Avista(AVA) - 2022 Q3 - Quarterly Report

Acronyms and Terms Acronyms and terms used throughout the report are defined for clarity Forward-Looking Statements This section outlines the nature and inherent risks of forward-looking statements made by the company Overview of Forward-Looking Statements The company's forward-looking statements, found in SEC filings and other communications, cover financial performance, cash flows, capital expenditures, dividends, capital structure, strategic goals, business environment, and operational plans. These statements are based on underlying assumptions and are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements cover financial performance, cash flows, capital expenditures, dividends, capital structure, strategic goals, business environment, and plans for operations[16] - Statements are identified by words like 'will,' 'may,' 'could,' 'should,' 'intends,' 'plans,' 'seeks,' 'anticipates,' 'estimates,' 'expects,' 'forecasts,' 'projects,' 'predicts,' and similar expressions[16] - Forward-looking statements are subject to various risks, uncertainties, and other factors, most of which are beyond the company's control, which could cause actual results to differ materially[16] Utility Regulatory Risk Utility regulatory risks include adverse state and federal regulatory decisions affecting cost recovery and reasonable returns, such as disallowance or delay in recovering capital investments, operating costs, and commodity costs, as well as the potential loss of regulatory accounting treatment - Risks include state and federal regulatory decisions affecting cost recovery and reasonable returns, such as disallowance or delay in recovering capital investments, operating costs, and commodity costs[17] - Potential for loss of regulatory accounting treatment, which could lead to write-offs of regulatory assets and loss of deferral/recovery mechanisms[17] Operational Risk Operational risks encompass disruptions from pandemics (like COVID-19), political conflicts, wildfires, severe weather, natural disasters, equipment failures, blackouts, cyberattacks, workforce issues, and changes in energy availability and pricing. These factors can lead to increased costs, supply chain disruptions, and negative impacts on liquidity and capital access - Pandemics (e.g., COVID-19) could disrupt business, leading to declining customer demand, increased costs, workforce shortages, supply chain issues, and capital market volatility[18] - Wildfires ignited by company equipment or facilities pose risks of significant loss of life, property damage, and fire suppression costs[18] - Severe weather or natural disasters (e.g., avalanches, wind storms, earthquakes, extreme temperatures) could disrupt energy generation, transmission, and distribution, affecting fuel, materials, and equipment costs[18] - Cyberattacks or other malicious acts could damage utility assets, disrupt information technology systems, and lead to liabilities and costs[19][20] Strategic Risk Strategic risks include changes in customer base due to new services or distributed generation, negative publicity, shifts in business plans, wholesale and retail competition, increased earnings volatility from non-regulated activities, and potential municipalization or service territory reduction - Growth or decline of customer base due to new services or distributed generation at customer sites[21] - Potential effects of negative publicity on reputation, litigation, or stock price[21] - Wholesale and retail competition from alternative energy sources and suppliers[21] External Mandates Risk External mandates risk involves changes in environmental laws and regulations (e.g., climate change, air/water quality, waste management), legislative initiatives affecting generating resources or natural gas usage, political pressures on distribution systems, and the ability to comply with licenses and permits - Changes in environmental laws, regulations, and policies, including responses to climate change concerns and stricter requirements for air/water quality and waste management[22] - Potential effects of federal, state, or local initiatives/legislation, such as restrictions on greenhouse gas emissions or natural gas usage[22] - Policy and/or legislative changes in regulated areas like environmental, healthcare, and import/export regulations[22] Financial Risk Financial risks include weather impacts on energy demand and generation, ability to obtain financing, changes in interest rates affecting borrowing costs, actuarial assumptions for benefit plans, legal proceedings, economic conditions in service areas, and declining energy demand due to efficiency measures - Weather conditions affect energy demand, electric generating capability (hydroelectric, wind), and wholesale energy markets[23] - Ability to obtain financing through debt/equity issuance is affected by credit ratings, interest rates, capital market conditions, and global economic conditions[23] - Changes in actuarial assumptions, interest rates, and actual return on plan assets for pension and other postretirement benefit plans could affect future funding obligations and expenses[23] - Economic conditions in service areas and nationally may affect customer demand and valuation of unregulated portfolio companies[23] Energy Commodity Risk Energy commodity risks involve volatility and illiquidity in wholesale energy markets, default by counterparties, potential environmental regulations affecting power supply resources, and