in Idaho. In January, the Oregon commission approved a settlement to our natural gas general rate case there.

New rates will be implemented in two phases, February 1 and November 1. Earlier this month, the Board of Directors raised the quarterly common stock dividend by 4% and this marks the 12 consecutive year the Board has raised the dividend for our shareholders.

We are confirming our 2014 earning guidance, which shows a consolidated range of $1.77 to $1.97 per share. This guidance excludes any impact from the planned acquisition of AERC, and Mark will provide more details on our earnings guidance in just a few minutes.

And with that, I'm going to turn it over to Mark.

Thank you, Scott. Good morning, everyone.

Utility earnings contributed $1.81 per share for 2013, a significant increase from a poor $1.38 last year. The increase in utility earnings was due to favorable weather, including weather that was warmer in the summer and colder in the fourth quarter compared to milder weather in the prior year, especially in the fourth quarter.

The implementation of general rate increases and the net benefit from the BPA settlement also contributed to our increase in earnings. These were partially offset by expected increases in depreciation and amortization, and taxes other than income taxes.

For the fourth quarter of 2013, utility earnings contributed $0.54 per diluted share compared to $0.28 for the fourth quarter of last year. This increase was due to an increase in gross margin, as I mentioned due to colder weather in '13 as compared to warmer weather in 2012 and general rate increases.

There was also a decrease in operating expenses from the fourth quarter of 2012 that included the voluntary severance program, as Scott mentioned. For 2013, we recognized a pre-tax expense of $4.7 million under the Energy Recovery Mechanism in Washington compared to a benefit of $6 million in 2012.

2013 was negatively impacted by the Colstrip outage that started in July and that's back online as of January, lower hydro generation and higher natural gas prices. Moving to Ecova, their earnings, as Scott mentioned, increased significantly compared to '12, contributing $0.12 per diluted share compared to $0.03 last year.

Their year-to-date revenues increased 14% and totaled $177 million and the increase in revenues resulted from increased volumes from all service lines, especially new services, which contributed $9.9 million to revenue in 2013. Ecova's total operating expenses increased 7% and totaled $163.5 million.

The net loss from our other businesses was $0.08 per diluted share in 2013 and the losses were primarily the result of impairment losses associated with investments in an energy storage company and a fuel cell business. We also had litigation costs related to the previous operations of Avista Energy and incurred cost associated with exploring strategic opportunities.

These losses were offset partially by METALfx having net income of $1 million in each of the last two years. I'm now going to talk about our liquidity and financing plans.

As of December 31, we had $201.6 million of available liquidity under our $400 million credit facility, $171 million of cash barrowings and $27.4 million of letters of credit outstanding. Throughout 2013 we issued $4.6 million of common stock under various plans, but did not issue any stock under our sales agency agreements.

In 2014, we expect to issue approximately $145 million of common stock related to the closing of the planned acquisition of AERC and to maintain an appropriate capital structure for our business. We also expect to issue approximately $190 million of long-term debt, including about $90 million of debt issuances at AERC and AEL&P associated with rebalancing the consolidated capital structure at AERC.

At Ecova, we have $125 million committed line of credit. And as of December 31, they had $46 million of borrowings outstanding and could borrow an additional $35.3 million under that facility.

As Scott mentioned earlier, we are confirming our 2014 guidance for consolidated earnings to be in the range of $1.77 to $1.97 per diluted share. This range does not include any impact from the planned acquisition of AERC.

We expect that the addition of AERC to Avista Corp will be slightly dilutive to earnings in 2014 and that it will be accretive to earnings in 2015. Our guidance, including 2014 guidance, generally includes only normal operating conditions and does not include unusual items such as settlement transactions, impairments or acquisitions, until the affects of those are known.

We expect Avista Utilities to contribute in the range of $1.68 to $1.82 per diluted share for 2014. We expect the 2014 utility earnings to be impacted by previously approved general rate increases, load growth of approximately 1%, a delay in the recovery of increased capital investments and growth in operating expenses of approximately 3% to 4%.

Our range for Avista Utilities encompasses expected variability in power supply cost and the impact of the ERM to that power supply cost variability, but the midpoint of our guidance does not include any benefit or expense under the ERM. In 2014, we expect to be in a benefit position under the ERM within the 75% customer, 25% company sharing band.

