# Avista Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Avista Corp](/companies/ava.md) (CIK 104918)
- Form: 10-Q
- Filed: 2024-05-01
- Accepted by EDGAR: Apr 30, 2024, 22:55 ET
- Period: 2024-03-31
- Accession: 0000950170-24-050788
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/104918/000095017024050788/ava-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/104918/000095017024050788/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $609.4m | us-gaap:Revenues |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $101.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $71.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.91 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 78,211,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $190.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $118.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $37.8m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-03-31 | $12.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $561.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $7.65bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $580.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $5.13bn | us-gaap:Liabilities |
| Current portion of debt | at 2024-03-31 | $15.0m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-03-31 | $212.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-03-31 | $2.52bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,926 characters.

Management’s Discussion and Analysis of Financial Condition and Results of Operations was prepared in accordance with the SEC’s Regulation S-K for interim financial information and with the instructions to Form 10-Q. This Management’s Discussion and Analysis of Financial Condition and Results of Operations does not contain the full detail or analysis, or the full discussion of trends and uncertainties, that would accompany financial statements for a full fiscal year; therefore, it should be read in conjunction with the Company's 2023 Form 10-K.

### Business Segments

Our business segments have not changed during the three months ended March 31, 2024. See the 2023 Form 10-K as well as “Note 15 of the Notes to Condensed Consolidated Financial Statements” for further information regarding our business segments.

The following table presents net income (loss) for each of our business segments (and the other businesses) for the three months ended March 31 (dollars in thousands):

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Avista Utilities | $67,508 | $51,627 |
| AEL&P | 3,911 | 4,042 |
| Other | 76 | (824) |
| Net income | $71,495 | $54,845 |

### Executive Overview

### Overall Results

Net income for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023, primarily due to the effects of general rate cases and the timing impact of spreading less tax customer credits to annual income taxes in 2024, as compared to 2023. These increases in earnings were partially offset by increased operating expenses and depreciation and amortization expense.

More detailed explanations of the fluctuations in revenues and expenses are provided in the results of operations and business segment discussions (Avista Utilities, AEL&P, and the other businesses) that follow this summary.

### 2024 Hydroelectric Generation and Snowpack Conditions

During the first quarter of 2024, our region experienced low precipitation, resulting in low snowpack levels when compared to historical averages. These lower snowpack and precipitation levels had a negative impact on our hydroelectric generation resources during the quarter and are expected to continue to negatively impact forecast hydroelectric generation throughout the year. The decrease in hydroelectric generation will increase net power supply costs and result in us absorbing additional costs under the ERM in Washington. In the first quarter of 2024, we had a $6.0 million pre-tax expense under the ERM in Washington.

### Severe Weather; Resource Adequacy

In mid-January 2024, our operations were impacted by the extreme cold experienced in the Pacific Northwest, which resulted in system load peaks that were higher than anticipated. This event highlighted the growing need for additional electric capacity in the region, and as a result we are taking the increase in demand related to more frequent severe weather events into account as we consider our resource adequacy and generation needs. The transition to clean energy (including the replacement of emitting generation assets with renewable energy which can be weather-reliant) and increasing electrification also factor into our integrated resource planning to ensure we have adequate resources to serve our customers. We are in the process of evaluating potential acceleration of our generation additions as compared to our most recent integrated resource plan.

### Washington Climate Commitment Act (CCA)

Effective January 1, 2023, the CCA went into effect in the State of Washington, requiring us to secure carbon allowances to cover our carbon emissions over a certain amount each year. Costs associated with the CCA have been deferred and have been included in natural gas customer rates starting in April 2024. The resulting aggregate increase to customer bills is expected to be 3.7 percent, and impacts customers differently based on revenue class, income level, and meter connection date. See "Environmental Issues and Contingencies" within our Form 10-K for 2023 for further discussion of the CCA and expected impacts on our financial results.

### Regulatory Lag

Regulatory “lag” is inherent in utility ratemaking; a result of the delay between the investment in utility plant and/or the increase in costs and the receipt of an order of a public utility commission authorizing an increase in rates sufficient to recover such investment or costs. Regulatory lag can be mitigated to some extent by the incorporation of reasonably expected forward-looking information into an authorization of increased rates. However, there is no protection against unexpected inflation and increased interest rates, as experienced in 2022 and 2023. While we believe our recent general rate settlements are helpful, some increases in our operating expenses and interest costs will have to be addressed in future rate cases, including our 2024 Washington general rate cases. See “Regulatory Matters” for additional discussion of the general rate cases.

### Regulatory Matters

### General Rate Cases

We regularly review the need for electric and natural gas rate changes in each state in which we provide service. We expect to continue to file for rate adjustments to:

- seek recovery of operating costs and capital investments, and
- seek the opportunity to earn reasonable returns as allowed by regulators.

With regard to the timing and plans for future filings, the assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs, as well as specific factors that can affect the timing of rate filings. Such factors include, but are not limited to, in-service dates of major capital investments and the timing of changes in major revenue and expense items.

### Avista Utilities

### Washington General Rate Cases

#### 2024 General Rate Cases

On January 18, 2024, we filed multi-year electric and natural gas general rate cases with the WUTC. If approved, new rates would be effective in December 2024 and December 2025.

