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Avista Corporation Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009. Avista Corporation is an energy company operating primarily through its regulated utility division, Avista Utilities, which generates, transmits, and distributes electricity and natural gas in eastern Washington, northern Idaho, and parts of Oregon and Montana. The company also operates non-utility businesses, including Advantage IQ (facility information and cost management services) and other energy-related ventures.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Increase: Net income increased 23% year-over-year, driven primarily by higher earnings at Avista Utilities due to general rate increases implemented in Washington (Jan 2009) and Idaho (Oct 2008).
• Revenue Decline: Total operating revenues decreased 1.8% ($8.8 million). Utility revenues dropped $11.4 million, largely due to a $25.6 million decrease in natural gas revenues caused by lower wholesale prices and volumes. This was partially offset by a $14.2 million increase in electric revenues.
• Cost Reductions: Utility resource costs decreased $28.5 million, primarily reflecting lower natural gas purchase prices and reduced amortization of deferred costs.
• Cash Flow Improvement: Net cash provided by operating activities more than doubled to $91.6 million, aided by favorable working capital changes, including a drawdown of natural gas inventory and reduced receivables.
• Debt Management: Short-term borrowings decreased by $26.1 million. On April 1, 2009 (post-period), the company redeemed $61.9 million in Junior Subordinated Debt Securities.

Guidance, Outlook, and Risks

• Capital Expenditures: The company expects utility capital expenditures to exceed $210 million for 2009, focusing on generation, transmission, and distribution upgrades.
• Pension Funding: Due to market conditions and declines in plan asset values, Avista plans to contribute $48 million to its pension plan in 2009 (up from $28 million in 2008).
• Regulatory Matters:
  • Rate Cases: New rates in Washington and Idaho are effective. A new general rate case was filed in Washington in Jan 2009, and another is planned for Oregon in Q2 2009.
  • Legal Proceedings: The company faces ongoing uncertainty regarding the California Refund Proceeding and Pacific Northwest Refund Proceeding related to the 2000-2001 energy crisis, though management does not expect a material adverse effect.
  • Tribe Settlement: A $39 million settlement with the Coeur d'Alene Tribe regarding water storage was finalized in Dec 2008. Public Counsel in Washington has petitioned for judicial review of the rate recovery of these costs.
• Environmental Risks: Compliance with new mercury emission rules in Montana and potential greenhouse gas regulations (including Western Climate Initiative) may increase capital and operating costs.
• Advantage IQ: The company anticipates slower internal growth at Advantage IQ in 2009 due to client bankruptcies and store closures in the current economic climate.

Investor Verification Checklist

• Verify the status of the Washington Public Counsel's judicial review regarding the recovery of the $39 million Coeur d'Alene Tribe settlement costs.
• Monitor the outcome of the California and Pacific Northwest refund proceedings for potential retroactive liabilities.
• Track the company's ability to access long-term capital markets to refinance short-term borrowings, given the tight credit environment.
• Review the impact of the American Recovery and Reinvestment Act (ARRA) on potential funding for the proposed 50 MW wind generation facility.
• Assess the progress of the Spokane River hydroelectric relicensing process and associated cost recovery.