Business Context and Reporting Period
Company: The Washington Water Power Company (AVISTA CORP)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1993
The Company is an investor-owned utility primarily engaged in the generation, purchase, transmission, distribution, and sale of electric energy and natural gas in the Inland Northwest (Eastern Washington and Northern Idaho), Oregon, and California. It also operates a non-utility division, Pentzer Corporation, which invests in middle-market companies across various sectors. As of December 31, 1993, the Company served approximately 267,000 electric customers and 196,000 natural gas customers.
Key Financial Metrics
| Metric (in thousands) | 1993 | 1992 |
|---|---|---|
| Total Operating Revenues | $640,599 | $557,758 |
| Net Income | $82,776 | $74,670 |
| Income Available for Common Stock | $74,441 | $67,853 |
| Earnings Per Share (Diluted) | $1.44 | $1.37 |
| Dividends Paid Per Share | $1.24 | $1.24 |
| Total Assets | $1,837,838 | $1,534,015 |
| Long-Term Debt | $647,229 | $596,897 |
| Cash and Cash Equivalents | $33,718 | $34,500 |
| Net Cash Provided by Operating Activities | $151,806 | $137,898 |
Capital Structure (Year-End 1993): 49% Debt, 10% Preferred Stock, 41% Common Equity.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 14.9% to $640.6 million, driven by a 9% increase in electric revenues and a 37% increase in natural gas revenues.
- Profitability: Net income increased 10.9% to $82.8 million. Earnings per share rose to $1.44 from $1.37.
- Electric Operations: Income from electric operations decreased $5.2 million (5%) due to below-normal streamflows (86% of normal) reducing hydro generation, thermal plant outages, and increased purchased power costs. However, revenues grew due to customer growth and a large wholesale energy sale.
- Natural Gas Operations: Income from natural gas operations surged $6.5 million (72%) to $15.6 million. This was driven by colder-than-normal weather (5% colder than normal in WA/ID) and 9% customer growth, offsetting higher purchased gas costs.
- Non-Utility Operations: Net income increased 60% to $13.3 million, significantly boosted by $12.8 million in transactional gains from the sale of portfolio investments and the initial public offering of ITRON, Inc.
- Stock Split: A two-for-one stock split was effected in November 1993; all per-share data is retroactively adjusted.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capital Expenditures: Projected at $126 million for 1994, $106 million for 1995, and $110 million for 1996. Approximately 50% of these funds are expected to come from internally generated cash.
- Load Growth: Electric retail load growth is anticipated to average 0.4% annually for the next five years. Natural gas load growth is expected to average 2.7% annually in the WA/ID service area.
- Acquisitions: The Company announced an agreement on February 15, 1994, to acquire northern Idaho electric properties from Pacific Power & Light for $26 million, subject to regulatory approval.
Risks and Contingencies
- Weather Dependency: Operations are highly sensitive to weather conditions affecting hydro streamflows and heating demand.
- Regulatory and Environmental: Compliance with the Clean Air Act Amendments (CAAA) regarding SO2 and NOx emissions at coal-fired plants (Centralia and Colstrip) is required by the year 2000. The Company is also subject to potential impacts from the Endangered Species Act regarding fish populations in the Columbia River basin.
- Legal Proceedings:
- Nez Perce Tribe: Lawsuit alleging inadequate fish passage at former dams; potential damages claimed between $425 million and $650 million.
- Spokane Tribe: Lawsuit regarding the Little Falls Hydroelectric Development; potential damages claimed between $100 million and $1.4 billion.
- Supply System Project 3: Pending litigation regarding cost reallocation of a terminated nuclear project; potential loss amount is indeterminable.
- Firestorm Litigation: Class action lawsuits regarding 1991 wildfires; damages sought are unspecified.
- Competition: Increasing competition in wholesale and retail markets, including potential retail wheeling and customer by-pass in natural gas.
Investor Verification Checklist
- Hydro Streamflow Variability: Verify the impact of below-normal streamflows on 1993 electric margins and the reliance on purchased power.
- Non-Utility Earnings Quality: Assess the sustainability of non-utility earnings, noting that 1993 results included $12.8 million in one-time transactional gains.
- Legal Exposure: Review the status of the Nez Perce and Spokane Tribe lawsuits, as potential liabilities could be material ($100M+).
- Debt Refinancing: Confirm the successful refinancing of $274 million in maturing debt at lower interest rates (average 6.59% vs 8.67% redeemed).
- Regulatory Rate Cases: Monitor the status of the proposed acquisition of Pacific Power & Light assets and the expiration of rate "freezes" in Oregon and California (1995-1996).