Avista Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparison is with Q1 2012 unless otherwise noted. Avista is an energy company whose principal business is regulated electric and natural-gas utility operations; it also owns 78.9% of Ecova, an energy-efficiency and facility-cost-management services business. Financial statements are unaudited and were reviewed by the independent accountant.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Operating revenue | $482.9 million | $452.3 million; up 6.8% |
| Income from operations | $85.1 million | $76.4 million |
| Net income attributable to Avista shareholders | $42.3 million | $38.4 million; up 10.3% |
| Diluted earnings per share | $0.71 | $0.65 |
| Dividends per common share | $0.305 | $0.29 |
| Operating cash flow | $105.4 million | $121.3 million |
| Cash and cash equivalents | $89.2 million at March 31 | $75.5 million at December 31, 2012 |
| Total debt, as defined in the capital structure table | $1.416 billion | $1.419 billion at December 31, 2012 |
Utility gross margin increased to $201.9 million from $194.9 million: electric gross margin was $142.7 million versus $138.1 million, and natural-gas gross margin was $59.3 million versus $56.8 million. These are company-defined non-GAAP measures. Total assets were $4.332 billion and total liabilities were $3.019 billion at March 31. Current assets were $507.0 million versus current liabilities of $579.8 million. Avista had $334.9 million of available liquidity under its $400 million credit facility after borrowings and letters of credit.
Net cash used in investing was $86.7 million, including $70.6 million of utility property capital expenditures. Net cash used in financing was $5.0 million. Cash increased $13.7 million during the quarter.
Material changes and management commentary
- Avista Utilities shareholder-attributable net income increased to $42.3 million from $39.5 million, primarily reflecting Washington rate increases, partly offset by higher depreciation and taxes other than income taxes.
- Ecova moved to $1.2 million of shareholder-attributable income from a $0.8 million loss. Revenue rose $5.4 million to $42.4 million, supported by new services and higher service volumes; Q1 2012 included acquisition and integration costs.
- Other businesses reported a $1.1 million loss versus a $0.3 million loss, including a $0.5 million pretax impairment of an energy-storage investment, strategic-investment costs, and litigation costs related to former Avista Energy operations.
- Utility revenue increased $25.7 million. Higher wholesale electric and natural-gas sales and $11.7 million of Bonneville transmission-use revenue contributed; some Bonneville proceeds were deferred or designated for customer credits. Retail natural-gas revenue fell primarily because of lower pass-through rates.
- The 2012 comparative operating-expense presentation includes an immaterial reclassification of $2.3 million; it did not affect net income or EPS.
Outlook, risks and contingencies
- Management expects utility capital expenditures of approximately $260 million annually for 2013–2015. It expects to spend about $80 million, including internal labor, on customer-information and work-management systems through expected completion by the end of 2014.
- Management expected to issue up to $100 million of long-term debt and up to $50 million of common stock during 2013, primarily in the second half. A $50 million bond maturity was due in December 2013. Management stated operating cash flow and available credit were expected to provide adequate resources for the next 12 months.
- The board raised the quarterly dividend 5% to $0.305 per share. Expected pension contributions were $44 million in 2013; the company contributed $14.7 million in Q1.
- Washington and Idaho rate-case settlements provide for phased rate changes in 2013 and 2014. Idaho’s settlement includes a refund test if consolidated Idaho utility ROE exceeds 9.8%. Future rate recovery and the timing of regulatory decisions remain relevant uncertainties.
- A new five-year agreement with a large electric customer was expected to begin July 1, 2013, subject to regulatory approval. Avista estimated annual revenue would decline about $21 million and resource costs about $19.1 million; it proposed PCA tracking intended to avoid an earnings impact.
- Risks include weather and hydro conditions, wholesale power and gas prices, regulatory cost recovery, financing and credit ratings, collateral calls, environmental requirements, and operational disruptions. At March 31, energy derivatives had $17.8 million of fair value in liability positions with credit-related triggers; the company estimated $11.5 million of additional collateral could be required if those triggers occurred. It had posted $21.9 million cash collateral and $10.1 million in letters of credit for energy derivatives.
- California energy-market refund proceedings remain unresolved. Avista said it did not expect a material loss in the California refund matter based on information then known; it could not predict the outcome or potential effect of the Pacific Northwest proceeding.
- A March 2013 Clean Air Act complaint against Colstrip owners, including Avista as a 15% owner of Units 3 and 4, seeks injunctive relief, penalties, and other remedies. The company could not predict the outcome. Management also noted potential exposure to future environmental and regulatory costs, including coal-ash and greenhouse-gas rules.
- The company reported compliance with its credit covenants and effective disclosure controls as of March 31, 2013. Forward-looking statements are subject to the risks described in the filing; no formal full-year earnings guidance is stated in the provided filing text.
Important facts for investors to verify
- Whether planned debt and equity issuance, capital spending, and the December 2013 debt maturity proceed as expected.
- Regulatory approval and earnings effects of the large-customer contract, rate settlements, and Bonneville-related accounting and customer-credit proposals.
- Whether operating cash flow, credit availability, and collateral requirements remain adequate under changes in commodity prices or credit ratings.
- Developments and potential liabilities in the California and Pacific Northwest energy proceedings and the Colstrip litigation.
- Ecova’s revenue growth, margins, borrowing capacity, and any future ownership or monetization plans.