Business Context and Reporting Period
Company: Avista Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Avista Corp. is an energy company operating primarily through Avista Utilities (regulated electric and natural gas generation, transmission, and distribution in Washington, Idaho, and Oregon) and Advantage IQ (facility information and cost management services). The company also holds other non-utility investments.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Operating Revenues | $314,692 | $1,109,273 |
| Net Income (Total) | $8,634 | $66,343 |
| Net Income Attributable to Avista Corp. | $8,139 | $65,018 |
| Earnings Per Share (Diluted) | $0.15 | $1.18 |
| Dividends Paid Per Share | $0.21 | $0.60 |
| Cash and Cash Equivalents (Sep 30, 2009) | $35,025 | |
| Total Debt (Current + Long-Term) | $1,173,104 | |
| Stockholders' Equity | $1,047,205 |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 17.8% year-over-year for the nine months ended September 30, 2009 ($1.11B vs. $1.23B). This was driven primarily by a 24.1% drop in utility revenues due to lower wholesale natural gas prices and volumes, partially offset by rate increases in Washington and Idaho.
- Profitability Increase: Despite lower revenues, Net Income attributable to Avista Corp. increased 15.8% for the nine months ($65.0M vs. $56.1M). This improvement was driven by higher gross margins from implemented rate increases, lower resource costs (natural gas and fuel), reduced interest expense, and a $3.2M favorable tax adjustment related to IRS audits.
- Expense Reductions: Utility resource costs decreased significantly ($163.6M for the nine months) due to lower natural gas prices. Interest expense decreased $9.9M due to debt maturities and redemptions funded at lower rates.
- Segment Performance: Avista Utilities net income increased to $63.2M (nine months) from $51.8M. Advantage IQ net income decreased to $3.9M from $4.7M due to lower interest rates and amortization costs from acquisitions.
Guidance, Outlook, and Risks
- Capital Expenditures: The company expects utility capital expenditures to be approximately $210 million for the full year 2009. Future spending may increase due to potential wind generation projects and Smart Grid initiatives.
- Regulatory Matters:
- Rate Cases: New general rate cases are planned for filing in all three states (WA, ID, OR) in the first half of 2010. A partial settlement in Washington was reached in September 2009, though some issues remain unresolved.
- Spokane River Relicensing: A new 50-year FERC license was issued in June 2009. Implementation costs are estimated at $334 million over 50 years. The company is seeking recovery of these costs through rates.
- Tribe Settlement: A $39 million settlement with the Coeur d'Alene Tribe regarding water storage was finalized, with payments scheduled through 2010 and ongoing annual payments.
- Liquidity: As of September 30, 2009, the company had $513.1 million in available liquidity across committed lines of credit and a receivables sales facility. In September 2009, the company issued $250 million of First Mortgage Bonds to retire short-term borrowings.
- Risks and Contingencies:
- Western Energy Crisis: Ongoing legal proceedings regarding refunds from the 2000-2001 energy crisis (California and Pacific Northwest) remain pending. Management does not expect a material adverse effect based on current information.
- Environmental: Potential costs associated with greenhouse gas regulations (cap-and-trade) and mercury emission controls at the Colstrip plant. The company is evaluating a wind generation project to meet renewable energy standards.
- Pension Funding: Due to market conditions, pension contributions increased to $48 million in 2009 (vs. $28M in 2008). Future contributions depend on asset performance and actuarial assumptions.
Investor Verification Checklist
- Rate Case Outcomes: Verify the final approval and implementation dates for the pending general rate cases in Washington, Idaho, and Oregon scheduled for 2010.
- Spokane River Costs: Confirm the regulatory approval status for the recovery of the $334 million in relicensing costs and the $100 million Trust Fund payments.
- Western Energy Crisis Litigation: Monitor the status of the FERC refund proceedings and Ninth Circuit appeals to assess potential liability exposure.
- Capital Structure: Track the company's ability to maintain its investment-grade credit rating (currently BBB-/Baa3) amidst economic downturns in its service areas.
- Renewable Energy Targets: Review progress on the 150 MW wind power target by 2012 and the associated capital investment decisions.