The proposed rates are designed to increase annual base electric revenues by $77.1 million, or 13.0 percent, effective in December 2024, and $53.7 million, or 11.7 percent, 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 percent, effective in December 2024, and $4.6 million, or 3.2 percent, effective in December 2025.

The proposed electric and natural gas revenue increase requests are based on a 10.4 percent return on equity with a common equity ratio of 48.5 percent and a rate of return on rate base of 7.61 percent. Increasing power supply costs, operating and maintenance costs, and ongoing capital investments (including clean energy hydroelectric projects, continued investment in the wildfire resiliency plan, replacement of natural gas distribution pipe and technology upgrades) were the main drivers of proposed increases.

In the second year of the proposed electric multi-year rate plan, in compliance with Washington’s CETA, we have removed from customers’ rates the costs associated with generation from Colstrip.

As a part of the electric rate case, we proposed certain updates to power supply costs. The updated power supply costs included as a part of the first rate year, accounts for $18.5 million of our overall electric request. For electric rate year 2, the net effect of increasing base power supply costs (primarily to make up for the loss of Colstrip from our generation portfolio), offset by reductions in customer rates through the removal of Colstrip rate base and expenses, accounts for $35.1 million of our overall $53.7 million request.

Additionally, we are proposing changes to the ERM. Under the present construct, the ERM consists of a $4 million deadband, and then an asymmetric sharing band between $4 million and $10 million. All costs above $10 million are shared on a 90 percent customer, 10 percent company basis. As part of this rate case, we are proposing moving the entire mechanism to a 95 percent customer, 5 percent company sharing of power supply cost above or below the authorized level.

If the multi-year rate plans are approved, we would not file new general rate cases for new rate plans to be effective prior to December 2026.

The WUTC has up to eleven months to review the general rate case filings and issue a decision.

### Idaho General Rate Cases

#### 2023 General Rate Cases

In February 2023, we filed multi-year electric and natural gas general rate cases with the IPUC. In August 2023, the IPUC approved the multi-party settlement agreement designed to increase annual base electric revenues by $22.1 million, or 8.0 percent, effective in September 2023, and $4.3 million, or 1.4 percent, effective in September 2024. The agreement was designed to increase annual base natural gas revenues by $1.3 million, or 2.7 percent, effective in September 2023, and a negligible increase effective in September 2024.

The settlement was based on an ROE of 9.4 percent, with a common equity ratio of 50 percent, and an ROR of 7.19 percent.

#### 2025 General Rate Cases

We expect to file electric and natural gas general rate cases with the IPUC in the first quarter of 2025.

### Oregon General Rate Case

#### 2023 General Rate Case

In March 2023, we filed a natural gas general rate case with the OPUC. In October 2023, the OPUC approved the all party settlement agreement filed in August 2023. The approved rates are designed to increase annual base natural gas revenues by $7.2 million, or 9.4 percent. The OPUC approved an ROR of 7.24 percent, a common equity ratio of 50 percent, and an ROE of 9.5 percent. New rates were effective on January 1, 2024.

#### 2024 General Rate Case

We expect to file a natural gas general rate case with the OPUC in the second half of 2024.

### AEL&P

### Alaska General Rate Case

In August 2023, the RCA issued a final order related to AEL&P’s electric general rate case, which was originally filed in July 2022.

The order reflects an 11.45 percent ROE, a common equity ratio of 60.7 percent, and an ROR of 8.79 percent. The order also results in an approved base electric revenue increase of 6.0 percent (designed to increase annual electric revenues by $2.1 million), and also makes non-refundable the interim rate increase of 4.5 percent that was approved by the RCA in August 2022 and took effect in September 2022. The final increase to rates was effective in October 2023.

### Avista Utilities

### Purchased Gas Adjustments

PGAs are designed to pass through changes in natural gas costs to customers with little to no change in utility margin (operating revenues less resource costs) or net income. In Washington and Idaho, all costs under the PGAs are passed through to customers. In Oregon, we absorb (cost or benefit) 10 percent of the difference between actual and projected natural gas costs included in retail rates for supply to the extent not hedged. Total net deferred natural gas costs among all jurisdictions were assets of $15.1 million and $51.4 million as of March 31, 2024 and December 31, 2023, respectively.

### Power Cost Deferrals and Recovery Mechanisms

The ERM is an accounting method used in Washington to track certain differences between actual power supply costs, net of the margin on wholesale sales of energy and sales of fuel, and the amount included in base retail rates for our customers. See the 2023 Form 10-K for a full discussion of the mechanics of the ERM and the various customer/Company sharing bands. Total net deferred power costs under the ERM were assets of $35.1 million and $37.6 million as of March 31, 2024 and December 31, 2023, respectively. These deferred power cost balances represent amounts due from customers. Pursuant to WUTC requirements, should the cumulative deferral balance exceed $30 million in either the rebate or surcharge direction, we must make a filing with the WUTC to adjust customer rates to return the balance to customers or recover the balance from customers, as the case may be. Of the $35.1 million of deferred power costs as of March 31, 2024, $21.0 million is being recovered through a rate surcharge to customers over a two-year period, effective July 1, 2023, as approved by the WUTC.

