Avista Corporation 10-Q Summary: Period Ended June 30, 2001
Business Context and Reporting Period
This Form 10-Q covers the quarterly and six-month periods ended June 30, 2001, for Avista Corporation, an energy, information, and technology company based in Spokane, Washington. The company operates through four primary segments: Avista Utilities (regulated utility), Energy Trading and Marketing (non-regulated), Information and Technology, and Avista Ventures and Other. The reporting period is characterized by severe hydroelectric shortages, volatile wholesale energy markets, and the ongoing impact of the California energy crisis.
Key Financial Metrics
| Metric (Dollars in thousands) | Three Months Ended June 30, 2001 | Three Months Ended June 30, 2000 | Six Months Ended June 30, 2001 | Six Months Ended June 30, 2000 |
|---|---|---|---|---|
| Operating Revenues | $1,549,966 | $1,353,414 | $3,593,315 | $2,735,387 |
| Net Income (Loss) | $22,725 | $(21,493) | $52,128 | $(10,968) |
| Income Available for Common Stock | $22,117 | $(22,101) | $50,912 | $(33,486) |
| Earnings Per Share (Basic & Diluted) | $0.47 | $(0.47) | $1.08 | $(0.76) |
| Cash and Cash Equivalents (End of Period) | $249,859 | $62,971 | $249,859 | $62,971 |
| Total Long-Term Debt | $1,046,518 | $679,806 | $1,046,518 | $679,806 |
| Net Cash Provided by Operating Activities | N/A | N/A | $19,250 | $(4,204) |
Material Changes vs. Prior Period
- Turnaround in Profitability: The company reported a net income of $22.7 million for the quarter and $52.1 million for the six months ended June 30, 2001, a significant improvement from net losses in the comparable 2000 periods. This reversal is primarily attributed to Avista Utilities, which returned to profitability ($9.5 million quarterly income) after incurring massive losses in 2000 due to unprecedented wholesale power price spikes and a short position.
- Revenue Growth: Operating revenues increased 14.5% year-over-year for the quarter and 31.4% for the six-month period. This growth was driven by higher wholesale energy prices and increased natural gas sales, despite lower sales volumes in the wholesale power market.
- Debt Expansion: Total long-term debt increased significantly from $679.8 million to $1.05 billion. This was driven by the issuance of $400 million in 9.75% Senior Notes in April 2001 to fund capital expenditures (specifically the Coyote Springs 2 project) and to pay down short-term borrowings.
- Asset Reduction: Total assets decreased from $12.6 billion (Dec 31, 2000) to $5.5 billion (June 30, 2001). This drastic reduction is largely due to a decrease in energy commodity assets and liabilities as the company reduced its trading portfolio size and exposure.
Guidance, Outlook, and Risks
- Full Year Guidance: Management expects diluted earnings per share for the full year 2001 to be between $1.10 and $1.20. This projection assumes continued ability to defer and recover excess power costs, despite extremely low hydroelectric conditions.
- Liquidity and Rate Recovery: The company faces significant liquidity pressure due to deferred power costs of $142.7 million (as of June 30, 2001), projected to reach $265 million by year-end without rate relief. On July 18, 2001, Avista Utilities filed for a 36.9% electric surcharge in Washington and a 14.7% increase in Idaho to recover these costs. Approval is critical to maintaining compliance with credit covenants by September 30, 2001.
- Regulatory and Market Risks:
- Hydroelectric Shortage: Projected hydroelectric capability for 2001 is 194 aMW below normal, the lowest in 73 years, forcing reliance on expensive purchased power.
- California Energy Crisis: The company has receivables of approximately $7.8 million from defaulting California entities (CalPX, CalISO). The outcome of bankruptcy proceedings and potential FERC refunds remains uncertain.
- Legal Contingencies: The company is facing securities litigation regarding 2000 trading activities (motion to dismiss granted without prejudice) and a CFTC investigation regarding 1998 trading (settlement offer of $2.1 million pending).
- Capital Projects: Financing for the Coyote Springs 2 project ($160 million total cost) remains a priority, with the company exploring alternative financing methods due to lender concerns over deferred costs.
Investor Verification Checklist
- Rate Case Approval: Verify the status of the Washington electric surcharge and Idaho Power Cost Adjustment (PCA) filings filed in July 2001, as these are essential for cash flow stability.
- Deferred Cost Balance: Monitor the growth of deferred power and natural gas costs, which are projected to increase significantly if rate relief is delayed.
- California Receivables: Track the recovery status of the $7.8 million in receivables from California market participants and the outcome of the CalPX bankruptcy proceedings.
- Hydroelectric Conditions: Assess the impact of continued low streamflow on purchased power costs and the feasibility of the Coyote Springs 2 project completion.
- Legal Settlements: Confirm the final resolution of the CFTC investigation and the status of the consolidated securities class action lawsuit.