incidents (explosions, pipeline ruptures) that could limit energy supply and increase replacement costs - Volatility and illiquidity in wholesale energy markets, including changes in prices, cash requirements for purchases, value of wholesale sales, and collateral demands[26] - Default or nonperformance by parties from whom capacity or energy is purchased/sold[26] - Explosions, fires, accidents, or pipeline ruptures could limit energy supply and increase replacement commodity costs[26] Compliance Risk Compliance risks include changes in federal, state, or local laws, regulations, decisions, and policies that could impact electric and gas operations and costs, as well as the ability to comply with hydroelectric or thermal generating facility licenses and permits cost-effectively - Changes in laws, regulations, decisions, and policies at federal, state, or local levels could materially impact electric and gas operations and costs[27] - Ability to comply with terms of licenses and permits for hydroelectric or thermal generating facilities at cost-effective levels[27] Available Information This section details where the company's public filings and investor information can be accessed - The company files annual, quarterly, and current reports and proxy statements with the SEC, available on www.sec.gov[29](index=29&type=chunk) - These reports are also made available on the company's investor website, https://investor.avistacorp.com/, promptly after electronic filing with the SEC[29] Part I. Financial Information This part presents the company's condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Avista Corporation, including statements of income, comprehensive income, balance sheets, cash flows, and equity for the periods ended September 30, 2022 and 2021. It also includes detailed notes on significant accounting policies, balance sheet components, revenue recognition, derivatives, pension plans, income taxes, debt, fair value measurements, common stock, accumulated other comprehensive loss, earnings per share, commitments, contingencies, and business segment information Condensed Consolidated Statements of Income (Loss) This section provides a summary of the company's income and loss for the reported periods Condensed Consolidated Statements of Income (Loss) | Metric (Thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total Operating Revenues | $359,446 | $296,007 | $1,200,058 | $1,007,132 | | Total Operating Expenses | $340,044 | $271,793 | $1,073,404 | $849,271 | | Income from Operations | $19,402 | $24,214 | $126,654 | $157,861 | | Net Income (Loss) | $(5,798) | $14,366 | $77,220 | $96,457 | | Basic EPS | $(0.08) | $0.21 | $1.06 | $1.39 | | Diluted EPS | $(0.08) | $0.20) | $1.06 | $1.38 | - Net income decreased significantly for the three months ended September 30, 2022, resulting in a net loss of $(5,798) thousand, compared to a net income of $14,366 thousand in the prior year[31] - For the nine months ended September 30, 2022, net income decreased to $77,220 thousand from $96,457 thousand in the prior year[31] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the company's comprehensive income and loss, including other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (Thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net Income (Loss) | $(5,798) | $14,366 | $77,220 | $96,457 | | Other Comprehensive Income | $272 | $304 | $821 | $927 | | Comprehensive Income (Loss) | $(5,526) | $14,670 | $78,041 | $97,384 | - Comprehensive income for the three months ended September 30, 2022, was a loss of $(5,526) thousand, a significant decrease from a gain of $14,670 thousand in the same period last year[34] - For the nine months ended September 30, 2022, comprehensive income decreased to $78,041 thousand from $97,384 thousand in the prior year[34] Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets | Metric (Thousands) | September 30, 2022 | December 31, 2021 | |:-------------------|:-------------------|:------------------| | Total Current Assets | $463,604 | $434,473 | | Total Assets | $7,055,799 | $6,853,583 | | Total Current Liabilities | $685,200 | $913,106 | | Total Liabilities | $4,820,950 | $4,698,839 | | Total Shareholders' Equity | $2,234,849 | $2,154,744 | - Total assets increased by $202,216 thousand from December 31, 2021, to September 30, 2022[37] - Total current liabilities decreased by $227,906 thousand, primarily due to a reduction in the current portion of long-term debt[37] - Total shareholders' equity increased by $80,105 thousand, driven by common stock issuances and net income[37] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | Metric (Thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------------------|:-------------------------------|:-------------------------------| | Net Cash Provided by Operating Activities | $210,412 | $228,916 | | Net Cash Used in Investing Activities | $(340,311) | $(326,930) | | Net Cash Provided by Financing Activities | $122,094 | $103,042 | | Net Increase (Decrease) in Cash and Cash Equivalents | $(7,805) | $5,028 | | Cash and Cash Equivalents at End of Period | $14,363 | $19,224 | - Net cash provided by operating activities decreased by $18,504 thousand year-over-year[41] - Net cash used in investing activities increased by $13,381 thousand, primarily due to higher utility property capital expenditures[41] - Net cash provided by financing activities increased by $19,052 thousand, driven by proceeds from long-term debt issuance and common stock issuance, partially