Business Context and Reporting Period
Company: The Washington Water Power Company (Avista Corp)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended September 30, 1995
Business Overview: The Company operates as a utility generating, transmitting, and distributing electric energy and natural gas. Electric operations rely heavily on hydroelectric generation, while natural gas operations are weather-dependent. The Company also maintains non-utility operations through its investment subsidiary, Pentzer Corporation.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Sep 30, 1995 | 9 Months Ended Sep 30, 1995 |
|---|---|---|
| Operating Revenues | $157,869 | $514,770 |
| Income from Operations | $31,565 | $130,142 |
| Net Income | $10,885 | $54,503 |
| Income Available for Common Stock | $8,618 | $47,640 |
| Earnings Per Share (Common) | $0.16 | $0.87 |
| Cash Provided by Operating Activities | N/A | $113,753 |
| Capital Expenditures | $21,260 | $54,341 |
| Total Assets | $2,000,756 | $2,000,756 |
| Total Long-Term Debt | $688,460 | $688,460 |
| Common Equity | $699,031 | $699,031 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 11% for the quarter and 7% year-to-date compared to 1994. Electric revenues rose due to customer growth (including the acquisition of PacifiCorp properties) and improved wholesale sales from better streamflow conditions.
- Profitability: Income from operations increased 37% for the quarter and 20% year-to-date. Earnings per share rose to $0.16 (Q3) and $0.87 (YTD) from $0.11 and $0.83 in 1994, respectively.
- Cost Reductions: Purchased power costs declined significantly ($5.1M in Q3, $12.9M YTD) due to increased hydroelectric generation reducing the need for purchased power. Fuel expenses for generation decreased YTD by $5.4M.
- Segment Performance:
- Electric: Operating income increased 41% in Q3 and 19% YTD.
- Natural Gas: Operating income decreased 87% in Q3 due to a loss of $2.1M, though YTD income remained stable at $11.1M. Q3 results were impacted by higher purchased gas costs and lower margins.
- Non-Utility: Operating income increased 34% in Q3 and 83% YTD, driven by portfolio investment earnings, though transactional gains were lower than the prior year.
- Capital Structure: Total long-term debt decreased to $688.5M from $721.1M at year-end 1994. Common equity increased to $699.0M, improving the capital mix to 45% common equity (up from 40% in 1994).
Guidance, Outlook, Risks, and Contingencies
Proposed Merger
The Company is pursuing a merger with Sierra Pacific Resources (SPR) and Sierra Pacific Power Company (SPPC) to form Altus Corporation. The merger is designed as a pooling-of-interests. State regulatory approvals have been received from Washington, Idaho, Oregon, California, and Nevada, though some orders include rate freezes and earnings caps. The Company anticipates closing the transaction by the end of 1995.
Outlook and Capital Resources
Capital expenditures for 1995-1997 are projected at $228 million for utility operations. The Company expects internally-generated funds to cover approximately 90% of these needs. External financing will be required for debt maturities and the remaining capital requirements.
Material Risks and Contingencies
- Nez Perce Tribe Litigation: The Tribe alleges inadequate fish passage at two former dams, seeking damages between $425 million and $650 million. A federal magistrate recommended dismissal of the claims in September 1995, but the matter remains pending before the District Court. The Company cannot currently estimate potential loss.
- Firestorm Litigation: Multiple class-action lawsuits allege the Company caused wildfires via downed lines during 1991 gale-force winds. Trials are scheduled between 1997 and 1998. The Company cannot assess the likelihood of an adverse outcome or estimate losses.
- Environmental Remediation:
- Oil Spill: A reserve of $3.1 million is recorded for cleanup of an oil spill at the Central Steamplant. A lawsuit by a hotel owner regarding trespass and diminution of value is pending.
- Dollar Road: A $1.0 million reserve was recorded for soil contamination cleanup, expected to be completed by December 1995.
- Supply System Project 3: The Company settled a cost-sharing litigation claim with Chemical Bank for $500,000 in July 1995.
Investor Verification Checklist
- Merger Status: Verify the final status of the Altus merger, specifically the resolution of the Washington and Nevada regulatory petitions regarding rate freezes and benefit distribution.
- Litigation Exposure: Monitor the District Court's final ruling on the Nez Perce Tribe summary judgment motion and the status of the Firestorm class-action trials.
- Hydro Dependency: Assess the impact of streamflow variability on future wholesale power revenues and purchased power costs.
- Debt Maturities: Review the schedule of long-term debt maturities ($132M due 1995-1997) and the Company's refinancing strategy.
- Non-Utility Volatility: Evaluate the sustainability of non-utility earnings, noting the reliance on transactional gains from portfolio sales (e.g., Itron stock) which may be uneven.