Avista Corporation (NYSE: AVA) is a diversified energy company that has been powering communities in the Pacific Northwest for over 135 years. With a focus on sustainable growth and customer-centric service, Avista has weathered industry shifts and emerged as a resilient utility poised for long-term success.

Business Overview

Avista Corporation operates primarily through its Avista Utilities division, providing electric and natural gas services to customers in Washington, Idaho, Oregon, and Montana. The company also owns Alaska Electric Light and Power Company (AEL&P), which serves customers in Juneau, Alaska. Avista's non-utility businesses, managed under Avista Capital, engage in various investments and operations.

Financials

In the first quarter of 2024, Avista reported net income of $71.5 million, or $0.91 per diluted share, compared to $54.8 million, or $0.73 per diluted share, in the same period of 2023. The company's annual net income for 2023 was $171.2 million, and its annual revenue was $1.75 billion. Avista's annual operating cash flow was $447.1 million, while its annual free cash flow was -$51.6 million.

Regulatory Matters and Rate Cases

Avista is actively engaged in regulatory proceedings to ensure it can recover its operating costs and earn a reasonable return for its shareholders. In January 2024, the company filed multi-year electric and natural gas general rate cases with the Washington Utilities and Transportation Commission (WUTC), seeking to increase annual base electric revenues by $77.1 million, or 13.0%, effective in December 2024, and $53.7 million, or 11.7%, effective in December 2025. For natural gas, the proposed rates are designed to increase annual base natural gas revenues by $17.3 million, or 13.6%, effective in December 2024, and $4.6 million, or 3.2%, effective in December 2025.

The company also expects to file electric and natural gas general rate cases with the Idaho Public Utilities Commission in the first quarter of 2025 and a natural gas general rate case with the Oregon Public Utility Commission in the second half of 2024. In August 2023, the Regulatory Commission of Alaska issued a final order related to AEL&P's electric general rate case, approving a 6.0% base electric revenue increase.

Avista's regulatory strategy aims to ensure timely recovery of its investments and operating costs, as well as the opportunity to earn a reasonable return. The company's recent general rate case settlements have helped mitigate the impact of regulatory lag, but it continues to face challenges from unexpected inflation and increased interest rates.

Operational Highlights and Challenges

Avista's operations were impacted by extreme cold weather in the Pacific Northwest during the first quarter of 2024, which resulted in system load peaks higher than anticipated. This event highlighted the growing need for additional electric capacity in the region, and the company is evaluating potential acceleration of its generation additions compared to its most recent integrated resource plan.

The transition to clean energy, including the replacement of emitting generation assets with renewable energy, and increasing electrification are also factors that Avista is considering in its resource planning to ensure it has adequate resources to serve its customers reliably.

Avista's wildfire risk mitigation efforts remain a top priority, with the company planning to spend upwards of $55 million, including capital and operating expenses, on wildfire mitigation work in 2024. The company's vegetation management, grid hardening, and public safety power shutoff initiatives have made significant progress, positioning Avista to be better prepared for the upcoming fire season.

Liquidity

Avista's first-quarter 2024 results reflect the positive impact of its general rate cases, which helped offset the $6.0 million pretax expense incurred under the Energy Recovery Mechanism (ERM) in Washington. The company's utility margin increased, with electric utility margin rising by $28.0 million and natural gas utility margin increasing by $6.4 million.

Avista's capital expenditures at Avista Utilities were $117 million in the first quarter of 2024, as the company continues to invest in its utility infrastructure to support customer growth and maintain system reliability. The company expects total capital expenditures of $500 million at Avista Utilities, $21 million at AEL&P, and $11 million at its other businesses in 2024.

As of March 31, 2024, Avista had $198 million of available liquidity under its committed line of credit and $36 million available under its letter of credit facility. In April 2024, the company remarketed $83.7 million of tax-exempt bonds at a 3.875% interest rate, which was approximately 140 basis points lower than the taxable market. Avista does not expect to issue any additional long-term debt in 2024 but plans to issue approximately $70 million of common stock to fund its capital spending.

Guidance and Outlook

Avista is confirming its earnings guidance for 2024, with a consolidated range of $2.36 to $2.56 per diluted share. The company expects Avista Utilities to contribute within a range of $2.23 to $2.39 per diluted share, AEL&P to contribute $0.09 to $0.11 per diluted share, and its other businesses to contribute $0.04 to $0.06 per diluted share.

The company's guidance for Avista Utilities in 2024 reflects unrecovered structural costs, which are estimated to reduce the return on equity by 70 basis points, and 60 basis points of regulatory timing lag, resulting in an expected return on equity of 8.1%. Assuming a constructive outcome in its 2024 general rate case filings, Avista expects its earnings to grow over the long term in the range of 4% to 6% from a 2025 base.

Risks and Challenges

Avista faces several risks and challenges, including regulatory decisions that could affect its ability to recover costs and earn a reasonable return, the impact of severe weather and natural disasters on its operations, and the transition to clean energy and increasing electrification, which could disrupt its business model.

The company is also exposed to market risks related to changes in electricity and natural gas commodity prices, as well as interest rate fluctuations. Avista's ability to manage these risks through its hedging and optimization activities, as well as its regulatory mechanisms, will be crucial to its financial performance.

Conclusion

Avista Corporation has demonstrated its resilience and adaptability in the face of industry challenges. The company's focus on sustainable growth, customer-centric service, and innovative solutions positions it well to navigate the evolving energy landscape. With a solid regulatory strategy, a commitment to infrastructure investment, and a diversified business model, Avista is poised to continue delivering value to its shareholders and the communities it serves.