As a reminder, our outlook for Avista Utilities assumes among other variables, normal precipitation, temperature and hydro generation. To compare our 2013 actual earnings to how we prepare our 2014 earnings guidance, the 2013 earnings included several unusual items and we estimate they contributed a net $0.09 to earnings.

They included increased loads primarily due to favorable weather, which I talked about, which contributed $0.09 to earnings. A net benefit from BPA, which contributed $0.05 and they were partially offset by increased power supply cost, primarily due to the Colstrip outage, which decreased earnings by about $0.05.

For 2014, we expect Ecova to contribute in the range of $0.12 to $0.16 per diluted share and we expect operating revenues to be in the range of $180 million to $200 million with approximately 53% derived from expense and data management services and 47% from energy management services. We expect approximately one-third of their earnings to occur during the first half and two-thirds to occur during the second half of the year.

We expect our other businesses to contribute between a loss of $0.01 and a loss of $0.03 per diluted share and this is primarily resulting from cost we expect to continue to spend to explore strategic opportunities to grow our business. Now, I'll turn the call back over to Jason.

Thanks, Mark. Shannon, now we'd like to open the call up for questions.

So we got a few questions for you. Perhaps, first and just curious, you talk about the guidance relative to the ERM.

Could you elaborate a little bit on the impact of the drought in California and how that might impact your ERM this summer and whether that's included in your thinking thus far?

The way we look at how we forecast the ERM to us is really how our hydro goes and what we expect for our power supply cost. And that's really what runs through the ERM for us, and that's our calculation.

The drought in California can have some impact there, but we look at it as what is the market price is forecast out there and that should be encompassed in those market prices. And so that is included in our calculations, but the bigger impact for us is how our hydro situation looks.

And I don't know, Dennis, if you want to describe where we're at there.

Actually, our hydro is in pretty good shape. Thanks to a wet February.

The Northwest River Forecast Center currently has the Clark Fork at about 108% in normal. And remember that Clark Fork is where we get the majority of our hydro generation and it has a Spokane River at a 107% of normal.

So we're in pretty good shape. Of course, actual hydro generation is variable, depending on weather going forward, how fast, and when the run-off actually occurs.

But we like where we sit right now.

So actually it looks pretty favorable, given your hydro business relative to other regions, is that a good way to describe it?

And that's why we say that we expect to be in the 75, 25 sharing bands in the ERM. In our guidance, we don't include that as a midpoint, but we tell you where we expect to be, and that's where we expect to be.

And I'd be curious just talking broadly here on Colstrip here for a second. I mean obviously there have been some developments with a few others out there.

Does that change your thinking about how you see that asset, anything kind of coming up in terms of your ownership of it, et cetera?

No. Again, I think we're very pleased with our ownership of units 3 and 4.

We recognize there is lots of issues roaming around there, both nationally and regionally. However, it's highly efficient plant.

It's a great asset for our customers and we'll continue to monitor those situations, but we have no plans at this point to alter how we run units 3 and 4.

And then just following it here, I mean, more than a year out after some of the bumps at Ecova, how are you feeling about that business? How do you think about the timeline here in terms of reevaluating whether you're strategically the best fit, is that firmly beyond the Alaska deal or is that something that could happen in parallel?

Well, first of all, I think we're really pleased with Ecova's performance in 2013. And frankly, we knew that they were going to get back on track, because I think I had said previously that while 2012 was a bump in the road that their consistent performance for that business over the last decade has been excellent.

And we were confident in 2013, and they performed. I think you saw, our revenue growth was about 14% there.

We'll continue to look at opportunities both to growth it organically, which they are continuing to do as well as very targeted acquisitive growth, if there are opportunities. As far as whether we want to monetize the business or not, we may seek to monetize all or part of our investment in Ecova in the future.

We're regularly engaging in discussions with potential investors and acquirers to explore opportunities for such a transaction. So there is really nothing new to report there.

But I don't necessarily see the Alaska deal as an impediment, right, just to be clear?

Not at all. No, it's not an impediment.

And then if you could elaborate, this is more of a detail, the CapEx changes. Could you elaborate a little bit more what happened or why, if you will?

