Avista Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparisons are with Q1 2016 unless stated otherwise. Avista is primarily a regulated electric and natural gas utility operating in the Pacific Northwest and Alaska. The interim financial statements are unaudited and were reviewed by Deloitte; the review did not express an audit opinion.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Operating revenues | $436.5 million | $418.2 million | Up 4.4% |
| Income from operations | $115.4 million | $106.1 million | Up 8.8% |
| Net income attributable to Avista shareholders | $62.1 million | $57.6 million | Up 7.7% |
| Diluted earnings per share | $0.96 | $0.92 | Up $0.04 |
| Dividends declared per share | $0.3575 | $0.3425 | Up $0.0150 |
| Cash from operating activities | $149.7 million | $107.2 million | Up $42.6 million |
| Utility capital expenditures | $86.8 million | $88.9 million | Down $2.1 million |
Avista Utilities’ non-GAAP gross margin rose to $252.8 million from $241.1 million. Electric gross margin increased $4.4 million and natural gas gross margin increased $7.3 million. Management attributed the earnings improvement mainly to rate increases in Idaho and Oregon, customer growth, lower electric resource costs and lower utility operating and maintenance costs. Colder weather increased customer usage and revenues, while decoupling rebates partly offset those gains.
Balance sheet, debt and liquidity
- At March 31, 2017, total assets were $5.34 billion, total liabilities $3.65 billion and total equity $1.69 billion.
- Total debt, including short-term borrowings, current debt and affiliated-trust debt, was $1.84 billion, or 52.2% of debt plus Avista shareholder equity. Short-term borrowings were $105.0 million; long-term debt and capital leases were $1.68 billion, plus $51.5 million owed to affiliated trusts.
- Cash and cash equivalents were $26.2 million. Avista had $252.9 million available under its $400 million credit facility; AEL&P had a separate $25 million facility with no borrowings or letters of credit outstanding. The company reported compliance with its credit covenants and said liquidity was adequate for the next 12 months.
- Operating cash flow of $149.7 million funded $86.8 million of utility capital expenditures, $23.2 million of dividends and other cash needs. Cash rose to $26.2 million from $8.5 million at year-end.
Material changes, outlook and commentary
- Avista Utilities shareholder earnings increased to $58.4 million from $55.0 million; AEL&P earnings rose to $3.9 million from $3.0 million. Losses in Other businesses narrowed to $0.2 million from $0.3 million.
- Washington regulators denied Avista’s requested 2016 electric and natural gas rate increases; the company chose not to appeal and planned new Washington electric and gas rate cases in Q2 2017, proposing a three-year rate plan for 2018–2020. It also planned a separate Washington power-supply update seeking about $15 million in annual revenue.
- Avista expected to file electric and natural gas rate cases in Idaho in Q2 2017. In Oregon, parties reached an agreement in principle in April 2017 on the pending gas rate case; a formal settlement was still to be filed. Alaska’s interim rate increase was in effect, while a further permanent increase remained pending.
- For the second half of 2017, management expected to issue up to $110 million of long-term debt and up to $70 million of common stock to support capital spending and maintain its capital structure. Capital expenditure estimates for 2017–2019 were reported as not materially changed.
- Key risks include regulatory decisions affecting rate recovery and returns, weather and hydroelectric conditions, energy price volatility, interest rates, pension funding, and potential collateral requirements. A downgrade below investment grade could trigger additional collateral demands; the filing estimated up to $4.3 million for energy contracts and up to $13.3 million for interest-rate swaps under the stated analyses.
- Contingencies include an APX assertion that Avista Energy could be responsible for as much as $16 million in a California market proceeding; Avista disputes liability and cannot predict the outcome. Costs and outcomes for Cabinet Gorge gas-abatement and fish-passage work were not estimable. The company had not recorded significant amounts for unresolved contingencies.
- The Clean Power Plan and related federal rules were subject to legal and administrative review; Avista said it could not yet predict their impact. It intended to seek recovery of applicable compliance costs through rates.
Most important facts for investors to verify
- Progress and final outcomes of the planned Washington and Idaho rate filings, the Oregon settlement, and the Alaska rate case, including timing and allowed returns.
- Whether earnings and cash generation remain resilient after weather effects and decoupling adjustments, and whether forecast capital spending requires the planned debt and equity issuance.
- Available credit capacity and potential collateral needs if commodity prices, interest rates or credit ratings change.
- Developments in the APX claim and the potential cost, regulatory recovery and schedule for Cabinet Gorge environmental and fish-passage commitments.
- Implementation effects of new accounting standards, particularly revenue recognition and lease accounting; the filing said impacts were not yet fully determined for some standards.