offset by debt maturities[44] Condensed Consolidated Statements of Equity This section presents changes in the company's shareholders' equity over the reported periods Condensed Consolidated Statements of Equity | Metric (Thousands) | Sep 30, 2022 | Dec 31, 2021 | |:-------------------|:-------------|:-------------| | Common Stock, Amount | $1,478,443 | $1,380,152 | | Accumulated Other Comprehensive Loss | $(10,218) | $(11,039) | | Retained Earnings | $766,624 | $785,631 | | Total Equity | $2,234,849 | $2,154,744 | | Dividends Declared per Common Share (9 months) | $1.32 | $1.2675 | - Common stock increased by $98,291 thousand, primarily due to the issuance of common stock[48] - Retained earnings decreased by $19,007 thousand, reflecting net income partially offset by dividends paid[48] - Total equity increased by $80,105 thousand from December 31, 2021, to September 30, 2022[48] Note 1. Summary of Significant Accounting Policies This note describes the key accounting principles and methods used in preparing the financial statements - Avista Corp. is primarily an electric and natural gas utility operating in the Pacific Northwest (Avista Utilities) and Alaska (AEL&P), with other non-utility business ventures under Avista Capital[51][52] - The company's financial statements are consolidated, eliminating intercompany balances, and include proportionate shares of jointly owned utility plants[53] - The company is subject to state regulation in Washington, Idaho, Montana, Oregon, and Alaska, and federal regulation by FERC and other agencies[54] - Derivative instruments (energy commodity and interest rate swaps) are recorded at fair value with offsetting regulatory assets/liabilities to defer mark-to-market gains/losses until delivery/settlement, reflecting regulatory recovery mechanisms[55][58] Note 2. New Accounting Standards This note discusses any recently adopted or pending accounting standards and their impact on the company - There are no new accounting standards with a material impact to the Company for the reported period[62] Note 3. Balance Sheet Components This note provides detailed breakdowns of selected asset and liability accounts on the balance sheet Materials and Supplies, Fuel Stock and Stored Natural Gas (Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------|:-------------|:-------------| | Materials and supplies | $70,763 | $62,003 | | Stored natural gas | $47,039 | $17,604 | | Fuel stock | $5,645 | $5,126 | | Total | $123,447 | $84,733 | Other Current Assets (Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | |:----------------------------------------------------------------|:-------------|:-------------| | Prepayments | $21,812 | $24,387 | | Income taxes receivable | $23,620 | $29,615 | | Derivative assets net of collateral | $5,022 | $1,398 | | Collateral posted for derivative instruments after netting with outstanding derivatives | $47,425 | $21,477 | | Other | $3,414 | $3,877 | | Total | $101,293 | $80,754 | Net Utility Property (Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | |:------------------------------------|:-------------|:-------------| | Utility plant in service | $7,453,971 | $7,166,580 | | Construction work in progress | $167,139 | $205,405 | | Less: Accumulated depreciation and amortization | $2,242,266 | $2,146,470 | | Total | $5,378,844 | $5,225,515 | Regulatory Assets and Liabilities (Thousands) | Category | Current Sep 30, 2022 | Non-Current Sep 30, 2022 | Current Dec 31, 2021 | Non-Current Dec 31, 2021 | |:-----------------------------------|:---------------------|:-------------------------|:---------------------|:-------------------------| | Regulatory Assets: | | | | | | Energy commodity derivatives | $8,374 | $4,201 | $12,447 | $2,938 | | Decoupling surcharge | $6,674 | $5,346 | $9,907 | $14,625 | | Deferred natural gas costs | $38,674 | — | $14,095 | $6,932 | | Deferred power costs | $4,413 | — | $7,334 | $3,501 | | Pension and other postretirement benefit plans | — | $161,665 | — | $165,696 | | Interest rate swaps | — | $187,607 | — | $199,754 | | Total regulatory assets | $59,573 | $836,538 | $43,783 | $860,626 | | Regulatory Liabilities: | | | | | | Income tax related liabilities | $77,689 | $402,464 | $56,331 | $458,789 | | Decoupling rebate | $7,504 | $17,748 | $3,049 | $6,259 | | Utility plant retirement costs | — | $370,232 | — | $350,190 | | Total regulatory liabilities | $98,081 | $845,495 | $77,149 | $861,515 | Note 4. Revenue This note explains the company's revenue recognition policies and disaggregates total operating revenues - The majority of Avista Corp.'s revenue comes from rate-regulated sales of electricity and natural gas, recognized upon delivery of energy to customers[79] - Alternative revenue programs (decoupling mechanisms) are contracts with regulators, not customers, and revenue deferrals are recognized in the period they occur if expected to be collected within 24 months[81] - Most wholesale electric and natural gas transactions are considered derivatives, with revenue recognized upon settlement/expiration of the contract[82] Disaggregation of Total Operating Revenue (Thousands) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-----------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Avista Utilities | | | | | | Revenue from contracts with customers | $276,988 | $266,789 | $970,247 | $886,078 | | Derivative revenues | $76,248 | $28,087 | $218,024 | $91,151 | | Alternative revenue programs | $(5,850) | $(10,499) | $(28,420) | $(13,069) | | Total