So increase in our CapEx going forward, we really looked it internally, all of the folks look at the condition of our system and the needs to maintain a safe reliable delivery system for both electric and natural gas, and determine that we had gotten behind before, and as we have, we need to really spend some dollars to maintain and improve our system. We have an aging infrastructure.

And given the environment with low interest rates, we think we can do that that doesn't have as significant of an impact to our customers. So we think it's the right thing to do to maintain that delivery system.

So we're increasing up to about approximately $335 million in 2014 and up to $350 million to $360 million in 2015 to maintain a safe reliable system.

Just wondering if you have got about a year under your belt on your strategic review around other growth initiatives. Just wondering what progress may have been made in kind of the areas you're looking at?

Well, I think we're making good progress. We're really looking at LNG and CNG.

CNG more in the utility area in and around our service territory. We've done a few small things in our service territory and look to continue that.

But on the LNG side, we see opportunities. We're going to continue to evaluate as we move forward with our Alaska acquisition and we think that's on track to close by July 1.

To look at opportunity there, because they're largely diesel based. And so I don't know that there will be an opportunity, but we're evaluating whether there is an opportunity there to help our utility customers and other customers in Alaska.

And then we also look at similar in Hawaii, as Hawaii is largely diesel-based. So we're looking at opportunities there.

So we've made good progress. We have nothing formal to announce by any means, but I think we are making good progress and we continue to believe that that's an opportunity for us.

And just your guidance has a loss of $0.01 to a loss of $0.03, is that kind of realistic to expect for the next couple of years out of the other segment?

We really look to spend those dollars looking at strategic opportunities. So, yes, I think that would be realistic to expect.

Just curious on the positive ERM balance you guys expect this year. Is it less hydro conditions and more just the direction of gas prices relative to what's embedded in your rates and your ability to kind of optimize your supply portfolio?

It's really a combination of both. Again, as Dennis said, we see hydro being strong.

We forecast in the midpoint of our guidance to normal, but we look as we look at the ERM to what the conditions we expect. So I think it really is a combination of both.

We see some opportunity for some better hydro and we see gas prices relative to what we have in rates at a level, and that's currently forecasted. That could all change.

We saw that last year, when we came into 2013, we had a positive expectation for the ERM within the debt band and with the Colstrip outage and certain movement on gas prices that moved away from us in '13. But we do expect as we look today for a combination of both good hydro and where gas prices are today to be a benefit in the 75, 25.

So are you assuming above normal hydro conditions or normal relative to the 108% supply level?

With the guidance normal, right. But as you're looking at it, that's an opportunity that can provide us with that ERM.

And is it accurate to say that what differentiates your water supply and hydro versus California and some of the other southern regions of the Northwest is that, a good part of the water supply is derived in Canada and the North Rockies in Montana, which kind of differentiates you and some of your Northwest peers versus California?

That's right. Our market basically in the Pacific Northwest is made up of Columbia River drainage system, which includes the northwest states and some of Canada.

So when you move into California, it's a completely disconnected watershed. So for us, we're impacted primarily by what goes on in the Columbia River.

And if you look at The Dalles, which is the lowest project on the river, it's about 92% in normal right now. Now, that in conjunction with where we sit, we're as a region looking pretty good.

California separate, much different situation, limited transmission capability that connects the region. So you really have to look at them separate.

And really, our specifically, Brian, as you know, that Montana is right. That's where 80% of our hydro is, up on the Clark Fork.

And that's what Dennis said earlier, we're in a 108%. So the region is on Columbia, but our specifically is Clark Fork and Spokane River.

So we're in good shape, even relative to the region.

And has AERC filed the general rate case yet?

They are looking at that, but they have not made a decision on the timing of that.

So no decision on timing, but they will file?

Their expectation is to file, but of course that remains to be seen once they go through all their numbers.

And is there a procedural schedule for the transaction application in Alaska?

There is a statutory period of six months from the filing date for the commission to act on that. And we filed December 4.

Are there hearings?

There actually isn't that procedural schedule set. Staff is reviewing the information.

And so we'll just have to wait and see when they choose to make their recommendation to the commission.

So it's the staff recommendation and then the commission just rules.

Yes, unless the commission chooses to do something different. There was a deadline at early January for written comments to be filed.

