Business Context and Reporting Period
Company: Avista Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: Avista Corp. is an energy company engaged in the generation, transmission, and distribution of energy. Its primary segments are Avista Utilities (regulated utility operations in Washington, Idaho, and Oregon) and Advantage IQ (energy efficiency and facility information services). The company also holds other non-utility investments and operations.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Operating Revenues | $456.4 million | $487.5 million |
| Net Income (Total) | $29.3 million | $31.4 million |
| Net Income Attributable to Avista Corp. | $28.8 million | $31.0 million |
| Earnings Per Share (Diluted) | $0.52 | $0.57 |
| Operating Cash Flow | $81.1 million | $91.6 million |
| Total Assets | $3,670.2 million | $3,607.0 million (Dec 31, 2009) |
| Total Debt | $1,268.7 million | $1,215.6 million (Dec 31, 2009) |
| Debt-to-Capitalization Ratio | 54.4% | 53.6% (Dec 31, 2009) |
| Dividends Paid Per Share | $0.25 | $0.18 |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased $31.1 million (6.4%) year-over-year. Utility revenues dropped $37.3 million, primarily due to a $48.6 million decrease in natural gas revenues driven by warmer weather and lower retail loads. This was partially offset by an $11.3 million increase in electric revenues.
- Profitability: Net income attributable to Avista Corporation decreased $2.2 million (7.1%). The decline was driven by lower earnings at Avista Utilities due to warmer weather and lower gross margins, partially offset by increased earnings at Advantage IQ.
- Expense Trends: Utility resource costs decreased $30.1 million, largely due to lower natural gas prices and volumes. However, interest expense increased $3.5 million, attributed to the consolidation of Spokane Energy and the issuance of long-term debt in late 2009 replacing lower-cost short-term borrowings.
- Accounting Changes: Effective January 1, 2010, the company consolidated Spokane Energy, LLC, due to new accounting standards (ASC 810). This resulted in the recognition of $82.0 million in assets and liabilities but had no effect on net income for the quarter.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects utility capital expenditures to be approximately $210 million for the full year 2010. This includes investments in generation, transmission, and distribution systems.
- Rate Cases: The company filed general rate increase requests in Washington and Idaho in March 2010 and expects to file in Oregon by the end of Q3 2010. Recent rate increases were implemented in Washington (Jan 2010), Idaho (Aug 2009), and Oregon (Nov 2009).
- Liquidity: As of March 31, 2010, the company had $347.1 million in available liquidity across committed lines of credit and an accounts receivable financing facility. The company plans to issue up to $45 million of common stock in 2010 to maintain capital structure.
- Key Risks:
- Weather Sensitivity: Operations are highly dependent on weather conditions affecting hydroelectric generation and customer demand for heating/cooling.
- Regulatory Uncertainty: Risks include the outcome of pending FERC proceedings regarding refunds from the 2000-2001 western energy crisis and potential disallowance of costs in rate cases.
- Environmental Compliance: Potential costs associated with greenhouse gas emission regulations, mercury emission controls, and hydroelectric licensing (e.g., Spokane River Project).
- Market Volatility: Exposure to wholesale energy price fluctuations and credit risk from counterparties.
Investor Verification Checklist
- Weather Impact: Verify the extent to which warmer weather in Q1 2010 reduced natural gas and electric retail loads compared to historical norms.
- Rate Case Outcomes: Monitor the status and potential approval of the general rate increase filings submitted in March 2010 for Washington and Idaho.
- FERC Proceedings: Review updates on the California and Pacific Northwest refund proceedings to assess potential liability exposure.
- Spokane Energy Consolidation: Confirm the long-term impact of the Spokane Energy consolidation on the balance sheet and cash flow statements.
- Capital Structure: Track the execution of the planned $45 million common stock issuance and the refunding of $83.7 million in Pollution Control Bonds.