Business Context and Reporting Period
Company: Avista Corporation (Avista Corp.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Headquarters: Spokane, Washington
Avista Corp. is an energy company engaged in the generation, transmission, and distribution of energy. Its operations are divided into two primary reportable segments: Avista Utilities (regulated electric and natural gas utility operations) and Advantage IQ (facility information and cost management services). The company also maintains an "Other" category for non-reportable businesses, including the residual operations of Avista Energy following its 2007 sale to Shell Energy.
Key Financial Metrics (2008)
| Metric | 2008 Value | 2007 Value |
|---|---|---|
| Total Operating Revenues | $1,676.8 million | $1,417.8 million |
| Net Income | $73.6 million | $38.5 million |
| Earnings Per Share (Diluted) | $1.36 | $0.72 |
| Operating Cash Flow | $115.4 million | $251.6 million |
| Total Assets | $3,630.7 million | $3,189.8 million |
| Total Debt (Long-term + Current) | $1,192.1 million | $1,062.2 million |
| Stockholders' Equity | $996.9 million | $914.0 million |
| Dividends Paid Per Share | $0.69 | $0.60 |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by $259.0 million (18.3%) compared to 2007. This was driven by a $284.3 million increase in utility revenues, primarily due to general rate increases implemented in Washington (Jan 2008) and Idaho (Oct 2008), and higher wholesale natural gas sales volumes and prices.
- Profitability Surge: Net income nearly doubled to $73.6 million from $38.5 million. The increase was largely attributable to higher earnings at Avista Utilities and the absence of the $12.0 million net loss recorded in the "Other" segment in 2007 (related to the Avista Energy sale).
- Cash Flow Decline: Net cash provided by operating activities decreased significantly to $115.4 million from $251.6 million. This reduction was due to the liquidation of Avista Energy assets in 2007, increased accounts receivable, and cash payments related to the Coeur d'Alene Tribe settlement.
- Debt Structure: Short-term borrowings increased by $252.2 million to fund debt maturities and working capital needs amidst tight credit markets. Long-term debt issuances included $250 million in First Mortgage Bonds in April 2008.
Guidance, Outlook, and Management Commentary
- Regulatory Matters: The company filed new general rate cases in Washington and Idaho in January 2009 to recover costs and align returns. A settlement regarding the Coeur d'Alene Tribe was reached in December 2008, involving a $39 million payment for past water storage and future annual payments. Regulators approved deferred accounting treatment for these costs.
- Capital Expenditures: Utility capital expenditures were $219.2 million in 2008. The company expects expenditures to exceed $210 million annually for 2009, 2010, and 2011, focusing on generation, transmission, and distribution upgrades.
- Liquidity and Credit: Due to financial market instability, the company increased reliance on its committed lines of credit ($320 million and $200 million facilities). Credit ratings were upgraded to investment grade (BBB-/Baa3) in late 2007/early 2008. The company anticipates issuing long-term debt and common stock in 2009 to reduce credit facility balances.
- Pension Funding: Due to market declines in pension plan assets, the company expects to contribute $48 million to its pension plan in 2009, up from $28 million in 2008.
- Advantage IQ: The segment acquired Cadence Network in July 2008. While revenues grew, net income decreased slightly due to the dilution of ownership percentage and increased amortization. Management anticipates slower internal growth in 2009 due to client bankruptcies and store closures.
Investor Verification Checklist
- Regulatory Rate Recovery: Verify the status of the January 2009 general rate case filings in Washington and Idaho, specifically regarding the recovery of the $39 million Coeur d'Alene Tribe settlement costs and potential judicial review challenges.
- Hydroelectric Relicensing: Monitor the FERC licensing process for the Spokane River Project, which is critical for future operations and involves estimated costs of $305 million over 50 years.
- Energy Commodity Exposure: Assess the impact of volatile natural gas and wholesale electricity prices on resource costs, noting the company's reliance on regulatory mechanisms (ERM/PCA) to defer and recover excess costs.
- Debt Maturities and Refinancing: Review the company's ability to refinance $66.7 million in Pollution Control Bonds and manage the $250 million outstanding on its credit lines in a constrained credit market.
- Pension Plan Funding: Track the funded status of the pension plan and the impact of the increased $48 million contribution requirement on 2009 cash flows.