Avista Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. Avista is primarily a regulated electric and natural gas utility serving the Pacific Northwest and Alaska. Financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $609.4 million | $474.6 million |
| Income from operations | $101.1 million | $76.6 million |
| Net income | $71.5 million | $54.8 million |
| Diluted earnings per share | $0.91 | $0.73 |
| Operating cash flow | $190.1 million | $94.2 million |
| Utility capital expenditures | $118.7 million | $100.5 million |
- Revenue rose 28.4%; net income rose 30.4%. Management attributed higher earnings primarily to general rate case effects and lower tax customer credits than in the prior-year period, partly offset by higher operating and depreciation costs.
- Avista Utilities’ non-GAAP utility margin, revenue less resource costs, was $302.4 million versus $268.0 million. Electric margin increased to $200.5 million from $172.6 million; natural gas margin increased to $101.9 million from $95.5 million.
- Electric utility revenue growth reflected rate increases, higher retail usage, and increased wholesale sales and fuel sales. Natural gas retail revenue declined with lower usage in milder weather; wholesale revenue and decoupling effects contributed to higher reported natural gas revenue. Commodity costs, resource optimization, and regulatory deferrals also materially affected reported revenue and expenses.
- Income tax was a $2.3 million expense, compared with a $6.6 million benefit in Q1 2023. The reported Q1 2024 effective tax rate was 3.1%.
Cash, debt and liquidity
- Cash and equivalents were $12.3 million at March 31, 2024, down from $35.0 million at year-end 2023. Operating cash flow improved year over year, chiefly due to power and gas deferral timing and accounts payable movements.
- At quarter-end, total debt, including current debt and leases, was $2.987 billion, or 54.2% of total capitalization; shareholders’ equity was $2.521 billion. Short-term borrowings were $212.2 million on the balance sheet. The company also reported $295.0 million drawn under its committed line, with $82.8 million classified as long-term because it intended to refinance that portion long term.
- Available liquidity was $198.3 million under the $500 million Avista line, $36.0 million under its letter-of-credit facility, and $25.0 million under AEL&P’s line. The company reported compliance with its financing covenants.
- In April 2024, Avista remarketed $83.7 million of Forsyth bonds at 3.875%; proceeds were used to repay line-of-credit borrowings. A $4.4 million net interest-rate-swap settlement is to be amortized against interest expense over the debt term.
- Cash dividends paid were $37.8 million; dividends declared were $0.475 per common share, up from $0.46 in Q1 2023.
Outlook, developments and risks
- Management expects 2024 Avista Utilities capital expenditures of $500 million, expects to issue $70 million of common stock during 2024, and does not expect additional long-term debt issuance in 2024. It believes existing facilities and expected stock issuance provide adequate liquidity for the next 12 months.
- Low first-quarter precipitation and snowpack reduced hydroelectric generation and are expected to weigh on generation for the year, raising net power supply costs. Avista recorded a $6.0 million pretax Washington ERM expense in Q1. The January 2024 extreme cold also produced higher-than-anticipated peak loads; management is evaluating whether to accelerate generation additions.
- Pending Washington multi-year rate cases propose annual electric base-revenue increases of $77.1 million in December 2024 and $53.7 million in December 2025, and natural gas increases of $17.3 million and $4.6 million, respectively. These are proposals, not approved rates. The requested return on equity is 10.4%; the WUTC review may take up to 11 months.
- Washington Climate Commitment Act costs were deferred and began being included in natural gas customer rates in April 2024. The resulting aggregate customer-bill increase is expected to be 3.7%.
- Avista plans to transfer its 15% Colstrip Units 3 and 4 ownership to NorthWestern on December 31, 2025, without monetary consideration, subject to conditions including required approvals and a new coal supply agreement. Colstrip owner disputes may resume in arbitration.
- Material uncertainties include wildfire litigation, particularly the Babb Road Fire proceedings, for which a liability trial is scheduled for May 5, 2025. Avista cannot predict the outcome or estimate a potential loss range. The company also reported Boyds Fire, Road 11 Fire, Orofino Fire, and other claims with uncertain outcomes. Separately, it reached a settlement in principle to pay $0.9 million to resolve the NPS natural and cultural resource claim, subject to a final agreement and public notice process.
- Avista is assessing recently finalized EPA power-plant rules and their potential compliance costs. The company expects to seek rate recovery for such costs where appropriate. The SEC climate-disclosure rules were stayed in April 2024 while litigation proceeds.
Most important facts for investors to verify
- Whether the proposed Washington rate increases are approved, and their final timing and terms.
- Hydro conditions, power-market prices, ERM exposure, and the extent to which higher supply costs are recoverable from customers.
- Progress and conditions for the Colstrip ownership transfer, including the coal supply agreement and regulatory approvals.
- Developments in wildfire litigation, especially the Babb Road liability trial, and any changes in the company’s ability to estimate potential losses.
- Execution of the $500 million capital plan, expected $70 million stock issuance, debt refinancing, and continued covenant and liquidity headroom.