Avista Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Avista is primarily a regulated electric and natural-gas utility operating in the Pacific Northwest and Alaska. Interim financial statements are unaudited; Deloitte reported that its review found no material modifications necessary.
Financial results and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenues | $379.9 million | $378.6 million | $854.6 million | $840.6 million |
| Income from operations | $43.8 million | $24.3 million | $120.4 million | $107.3 million |
| Net income | $17.5 million | $11.5 million | $72.3 million | $83.0 million |
| Diluted earnings per share | $0.23 | $0.16 | $0.96 | $1.15 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $269.6 million | $205.9 million |
- Margins: Avista Utilities’ non-GAAP utility margin was $228.6 million in Q2, up from $212.3 million, and $496.6 million for the first half, up from $474.7 million. Q2 electric margin benefited from a $1.0 million pre-tax ERM benefit, versus a $4.8 million expense a year earlier. First-half Washington ERM expense was $6.5 million, versus $2.8 million.
- Cash and investment: Six-month utility property capital expenditures were $226.7 million, compared with $210.6 million. Cash and cash equivalents were $15.7 million at June 30, 2023, versus $13.4 million at year-end 2022.
- Debt and liquidity: Total debt, including short-term borrowings and leases, was $2.91 billion, or 54.8% of total capitalization, versus $2.92 billion and 55.6% at year-end. Short-term borrowings were $203 million, down from $463 million. Available liquidity was approximately $326.4 million under Avista Corp.’s credit and letter-of-credit facilities, plus $25 million available to AEL&P. The company reported compliance with debt covenants.
- Dividends and equity: Six-month cash dividends paid were $69.9 million. Avista issued $59.5 million of common stock in the first half, increasing shares outstanding.
Changes versus comparable periods
- Q2 net income increased 53% year over year, supported by higher utility margin and a larger income tax benefit. Higher interest expense and investment losses in non-utility businesses partly offset the improvement.
- First-half net income declined 13%. Higher interest expense, operating costs and non-utility investment losses outweighed increased utility margin.
- Interest expense rose to $35.0 million in Q2 from $28.5 million, and to $70.1 million for the first half from $56.6 million, reflecting higher rates and borrowings.
- First-half operating cash flow increased, primarily due to lower derivative collateral requirements and receivables, partly offset by lower accounts payable and other current liabilities.
Outlook, management commentary and risks
- Management said unusually rapid snowmelt following high May and June temperatures materially reduced hydroelectric generation, making 2023 one of the company’s worst hydro years. Avista increased thermal generation and purchased power; reduced hydro availability affects the Washington ERM and results.
- Management expects adequate liquidity for the next 12 months. It expected no additional long-term debt issuance in 2023 and planned $120 million of common-stock issuance for the year, including $59.5 million already issued. Capital spending plans were described as materially consistent with the 2022 Form 10-K; a clear total forecast is not provided in this filing text.
- Rate proceedings remain important: Idaho electric and gas settlement proposals contemplated increases beginning September 2023 and further electric increases in 2024, subject to regulatory approval. Oregon’s natural-gas rate case sought a $9.4 million annual base-revenue increase, with rates proposed for January 2024. Avista expected to file its next Washington electric and gas rate cases in Q1 2024. Alaska’s permanent rate request was pending.
- Washington’s Climate Commitment Act took effect in 2023. Management expected minimal initial impact on electric operations under the approved allowance model, while natural-gas compliance costs were expected to be deferred pending recovery through regulation.
- Material unresolved matters include wildfire litigation, including the Babb Road fire; the Boyds and Road 11 fires; Colstrip-related disputes and claims; a potential federal claim of approximately $6 million concerning a National Park Service incident; and a lawsuit following a natural-gas incident in Rathdrum. The company could not predict outcomes or estimate potential losses for several matters.
- Other key exposures include regulatory lag, inflation and interest rates, commodity-price volatility and collateral calls, hydro conditions, wildfire and severe-weather liability, cyber and technology risks, and environmental requirements. Management identified new risk considerations involving generative AI and technology obsolescence.
Most important facts for investors to verify
- Whether reduced hydro generation and resulting power purchases materially affect full-year earnings, cash needs and ERM outcomes.
- Regulatory decisions and timing for Idaho, Oregon, Alaska and anticipated Washington rate cases, including the recoverability of costs and capital investment.
- Progress and potential exposure from wildfire and other litigation; several outcomes and loss ranges remain indeterminable.
- Liquidity needs, refinancing and equity issuance plans, given rising interest costs, capital investment and energy-market collateral requirements.
- Actual cost and rate-recovery effects of the Climate Commitment Act and other changing environmental and building-code requirements.