Avista Corporation — 2022 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2022. Avista is primarily a regulated electric and natural gas utility serving customers in Washington, Idaho, Oregon, Montana and Alaska. Its reportable segments are Avista Utilities and Alaska Electric Light and Power Company (AEL&P); other activities include venture and real estate investments.
Financial and operating results
| Metric | 2022 | 2021 |
|---|---|---|
| Total operating revenue | $1.710 billion | $1.439 billion |
| Income from operations | $190.2 million | $228.2 million |
| Net income | $155.2 million | $147.3 million |
| Diluted EPS | $2.12 | $2.10 |
| Operating cash flow | $124.2 million | $267.3 million |
| Utility capital expenditures | $452.0 million | $439.9 million |
- Avista Utilities’ electric utility margin, a non-GAAP measure, was $687.9 million, up from $669.2 million. Natural gas utility margin was $243.6 million, up from $230.5 million. Combined utility margin was $931.5 million versus $899.7 million.
- Revenue growth reflected higher natural gas pass-through rates and commodity prices, increased electric wholesale sales and higher customer usage. Resource costs rose substantially; total operating expenses increased to $1.520 billion from $1.211 billion. The filing notes that pass-through commodity revenues and costs generally affect reported revenue without a corresponding utility-margin benefit.
- Net income improved despite lower operating income, supported in part by a $17.2 million income tax benefit and higher investment gains. Other income included significant unrealized gains on equity investments, notably a biotechnology investment; gains on investments without readily determinable fair value totaled $45.7 million.
- Operating cash flow fell $143.1 million, mainly reflecting increased collateral posted for derivatives and higher deferred power and gas costs. Cash and cash equivalents were $13.4 million at year-end.
Debt, liquidity and capital
- Total debt was $2.923 billion at December 31, 2022, up from $2.603 billion; debt was 55.6% of total capitalization versus 54.7% a year earlier. Shareholders’ equity was $2.335 billion.
- Short-term borrowings totaled $463 million. Year-end available liquidity under Avista Corp.’s listed credit and letter-of-credit facilities was $182.9 million; AEL&P had a separate $25 million undrawn line.
- Commodity prices rose to five to eight times normal levels during December amid cold weather and pipeline constraints, increasing collateral and working-capital needs. The company said it believed liquidity was adequate for the next 12 months.
- Avista issued $400 million of 4.00% first mortgage bonds due 2052 and raised $137.8 million net from common-stock issuance during 2022. The company declared dividends of $1.76 per common share.
Material changes, outlook and risks
- Net income rose 5.3%, while operating income and operating cash flow declined. Higher operating, depreciation and interest expenses weighed on utility earnings; Avista Utilities’ net income fell to $117.9 million from $125.6 million. Other-business net income rose to $29.7 million from $14.6 million, primarily due to the biotechnology investment valuation.
- Washington approved 2022 multi-year rate-case settlements designed to increase annual base electric revenue by $38.0 million in 2022 and $12.5 million in 2023, and natural gas revenue by $7.5 million and $1.5 million, respectively. Customer tax credits offset part of the increases. Idaho rate cases were filed in February 2023; the requested increases are proposals, not approved rates.
- Management expects 2023 utility capital expenditures of $475 million for Avista Utilities and $16 million for AEL&P. It expects to issue up to $200 million of long-term debt and $120 million of common stock and planned to increase the main credit facility’s capacity to $500 million.
- The 2021 electric resource plan projected a 247 MW long-term capacity deficit by January 2027, after expected adequacy through October 2026. Avista is pursuing additional power contracts and resources; selection and timing remain subject to procurement and regulatory processes.
- Avista agreed in January 2023 to transfer its 15% Colstrip Units 3 and 4 ownership to NorthWestern at the end of 2025, with no monetary exchange. Avista retains responsibility for specified existing site-remediation obligations; closing is subject to conditions, including required approvals and a new coal supply agreement.
- Key risks include recovery timing or disallowance of deferred commodity costs, high energy prices and collateral demands, inflation and interest rates, wildfire-related claims, climate and environmental rules, supply-chain delays, and cyber or operational disruption. Several wildfire and other legal matters have uncertain outcomes, and the filing does not provide a clear estimate of potential loss for them.
- Avista’s clean-energy goals include carbon-neutral electricity supply by the end of 2027 and 100% clean electricity by 2045. Management cautions that technology, affordability and regulatory treatment may affect achievement. The filing reports unqualified audit opinions and effective internal controls; the auditor identified regulatory accounting and Level 3 investment valuation as critical audit matters.
Important facts for investors to verify
- Whether deferred power and natural gas costs are recovered on schedule and what customer-rate impacts and cash needs result.
- Liquidity, collateral requirements and short-term debt refinancing, particularly following the December 2022 commodity-price shock.
- Regulatory outcomes for the pending Idaho and Alaska rate cases and any subsequent review of Washington rate-case capital spending.
- Colstrip transfer conditions, retained remediation exposure and any associated costs or regulatory recovery.
- Developments in wildfire and other litigation, including any changes to estimated exposure or insurance coverage.
- The assumptions and valuation sensitivity behind investment gains that materially supported 2022 net income, and progress addressing the projected 2027 capacity shortfall.