Avista Receives Commission Decision in Washington General Rate Cases

Rhea-AI Summary

Avista (NYSE: AVA) received approval from the Washington Utilities and Transportation Commission for a two-year rate plan affecting electric and natural gas rates starting January 2025. For electric operations, the Commission approved a 0.1% ($0.8M) increase in base revenue for Year 1 and 11.6% ($68.9M) for Year 2. Natural gas operations will see an 11.2% ($14.2M) increase in Year 1 and 2.8% ($4M) in Year 2.

The Commission approved a 7.32% rate of return on rate base, with a 48.5% common equity ratio and 9.8% return on equity. A potential calculation error in Year 1 electric rates could adjust the revenue from $0.8M to approximately $12M (2.0% increase). The Commission maintained support for Wildfire and Insurance balancing accounts and decoupling but did not modify the Energy Recovery Mechanism.

Positive

• Significant revenue increases approved: $68.9M (11.6%) for electric Year 2
• Natural gas revenue increase of $14.2M (11.2%) in Year 1
• Favorable 9.8% ROE approved, with upward adjustment for company challenges
• Maintained support for Wildfire and Insurance balancing accounts

Negative

• Minimal electric revenue increase of $0.8M (0.1%) in Year 1
• Commission rejected proposed Energy Recovery Mechanism changes
• Potential calculation error in Year 1 electric rates requiring correction

Insights

Utility Rate Analyst

The Washington UTC's rate case decision represents a significant financial development for Avista. The approved rate increases - particularly the $68.9 million electric revenue increase in Year 2 and $14.2 million gas revenue increase in Year 1 - will substantially strengthen AVA's financial position. The 7.32% rate of return with a 9.8% ROE reflects regulatory recognition of current market conditions and inflationary pressures.

The potential calculation error in Year 1 electric rates ($0.8 million vs. potential $12 million) could materially impact near-term revenues. The continuation of key regulatory mechanisms like wildfire and insurance balancing accounts provides important risk mitigation tools, though the unchanged Energy Recovery Mechanism may create some earnings volatility.

The two-year rate plan provides revenue visibility through 2026, with the 48.5% equity ratio supporting AVA's investment-grade credit metrics. This regulatory outcome should enable planned infrastructure investments while managing operating cost pressures.

Financial Analyst

This rate case outcome is constructive for AVA's investment thesis. The approved revenue increases, particularly in Year 2, should drive meaningful earnings growth. The higher allowed ROE of 9.8% positions AVA favorably compared to utility peers, while the 48.5% equity ratio provides balance sheet flexibility.

The potential $11.2 million calculation adjustment in Year 1 electric rates warrants monitoring, as its resolution could impact 2025 earnings. The continued regulatory support for wildfire cost recovery mechanisms is important given increasing climate-related risks in AVA's service territory.

For a utility with a $2.8 billion market cap, these rate increases represent material cash flow improvements that should support both the dividend and capital investment programs. The multi-year rate plan reduces regulatory lag and provides earnings predictability valued by utility investors.

Company pleased with the fair and balanced decision for the Company and its customers

SPOKANE, Wash., Dec. 23, 2024 (GLOBE NEWSWIRE) -- Avista's (NYSE: AVA) electric and natural gas general rate cases filed in January 2024 have concluded, with an order from the Washington Utilities and Transportation Commission (Commission) approving a two-year rate plan that will change electric and natural gas rates, beginning Jan. 1, 2025, and Jan. 1, 2026.

For electric operations, the Commission approved rates designed to provide a 0.1 percent, or $0.8 million increase in base revenue for Rate Year 1, and a 11.6 percent, or $68.9 million increase in base revenue for Rate Year 2. For natural gas operations, the Commission approved rates designed to provide a 11.2 percent, or $14.2 million increase in base revenue for Rate Year 1, and a 2.8 percent, or $4.0 million increase in base revenue for Rate Year 2.

For electric Rate Year 1, it is our belief that there is a calculation error with respect to the level of power supply expenses removed from the final revenue requirement, that, if corrected, would move the revenue approved from $0.8 million to approximately $12 million. We have brought this issue to the attention of the Commission. When this correction is made, the base percentage increase will be 2.0 percent.