There were two sets of written comments filed both were supportive of the transaction. So that's really all that's occurred to date.

And then lastly, with the incremental capital expenditures that you planned, historically a lot of that net planned in terms of O&M and D&A has kind of eroded your ability to earn your allowed ROE. So with the uptick, meaningful uptick in CapEx, are you comfortable that this 8.4% to 9.1% ROE is kind of a good run rate to use?

Yes. I think we are.

The 8.4% that encompasses whatever expectation of lag we have due to capital in 2014, because remember in Washington and Idaho with our prior settlements rates are not to be changed until January 1, 2015 in both of those. In Oregon, as we mentioned in our release, we just reached the settlement in Oregon.

So we're really pretty caught up for our 2014 guidance. And as we look forward, in the '15 and '16, we do expect to have still a reasonable range to have an ability to earn or allow return.

Now, we have to go through the commission process and talk through and demonstrate the prudents of our capital investment, but historically, we've been successful in doing that. And we expect that we can continue to show why those are reasonable additions to our plant.

Can we expect improvement in earned returns, like maybe towards the lower-end of the range this year, until new rates go into effect, and then it kind of trends higher in '15 with new rates or pretty much the midpoint?

Ian, we haven't provided guidance for 2015. In 2013, we are in strong returns.

We actually had to give some back in Idaho on a regulatory basis. So recall, we've got allowed in Washington and Idaho 9.8%, but remember we have certain structural cost that have been 70 basis point to 90 basis points.

That was slightly higher in 2013, because we had some costs that we had in 2013, not significant, but it was slightly higher there and we still earned a pretty good return there. So I think that is a good return to look at going forward.

That is subjected to all kinds of different variables, but we don't think that's going to change.

I have a question. Would you please give some guidance on how much revenue is benefited from the favorable weather?

Was this normal on both electric and the gas side?

Well, what we said was when you look at '13 relative to others we had about $0.09 total favorable weather, really increased loads primarily due to weather. And we don't give it in revenue.

We do it in the cents per share. And that included both electric and natural gas, but it was a $0.09.

We're trying to give you that impact, so you can include that, but it was about $0.09 in 2013.

Well, that nice. Is it versus normal or versus last year?

No, that's versus normal. So when we compare our guidance we have it as normal, and so that's why we compare it that way, versus last year it was actually more because last year we had weaker weather, if you recall.

We didn't have a very good '12. And a lot of that, there was a combination of many things, one of which was weather that was warmer in the fourth quarter primarily in 2012.

Just wanted to follow-up, again on the CapEx. How much of this is like a structural uptick, if you think about, and what does that do to your kind of thinking about long-term earnings growth, if you will?

And perhaps provide just supposed in the context of perhaps further spending on Colstrip or what have you for compliance? I mean how do you see your long-term growth rate trending?

Well, again, we say 4% to 5% in our long-term growth. This is a positive, because we have to go through the regulatory process, but we believe that these are really good projects for our system.

And assuming that the commission agrees with us, and they are, and we believe, they will. But that should be a positive uptick to our growth.

But again, we haven't -- we're expecting to spend it in '14 and we'll see this in our next rate case. It will be the first opportunity to really tell where that is, but we believe that we'll be able to do that and it should be positive to our growth.

And as far as Colstrip is concerned, we'll have normal maintenance and normal capital opportunities there. But we don't see any at this point significant large capital additions to Colstrip for early 2020s with compliance.

So this is really, just as we said before, we would call it, plain vanilla good old-fashioned utility capital spend on transmission and distribution and modernizing our hydro generation.

Any other big ticket items we should be paying attention to or could come into the radar screen?

No, I mean the biggest thing that we expect in 2014 to go is we've spend the last several years working on a significant upgrade to our information system, on an IT, so we've had a pretty big project going, that goes into service this year. But that looks to be all on track and should be fine, otherwise the projects are, as Scott mentioned, the bigger projects, are upgrades at our Spokane River plants.

We've kind of completed the upgrades on the Clark Fork and now we're moving to the Spokane River. So we've seen some of those that are several year projects, but none of those projects are bigger than $20 million.

So if you really look at it on a sense of how big the projects are in a given year, we don't spend more than $20 million on any of those projects.

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

Have a great day.