Business Context and Reporting Period
Company: Avista Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Avista Corp. is an energy company operating through two primary segments: Avista Utilities (regulated electric and natural gas generation, transmission, and distribution in Washington, Idaho, Oregon, and Montana) and Advantage IQ (facility information and cost management services). The company is also pursuing a statutory share exchange to reorganize into a holding company structure.
Key Financial Metrics (Six Months Ended June 30, 2009)
| Metric | 2009 (YTD) | 2008 (YTD) |
|---|---|---|
| Total Operating Revenues | $794.6 million | $846.6 million |
| Net Income (Attributable to Avista) | $56.9 million | $48.8 million |
| Earnings Per Share (Diluted) | $1.04 | $0.91 |
| Operating Cash Flow | $176.5 million | $112.1 million |
| Total Debt | $1.14 billion | $1.19 billion |
| Debt-to-Capitalization Ratio | 52.5% | 54.5% |
| Cash and Cash Equivalents | $34.5 million | $5.4 million |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased $52.0 million (6.1%) year-over-year. This was driven primarily by a $77.1 million decrease in natural gas revenues due to lower wholesale prices and volumes, partially offset by an $18.9 million increase in electric revenues from rate hikes in Washington and Idaho.
- Profitability Increase: Net income increased $8.1 million (16.6%) despite lower revenues. This improvement was driven by a significant reduction in utility resource costs ($86.0 million decrease) due to lower natural gas prices and a $7.9 million decrease in interest expense.
- Segment Performance:
- Avista Utilities: Net income rose to $56.0 million from $45.3 million, aided by general rate increases and lower fuel costs.
- Advantage IQ: Net income declined to $2.4 million from $3.3 million due to lower interest rates and increased amortization of intangible assets from the Cadence Network acquisition.
- Other Businesses: Reported a net loss of $1.5 million compared to a net income of $0.1 million, impacted by venture fund losses and environmental liabilities.
- Debt Reduction: In April 2009, the company redeemed $61.9 million of junior subordinated debt to affiliated trusts, funded by short-term borrowings.
Guidance, Outlook, and Risks
- Capital Expenditures: The company expects utility capital expenditures to exceed $210 million for the full year 2009. Projects include generation upgrades and smart grid initiatives.
- Regulatory Matters:
- Rate Cases: New rates in Washington (effective Jan 2009) and Idaho (effective Oct 2008 and Aug 2009) are increasing revenues. A new rate case was filed in Oregon in June 2009.
- Legal Challenges: Public Counsel in Washington has petitioned for judicial review of the December 2008 rate settlement, potentially challenging the recovery of $25.2 million in costs related to the Coeur d'Alene Tribe settlement.
- Liquidity: The company maintains $520 million in committed lines of credit and an $85 million receivables facility. As of June 30, 2009, available liquidity was approximately $265.3 million. A covenant waiver was obtained regarding a temporary increase in customer delinquency ratios.
- Key Risks:
- Commodity Prices: Volatility in wholesale electricity and natural gas prices impacts cash requirements and derivative valuations.
- Environmental Regulation: Potential costs associated with greenhouse gas emissions (cap-and-trade), mercury controls, and renewable energy standards.
- Pension Funding: The company plans to contribute $48 million to its pension plan in 2009 due to market declines in plan assets.
- Contingencies: Ongoing proceedings related to the 2000-2001 western energy crisis (California and Pacific Northwest refund proceedings) and environmental remediation (Harbor Oil site).
Investor Verification Checklist
- Rate Case Outcomes: Monitor the status of the Washington Public Counsel appeal regarding the $25.2 million Tribe settlement recovery and the results of the new Oregon rate case.
- Commodity Hedging: Review the fair value of energy commodity derivatives (Level 2 and Level 3 assets/liabilities) and potential collateral requirements if credit ratings or market prices shift.
- Debt Refinancing: Verify the company's ability to issue long-term debt in 2009 to replace short-term borrowings used for the affiliated trust redemption.
- Pension Obligations: Track the funded status of the pension plan and the impact of actuarial assumption changes on future contributions.
- Advantage IQ Monetization: Assess progress on the potential monetization (IPO or sale) of Advantage IQ, which has a 24% noncontrolling interest and redemption rights for minority shareholders in 2011/2012.