Avista Utilities | $349,655 | $286,752 | $1,167,042 | $974,172 | | AEL&P | | | | | | Revenue from contracts with customers | $9,526 | $9,065 | $32,747 | $32,331 | | Total AEL&P | $9,637 | $9,147 | $32,597 | $32,515 | | Other non-utility revenues | $154 | $108 | $419 | $445 | | Total Operating Revenues | $359,446 | $296,007 | $1,200,058 | $1,007,132 | Note 5. Derivatives and Risk Management This note details the company's use of derivative instruments for managing market risks and related fair value measurements - Avista Corp. uses derivative instruments (forwards, futures, swaps, options) to manage market risks related to electricity and natural gas commodity prices[95] - The company hedges a portion of foreign currency risk for Canadian natural gas supply transactions by purchasing Canadian currency exchange derivatives[104] - Interest rate swap derivatives are used as economic hedges against fluctuations in future cash flows from anticipated debt issuances[106] Summary of Outstanding Derivative Instruments (Fair Values, Thousands) | Category | Sep 30, 2022 (Net Asset/Liability) | Dec 31, 2021 (Net Asset/Liability) | |:-----------------------------------|:-----------------------------------|:-----------------------------------| | Foreign currency exchange derivatives | $(221) | $(19) | | Interest rate swap derivatives | $10,384 | $1,149 | | Energy commodity derivatives (current assets) | $5,022 | $1,399 | | Energy commodity derivatives (non-current assets) | $2,357 | $1,509 | | Energy commodity derivatives (current liabilities) | $(2,775) | $(4,756) | | Energy commodity derivatives (non-current liabilities) | $(4,673) | $(4,448) | | Total derivative instruments | $10,094 | $(29,270) | - As of September 30, 2022, cash collateral posted for energy commodity derivatives was $59.9 million, and letters of credit outstanding were $26.0 million[115] Note 6. Pension Plans and Other Postretirement Benefit Plans This note provides information on the company's pension and other postretirement benefit plans, including costs and funding - The Company contributed $42.0 million in cash to the pension plan for the nine months ended September 30, 2022, with no further contributions expected in 2022[119] Net Periodic Benefit Cost (Thousands) | Metric | Pension Benefits (2022) | Pension Benefits (2021) | Other Postretirement Benefits (2022) | Other Postretirement Benefits (2021) | |:-----------------------------------|:------------------------|:------------------------|:-------------------------------------|:-------------------------------------| | Three Months Ended Sep 30: | | | | | | Service cost | $5,914 | $6,412 | $1,095 | $1,062 | | Interest cost | $6,578 | $6,528 | $1,343 | $1,305 | | Expected return on plan assets | $(10,950) | $(9,835) | $(700) | $(509) | | Net periodic benefit cost | $2,614 | $4,772 | $2,289 | $2,360 | | Nine Months Ended Sep 30: | | | | | | Service cost | $17,914 | $18,912 | $3,255 | $2,967 | | Interest cost | $20,005 | $19,638 | $4,167 | $3,990 | | Expected return on plan assets | $(32,851) | $(29,314) | $(2,100) | $(1,967) | | Net periodic benefit cost | $8,377 | $14,564 | $7,083 | $7,361 | - Approximately 40% of total service costs are capitalized to utility property, and 60% are expensed to utility other operating expenses[121] - The non-service portion of costs is approximately 40% capitalized to regulatory assets and 60% expensed to the income statement[121] Note 7. Income Taxes This note outlines the company's income tax expense, effective tax rates, and deferred tax assets and liabilities - The company uses an estimated annual effective tax rate for computing interim income tax provisions, with discrete events recorded in the period they occur[123] Income Tax Expense (Benefit) (Thousands) | Metric | Three Months Ended Sep 30, 2022 | % | Three Months Ended Sep 30, 2021 | % | Nine Months Ended Sep 30, 2022 | % | Nine Months Ended Sep 30, 2021 | % | |:-----------------------------------|:--------------------------------|:--|:--------------------------------|:--|:-------------------------------|:--|:-------------------------------|:--| | Federal income taxes at statutory rates | $(1,185) | 21.0% | $1,876 | 21.0% | $13,764 | 21.0% | $22,173 | 21.0% | | Flow through related to deduction of meters and mixed service costs | $1,192 | (21.1)% | $(5,277) | (59.1)% | $(18,643) | (28.4)% | $(5,277) | (5.0)% | | Tax effect of regulatory treatment of utility plant differences | $420 | (7.5)% | $(1,697) | (19.0)% | $(6,878) | (10.5)% | $(8,748) | (8.3)% | | Total income tax expense (benefit) | $157 | (2.8)% | $(5,432) | (60.8)% | $(11,678) | (17.8)% | $9,130 | 8.6% | - The Inflation Reduction Act of 2022 (IRA) is not expected to materially impact the company's financial results, with no immediate impacts for the reported periods[125] Note 8. Committed Lines of Credit This note describes the company's available credit facilities and their terms - Avista Corp. has a $400.0 million committed line of credit expiring in June 2026, secured by non-transferable first mortgage bonds[127] Avista Corp. Committed Line of Credit (Thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:-----------------------------------|:-------------|:-------------| | Balance outstanding at end of period | $268,000 | $284,000 | | Letters of credit outstanding at end of period | $30,288 | $34,000 | | Average interest rate at end of period | 3.85% | 1.11% | - AEL&P has a separate $25.0 million committed line of credit expiring in November 2024, with no