Avista(AVA) - 2023 Q4 - Annual Report

Part I Business Overview Avista Corp. is a regulated electric and natural gas utility operating through Avista Utilities and AEL&P, providing power from diverse sources Company Overview Avista Corp. is an electric and natural gas utility operating through Avista Utilities and AEL&P, with non-utility investments and a focus on human capital - Avista Corp. operates two primary segments: Avista Utilities (regulated utility in WA, ID, OR, MT) and AEL&P (regulated utility in Juneau, AK)[29] - The company emphasizes human capital through initiatives in Equity, Inclusion, and Diversity (EID), employee development, retention, and workplace safety[29][33][34] Avista Utilities Employee Profile (as of Dec 31, 2023) | Category | Women | Under-Represented Groups | | :--- | :--- | :--- | | Bargaining Unit | 3% | 6% | | Non-bargaining Unit | 45% | 11% | | Executives (VP or higher) | 17% | 17% | | Overall | 30% | 9% | Avista Utilities Avista Utilities serves over 400,000 electric and 380,000 natural gas customers, utilizing diverse generation and implementing a $437 million Wildfire Resiliency Plan - As of year-end 2023, Avista Utilities served approximately 416,000 retail electric customers and 381,000 retail natural gas customers[36] - The electric generation resource mix as of December 31, 2023, was approximately 48% hydroelectric, 43% thermal, and 9% other renewables[40] - The company is implementing a 10-year Wildfire Resiliency Plan, initiated in 2020, with an expected total spend of $437 million to enhance grid hardening, vegetation management, and emergency response[56][58] - Avista Utilities has an aspirational goal to serve customers with 100% clean electricity by 2045 and for its natural gas operations to be carbon neutral by 2045[55][61] Alaska Electric Light and Power Company (AEL&P) AEL&P is Juneau, Alaska's sole electric utility, serving approximately 17,700 customers with a mix of hydroelectric and diesel generation capacity - AEL&P is the sole electricity provider in Juneau, Alaska, serving approximately 17,700 customers as of year-end 2023[82][84] - The utility's generation capacity consists of 102.7 MW from hydroelectric facilities and 107.5 MW from diesel backup generators[84] - A key asset is the Snettisham hydroelectric project, operated under a take-or-pay PPA treated as a finance lease, expiring in December 2038[84] Other Businesses The 'Other Businesses' segment, managed by Avista Capital, includes non-utility equity, venture capital, and real estate investments Other Businesses Assets (in thousands) | Asset Type | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Equity investments | $153,350 | $147,809 | | Real estate investments | $4,512 | $7,852 | | Notes receivable – third parties | $20,380 | $17,954 | | Other assets | $2,452 | $2,865 | | Alaska companies (AERC & AJT Mining) | $10,971 | $10,547 | | Total | $191,665 | $187,027 | Item 1A. Risk Factors Avista Corp. faces significant risks including regulatory, operational, climate change, cybersecurity, and financial factors impacting its business - Utility Regulatory Risk: Regulators may not grant timely or sufficient rate increases to recover costs and earn a reasonable return, potentially impacting financial condition[91] - Operational Risk: Wildfires ignited by company equipment could lead to significant liability, financial harm, and reputational damage, with severe weather also posing threats[92][94] - Climate Change Risk: Increasing average temperatures could impact hydro generation, alter energy demand, and increase stress on infrastructure[96] - Cybersecurity Risk: Cyberattacks on operational and administrative systems could disrupt business, compromise sensitive data, and result in significant liabilities and costs[97] - Financial Risk: Energy commodity price volatility affects cash flows, and credit rating downgrades could increase borrowing costs and collateral requirements[105][107] Item 1B. Unresolved Staff Comments As of the filing date, Avista Corp. reports no unresolved comments from the U.S. Securities and Exchange Commission (SEC) staff - The company reports no unresolved comments from the SEC staff as of the filing date[115] Item 1C. Cybersecurity Avista manages cybersecurity risk through its enterprise risk management program, with oversight from senior leadership and the Board of Directors - Cybersecurity risk is managed as part of the overall enterprise risk management program, with mitigation efforts including employee training, third-party audits, and emergency operating plans[116] - The cybersecurity program is led by the Vice President, Chief Information Officer, and Chief Security Officer, with over 20 years of experience[116] - Board-level oversight is provided by the Environmental, Technology and Operations Committee, receiving at least quarterly briefings on security policies, programs, and incidents[116] Item 2. Properties Avista Corp.'s utility assets include Avista