The PCA mechanism in Idaho allows us to modify electric rates on October 1 of each year with IPUC approval. Under the PCA mechanism, we defer 90 percent of the difference (positive or negative) between certain actual net power supply expenses and the amount included in base retail rates for our Idaho customers. The October 1 rate adjustments recover or rebate power supply costs deferred during the preceding July-June twelve-month period. Total net power supply costs deferred under the PCA mechanism were assets of $5.3 million and $7.6 million as of March 31, 2024 and December 31, 2023, respectively. These deferred power cost balances represent amounts due from customers.

### Decoupling Mechanisms

Decoupling (also known as an FCA in Idaho) is a mechanism designed to sever the link between a utility's revenues and consumers' energy usage. In each of our jurisdictions, electric and natural gas revenues are adjusted so as to be based on the number of customers in certain customer rate classes and assumed "normal" kilowatt hour and therm sales, rather than being based on actual kilowatt hour and therm sales. The difference between revenues based on the number of customers and "normal" sales and revenues based on actual usage is deferred and either surcharged or rebated to customers beginning in the following year. Only residential and certain commercial customer classes are included in our decoupling mechanisms. See the 2023 Form 10-K for a discussion of the mechanisms in each jurisdiction.

Total net cumulative decoupling deferrals among all jurisdictions were regulatory liabilities of $12.3 million as of March 31, 2024 and $14.9 million as of December 31, 2023. Decoupling regulatory liabilities represent amounts due to customers.

See "Results of Operations - Avista Utilities" for further discussion of the amounts recorded to operating revenues in 2024 and 2023 related to the decoupling mechanisms.

### Results of Operations - Overall

The following provides an overview of changes in our Condensed Consolidated Statements of Income. More detailed explanations are provided, particularly for operating revenues and operating expenses, in the business segment discussions (Avista Utilities, AEL&P, and the other businesses) that follow this section.

The balances included below for utility operations reconcile to the Condensed Consolidated Statements of Income.

### Three months ended March 31, 2024 compared to the three months ended March 31, 2023

The following graph shows the total change in net income for the first quarter of 2024 compared to the first quarter of 2023, as well as the various factors that caused such change (dollars in millions):

Electric utility revenues increased as a result of the effects of general rate cases (including a tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023), the ERM surcharge to customers, and increased wholesale sales and sales of fuel as part of our resource optimization activities. Natural gas utility revenues increased primarily due to increased wholesale revenues.

Electric utility resource costs increased primarily due to increased wholesale prices for our purchased power, as well as net amortizations and deferrals of power supply costs related to increased deferred costs in 2023 that are being amortized in 2024. Natural gas utility resource costs increased due to net amortizations and deferrals of costs related to a decrease in deferred costs during the period, as well as an increase in amortization of previously deferred costs. The increased net amortizations and deferrals were partially offset by decreased purchased natural gas costs.

Utility operating expenses increased due to increased benefits expense, as well as increased amortizations of previously deferred items now included in customer rates (resulting in no impact to net income).

Utility depreciation and amortization increased primarily due to additions to utility plant.

Income tax was an expense in the first quarter of 2024, compared to a benefit in the first quarter of 2023. The change is primarily due to decreased tax customer credits, which offset the bill impact of rate increases included in our prior general rate cases, partially offset by the timing impact of spreading the decreased credits over the year as a percentage of pre-tax income based on the estimated annual effective tax rate. See "Note 7 of the Notes to Condensed Consolidated Financial Statements" for further details and a reconciliation of our effective tax rate.

### Non-GAAP Financial Measures

The following discussion for Avista Utilities includes two financial measures considered “non-GAAP financial measures”: electric utility margin and natural gas utility margin. In the AEL&P section, we include a discussion of utility margin, which is also a non-GAAP financial measure.

Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts included (excluded) in the most directly comparable measure calculated and presented in accordance with GAAP. Electric utility margin is electric operating revenues less electric resource costs, while natural gas utility margin is natural gas operating revenues less natural gas resource costs. The most directly comparable GAAP financial measure to electric and natural gas utility margin is utility operating revenues as presented in "Note 15 of the Notes to Condensed Consolidated Financial Statements."

The presentation of electric utility margin and natural gas utility margin is intended to enhance the understanding of operating performance. We use these measures internally and believe they provide useful information to investors in their analysis of how changes in loads (due to weather, economic or other conditions), rates, supply costs and other factors impact our results of operations. Changes in loads, as well as power and natural gas supply costs, are generally deferred and recovered from customers through regulatory accounting mechanisms. Accordingly, the analysis of utility margin generally excludes most of the change in revenue resulting from these regulatory mechanisms. We present electric and natural gas utility margin separately below for Avista Utilities since each business has different cost sources, cost recovery mechanisms and jurisdictions, so we believe separate analysis is beneficial. These measures are not intended to replace utility operating revenues as determined in accordance with GAAP as an indicator of operating performance. Reconciliations of operating revenues to utility margin are set forth below.

### Results of Operations - Avista Utilities

### Resource Optimization

We engage in resource optimization, which involves the selection from available energy resources to serve our load obligations and the use of these resources to capture economic value through wholesale market transactions, which is ultimately intended to lower net power and natural gas supply costs. Our resource optimization transactions can take the form of physical sales and purchases of energy (natural gas or electricity), electric capacity and fuel for electric generation, as well as financial derivative contracts related to capacity, energy, fuel and fuel transportation. See our 2023 Form 10-K for further discussion of our optimization activities.

