Avista Corporation — Q2 2021 Form 10-Q
Business context and period. Avista is primarily a regulated electric and natural gas utility serving the Pacific Northwest and Alaska, with smaller non-utility businesses. This unaudited report covers the quarter and six months ended June 30, 2021; amounts below are in millions unless noted. The interim financial statements received a review, not an audit.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $298.3 | $278.6 | $711.1 | $668.8 |
| Operating income | $31.8 | $34.9 | $133.6 | $117.1 |
| Net income | $14.1 | $17.5 | $82.1 | $65.9 |
| Diluted EPS | $0.20 | $0.26 | $1.18 | $0.98 |
| Operating cash flow | Not presented quarterly | $190.1 | $199.9 |
Utility margin. Avista Utilities’ non-GAAP utility margin was $198.0 in Q2 2021 versus $201.3 in Q2 2020; for the first half it was $464.1 versus $448.9. Q2 electric margin fell $5.0, partly offset by a $1.7 rise in natural gas margin. First-half electric and natural gas margins rose $4.1 and $11.1, respectively. These are management-defined non-GAAP measures, not operating income.
Cash, investment and debt. Cash was $39.0 at June 30, 2021, versus $14.2 at year-end 2020. Six-month utility capital expenditures were $213.8, up from $189.5. Total debt, including current debt, short-term borrowings and affiliated-trust debt, was $2.480 billion, compared with $2.387 billion at year-end; debt was 54.5% of total debt and equity. The balance sheet included $296 million of short-term borrowings and $250 million of current long-term debt. Shareholders’ equity was $2.070 billion. Dividends paid in the first half were $58.7 million; declared dividends were $0.845 per share.
Avista had $79.9 million available under its $400 million credit line and $25 million under AEL&P’s facility. The principal facility was extended to June 2026. Avista reported compliance with debt covenants; its consolidated debt-to-capitalization covenant ratio was 54.5%, against a 65% limit.
Material changes versus comparable periods
- Q2 revenue rose 7.1%, while net income declined 19.4% and diluted EPS fell from $0.26 to $0.20. Higher power supply costs and operating and maintenance expense reduced utility results. The quarter also included a net investment gain and proceeds from the Spokane Steam Plant asset sale within other businesses.
- First-half revenue rose 6.3% and net income rose 24.6%. Growth reflected rate increases, customer and load growth, and improved results in other businesses. The 2020 comparison included customer refund and Colstrip-related charges, a one-time depreciation increase, and an associated $8.4 million tax benefit.
- Operating cash flow decreased $9.8 million year over year, partly due to larger power and gas cost deferrals and pension contributions of $28 million versus $14.6 million. Investing cash outflow increased to $210.8 million, largely reflecting higher utility capital spending.
- At June 30, the $250 million current portion of long-term debt was a material reclassification/change from no current portion at year-end 2020. Short-term borrowings increased from $203 million to $296 million.
Outlook, management commentary and risks
- Heat wave and supply costs: A late-June Pacific Northwest heat wave drove the company’s record peak electric load of 1,889 MW on June 30. Protective outages affected approximately 22,000 customers. Hot, dry conditions reduced hydroelectric generation while increasing loads and wholesale power and gas prices; thermal-plant maintenance outages also constrained supply. Management reported a $3.3 million Washington ERM expense at quarter-end, versus a $4.3 million benefit at March 31.
- Capital and financing plans: 2021 Avista Utilities capital expenditure guidance increased to $450 million from $415 million; about $445 million annually is expected for 2022–2023. The company expected to issue approximately $140 million of long-term debt and $90 million of common stock during 2021, including $15.7 million of stock issued in the first half. Management expects operating cash flow and available credit to fund capital spending, dividends and contractual commitments.
- Rates and regulation: Washington rate cases were pending, with a final order expected before an October 1, 2021 effective date. Idaho parties reached a proposed two-year settlement, subject to commission approval. Avista expected to file an Oregon gas rate case in Q4 2021. Over 90% of utility revenue is covered by regulatory mechanisms, according to management.
- Resource planning: The 2021 integrated resource plan projects adequate resources through October 2026, then a capacity deficit of 247 MW by January 2027, net of energy efficiency. The plan assumes Colstrip exits based on economics and Washington requirements; an exit strategy had not been developed. The company’s clean-electricity goals depend in part on future technologies, affordability and regulatory accommodation.
- Contingencies and exposures: Wildfire litigation and investigations remain a key risk. The Babb Road Fire DNR report attributed ignition to a branch falling on an Avista line; Avista disputed negligence, and no material Babb Road claims had been asserted as of the filing. The company also disclosed other 2020 windstorm fires, a Boyds Fire claim seeking up to $4.4 million, and a potential DOJ claim related to National Park Service property of about $2 million, potentially up to $6 million including treble damages. Colstrip co-owner disputes and related Montana legislation are being litigated; the company could not estimate potential impact.
- Other risks: Management identified regulatory recovery, commodity prices, weather and hydro conditions, interest rates, collateral calls, cybersecurity, COVID-19 effects and potential wildfire liability. Commodity and interest-rate derivatives can create collateral requirements; additional collateral could be required if ratings fell below investment grade. COVID-19 regulatory deferrals at June 30 included $14.3 million in assets and $12.7 million in liabilities.
Most important facts for investors to verify
- Whether pending Washington and Idaho rate settlements were approved and how final rates compare with requested or proposed amounts.
- Actual 2021 capital expenditures, debt and equity issuance, and refinancing or repayment of the $250 million current debt balance.
- Whether elevated power costs, heat-related supply constraints and ERM/PCA balances affect future earnings, cash needs or customer rates.
- Developments, claims, insurance coverage and potential financial exposure in wildfire matters and the DOJ/NPS dispute.
- Colstrip arbitration and legislative litigation outcomes, closure timing, and any resulting cost recovery or impairment exposure.
- Progress toward the projected 2026–2027 resource gap and the feasibility and cost of planned clean-energy resources.