Avista Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Avista is primarily a regulated electric and natural gas utility serving the Pacific Northwest, with electric utility operations in Juneau, Alaska, and smaller non-utility investments.
Financial performance and condition
| Metric | 2019 | 2018 |
|---|---|---|
| Operating revenue | $1.346 billion | $1.397 billion |
| Income from operations | $210.4 million | $261.1 million |
| Net income attributable to Avista shareholders | $197.0 million | $136.4 million |
| Diluted earnings per share | $2.97 | $2.07 |
| Net cash provided by operating activities | $398.2 million | $361.9 million |
| Utility capital expenditures | $442.5 million | $424.4 million |
| Dividends declared per common share | $1.55 | $1.49 |
Operating revenue declined about 3.7%, while shareholder net income increased about 44%. Earnings included a $103 million pre-tax Hydro One termination fee; Avista reported $19.7 million of pre-tax 2019 transaction costs, and the remaining fee after costs and taxes supported general corporate purposes. Income from operations fell despite higher reported net income. Avista Utilities’ combined electric and natural gas utility margin, a non-GAAP measure, rose to $853.4 million from $840.7 million.
At year-end, total assets were $6.082 billion and shareholders’ equity was $1.939 billion. Total debt in the company’s capital-structure presentation, including short-term borrowings and leases, was $2.257 billion, or 53.8% of total capitalization. Cash and cash equivalents were $9.9 million. Available committed credit was $196.2 million for Avista and $21.5 million for AEL&P. The company reported compliance with its credit-facility covenants. Credit ratings were investment grade: BBB from S&P and Baa2 from Moody’s for issuer ratings.
Material changes versus 2018
- Net income rose mainly because of the Hydro One termination fee, higher general-rate revenue and customer growth; higher utility operating and maintenance costs, depreciation, merger costs and a $7 million Avista Foundation donation partly offset the increase.
- Avista Utilities revenue decreased, while its utility margin increased. Lower hydro generation, higher thermal fuel costs and higher power purchase prices affected power supply costs.
- AEL&P net income declined to $7.5 million from $8.3 million, with warmer-than-normal weather and low hydro generation affecting sales. Adoption of the new lease standard moved Snettisham costs from resource costs to depreciation and interest, affecting year-over-year presentation.
- Operating cash flow increased, but remained below utility capital expenditures. The company issued $64.6 million of common stock and $180 million of long-term bonds in 2019.
- Avista sold METALfx in April 2019, recognizing an approximately $3.3 million after-tax gain. It also adopted lease accounting standard ASC 842 in 2019.
Outlook, management commentary and risks
- Management expected to issue approximately $160 million of long-term debt and up to $60 million of equity in 2020 to refinance maturities, fund capital expenditures and maintain its capital structure. It forecast Avista Utilities capital expenditures of $405 million annually for 2020–2022 and AEL&P expenditures of $9 million in 2020 and 2021, rising to $15 million in 2022.
- Management expected rate relief from pending or recently concluded rate cases to begin reducing regulatory lag. A Washington partial settlement proposed, subject to WUTC approval, annual base-revenue increases of $28.5 million for electric service and $8.0 million for natural gas effective April 1, 2020. The Idaho electric rate case instead reduced annual base revenues by $7.2 million effective December 1, 2019; Oregon natural gas rates increased $3.6 million annually effective January 15, 2020.
- Washington customers were due an estimated $37–38 million ERM rebate, including interest, with a two-year return period agreed by parties; remaining contested issues and final regulatory disposition were pending. A separate Washington case concerning 2015 rate orders had a potential refund range of $3.6–$77 million; Avista recorded a $3.6 million liability, the low end of the range.
- Washington’s Clean Energy Transformation Act requires no coal-fired resources be allocated to Washington retail customers after 2025, carbon neutrality by 2030 subject to specified requirements, and 100% clean electricity by 2045. Avista’s own stated goals are carbon-neutral electricity supply by the end of 2027 and 100% clean electricity by 2045; management noted that achieving them depends on future technology, affordability, reliability and regulatory accommodation.
- Avista owns 15% of Colstrip Units 3 and 4. Its remaining investment was $119.2 million at year-end. Washington’s proposed rate-case settlement would accelerate depreciation through 2025, subject to approval; Idaho had authorized depreciation through 2027. Future coal-ash compliance and remediation costs are uncertain, and recovery through rates is not assured.
- Other significant risks include regulatory recovery and timing, wildfires and severe weather, cyberattacks, energy and interest-rate volatility, collateral calls, pension obligations, and operational or environmental issues. A Washington state wildfire-cost lawsuit was in early discovery and damages were not specified; Avista disputed the allegations.
- Management forecast average annual 2019–2023 customer growth of 1.1% for electric and 1.6% for natural gas, with average load growth of 0.5% and 1.1%, respectively. These are forecasts, not guaranteed results. The filing does not provide a clear consolidated earnings-per-share guidance target.
Important facts for investors to verify
- How much of 2019 earnings and cash generation is attributable to the non-recurring Hydro One termination fee, and how results compare excluding it.
- Final regulatory outcomes for Washington rate cases, the ERM customer rebate, and the potential refund related to the 2015 rate cases.
- Colstrip’s operating, depreciation, remediation and compliance costs, and whether those costs are recoverable from customers.
- 2020 financing plans, credit-facility renewal, capital spending, debt levels and dividend capacity.
- Potential liabilities and insurance or rate-recovery outcomes for the Boyds Fire claim and other contingencies.
- Execution, cost and customer impacts of clean-energy requirements and the company’s stated clean-energy goals.
Audit: Deloitte & Touche issued an unqualified opinion on the 2019 financial statements and internal control over financial reporting.