outstanding borrowings or letters of credit as of September 30, 2022[128] Note 9. Long Term Debt This note provides details on the company's long-term debt issuances, repayments, and related transactions - In March 2022, the Company issued $400.0 million of 4.00% first mortgage bonds due in 2052[129] - Proceeds from the new bonds were used to repay outstanding borrowings under the committed line of credit and $250.0 million of maturing debt in April 2022[129] - The Company cash-settled thirteen interest rate swap derivatives (notional $140.0 million) for a net payment of $17.0 million, which will be amortized as interest expense over the debt's life[129] Note 10. Long-Term Debt to Affiliated Trusts This note describes the company's long-term debt obligations to affiliated business trusts - In 1997, the Company issued $51.5 million in Floating Rate Junior Subordinated Deferrable Interest Debentures to Avista Capital II, an affiliated business trust[130] - Avista Capital II issued $50.0 million of Preferred Trust Securities with a floating distribution rate of LIBOR plus 0.875%, which will transition to a SOFR-based benchmark in July 2023[130] Distribution Rates on Preferred Trust Securities | Metric | Sep 30, 2022 | Dec 31, 2021 | |:-----------------------------------|:-------------|:-------------| | Low distribution rate | 1.05% | 0.99% | | High distribution rate | 3.96% | 1.10% | | Distribution rate at the end of the period | 3.96% | 1.05% | - The Company owns 100% of Avista Capital II and guarantees payments on the Preferred Trust Securities, but does not consolidate these trusts in its financial statements[135] Note 11. Fair Value This note explains the company's fair value measurements for financial and non-financial assets and liabilities - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[137][138][139] Carrying Value and Estimated Fair Value of Financial Instruments (Thousands) | Instrument | Sep 30, 2022 Carrying Value | Sep 30, 2022 Estimated Fair Value | Dec 31, 2021 Carrying Value | Dec 31, 2021 Estimated Fair Value | |:-----------------------------------|:--------------------------------|:------------------------------------|:--------------------------------|:------------------------------------| | Long-term debt (Level 2) | $1,113,500 | $967,695 | $963,500 | $1,157,651 | | Long-term debt (Level 3) | $1,200,000 | $890,658 | $1,200,000 | $1,366,619 | | Snettisham finance lease obligation (Level 3) | $46,501 | $41,800 | $48,815 | $54,000 | | Long-term debt to affiliated trusts (Level 3) | $51,547 | $40,908 | $51,547 | $43,299 | Assets and Liabilities Measured at Fair Value on a Recurring Basis (Thousands) | Category | Sep 30, 2022 Total | Dec 31, 2021 Total | |:-----------------------------------|:-------------------|:-------------------| | Assets: | | | | Energy commodity derivatives | $7,379 | $2,908 | | Level 3 energy commodity derivatives (Natural gas exchange agreement) | $0 | $0 | | Interest rate swap derivatives | $10,384 | $1,149 | | Deferred compensation assets (Mutual Funds) | $7,457 | $9,403 | | Total Assets | $25,220 | $13,460 | | Liabilities: | | | | Energy commodity derivatives | $608 | $1,433 | | Level 3 energy commodity derivatives (Natural gas exchange agreement) | $6,840 | $7,771 | | Foreign currency exchange derivatives | $221 | $19 | | Interest rate swap derivatives | $0 | $24,104 | | Total Liabilities | $7,669 | $33,327 | - The carrying value of equity investments without readily determinable fair values was $43.2 million as of September 30, 2022, up from $24.2 million at December 31, 2021[156] - The company recognized a $12.7 million gain from fair value adjustments on these equity investments for the nine months ended September 30, 2022[156] Note 12. Common Stock This note provides information on the company's common stock issuances and changes in outstanding shares - The Company issued common stock for net proceeds of $32.2 million and $93.0 million during the three and nine months ended September 30, 2022, respectively[157] - These issuances primarily occurred through sales agency agreements, with 0.8 million shares issued in the three months and 2.1 million shares in the nine months ended September 30, 2022[157] - In April 2022, the Company completed board and regulatory approval processes to issue an additional 4.8 million shares[157] Note 13. Accumulated Other Comprehensive Loss This note details the components of accumulated other comprehensive loss and reclassifications to net income Accumulated Other Comprehensive Loss (Thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------------------------------------------------------------------------------|:-------------|:-------------| | Unfunded benefit obligation for pensions and other postretirement benefit plans - net of taxes | $10,218 | $11,039 | Reclassifications Out of Accumulated Other Comprehensive Loss to Net Income (Thousands) | Component | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:---------------------------------------------------------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Amortization of net prior service cost | $(200) | $(200) | $(600) | $(600) | | Amortization of net loss | $1,823 | $2,369 | $5,670 | $8,299 | | Adjustment due to effects of regulation | $(1,279) | $(1,784) | $(4,031) | $(6,525) | | Net of tax | $272 | $304 | $821 | $927 | Note 14. Earnings (Loss) per Common Share This note presents the calculation of basic and diluted earnings per common share for the reported periods Earnings (Loss) per Common