Avista Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Avista is primarily a regulated electric and natural gas utility serving the Pacific Northwest and Alaska, with smaller non-utility businesses. Financial statements are unaudited; the independent accountant performed an interim review, not an audit.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $412.9 million | $390.2 million | +5.8% |
| Income from operations | $101.9 million | $82.2 million | +24.5% |
| Net income | $68.0 million | $48.4 million | +40.5% |
| Diluted EPS | $0.98 | $0.72 | +36.1% |
| Operating cash flow | $145.1 million | $135.3 million | +7.3% |
- Operating margin was approximately 24.7% of revenue, versus 21.1% a year earlier; net margin was approximately 16.5%, versus 12.4%.
- Operating revenue growth reflected regulated rate increases and customer growth. Net income also benefited from investment gains, lower bad-debt expense, and the absence of prior-year customer refund and Colstrip replacement-power accruals.
- Avista Utilities’ electric and natural gas utility margin, a non-GAAP measure, totaled $266.0 million, up $18.4 million year over year. AEL&P net income was $3.5 million versus $3.4 million; other businesses earned $0.5 million versus a $1.0 million loss.
- Cash used in investing was $96.5 million, including $97.2 million of utility capital expenditures. Cash used in financing was $41.2 million, including $29.4 million of dividends. Cash and equivalents ended at $21.6 million.
- At March 31, total debt was $2.377 billion, or 53.5% of debt plus equity in the company’s capital-structure presentation; shareholders’ equity was $2.069 billion. Short-term borrowings were $193.0 million and long-term debt was $2.009 billion. Total current assets were $350.1 million against current liabilities of $492.8 million.
Changes, outlook, and management commentary
- Compared with Q1 2020, revenue increased $22.6 million and net income increased $19.6 million. Management attributed utility earnings growth mainly to Washington and Oregon rate increases, customer growth, and the prior-year items noted above. Colder weather than the prior-year quarter increased heating loads; residential usage rose while commercial electric usage fell.
- Management said COVID-19 had not caused a material change in total loads versus normal in Q1, though residential strength was offset by weaker commercial loads. More than 90% of utility revenue is covered by regulatory mechanisms. Customer disconnection moratoria remained in effect in Washington and Oregon, and COVID-related regulatory deferrals at March 31 included an $11.8 million asset and an $11.6 million liability.
- The company said it expected adequate resources for capital expenditures, dividends, and other commitments from operating cash flow and committed credit lines. As of April 30, it reported $182.4 million of available capacity under Avista Corp.’s line and $25.0 million under AEL&P’s line. The $100 million one-year credit agreement was repaid in April 2021. Management expected to issue about $120 million of long-term debt and $75 million of equity during 2021, principally to refinance maturities and fund capital spending.
- Avista expected 2021 pension contributions of $42 million, after contributing $14 million in Q1. Its $400 million revolving credit facility was scheduled to expire in April 2022; management expected to extend it to April 2026. The company was in compliance with credit covenants at quarter-end.
- The 2021 resource plan projects adequate supply through 2025, then a 12 MW capacity deficit in 2026 and 301 MW in 2027, assuming Colstrip is removed from the portfolio in 2025. Management identified renewables, storage, demand response, efficiency, and generation upgrades as elements of its resource strategy; gas-fired peakers were included for the 2026 need. Its clean-electricity goals depend in part on future technologies becoming available and affordable.
Risks, contingencies, and unusual items
- Colstrip Units 3 and 4 remain subject to owner disputes and arbitration over the operating agreement and potential closure. Montana enacted legislation affecting the facility; Avista and other owners challenged one law and said they intended to challenge another. A Washington commission investigation was possible but had not been decided. The company could not predict the outcome or potential financial impact.
- Avista is defending litigation related to the 2018 Boyds Fire, including a state claim seeking up to $4.4 million for suppression and investigation costs, as well as related private claims. It also reported investigations and potential claims relating to 2020 windstorm wildfires that affected about 22,000 acres and approximately 230 structures; it said its investigation had found no evidence of negligence and the cause investigations remained ongoing.
- Market-price volatility, derivatives, and collateral requirements could affect liquidity. At March 31, potential additional collateral tied to credit-rating triggers was reported as $11.0 million without contractual thresholds ($5.4 million taking thresholds into account). A downgrade below investment grade could trigger collateral demands or payment requests.
- Other principal risks include regulatory cost recovery and allowed returns, severe weather and wildfire exposure, fuel and power costs, financing and interest rates, pension funding, cyberattacks, environmental requirements, and COVID-19-related economic effects. The filing said general risk disclosures were not materially changed from the 2020 Form 10-K.
- The company is pursuing sales of certain Steam Plant Square and Brew Pub assets, expected to close in Q2 2021. It also noted that the 2021 WUTC general rate cases remained pending, and Idaho rate-case proposals sought increases partly offset by customer tax credits.
Important facts for investors to verify
- Progress and outcomes of the Colstrip arbitration, Montana legal challenges, and any WUTC investigation; assess potential cost, closure, and rate-base implications.
- Developments in Boyds Fire and 2020 windstorm wildfire investigations or claims, including any updated liability estimates or insurance coverage.
- Regulatory decisions on pending Washington and Idaho rate cases, customer refunds, and recovery of deferred power, gas, and COVID-19 costs.
- Execution of planned debt and equity issuances, the credit-facility extension, capital spending, pension contributions, and cash-dividend funding.
- Whether projected resource needs and clean-energy targets remain achievable, particularly the 2026–2027 capacity gap and assumptions about Colstrip, storage, and new generation.