We typically enter into multiple transactions simultaneously to capture value. Even though these transactions are considered together when determining the net impact, they are recorded in separate items within components of utility operating revenue and resource costs and can cause fluctuations in each item. Gains and losses on financial derivative contracts are included in certain line items below (such as wholesale sales and purchases of power and natural gas, sales of fuel, and other fuel costs). The ERM, PCA and PGAs are based on net supply costs and consider all transactions related to resource procurement and optimization (both physical and financial).

### Three months ended March 31, 2024 compared to the three months ended March 31, 2023

### Utility Operating Revenues

#### Customers

The following table presents Avista Utilities' average number of electric and natural gas retail customers for the three months ended March 31, 2024 and 2023:

|  | Electric Customers 2024 | 2023 | Natural Gas Customers 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Residential | 370,786 | 364,542 | 343,826 | 339,639 |
| Commercial | 44,529 | 45,010 | 37,480 | 37,073 |
| Interruptible | — | — | 48 | 49 |
| Industrial | 1,183 | 1,186 | 185 | 186 |
| Public street and highway lighting | 702 | 687 | — | — |
| Total retail customers | 417,200 | 411,425 | 381,539 | 376,947 |

43

The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the three months ended March 31, 2024 and 2023 (dollars in millions and MWhs in thousands):

(1) This balance includes public street and highway lighting, which is considered part of retail electric revenues.

Total electric operating revenues in the graph above include intracompany sales of $1.9 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents the current year deferrals and the amortization of prior year decoupling balances reflected in utility electric operating revenues for the three months ended March 31 (dollars in thousands):

|  | Electric Decoupling Revenues 2024 | 2023 |
| --- | ---: | ---: |
| Current year decoupling deferrals (a) | $(6,163) | $(2,522) |
| Amortization of prior year decoupling deferrals (b) | 8,217 | 2,723 |
| Total electric decoupling revenue | $2,054 | $201 |

(a) Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years.

(b) Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total electric revenues increased $109.6 million for the first quarter of 2024 as compared to the first quarter of 2023. The primary changes that occurred during the period were as follows:

- a $33.9 million increase in retail electric revenue due to an increase in retail rates (increased revenues by $26.7 million) and an increase in MWhs sold (increased revenues by $7.2 million).
- Retail rates increased mainly due to the effects of our general rate cases, including the tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023, which resulted in increased rates. The ERM surcharge to customers that commenced in July 2023 also increased retail rates.
- Retail sales volumes increased primarily due to increased use by our residential and commercial customers. Compared to the first quarter of 2023, residential use per customer increased 3 percent and commercial use per customer increased 2 percent. Customer growth also contributed to the increased sales volumes.
- a $35.4 million increase in wholesale electric revenues due to an increase in sales volumes (increased revenues $40.0 million), partially offset by a decrease in sales prices (decreased revenues $4.6 million). The fluctuation of volumes was due to increased opportunities to optimize our generation assets.
- a $37.1 million increase in sales of fuel as part of thermal resource optimization activities, including associated financial hedging activities.
- a $1.9 million increase in electric decoupling revenue, resulting mostly from increased amortization of prior year rebate balances, partially offset by increased deferrals (due to higher use per customer).

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the three months ended March 31, 2024 and 2023 (dollars in millions and therms in thousands):

(1) This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues.

Total natural gas operating revenues in the graph above include intracompany sales of $4.0 million and $6.3 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents the current year deferrals and the amortization of prior year decoupling balances reflected in utility natural gas operating revenues for the three months ended March 31 (dollars in thousands):

|  | Natural Gas Decoupling Revenues 2024 | 2023 |
| --- | ---: | ---: |
| Current year decoupling deferrals (a) | $1,719 | $(15,162) |
| Amortization of prior year decoupling deferrals (b) | (890) | (4,077) |
| Total natural gas decoupling revenue | $829 | $(19,239) |

(a) Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years.

(b) Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total natural gas revenues increased $23.5 million for the first quarter of 2024 as compared to the first quarter of 2023. The primary changes that occurred during the period were as follows:

- a $13.8 million decrease in natural gas retail revenues (including industrial, which is included in other) due to decreased sales volumes (decreased revenues $14.1 million), partially offset by higher retail rates (increased revenues $0.3 million). The decrease in sales volumes was primarily due to decreased residential and commercial usage, resulting from milder winter weather. Compared to the first quarter of 2023, residential use per customer decreased 8 percent, and commercial firm use per customer decreased 5 percent. Heating degree days in Spokane decreased 3 percent from the first quarter of 2023, and were 4 percent below the historical average. Heating degree days in Medford decreased 18 percent compared to the first quarter of 2023, and were 10 percent below historical average.
- a $17.2 million increase in wholesale natural gas revenues primarily due to financial losses associated with our hedging activities in the first quarter of 2023, which net with our wholesale revenues. Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.
- a $20.1 million increase in natural gas decoupling revenue primarily due to current year surcharges to residential customers (due to lower use per customer) compared to rebates associated with higher usage in 2023, and decreased amortization of prior year surcharge balances.

### Utility Resource Costs

The following graphs present Avista Utilities' resource costs for the three months ended March 31, 2024 and 2023 (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $4.0 million and $6.3 million for the three months ended March 31, 2024 and 2023, respectively.

