Avista Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Avista is primarily a regulated electric and natural gas utility serving the Pacific Northwest, with an electric utility subsidiary in Juneau, Alaska, and smaller non-utility businesses.
Financial results and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total operating revenue | $1.439 billion | $1.322 billion | Up 8.9% |
| Operating income | $228.2 million | $232.7 million | Down 1.9% |
| Net income attributable to Avista shareholders | $147.3 million | $129.5 million | Up 13.8% |
| Diluted EPS | $2.10 | $1.90 | Up 10.5% |
| Cash from operating activities | $267.3 million | $331.0 million | Down $63.7 million |
| Utility capital expenditures | $439.9 million | $404.3 million | Up $35.6 million |
Revenue growth reflected rate increases, customer growth, stronger retail usage and higher wholesale energy prices. Net income also benefited from investment gains in other businesses and from prior-year charges that did not recur. Operating income fell as resource costs, operating expenses and depreciation increased. The effective tax rate was 7.5%, versus 5.2% in 2020.
Avista Utilities’ electric utility margin, a non-GAAP measure, was $669.2 million versus $662.9 million; natural gas utility margin was $230.5 million versus $218.0 million. Higher loads and rates supported margins, partly offset by increased power supply costs. AEL&P earned $7.2 million, down from $8.1 million, mainly due to higher operating expenses. Other businesses earned $14.6 million, compared with a $3.4 million loss, primarily reflecting investment gains.
At year-end, total assets were $6.854 billion and shareholders’ equity was $2.155 billion. Total debt, including short-term borrowings and the current portion of debt and leases, was $2.603 billion, or 54.7% of total capitalization, compared with 54.0% in 2020. Cash was $22.2 million. The company reported $82 million of available liquidity under its $400 million committed facility and $25 million available under AEL&P’s facility. Its $250 million first-mortgage bond maturity was due April 2022.
Dividends declared were $1.69 per share, versus $1.62 in 2020. Avista issued $90.0 million of common stock during 2021. The company had investment-grade ratings from S&P and Moody’s as of February 22, 2022.
Material changes and operating conditions
- Hot, dry weather in the second and third quarters drove unusually high electric cooling demand and below-normal hydro generation. Avista relied more on purchased power and thermal generation; its Washington Energy Recovery Mechanism recorded a $7.7 million pre-tax expense, compared with a $6.2 million benefit in 2020.
- Operating cash flow declined amid higher power and gas cost deferrals, increased pension contributions ($42 million versus $22 million), and other working-capital and tax changes.
- Net regulatory assets rose to $860.6 million from $750.4 million, including substantial deferred tax, pension, interest-rate-swap and energy-cost balances. Their recovery or refund treatment depends on regulation.
- Washington and Idaho rate cases concluded in 2021. Washington approved rate increases but offset billed-rate effects with tax benefits; Idaho approved a two-year settlement. Avista filed new multi-year Washington electric and gas rate cases in January 2022.
Outlook, risks and unusual items
- Liquidity and financing: Management expected operating cash flow and committed credit facilities, together with planned 2022 debt and equity issuances, to fund capital expenditures, dividends and other commitments. It planned to issue $400 million of long-term debt and $120 million of common stock in 2022, partly to refinance the $250 million maturity; planned 2023 issuances were $110 million each of debt and equity. These are plans, not guaranteed outcomes.
- Capital spending: Avista Utilities forecast annual capital expenditures of approximately $445 million for 2022–2024. AEL&P forecast $14 million in 2022, $13 million in 2023 and $12 million in 2024. A 10-year wildfire resiliency plan is expected to cost approximately $330 million; recovery of certain costs is subject to regulatory treatment.
- Resource transition: The 2021 electric IRP projected adequate resources through October 2026, then a 247 MW capacity deficit by January 2027. It assumed Colstrip exits the portfolio by 2025 and identified new resources, including possible gas-fired peaking capacity and renewables. Avista’s clean-electricity goals depend in part on future technology, affordability, regulatory accommodation and carbon offsets.
- Regulation and environment: Washington law effectively bars coal-fired energy from serving Washington retail customers after 2025 and sets later clean-energy requirements. New Washington and Oregon climate programs may increase costs, particularly for generation and natural gas distribution; impacts were not yet clear.
- Colstrip: The company’s 15% interest in Units 3 and 4 faces closure timing, ownership-agreement and coal-supply disputes, environmental remediation obligations, and litigation among co-owners. The company cannot predict outcomes or quantify potential adverse impacts clearly.
- Wildfire and other claims: Litigation and potential claims relate to the 2018 Boyds Fire and 2020 Labor Day windstorm fires. The Washington DNR concluded an Avista line ignited the Babb Road Fire; Avista disputes negligence and stated no material claims had been asserted for that fire as of the filing. Other matters include a possible federal claim of approximately $6 million relating to a 2017 National Park Service incident, Colstrip litigation, and an October 2021 gas-infrastructure incident in Rathdrum. Outcomes and losses are uncertain.
- Other risks: Key exposures include cost recovery and regulatory lag, energy-price and weather volatility, wildfire liability, cyberattacks, supply-chain delays, pension funding, interest rates, credit ratings and access to capital. Management reported that COVID-19 impacts had eased during 2021 but could continue to affect costs, projects and liquidity.
- Unusual items: 2021 benefited from net investment gains and a gain on sale of certain Spokane Steam Plant-related assets. The 2020 comparison included customer-refund and Colstrip-related accruals. The 2019 $103 million Hydro One termination fee was not a 2021 item.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Regulatory accounting was identified as a critical audit matter because recorded balances rely on judgments about future commission decisions.
Important facts for investors to verify
- Progress and final outcomes of the 2022 Washington rate cases, and whether authorized returns and timely cost recovery are achieved.
- 2022 refinancing and planned debt and equity issuance, including resulting leverage, dilution, interest expense and liquidity.
- Actual power costs, hydro conditions, customer demand and recovery of deferred power and natural gas costs.
- Colstrip’s operating and closure timeline, co-owner disputes, coal availability, remediation costs and regulatory recovery.
- Developments in wildfire claims, the National Park Service matter, and other litigation or contingencies.
- Regulatory decisions and costs associated with clean-energy mandates, wildfire mitigation and the forecast 2027 capacity shortfall.
- Whether investment gains and other non-utility results are repeatable, and the effect of rising capital spending and pension contributions on cash flow and dividends.