Business Overview

Avista Corporation, a diversified energy company, has played a vital role in providing reliable electricity and natural gas services to its customers in the Pacific Northwest for over 135 years. With a focus on sustainable growth, Avista has navigated the evolving energy landscape, investing heavily in infrastructure upgrades and renewable energy projects to meet the needs of its expanding customer base.

Established in 1889 as Washington Water Power Company, Avista has a rich history rooted in the development of hydroelectric power in the region. The company built its first hydroelectric plant on the Spokane River in 1890, laying the foundation for its future growth in the energy industry. Over the decades, Avista expanded its operations through acquisitions and the construction of additional hydroelectric and thermal generating facilities. The company’s core utility operations, Avista Utilities, now serve approximately 418,900 electric and 380,500 natural gas customers across parts of eastern Washington, northern Idaho, and northeastern and southwestern Oregon. Additionally, the company’s Alaska Electric Light and Power Company (AEL&P) subsidiary provides electric services to the city of Juneau, Alaska.

Throughout its history, Avista has demonstrated resilience in the face of challenges. During the Great Depression in the 1930s, the company struggled with declining revenues and customer demand but managed to weather the economic downturn and emerge stronger. In the 1970s and 1980s, Avista diversified its business by expanding into natural gas distribution and other non-utility operations, helping to reduce its reliance on the cyclical electric utility business and provide additional revenue streams. The company also faced regulatory changes, environmental concerns, and competition from other energy providers during this period but remained focused on providing reliable and affordable energy to its customers.

Financials

Avista’s financial performance has been generally stable, with the company reporting net income of $171.18 million in 2023, up from $155.18 million in 2022. The company’s revenue has also trended upward, reaching $1.75 billion in 2023 compared to $1.71 billion in the prior year. Avista’s operating cash flow in 2023 was $447.08 million, while its free cash flow was negative $51.56 million, reflecting the company’s substantial capital investments in its utility infrastructure.

In the most recent quarter (Q3 2024), Avista reported revenue of $393.74 million, a 3.7% increase from $379.63 million in Q3 2023. Net income for the quarter was $18.49 million, up 25.5% from $14.72 million in the same period last year. Operating cash flow increased by 33.2% to $127.21 million, while free cash flow decreased to negative $27.01 million from $4.89 million in Q3 2023.

The revenue increase was primarily driven by higher retail electric and natural gas rates, partially offset by lower wholesale revenues. The net income improvement was due to higher utility margins and lower income tax expense. The operating cash flow increase resulted from higher net income and changes in working capital, while the free cash flow decrease was attributed to higher capital expenditures.

Liquidity

Avista’s balance sheet remains strong, with a debt-to-capitalization ratio of 54.80% as of September 30, 2024. The company’s liquidity position is also favorable, with $212.30 million available under its $500 million committed line of credit and $43 million available under its $50 million letter of credit facility as of the same date. Avista’s debt-to-equity ratio stands at 1.03, while its cash and cash equivalents totaled $9.12 million as of September 30, 2024. The company’s current ratio is 0.75, and its quick ratio is 0.48, indicating a moderate level of short-term liquidity.

Operational Performance

In terms of Avista’s operational performance, the company’s electric utility segment has been a key driver of its financial results. Residential and commercial customers account for the majority of the segment’s revenues, with industrial and other customers contributing the remainder. The natural gas utility segment has also been a consistent performer, serving residential, commercial, and industrial customers across Avista’s service territory.

Avista has made significant investments in its utility infrastructure to enhance service reliability and support customer growth. In 2024, the company’s Avista Utilities segment spent $389 million on capital expenditures, with planned investments of $515 million for the full year. Looking ahead, Avista expects to invest approximately $1.7 billion in capital projects over the next three years, including investments in renewable energy projects and grid modernization initiatives.

Clean Energy Initiatives

One of Avista’s notable achievements in recent years has been its progress towards its clean energy goals. The company has signed four power purchase agreements (PPAs) for a total of 325 megawats of renewable energy, including hydropower and wind resources. These investments have helped Avista become one of the lowest-emitting electric power producers in the United States, with over 70% of its peak generating capability expected to come from renewable, non-emitting sources by 2026.

Challenges and Strategies

Avista has also faced its share of challenges, including regulatory lag and the impact of the COVID-19 pandemic. The company has proactively addressed these issues, working closely with regulators to secure timely rate adjustments and implementing cost-saving measures to mitigate the financial impact of the pandemic.

In October 2024, Avista signed a non-binding memorandum of understanding to acquire a 10% ownership stake in the North Plains Connector, a 415-mile high-voltage direct current (HVDC) transmission line project that will interconnect the Colstrip transmission system in Eastern Montana to two locations in North Dakota. This strategic investment is expected to enhance Avista’s access to additional energy markets and support the company’s long-term resource planning efforts.

Segment Performance

Avista’s operations are organized into two main business segments: Avista Utilities and Alaska Electric Light and Power Company (AELP).

The Avista Utilities segment, which comprises the company’s regulated utility operations in Washington, Idaho, Oregon, and Montana, is the primary revenue and net income generator. In the third quarter of 2024, Avista Utilities’ electric utility revenues increased by $7.7 million, or 2.5%, compared to the same period in 2023, primarily due to the effects of general rate cases and customer growth. The segment’s electric utility margin increased by $17.0 million, or 8.8%, driven by the same factors.

Natural gas utility revenues within the Avista Utilities segment decreased slightly by $0.8 million, or 1.1%, in the third quarter of 2024 compared to the prior year period. However, the natural gas utility margin increased by $3.2 million, or 10.5%, due to the effects of general rate cases.

The AELP segment, representing Avista’s regulated utility operations in Alaska, reported net income of less than $0.1 million for the third quarter of 2024, compared to $0.3 million in the same period of 2023. The decrease was primarily attributable to higher operating expenses.

Avista’s other non-utility business ventures and investments, reported under the “Other” category, had a net loss of $1.4 million in the third quarter of 2024, compared to a net income of $0.9 million in the third quarter of 2023. This fluctuation was primarily related to higher net investment losses due to changes in fair value and recognizing the company’s portion of equity investment losses.

Future Outlook

Looking ahead, Avista’s management team, led by incoming CEO Heather Rosentrater, is well-positioned to navigate the evolving energy landscape and continue the company’s legacy of reliable service and sustainable growth. With a focus on infrastructure investments, renewable energy development, and strategic partnerships, Avista is poised to remain a key player in the Pacific Northwest’s energy future.

Avista has lowered its consolidated earnings guidance for 2024 by $0.10 to a range of $2.26 to $2.46 per diluted share. This adjustment is primarily due to the other businesses segment expecting a net loss in the range of $0.04 to $0.06 per diluted share in 2024, which was not previously anticipated. For Avista Utilities, the company expects the segment to contribute near the low end of the guidance range in 2024, due to higher-than-expected power supply costs, maintenance of thermal generation assets, medical expenses, bad debt, and ongoing legal costs. The company continues to expect AEL&P to contribute in the range of $0.09 to $0.11 per diluted share in 2024.

Despite these short-term challenges, Avista’s long-term prospects remain positive. The company operates in a stable industry with moderate growth, as evidenced by the electric and natural gas utility sector’s compound annual growth rate of approximately 3-5% over the past five years. Avista’s strategic focus on renewable energy and infrastructure modernization aligns well with broader industry trends and regulatory priorities, positioning the company for sustainable growth in the coming years.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.