Utilities' 1,909.4 MW generation capacity and AEL&P's 210.2 MW capacity, along with extensive transmission and distribution networks Avista Utilities Properties Avista Utilities owns diverse generation, transmission, and distribution assets, with a total generation capability of 1,909.4 MW and extensive electric and natural gas networks Avista Utilities Generation Capability (MW) | Type | Capability (MW) | | :--- | :--- | | Total Hydroelectric | 1,049.1 | | Total Thermal | 860.3 | | Total Generation | 1,909.4 | - The electric transmission and distribution system includes approximately 2,300 miles of transmission lines and 19,700 miles of distribution lines[120][121] Alaska Electric Light and Power Company Properties AEL&P's assets in Juneau, Alaska, include generation, transmission, and distribution facilities, with a total generation capability of 210.2 MW from hydro and diesel sources AEL&P Generation Capability (MW) | Type | Capability (MW) | | :--- | :--- | | Total Hydroelectric | 102.7 | | Total Diesel | 107.5 | | Total Generation | 210.2 | - AEL&P's network includes 61 miles of transmission lines and 184 miles of distribution lines[123] Item 3. Legal Proceedings Information regarding legal proceedings is cross-referenced to Note 22 of the Notes to Consolidated Financial Statements - Details on legal proceedings are cross-referenced to Note 22 of the financial statements[124] Item 4. Mine Safety Disclosures This item is not applicable to Avista Corp - The company states that Mine Safety Disclosures are not applicable[124] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Avista Corp.'s common stock trades on the NYSE under 'AVA', with dividends funded by utility net income and subject to regulatory equity ratio requirements - Avista Corp.'s common stock is listed on the NYSE under the ticker symbol 'AVA'[126] - The Board of Directors considers multiple factors for dividend payments, primarily derived from regulated utility net income[126] - Dividend payments are subject to limitations, including an OPUC requirement to maintain a capital structure of at least 35% common equity[126] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Avista's financial condition and operations, noting a net income increase to $171.2 million in 2023 driven by utility margin growth Net Income by Business Segment (in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | :--- | | Avista Utilities | $167,016 | $117,901 | $125,558 | | AEL&P | $8,937 | $7,545 | $7,224 | | Other | $(4,773) | $29,730 | $14,552 | | Net income | $171,180 | $155,176 | $147,334 | - Avista Utilities' net income increased in 2023 due to benefits from general rate cases and lower property taxes, partially offset by higher interest and operating expenses[130] - The 'Other' businesses segment experienced a significant decrease in net income, shifting from a $29.7 million gain in 2022 to a $4.8 million loss in 2023, primarily due to net investment losses[130] - 2023 was one of the worst years for hydroelectric generation due to rapid snowpack melt, negatively impacting power supply costs and financial results[131] Regulatory Matters Avista actively manages its regulatory environment through regular general rate cases (GRCs) and Purchased Gas Adjustments (PGAs) to recover costs - In January 2024, Avista filed a new multi-year GRC in Washington requesting electric revenue increases of 13.0% in Dec 2024 and 11.7% in Dec 2025, and natural gas increases of 13.6% and 3.2% respectively[138] - The approved 2023 Idaho GRC resulted in an 8.0% electric revenue increase effective Sep 2023 and a 1.4% increase for Sep 2024, based on a 9.4% ROE[139] - AEL&P's 2022 GRC was finalized in August 2023, approving a 6.0% base electric revenue increase based on an 11.45% ROE[142] Results of Operations Consolidated net income increased to $171.2 million in 2023, driven by higher utility margins, partially offset by a net loss in the 'Other Businesses' segment - Avista Utilities' electric utility margin increased by $60.0 million in 2023, primarily due to general rate cases and customer growth[165][166] - Avista Utilities' natural gas utility margin increased by $12.8 million in 2023, also driven by customer growth and rate cases[165][166] - AEL&P's net income increased to $8.9 million in 2023 from $7.5 million in 2022, with utility margin rising to $44.3 million from $42.1 million due to higher sales volumes and rate increases[168][169] - The 'Other Businesses' segment recorded a net loss of $4.8 million in 2023, compared to a net income of $29.7 million in 2022, mainly from decreases in the fair value of investments[170] Liquidity and Capital Resources Avista's liquidity is primarily from operating cash flows, which increased to $447.1 million in 2023, with capital expenditures funded by cash flow, debt, and equity issuances - Net cash provided by operating activities increased to $447.1 million in 2023 from $124.2 million in 2022, largely due to a significant decrease in cash