Share | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-----------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) (Thousands) | $(5,798) | $14,366 | $77,220 | $96,457 | | Weighted-average common shares outstanding-basic (Thousands) | 73,229 | 70,054 | 72,547 | 69,582 | | Basic EPS | $(0.08) | $0.21 | $1.06 | $1.39 | | Diluted EPS | $(0.08) | $0.20) | $1.06 | $1.38 | - Basic and diluted EPS for the three months ended September 30, 2022, were $(0.08), a decrease from $0.21 and $0.20), respectively, in the prior year[163] - For the nine months ended September 30, 2022, basic and diluted EPS were $1.06, down from $1.39 and $1.38, respectively, in the prior year[163] Note 15. Commitments and Contingencies This note discloses the company's various commitments, legal proceedings, and contingent liabilities - The company is involved in various claims, controversies, and disputes, including litigation related to wildfires (Boyds Fire, Road 11 Fire, Labor Day 2020 Windstorm, Babb Road Fire) and Colstrip operations[164][166][169][170][173][178] - A new four-year collective bargaining agreement with the IBEW, representing approximately 40% of employees, was reached in March 2022, retroactive to March 2021 and expiring in March 2025[165] - Legal proceedings related to Colstrip Units 3 and 4 involve disagreements among co-owners regarding shutdown requirements and interpretation of the Ownership and Operating Agreement, with a Montana Federal Magistrate Judge ruling Senate Bill 265 and 266 unconstitutional[180][183][184] - Talen Energy and Puget Sound Energy entered a binding agreement for PSE to transfer its 25% ownership in Colstrip Units 3 and 4 to Talen at the end of 2025[185] - The company is also facing a potential $6 million claim from the DOJ related to alleged natural and cultural resource damage during a power pole incident in 2017[190] Note 16. Information by Business Segments This note provides financial information disaggregated by the company's operating business segments - The company manages its business in three segments: Avista Utilities (regulated utility operations in Pacific Northwest), AEL&P (regulated utility operations in Alaska), and Other (non-utility investments and operations)[194] Business Segment Performance (Thousands) | Metric | Avista Utilities (3M Sep 2022) | AEL&P (3M Sep 2022) | Other (3M Sep 2022) | Total (3M Sep 2022) | |:---------------------------|:-------------------------------|:--------------------|:--------------------|:--------------------| | Operating revenues | $349,655 | $9,637 | $154 | $359,446 | | Income (loss) from operations | $18,660 | $1,661 | $(919) | $19,402 | | Net (loss) income | $(5,987) | $228 | $(39) | $(5,798) | | Capital expenditures | $116,809 | $3,854 | $0 | $120,663 | | Metric | Avista Utilities (9M Sep 2022) | AEL&P (9M Sep 2022) | Other (9M Sep 2022) | Total (9M Sep 2022) | | Operating revenues | $1,167,042 | $32,597 | $419 | $1,200,058 | | Income (loss) from operations | $121,476 | $9,760 | $(4,582) | $126,654 | | Net income | $65,241 | $4,292 | $7,687 | $77,220 | | Capital expenditures | $324,123 | $7,186 | $756 | $332,065 | | Total Assets | Avista Utilities (Sep 30, 2022) | AEL&P (Sep 30, 2022) | Other (Sep 30, 2022) | Total (Sep 30, 2022) | | | $6,648,603 | $266,907 | $149,077 | $7,055,799 | Report of Independent Registered Public Accounting Firm This section presents the independent auditor's review report on the condensed consolidated interim financial information - Deloitte & Touche LLP reviewed the condensed consolidated interim financial information for Avista Corporation and found no material modifications needed for conformity with GAAP[200] - The firm also confirmed that the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated in relation to the previously audited consolidated balance sheet[201] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key changes in net income, operating costs, and utility margin across business segments. It also discusses significant factors such as supply chain delays, inflationary pressures, regulatory lag, climate change impacts, wildfire resiliency efforts, and various regulatory matters including general rate cases and environmental protection plans. The discussion also covers liquidity, capital resources, cash flow, and enterprise risk management Business Segments This section provides an overview of the company's operating business segments and their financial contributions - The company's business segments (Avista Utilities, AEL&P, and Other) have not changed during the nine months ended September 30, 2022[205] Net (Loss) Income by Business Segment (Thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Avista Utilities | $(5,987) | $9,086 | $65,241 | $80,861 | | AEL&P | $228 | $41 | $4,292 | $4,816 | | Other | $(39) | $5,239 | $7,687 | $10,780 | | Total Net (Loss) Income | $(5,798) | $14,366 | $77,220 | $96,457 | Executive Overview This section summarizes the company's overall financial performance, key operational challenges, and strategic initiatives - Net income decreased for both the three and nine months ended September 30, 2022, primarily due to increased operating costs, depreciation, and interest expense at Avista Utilities, partially offset by higher utility margin[207][208] - Net income at other businesses also decreased due to lower investment gains[207][208] - The company continues to experience supply chain delays impacting material/equipment delivery times and availability, proactively mitigating