Total electric resource costs increased $81.6 million for the first quarter of 2024 as compared to the first quarter of 2023. The primary changes that occurred during the period were as follows:

- a $33.0 million increase in power purchased due to an increase in wholesale prices (increased costs $24.3 million) and an increase in the volume of power purchases (increased costs $8.7 million). In mid-January 2024, our service territory experienced much colder than normal weather, requiring purchases at a time when wholesale prices were substantially elevated due to capacity constraints in our region.
- a $24.2 million increase in fuel for generation. This is primarily due to financial gains recognized in the first quarter of 2023 associated with our hedging activities, which net with our physical purchases, as well as increased thermal generation in the first quarter of 2024 compared to 2023.
- a $3.6 million increase in other fuel costs. These costs represent fuel and the related derivative instruments purchased for generation which were later sold when conditions indicated it was more economical to sell the fuel as part of the resource optimization process. When the fuel is sold either physically or through a derivative instrument, that revenue is included in sales of fuel.
- a $20.9 million increase in other electric resource costs, primarily related to a decrease in deferred power supply costs and an increase in amortization of previously deferred costs.

Total natural gas resource costs in the graph above include intracompany resource costs of $1.9 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

Total natural gas resource costs increased $17.1 million for the first quarter of 2024 as compared to the first quarter of 2023 primarily due to the following:

- a $61.9 million decrease in natural gas purchased due to a decrease in the price of natural gas (decreased costs $53.7 million), and a decrease in volumes (decreased costs $8.2 million). The decrease in volumes is primarily due to decreased retail usage.
- a $79.0 million increase from net amortizations and deferrals of natural gas costs, primarily related to a decrease in deferred costs during the period, as well as an increase in amortization of previously deferred costs.

### Utility Margin

The following table reconciles Avista Utilities' operating revenues, as presented in "Note 15 of the Notes to Condensed Consolidated Financial Statements" to the Non-GAAP financial measure utility margin for the three months ended March 31, 2024 and 2023 (dollars in thousands):

|  | Electric 2024 | 2023 | Natural Gas 2024 | 2023 | Intracompany 2024 | 2023 | Total 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Operating revenues | $366,894 | $257,297 | $233,907 | $210,390 | $(5,865) | $(7,545) | $594,936 | $460,142 |
| Resource costs | 166,354 | 84,744 | 132,019 | 114,938 | (5,865) | (7,545) | 292,508 | 192,137 |
| Utility margin | $200,540 | $172,553 | $101,888 | $95,452 | $— | $— | $302,428 | $268,005 |

Electric utility margin increased $28.0 million and natural gas utility margin increased $6.4 million.

Electric utility margin increased primarily due to the effects of general rate cases (including the tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023).

In the first quarter of 2024, we had a $6.0 million pre-tax expense under the ERM in Washington, compared to a $7.6 million pre-tax expense for the first quarter of 2023.

Natural gas utility margin increased primarily due to general rate cases (including the tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023).

Intracompany revenues and resource costs represent purchases and sales of natural gas between our natural gas distribution operations and our electric generation operations (as fuel for our generation plants). These transactions are eliminated in the presentation of total results for Avista Utilities and in the condensed consolidated financial statements but are included in the separate results for electric and natural gas presented above.

### Results of Operations - Alaska Electric Light and Power Company

Net income for AEL&P was $3.9 million for the three months ended March 31, 2024 and $4.0 million for the three months ended March 31, 2023.

The following table presents AEL&P's operating revenues, resource costs and resulting utility margin for the three months ended March 31, 2024 and 2023 (dollars in thousands):

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Operating revenues | $14,458 | $14,363 |
| Resource costs | 609 | 791 |
| Utility margin | $13,849 | $13,572 |

### Results of Operations - Other Businesses

Our other businesses had net income of $0.1 million for the three months ended March 31, 2024 compared to a net loss of $0.8 million for the three months ended March 31, 2023.

The increase in results primarily relates to net investment losses recognized in 2023.

### Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on our condensed consolidated financial statements and thus, actual results could differ from the amounts reported and disclosed herein. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in the 2023 Form 10-K and have not changed materially.

### Liquidity and Capital Resources

### Overall Liquidity

Our sources of overall liquidity and the requirements for liquidity have not materially changed in the three months ended March 31, 2024. See the 2023 Form 10-K for further discussion.

As of March 31, 2024, we had $198.3 million of available liquidity under the Avista Corp. committed line of credit, $36.0 million of available liquidity under our letter of credit facility, and $25.0 million under the AEL&P committed line of credit. With our existing credit facilities and the expected issuances of common stock within the next year, we believe we have adequate liquidity to meet our needs for the next 12 months.

In April 2024, we closed on the remarketing of $66.7 million and $17.0 million of the City of Forsyth, Montana Pollution Control Revenue Refunding Bonds due in 2032 and 2034, respectively. The proceeds from the remarketing of these bonds were used to repay borrowings under our committed line of credit.