collateral posted for derivative instruments[180] Capital Expenditures (in thousands) | Year | Avista Utilities (in thousands) | AEL&P (in thousands) | | :--- | :--- | :--- | | 2023 Actual | $484,716 | $13,921 | | 2024 Expected | $500,000 | $21,000 | | 2025 Expected | $525,000 | $10,000 | | 2026 Expected | $575,000 | $12,000 | - In 2024, the company plans to issue up to $85 million of long-term debt and $70 million of common stock to help fund capital expenditures[191] - As of December 31, 2023, Avista Corp. had $176.3 million of available liquidity under its credit facilities[186] Environmental Issues and Other Contingencies Avista is subject to extensive environmental regulations, including Washington's CETA and CCA, impacting operations and requiring an exit from coal-fired power by 2025 - Washington's Clean Energy Transformation Act (CETA) requires the company to eliminate coal-fired resources from its retail electric sales by December 31, 2025[214] - The company entered into an agreement with NorthWestern to transfer its 15% ownership interest in the Colstrip plant at the end of 2025, while retaining responsibility for existing remediation obligations[220][450] - Washington's Climate Commitment Act (CCA), a cap-and-trade program effective in 2023, is expected to have a limited financial impact on electric operations initially but will increase costs for natural gas customers[216] Enterprise Risk Management Avista employs a comprehensive enterprise risk management process, overseen by senior management and the Board, to identify and mitigate key business risks - The company's primary identified risk categories include Utility Regulatory, Operational, Climate Change, Cybersecurity, Technology, Strategic, External Mandates, Financial, Energy Commodity, and Compliance[225][227] - Financial risk is mitigated through regulatory strategies like decoupling, active capital structure management to maintain credit ratings, and the use of interest rate swaps to hedge future borrowing costs[235][236][238] - Energy commodity risk is managed through an energy resources risk policy that includes hedging, resource optimization, and long-term planning to reduce cost volatility for both electricity and natural gas[247] - If the company's credit rating were lowered to below investment grade, it would be required to post an estimated $17.5 million in additional collateral for energy contracts and $0.2 million for interest rate swaps as of year-end 2023[244][245] Item 8. Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for FY2023, audited by Deloitte & Touche LLP, with an unqualified opinion on their fair presentation Consolidated Financial Highlights (Year Ended Dec 31, 2023, in thousands) | Metric | Amount (in thousands) | | :--- | :--- | | Total Operating Revenues | $1,751,554 | | Income from Operations | $257,690 | | Net Income | $171,180 | | Diluted EPS | $2.24 | | Total Assets | $7,702,477 | | Total Liabilities | $5,217,154 | | Total Equity | $2,485,323 | | Net Cash from Operations | $447,079 | - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements[255] Item 9A. Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[473] - Based on the COSO framework, management determined that the company's internal control over financial reporting was effective as of December 31, 2023[474] - The independent registered public accounting firm issued an unqualified opinion on the company's internal control over financial reporting[477] Part III Item 10. Directors, Executive Officers and Corporate Governance This section provides information on executive officers, with other details on directors and corporate governance incorporated by reference from the Proxy Statement - Information regarding directors and corporate governance is incorporated by reference from the company's Proxy Statement[483] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's Proxy Statement[486] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section addresses security ownership and equity compensation plans, with beneficial ownership information incorporated by reference from the Proxy Statement - Information regarding security ownership of beneficial owners and management is incorporated by reference from the company's Proxy Statement[486] - As of December 31, 2023, 665,198 securities were available for future issuance under shareholder-approved equity compensation plans[488] Item 13. Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's definitive Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement[489] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the company's definitive Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement[489] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Form 10-K, with financial statements included and no schedules filed - The financial statements are included in Part II of the report[491] - No financial statement schedules were filed[491] - An Exhibit Index is provided, listing all filed exhibits[491]