impacts by modifying project plans and seeking new suppliers[209] - Inflationary pressures are noted in power and natural gas costs, labor, benefits, and fuel for vehicle fleet, leading to increased operating costs and higher cost of debt[210][212][213] - The company expects regulatory lag to persist due to utility infrastructure investments, though the 2022 Washington general rate case settlement aims to reduce it[214] - Climate change is causing increasing average temperatures, impacting energy demand, precipitation, hydroelectric resources, and leading to legislation limiting fossil fuel and natural gas use[215] - The company is implementing a 10-year Wildfire Resiliency Plan, expecting to spend approximately $330 million, with deferral of certain costs approved by IPUC and WUTC[217] Regulatory Matters This section discusses the company's interactions with regulatory bodies, including rate cases and compliance with environmental regulations - The company regularly files for rate adjustments to recover operating costs, capital investments, and earn reasonable returns[219] - The 2020 Washington General Rate Cases resulted in approved increases of $13.6 million for electric and $8.1 million for natural gas, effective October 1, 2021, based on a 9.4% ROE[220] - A settlement agreement for the 2022 Washington General Rate Cases, if approved, would increase annual electric revenues by $38.0 million (Dec 2022) and $12.5 million (Dec 2023), and natural gas revenues by $7.5 million (Dec 2022) and $1.5 million (Dec 2023)[222] - Washington Engrossed Substitute Senate Bill 5295, effective July 2021, promotes multi-year rate plans and performance-based ratemaking to minimize regulatory lag[226] - The 2021 Idaho General Rate Cases approved increases of $10.6 million for electric (Sep 2021) and $8.0 million (Sep 2022), and a decrease of $1.6 million for natural gas (Sep 2021) and an increase of $0.9 million (Sep 2022), based on a 9.4% ROE[227] - The 2021 Oregon General Rate Case resulted in an overall revenue increase of $1.6 million, effective August 22, 2022, with a 7.05% ROR and 9.4% ROE[229] - AEL&P filed an electric general rate case in July 2022, receiving interim approval for a 4.5% base rate increase ($1.6 million annually) effective September 2022, and requesting an additional 4.5% permanent increase for October 2023[231] - Total net deferred natural gas costs were assets of $38.7 million as of September 30, 2022, up from $21.0 million at December 31, 2021[232] - Total net deferred power costs under the ERM were liabilities of $1.5 million as of September 30, 2022, down from $11.9 million at December 31, 2021[233] - Total net cumulative decoupling deferrals were regulatory liabilities of $13.2 million as of September 30, 2022, compared to regulatory assets of $15.2 million at December 31, 2021[238] Results of Operations - Overall This section provides a consolidated analysis of the company's financial performance, explaining key drivers of changes in income and expenses - For the three months ended September 30, 2022, net income decreased compared to 2021, primarily due to increased utility operating costs, depreciation, and interest expense, partially offset by higher utility margin[240] - For the nine months ended September 30, 2022, net income decreased due to similar factors, including higher natural gas PGA rates, increased customer usage, and higher wholesale sales prices[241][242] - Income tax expense decreased for the nine months ended September 30, 2022, due to the recognition of income taxes related to completed Idaho and Washington general rate cases in late 2021[244] Non-GAAP Financial Measures This section defines and explains the use of non-GAAP financial measures to provide additional insights into operating performance - Electric utility margin (electric operating revenues less electric resource costs) and natural gas utility margin (natural gas operating revenues less natural gas resource costs) are non-GAAP financial measures used to enhance understanding of operating performance[246] - These measures help analyze the impact of changes in loads, rates, and supply costs, as changes in loads and supply costs are generally deferred and recovered through regulatory accounting mechanisms[246] Results of Operations - Avista Utilities This section details the financial performance of the Avista Utilities segment, focusing on revenues, costs, and utility margin - For the three months ended September 30, 2022, total electric operating revenues increased by $52.9 million, driven by increased wholesale electric revenues (higher sales prices and volumes) and sales of fuel, partially offset by increased electric decoupling revenue[250][251][252] - Total natural gas revenues increased by $6.3 million for the three months ended September 30, 2022, due to higher retail rates (PGA increases) and increased natural gas decoupling revenue, partially offset by lower sales volumes[258][259][260] - Electric utility margin increased by $15.8 million and natural gas utility margin increased by $1.8 million for the three months ended September 30, 2022, primarily due to general rate cases and customer growth[268][269] - For the nine months ended September 30, 2022, total electric revenues increased by $116.9 million, mainly from higher wholesale electric revenues (prices and volumes), increased sales of fuel, and retail electric revenue growth[273][274][275] - Total natural gas revenues increased by $58.8 million for the nine months ended September 