The Commission approved a rate of return (ROR) on rate base of 7.32 percent, with a common equity ratio of 48.5 percent and a 9.8 percent return on equity (ROE), noting that an upward adjustment is needed to address the challenges the Company faces. The Commission did not, at this time, support a change to the mechanics of the Energy Recovery Mechanism (ERM), but did continue its support for important mechanisms such as Wildfire and Insurance balancing accounts, and decoupling.  

While the Commission did not approve a modification to the existing ERM, the forecasted power supply costs that were removed from Electric Rate Year 1, which makes up the majority of the reduction in revenue from the Company’s filed case, to the final order, would flow through the ERM deadband and sharing bands.

"We are pleased with the Commission’s constructive decision, which provides a positive outcome for both our customers and our shareholders. Our Washington electric customers will receive the benefit of Avista's reduced power supply cost in Rate Year 1, mitigating the impact to their bills. At the same time, our shareholders will benefit from the increase in margin, improving the return for our shareholders. The decision reflects the Commission’s recognition of Avista's investment in utility infrastructure to benefit our customers, and that our operating expenses are increasing at a faster pace than revenues. The outcome provides for necessary recovery of the costs to serve our customers and continued investment in our systems," said Dennis Vermillion, chief executive officer of Avista Corp.

Avista anticipates issuing 2025 earnings guidance during the fourth quarter 2024 earnings call in February 2025.

Customer Resources

When customers need help with their energy use and billing, Avista has ways to assist. Billing options, such as Comfort Level Billing, preferred due date, and payment arrangements, give customers more control over how their energy costs are spread out. In Washington, Avista recently launched My Energy Discount, a personalized monthly bill discount program to help eligible customers lower their energy bills. The program offers more inclusive eligibility guidelines, quick and easy enrollment, and a two-year discount term. For help with managing energy usage, Avista’s Energy Manager and home energy audit tools, as well as energy-saving tips, videos and money-saving rebates for energy-efficient upgrades, are available. In addition, Avista provides local community action agencies with funding for eligible customers who need emergency grants, home weatherization and heating system improvements. Customers with special health or financial circumstances can also work directly with our Customer Assistance Referral and Evaluation Services team to be connected with resources for help with housing, other utilities, medical assistance, and more. For more information on assistance options, customers can visit www.myavista.com/assistance.

About Avista Corp.
Avista Corp. is an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. Avista Utilities is the operating division that provides electric service to 418,000 customers and natural gas to 382,000 customers. Its service territory covers 30,000 square miles in eastern Washington, northern Idaho and parts of southern and eastern Oregon, with a population of 1.7 million. Alaska Energy and Resources Company is an Avista subsidiary that provides retail electric service to 18,000 customers in the city and borough of Juneau, Alaska, through its subsidiary Alaska Electric Light and Power Company. Avista stock is traded under the ticker symbol "AVA." For more information about Avista, please visit www.avistacorp.com.

This news release contains forward-looking statements regarding the company’s current expectations. Forward-looking statements are all statements other than historical facts. Such statements speak only as of the date of the news release and are subject to a variety of risks and uncertainties, many of which are beyond the company’s control, which could cause actual results to differ materially from expectations. These risks and uncertainties include, in addition to those discussed herein, all of the factors discussed in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2023 and the Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2024.

Avista Corp. and the Avista Corp. logo are trademarks of Avista Corporation.

SOURCE: Avista Corporation

Contact:                                                        

Media: Lena Funston (509) 495-8090 lena.funston@avistacorp.com
Investors: Stacey Wenz (509) 495-2046 stacey.wenz@avistacorp.com
Avista 24/7 Media Access (509) 495-4174

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FAQ

What rate increases did Avista (AVA) receive approval for in Washington?

Avista received approval for electric rate increases of 0.1% in 2025 and 11.6% in 2026, along with natural gas rate increases of 11.2% in 2025 and 2.8% in 2026.

What is the approved return on equity (ROE) for Avista's 2025-2026 rate plan?

The Washington Commission approved a 9.8% return on equity for Avista, with a 7.32% rate of return on rate base and 48.5% common equity ratio.

How much additional revenue will AVA generate from the 2025-2026 rate increases?

The rate increases will generate additional base revenue of $0.8M (electric) and $14.2M (gas) in 2025, and $68.9M (electric) and $4M (gas) in 2026.

What is the calculation error identified in Avista's 2025 electric rates?

Avista identified a potential calculation error in power supply expenses that could increase Year 1 electric revenue from $0.8M to approximately $12M, representing a 2.0% increase instead of 0.1%.