### Review of Consolidated Cash Flow Statement

### Operating Activities

Net cash provided by operating activities was $190.1 million for the three months ended March 31, 2024, compared to $94.2 million for the three months ended March 31, 2023. Contributing to the increase are power and natural gas deferrals being amortized in the first quarter of 2024, compared to large deferrals in 2023. The net impact of these deferrals on operating cash flows was a $96.1 million increase in 2024 compared to 2023. The change in accounts payable balances during the period also contributed $60.2 million to the increased operating cash flows, as there were large balances paid during the first quarter of 2023 associated with elevated commodity prices at the end of 2022. These increases were partially offset by a $44.5 million decrease in collateral returned related to our derivative instruments and a $41.6 million decrease related to the change in accounts receivable, both of which were also impacted by elevated commodity prices at the end of 2022.

### Investing Activities

Net cash used in investing activities was $118.1 million for the three months ended March 31, 2024, compared to $106.3 million for the three months ended March 31, 2023. We paid $118.7 million for utility capital expenditures in 2024, compared to $100.5 million in 2023.

### Financing Activities

Net cash used in financing activities was $94.8 million for the three months ended March 31, 2024, compared to net cash provided by financing activities of $9.2 million for the three months ended March 31, 2023. In the first quarter of 2023, we issued $250.0 million of long-term debt, whereas there was no debt issued in the first quarter of 2024. We also decreased our short-term borrowings by $54.0 million in the three months ended March 31, 2024, compared to $232.0 million in the three months ended March 31, 2023. In addition, we issued $0.1 million of common stock and paid $37.8 million in dividends in 2024, compared to issuing common stock of $29.9 million and paying $35.0 million in dividends in 2023.

### Capital Resources

Our consolidated capital structure, including the current portion of long-term debt and short-term borrowings consisted of the following as of March 31, 2024 and December 31, 2023 (dollars in thousands):

|  | March 31, 2024 Amount | Percent of total | December 31, 2023 Amount | Percent of total |
| --- | ---: | ---: | ---: | ---: |
| Current portion of long-term debt and leases | $22,947 | 0.4% | $22,890 | 0.4% |
| Short-term borrowings | 212,155 | 3.9% | 349,000 | 6.3% |
| Long-term debt to affiliated trusts | 51,547 | 0.9% | 51,547 | 0.9% |
| Long-term debt and leases | 2,700,372 | 49.0% | 2,618,012 | 47.4% |
| Total debt | 2,987,021 | 54.2% | 3,041,449 | 55.0% |
| Total shareholders’ equity | 2,520,500 | 45.8% | 2,485,323 | 45.0% |
| Total | $5,507,521 | 100.0% | $5,526,772 | 100.0% |

Our shareholders’ equity increased $35.2 million during the first quarter of 2024 primarily due to net income, which was partially offset by dividends paid.

We need to finance capital expenditures and acquire additional funds for operations from time to time. The cash requirements needed to service our indebtedness, both short-term and long-term, reduce the amount of cash flow available to fund capital expenditures, purchased power, fuel and natural gas costs, dividends and other requirements.

### Short Term Borrowings

#### Avista Corp.

Avista Corp. has a committed line of credit with various financial institutions in the total amount of $500 million and an expiration date of June 2028, with the option to extend for an additional one year period (subject to customary conditions).

In December 2022, we entered into a revolving credit agreement in the amount of $100 million, which was terminated in June 2023.

In December 2022, we entered into a continuing letter of credit agreement in the aggregate amount of $50 million. Either party may terminate the agreement at any time.

The following table summarizes the balances outstanding and available liquidity as of March 31, 2024 (dollars in thousands):

|  | Amount of Facility | Borrowings Outstanding | Letters of Credit Outstanding (1) | Available Liquidity |
| --- | ---: | ---: | ---: | ---: |
| Line of Credit expiring June 2028 | $500,000 | $295,000 | $6,700 | $198,300 |
| Letter of Credit Facility | 50,000 | N/A | 14,000 | 36,000 |
| Total | $550,000 | $295,000 | $20,700 | $234,300 |

(1) Letters of credit are not reflected on the Condensed Consolidated Balance Sheets. If a letter of credit were drawn upon by the holder, we would have an immediate obligation to reimburse the bank that issued that letter.

The Avista Corp. credit facilities contain customary covenant and default provisions, including a change in control (as defined in the agreements). The events of default under each of the credit facilities also include a cross default from other indebtedness (as defined) and, in the case of the letter of credit agreement, other obligations. The committed line of credit agreement also includes a covenant which does not permit our ratio of “consolidated total debt” to “consolidated total capitalization” to be greater than 65 percent at any time. As of March 31, 2024, we were in compliance with this covenant with a ratio of 54.2 percent.

Balances outstanding and interest rates of borrowings (excluding letters of credit) under Avista Corp.'s lines of credit were as follows as of and for the three months ended March 31 (dollars in thousands):

| $500 million line of credit, expiring June 2028 | 2024 | 2023 |
| --- | ---: | ---: |
| Maximum balance outstanding during the period | $349,000 | $334,500 |
| Average balance outstanding during the period | 318,890 | 314,783 |
| Average interest rate during the period | 6.46% | 5.54% |
| Average interest rate at end of the period | 6.50% | 5.79% |
| **$100 million line of credit, terminated June 2023** |  |  |
| Maximum balance outstanding during the period | N/A | 15,000 |
| Average balance outstanding during the period | N/A | 500 |
| Average interest rate during the period | N/A | 7.75% |

#### AEL&P

AEL&P has a $25.0 million committed line of credit that expires in June 2028. As of March 31, 2024, there was no balance outstanding under this committed line of credit.