30, 2022, driven by higher retail rates (PGA increases) and sales volumes, partially offset by a decrease in natural gas decoupling revenue[281][282][283] - Electric utility margin increased by $21.4 million and natural gas utility margin increased by $6.9 million for the nine months ended September 30, 2022, primarily due to general rate cases and customer growth[290] Results of Operations - Alaska Electric Light and Power Company This section analyzes the financial results of the Alaska Electric Light and Power Company (AEL&P) segment AEL&P Operating Results (Thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |:-------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income | $228 | $41 | $4,292 | $4,816 | | Operating revenues | $9,637 | $9,147 | $32,597 | $32,515 | | Resource costs | $1,400 | $1,024 | $3,020 | $2,926 | | Utility margin | $8,237 | $8,123 | $29,577 | $29,589 | - Net income for AEL&P increased to $0.2 million for the three months ended September 30, 2022, from less than $0.1 million in the prior year[291] - For the nine months ended September 30, 2022, net income decreased to $4.3 million from $4.8 million in the prior year, primarily due to increased resource costs and operating expenses[291] Results of Operations - Other Businesses This section reviews the financial performance of the company's non-utility investments and operations - Other businesses reported a net loss of less than $0.1 million for the three months ended September 30, 2022, compared to a net income of $5.2 million in the prior year[292] - Net income for the nine months ended September 30, 2022, was $7.7 million, down from $10.8 million in the prior year[292] - The decrease in net income is primarily attributed to lower investment gains in 2022 compared to 2021[292] Critical Accounting Policies and Estimates This section highlights the accounting policies and estimates that require significant management judgment and assumptions - The company's critical accounting policies and estimates, which require significant judgment and assumptions, have not materially changed from those discussed in the 2021 Form 10-K[293] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations, including cash flow, debt, and capital expenditures - The company's sources and requirements for liquidity have not materially changed in the nine months ended September 30, 2022[294] - In March 2022, $400.0 million of first mortgage bonds were issued, with proceeds used to repay outstanding credit line balances and $250.0 million of maturing long-term debt in April 2022[294] - As of September 30, 2022, available liquidity included $101.7 million under Avista Corp.'s committed line of credit and $25.0 million under AEL&P's committed line of credit[295] - The company expects to enter into a short-term credit facility of up to $50 million in Q4 2022 for additional liquidity[295] Consolidated Capital Structure (Thousands) | Category | Sep 30, 2022 Amount | Sep 30, 2022 % of total | Dec 31, 2021 Amount | Dec 31, 2021 % of total | |:-----------------------------------|:--------------------|:------------------------|:--------------------|:------------------------| | Current portion of long-term debt and leases | $21,031 | 0.4% | $257,386 | 5.4% | | Short-term borrowings | $268,000 | 5.4% | $284,000 | 6.0% | | Long-term debt to affiliated trusts | $51,547 | 1.0% | $51,547 | 1.1% | | Long-term debt and leases | $2,391,808 | 48.2% | $2,010,168 | 42.2% | | Total debt | $2,732,386 | 55.0% | $2,603,101 | 54.7% | | Total shareholders' equity | $2,234,849 | 45.0% | $2,154,744 | 45.3% | | Total | $4,967,235 | 100.0% | $4,757,845 | 100.0% | - Shareholders' equity increased by $80.1 million during the first three quarters of 2022 due to net income and common stock issuance, partially offset by dividends[302] - Avista Corp. was in compliance with its debt covenant, maintaining a consolidated total debt to total capitalization ratio of 55.0% as of September 30, 2022 (covenant limit 65%)[306] - AEL&P was in compliance with its debt covenant, with a ratio of 50.5% (covenant limit 67.5%)[307] - Avista Utilities capital expenditures are expected to be $475 million annually from 2022 through 2024[310] - The company expects to contribute $40.0 million to the pension plan from 2023-2026, with $10.0 million annually[311] - The Oregon Climate Protection Program (CPP), effective January 2022, outlines GHG emissions reduction goals of 50% by 2035 and 90% by 2050 from 1990 levels, with the first compliance filing due in 2025[315] - The Washington Climate Commitment Act (CCA), with final rules effective November 1, 2022, establishes a cap and trade program for greenhouse gas emissions, impacting electric and natural gas businesses[317] - The Inflation Reduction Act (IRA) is not expected to impact corporate alternative minimum tax results but offers potential clean energy tax incentives[318] - The Clean Energy Implementation Plan (CEIP), approved in June 2022, targets serving 40% of Washington retail customer demand with renewable energy by 2022, increasing to 62.5% by end of 2025[321] Enterprise Risk Management This section describes the company's framework for identifying, assessing, and mitigating significant business risks - The material risks to the company's businesses and mitigation procedures have not materially changed during the nine months ended September 30, 2022[323] - The company manages interest rate risks through a policy limiting variable rate exposures and establishing fixed-rate long-