Avista Corporation — Q2 2022 Form 10-Q
Business and period: Avista is a regulated electric and natural gas utility serving the Pacific Northwest and Alaska, with smaller non-utility businesses. This unaudited filing covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $378.6 million | $298.3 million | $840.6 million | $711.1 million |
| Income from operations | $24.3 million | $31.8 million | $107.3 million | $133.6 million |
| Net income | $11.5 million | $14.1 million | $83.0 million | $82.1 million |
| Diluted EPS | $0.16 | $0.20 | $1.15 | $1.18 |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $205.9 million | $190.1 million |
- Revenue rose substantially, driven largely by higher wholesale energy sales prices and natural gas costs and rates. These commodity-related revenues and costs generally flow through regulatory recovery mechanisms; revenue growth did not translate into higher operating income.
- Avista Utilities’ non-GAAP utility margin was $212.3 million in Q2, up from $198.0 million, and $474.7 million for the first half, up from $464.1 million. Management attributed the increases mainly to customer growth and utility-specific supply and weather factors.
- Q2 net income declined primarily because of a $4.0 million Colstrip dry-ash project write-off, higher operating costs, depreciation and interest expense. Lower income tax expense and increased investment gains partly offset these items. First-half net income was slightly higher, supported by utility margin and investment gains, partly offset by higher costs.
Financial position, cash flow and capital
- At June 30, cash and cash equivalents were $21.6 million. Current assets were $417.0 million and current liabilities were $553.4 million.
- First-half operating cash flow of $205.9 million was below utility capital expenditures of $210.6 million; net cash used in investing was $219.4 million. Cash dividends paid were $64.1 million.
- Total debt, including current debt, short-term borrowings, affiliated-trust debt and leases, was $2.62 billion; debt represented 54.0% of capital, versus 54.7% at year-end 2021. The company remained within its 65% credit-facility covenant limit.
- Avista issued $400 million of 4.00% first-mortgage bonds due 2052, used proceeds to repay credit-line borrowings and, with additional credit-line borrowings, repaid $250 million of debt maturing in April. Short-term borrowings were $158 million at quarter-end.
- Available liquidity was approximately $198.7 million under Avista’s $400 million committed line and $25 million under AEL&P’s facility. Management said liquidity was adequate for the next 12 months, assuming expected operating cash flows and planned equity issuance.
Outlook, management commentary and risks
- Management increased its estimate of Avista Utilities’ capital expenditures to approximately $475 million annually in 2022–2024, from $445 million annually previously. It expected $135 million of common-stock issuance for 2022, including $60.8 million issued in the first half, and did not expect further long-term debt issuance during 2022.
- Management expects a negative 16.6% effective tax rate for full-year 2022. The filing does not provide a clear full-year earnings or EPS forecast.
- A Washington multi-year rate-case settlement was submitted to regulators in June. It proposes annual electric revenue increases of $38.0 million effective December 2022 and $12.5 million effective December 2023, and natural gas increases of $7.5 million and $1.5 million, respectively. Public Counsel opposed portions; regulatory approval remained pending.
- Inflation, higher commodity and fuel costs, elevated interest rates, supply-chain delays and wildfire exposure are ongoing concerns. Management reported mitigating supply delays to date and using hedging, storage and regulatory recovery mechanisms to address commodity costs, while noting recovery timing and customer/company sharing provisions.
- Wildfire-related lawsuits include the Boyds, Babb Road and Road 11 fires and claims associated with the 2020 windstorm. The company disputes liability and said it could not predict outcomes or estimate potential losses for these matters. Colstrip ownership disputes and related litigation were stayed following Talen’s May 2022 Chapter 11 filing; Avista also could not estimate potential impacts.
- Washington’s Clean Energy Transformation Act limits delivery of coal-fired resources to Washington retail customers after 2025. Avista’s approved clean-energy implementation plan targets 40% renewable or zero-carbon supply for Washington retail demand beginning in 2022, increasing to 62.5% by the end of 2025.
Important facts for investors to verify
- Whether Washington regulators approve the multi-year rate-case settlement and the resulting timing and customer impacts.
- Whether commodity-cost recovery, regulatory deferrals and inflation affect future utility margins and cash flow as expected.
- Progress and actual spending against the revised capital plan, planned equity issuance and stated liquidity expectations.
- Developments, potential financial exposure and insurance or regulatory recovery related to wildfire claims and Colstrip disputes.
- Whether investment gains and the unusually low, negative effective tax rate in the first half are repeatable; the filing does not establish them as recurring earnings drivers.