The AEL&P credit facility contains customary covenants and default provisions including a covenant which does not permit the ratio of “consolidated total debt at AEL&P” to “consolidated total capitalization at AEL&P” (including the impact of the Snettisham obligation) to be greater than 67.5 percent at any time. As of March 31, 2024, AEL&P was in compliance with this covenant with a ratio of 47.5 percent.

As of March 31, 2024, Avista Corp. and its subsidiaries were in compliance with all of the covenants of their financing agreements, and none of Avista Corp.'s subsidiaries constituted a “significant subsidiary” as defined in Avista Corp.'s committed line of credit.

See "Note 8 of the Notes to Condensed Consolidated Financial Statements" for additional information regarding our short-term borrowing arrangements.

### Liquidity Expectations

During April 2024, we remarketed bonds resulting in an additional $83.7 million of long-term debt. We do not expect to issue any additional long-term debt in 2024. We expect to issue $70 million of common stock in 2024.

### Capital Expenditures

We are making capital investments to enhance service and system reliability for our customers and replace aging infrastructure, and expect Avista Utilities' capital expenditures to be $500 million in 2024. See the 2023 Form 10-K for further information on our expected capital expenditures.

### Pension Plan

### Avista Utilities

In the three months ended March 31, 2024 we contributed $3.3 million to the pension plan. We expect to contribute $10.0 million for the year. We expect to contribute a total of $40.0 million to the pension plan in the period 2025 through 2028, with an annual contribution of $10.0 million.

The final determination of pension plan contributions for future periods is subject to multiple variables, most of which are beyond our control, including changes to the fair value of pension plan assets, changes in actuarial assumptions (in particular the discount rate used in determining the benefit obligation), or changes in federal legislation. We may change our pension plan contributions in the future depending on changes to any variables, including those listed above.

See "Note 6 of the Notes to Condensed Consolidated Financial Statements" for additional information regarding the pension plan.

### Environmental Issues and Contingencies

Our environmental issues and contingencies disclosures have not materially changed during the three months ended March 31, 2024 except as follows:

### SEC Climate Disclosure Rules

In March 2024, the SEC adopted final rules requiring certain climate disclosures to be incorporated into SEC filings. The final rules as written are effective for our filings starting with the 2025 Annual Report on Form 10-K.

After the final rules were published by the SEC, multiple lawsuits were made, including allegations that the SEC does not have statutory rulemaking authority over climate reporting, among other various allegations. The SEC requested the cases be consolidated into one action, and the consolidated action is now before the United States Circuit Court of Appeals for the Eighth Circuit.

In April 2024, the SEC voluntarily stayed the implementation of the final rules. In the stay order, the SEC noted it intends to vigorously defend the validity of the final rules.

We are monitoring the outcome of the consolidated action and voluntary stay.

### EPA Regulations for Power Plants

On April 25, 2024, the EPA released a package of final regulations addressed to electric generation facilities. These include:

- *Greenhouse gas regulations for new natural gas-based turbines and existing coal-based units, pursuant to section 111 of the Clean Air Act (the “CAA Section 111 Rules”)*. This rule finalizes (a) the repeal of the Affordable Clean Energy (“ACE”) rule; (b) guidelines for GHG emissions from existing fossil fuel-fired steam generating electric generating units; and (c) revisions to existing performance standards for new, reconstructed or heavily modified fossil fuel-fired stationary combustion turbine electric generating units.
- *Supplemental Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category (the “ELG Rule”)*. The ELG Rule applies to wastewater discharges from coal-based generating units and establishes pollution control requirements. The Rule builds upon the 2015 and 2020 ELG Rules. It includes a subcategory of requirements for coal plants that will be retired or repowered by the end of 2028 and provides additional compliance pathways for coal plants that retire by the end of 2034.
- *Updated Mercury and Air Tox Standards, pursuant to section 112 of the Clean Air Act (the “MATS Rule”)*. The MATS Rule sets emissions limits for filterable particulate matter for coal-based generating units. The Rule reduces those limits from the standards that were originally set in 2012.
- *Disposal of Coal Combustion Residuals from Electric Utilities – Legacy CCR Surface Impoundments (the “CCR Rule”)*. The CCR Rule builds on 2015 regulations, which apply to active power plants that dispose of coal combustion residuals in

surface impoundments or landfills, by regulating inactive surface impoundments at inactive power plants and CCR management units at active and inactive power plants.

We are in the process of analyzing each of these rules to assess the impact, if any, it may have on our existing generating units, including Colstrip and/or our natural gas-fired generating units. At this time, there are no indications that the implementation of these rules would impact our agreement to transfer our Colstrip ownership to Northwestern, which is planned to close on December 31, 2025. To the extent these regulations result in increased compliance costs, we expect to seek recovery of those costs through the ratemaking process.

See the 2023 Form 10-K for further discussion of our environmental issues and contingencies.

### Enterprise Risk Management

The material risks to our businesses, and our mitigation process and procedures to address these risks, were discussed in our 2023 Form 10-K and have not materially changed during the three months ended March 31, 2024. See the 2023 Form 10-K.

### Financial Risk

Our financial risks have not materially changed during the three months ended March 31, 2024. Refer to the 2023 Form 10-K. The financial risks included below are required interim disclosures, even if they have not materially changed from December 31, 2023.

