Avista Corporation — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; comparisons are primarily with fiscal 2011. This is an annual filing, not a standalone fourth-quarter report. Avista operates regulated electric and natural-gas utilities and owns 79% of Ecova, an energy and cost-management services business.
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Operating revenue | $1.547 billion | $1.620 billion |
| Income from operations | $190.1 million | $228.0 million |
| Net income | $78.8 million | $103.5 million |
| Net income attributable to Avista shareholders | $78.2 million | $100.2 million |
| Diluted EPS | $1.32 | $1.72 |
| Cash from operating activities | $316.6 million | $269.5 million |
| Capital expenditures, utility | $271.2 million | $239.8 million |
Consolidated operating margin, calculated as income from operations divided by revenue, was approximately 12.3% in 2012 versus 14.1% in 2011. Avista Utilities’ gross margin (a company-defined non-GAAP measure) rose to $661.1 million from $653.3 million: electric gross margin increased $12.9 million, while natural-gas gross margin fell $5.1 million.
At year-end, total assets were $4.313 billion, cash and cash equivalents were $75.5 million, and total debt in the company’s capital-structure presentation was $1.419 billion, or 53.0% of total capitalization, versus 53.6% in 2011. Shareholders’ equity was $1.259 billion. Avista had $312.1 million available on its $400 million credit facility; Ecova had $54 million drawn on its $125 million facility, with covenant-limited additional borrowing capacity of $5.6 million. The company paid $68.6 million in common dividends ($1.16 per share).
Material changes versus 2011
- Shareholder-attributable net income declined $22.0 million. Utility earnings fell mainly because warmer heating-season weather reduced retail loads, some industrial customers used less energy, and operating costs and depreciation increased; rate increases partly offset these pressures.
- Utility revenue declined $89.1 million, while utility resource costs declined $96.9 million. Lower natural-gas prices and reduced fuel-optimization costs contributed to lower resource costs.
- Ecova revenue increased $17.8 million to $155.7 million, largely from the Prenova and LPB acquisitions, but shareholder-attributable earnings fell to $1.8 million from $9.7 million. Higher growth, integration, employee, and amortization costs, together with slower-than-expected customer onboarding, weighed on results.
- Other businesses recorded a $5.3 million net loss versus a $0.3 million loss, including investment impairments and higher corporate and litigation costs.
- Operating cash flow rose to $316.6 million, while utility capital spending increased. The company issued $80 million of 4.23% first-mortgage bonds due 2047 and $29.1 million net proceeds from common-stock issuance.
Outlook, commentary, and risks
- Management expected utility customer growth in 2013–2016 of 0.7%–1.3% annually for electricity and 0.7%–1.8% for natural gas; forecast load growth was 0.7%–1.0% and 0.7%–1.4%, respectively, with the lower end expected in 2013. The filing provides no consolidated earnings guidance.
- Utility capital expenditures were projected at about $260 million annually for 2013 and 2014; the 2013 detailed budget totals $266 million. Management planned to issue up to $100 million of long-term debt and up to $50 million of common stock in 2013. It stated that operating cash flow and available credit, together with financing, were expected to fund planned needs.
- Washington rate-case settlements provided staged electric and gas rate changes for 2013 and 2014, with customer credits reducing the net electric increase. An Idaho rate-case settlement filed in February 2013 proposed phased 2013 increases and remained subject to IPUC approval. These post-year-end developments are described in the filing.
- Principal risks include weather and hydroelectric variability; wholesale power and gas prices, hedging and collateral needs; regulatory cost recovery and rate-case outcomes; financing access and credit ratings; pension funding; operational outages and cybersecurity; environmental requirements; Ecova integration and growth; and legal proceedings connected with historical western energy markets.
- Notable contingencies include the FERC California and Pacific Northwest refund proceedings and a Clean Air Act notice concerning Colstrip. Avista reported that the ultimate outcomes were uncertain; it did not expect material losses in certain California matters, but could not predict the Pacific Northwest proceeding’s outcome or potential impact.
- Unusual 2012 items included $7.3 million of pretax severance-program expense, a $2.4 million pretax impairment/write-off of investments in a fuel-cell business and solar company, and a $1.1 million pretax write-off of Ecova internally developed software. A prior-period operating-expense classification correction did not affect net income or EPS.
Key facts for investors to verify
- Whether utility rate settlements and power/gas cost deferrals receive regulatory approval and are recovered as anticipated.
- Ecova’s ability to integrate acquisitions, convert customer growth into earnings, and remain within credit-facility covenants.
- Capital spending, planned debt and equity issuance, pension contributions, and the effect on leverage and dividend capacity.
- Updates on Colstrip environmental allegations and western energy-market litigation, including any new estimated exposure.
- Hydroelectric generation, weather-sensitive retail demand, and collateral requirements under volatile commodity prices.
The financial statements received an unqualified independent audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2012.