#### Interest Rate Risk

We use a variety of techniques to manage our interest rate risks. We have an interest rate risk policy and a policy to limit our variable rate exposures to a percentage of total capitalization. Additionally, interest rate risk is managed by monitoring market conditions when timing the issuance of long-term debt and optional debt redemptions and establishing fixed rate long-term debt with varying maturities. See "Note 5 of the Notes to Condensed Consolidated Financial Statements" for a summary of our interest rate swap derivatives outstanding as of March 31, 2024 and December 31, 2023 and the amount of additional collateral we would have to post in certain circumstances.

#### Credit Risk

Under the terms of interest rate swap derivatives, we may be required to post cash or letters of credit as collateral depending on fluctuations in the fair value of the instrument. A downgrade in our credit ratings could further impact the amount of collateral required. See “Credit Ratings” in the 2023 Form 10-K for further information. As of March 31, 2024, we had interest rate swap derivatives outstanding with a notional amount totaling $10.0 million and we had no cash deposited as collateral and no letters of credit outstanding for these interest rate swap derivatives. If our credit ratings were lowered to below “investment grade” based on our interest rate swap derivatives outstanding at March 31, 2024, we would not be required to post additional collateral because all of our outstanding interest rate swaps were in an asset position at the time.

As of March 31, 2024, we had cash deposited as collateral of $20.5 million and letters of credit of $14.0 million outstanding related to our energy contracts. Price movements and/or a downgrade in our credit ratings or other established credit criteria could impact further the amount of collateral required. See “Credit Ratings” in the 2023 Form 10-K for further information. For example, in addition to limiting our ability to conduct transactions, if our credit ratings were lowered to below “investment grade” based on our positions outstanding at March 31, 2024 (including contracts considered derivatives and those considered non-derivatives), we would potentially be required to post the following additional collateral (in thousands):

|  | March 31, 2024 |
| --- | ---: |
| Additional collateral taking into account contractual thresholds | $7,270 |
| Additional collateral without contractual thresholds | 26,290 |

54

### Energy Commodity Risk

Our energy commodity risks have not materially changed during the three months ended March 31, 2024. See the 2023 Form 10-K. The following table presents energy commodity derivative fair values as a net asset or (liability) as of March 31, 2024 expected to settle in each respective year (dollars in thousands). There are no expected deliveries of energy commodity derivatives after 2027.

| Year | Purchases Electric Derivatives Physical (1) | Financial (1) | Gas Derivatives Physical (1) | Financial (1) | Sales Electric Derivatives Physical (1) | Financial (1) | Gas Derivatives Physical (1) | Financial (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Remainder 2024 | $469 | $— | $(5,602) | $(15,115) | $2,600 | $5,244 | $(2,585) | $(2,402) |
| 2025 | — | — | (5,392) | (4,458) | — | 596 | (4,819) | (1,584) |
| 2026 | — | — | (974) | (407) | — | — | — | 0 |
| 2027 | — | — | 85 | 21 | — | — | — | — |

The following table presents energy commodity derivative fair values as a net asset or (liability) as of December 31, 2023 expected to be delivered in each respective year (dollars in thousands). There were no expected deliveries of energy commodity derivatives after 2026.

| Year | Purchases Electric Derivatives Physical (1) | Financial (1) | Gas Derivatives Physical (1) | Financial (1) | Sales Electric Derivatives Physical (1) | Financial (1) | Gas Derivatives Physical (1) | Financial (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| 2024 | $746 | $— | $(7,485) | $(50,899) | $6,990 | $1,502 | $(3,495) | $1,222 |
| 2025 | — | — | (5,781) | (5,166) | — | 295 | (4,349) | (1,348) |
| 2026 | — | — | (940) | (431) | — | — | — | — |

(1) Physical transactions represent commodity transactions where we will take or make delivery of either electricity or natural gas; financial transactions represent derivative instruments with delivery of cash in the amount of the benefit or cost but with no physical delivery of the commodity, such as futures, swap derivatives, options, or forward contracts.

The above electric and natural gas derivative contracts will be included in either power supply costs or natural gas supply costs during the period they are delivered and will be included in deferral and recovery mechanisms (ERM, PCA, and PGAs), or in the general rate case process, and are expected to eventually be collected through retail rates from customers.

## Market risk

As filed, 232 characters.

The information required by this item is set forth in the Enterprise Risk Management section of "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.

## Controls and procedures

As filed, 1,931 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company has disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (Act) that are designed to ensure that information required to be disclosed in the reports it files or submits under the Act is recorded, processed, summarized and reported on a timely basis. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. With the participation of the Company’s principal executive officer and principal financial officer, the Company's management evaluated its disclosure controls and procedures as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level as of March 31, 2024.

There have been no changes in the Company's internal control over financial reporting that occurred during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 441 characters.

Refer to the 2023 Form 10-K for disclosure of risk factors that could have a significant impact on our results of operations, financial condition or cash flows and could cause actual results or outcomes to differ materially from those discussed in our reports filed with the SEC (including this Quarterly Report on Form 10-Q), and elsewhere. These risk factors have not materially changed from the disclosures provided in the 2023 Form 10-K.

Filed May 1, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-050788. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.