Avista Corp. Reports Financial Results for First Quarter 2018, and Initiates 2018 Earnings Guidance
"We had a good first quarter, with
"The lower natural gas fuel prices were positive for the Company and our customers as the lower prices allowed us to file additional Purchased Gas Cost Adjustments to pass on the lower costs to our customers during the winter heating season.
"With regards to regulatory matters, last week we received an order from the
"As we look ahead, we will consider the appropriate approach for future cost recovery. Right now we will stay focused on the current matters before the Commission. As these are resolved, we will engage with the Commission, Staff and other parties in an effort to better align expectations regarding our ongoing capital investments prior to filing future general rate cases.
"We have made significant progress in the
"
"We had net losses at our other businesses due to an impairment on an investment, unanticipated losses on our equity investments and increased expenses associated with a renovation.
“We are initiating our 2018 earnings guidance with a consolidated range of
Summary Results: Avista Corp.’s results for the first quarter of 2018 as compared to the same period in 2017 are presented in the table below (dollars in thousands, except per-share data):
First Quarter | ||||||||
2018 | 2017 | |||||||
Net Income (Loss) by Business Segment: | ||||||||
Avista Utilities | $ | 55,540 | $ | 58,439 | ||||
AEL&P | 3,772 | 3,853 | ||||||
Other | (4,422 | ) | (176 | ) | ||||
Total net income attributable to Avista Corp. shareholders | $ | 54,890 | $ | 62,116 | ||||
Earnings (Loss) per Diluted Share by Business Segment: | ||||||||
Avista Utilities | $ | 0.84 | $ | 0.90 | ||||
AEL&P | 0.06 | 0.06 | ||||||
Other | (0.07 | ) | — | |||||
Total earnings per diluted share attributable to Avista Corp. shareholders | $ | 0.83 | $ | 0.96 | ||||
The table below presents the change in net income attributable to
First Quarter | ||||||||
Net Income (a) | Earnings per Share | |||||||
2017 consolidated earnings | $ | 62,116 | $ | 0.96 | ||||
Changes in net income and diluted earnings per share: | ||||||||
Avista Utilities | ||||||||
Electric gross margin (including intracompany) (b) | (7,123 | ) | (0.10 | ) | ||||
Natural gas gross margin (including intracompany) (c) | (4,942 | ) | (0.08 | ) | ||||
Other operating expenses (d) | (3,690 | ) | (0.06 | ) | ||||
Acquisition costs (e) | (567 | ) | (0.01 | ) | ||||
Depreciation and amortization (f) | (2,100 | ) | (0.03 | ) | ||||
Interest expense (g) | (986 | ) | (0.01 | ) | ||||
Other (h) | 1,275 | 0.02 | ||||||
Effective income tax rate (i) | 15,234 | 0.23 | ||||||
Dilution on earnings | n/a | (0.02 | ) | |||||
Total Avista Utilities | (2,899 | ) | (0.06 | ) | ||||
AEL&P earnings | (81 | ) | — | |||||
Other businesses earnings (j) | (4,246 | ) | (0.07 | ) | ||||
2018 consolidated earnings | $ | 54,890 | $ | 0.83 | ||||
Analysis of 2018 Consolidated Earnings
(a) | The tax impact of each line item, except acquisition costs, was calculated using Avista Corp.'s statutory tax rate (federal and state combined) of 23.05 percent. See items (e) and (i) below for further discussion of the acquisition costs and our effective tax rate. | |
(b) | Electric gross margin (operating revenues less resource costs) decreased for the first quarter, primarily due to the following: | |
- A decrease in electric revenue due to the accrual of refunds to customers related to the federal income tax law changes that lowered the corporate tax rate from 35 percent to 21 percent. As our customers' rates continue to have the 35 percent corporate tax rate built in from prior general rate cases, we have deferred the impact of the change beginning
January 1, 2018 . There is no impact to our net income as there was a corresponding decrease in income tax expense; - The decrease above was partially offset by an increase in retail electric rates due to a general rate increase in
Idaho ; - Customer growth, which contributed additional retail electric revenue in the first quarter of 2018; and
- An increase in gross margin from optimization activities during the quarter, which helped increase the pre-tax benefit under the Energy Recovery Mechanism (ERM) in
Washington from a$4.1 million pre-tax benefit for the first quarter of 2017 to a$4.9 million pre-tax benefit for the first quarter of 2018.
(c) | Natural gas gross margin (operating revenues less resource costs) decreased for the first quarter primarily due to the following: | |
- A decrease in natural gas revenue due to the accrual of refunds to customers related to the federal income tax law changes;
- The above decrease was partially offset by general rate increases in
Idaho andOregon ; and - Customer growth, which contributed additional retail natural gas revenue in the first quarter of 2018.
(d) | Other operating expenses for the first quarter 2018 increased as a result of an increase in generation, transmission and distribution operating costs and compensation costs. The increases were partially offset by a decrease in pension and other postretirement benefit costs. | |
(e) | Acquisition costs were $0.7 million for the first quarter of 2018 pre-tax, which are not being passed through to customers. However, a portion of the acquisition costs, which reduce income before income taxes, are not deductible for tax purposes and thus do not reduce income tax expense. | |
(f) | Depreciation and amortization increased for the first quarter 2018 due to additions to utility plant. | |
(g) | Interest expense increased for the first quarter 2018 due to additional outstanding debt during 2018 as compared to 2017 and partially due to an increase in the overall interest rate. | |
(h) | Other for the first quarter 2018 decreased primarily due to a decrease in revenue-related taxes. | |
(i) | Our effective tax rate was 16.3 percent for the first quarter of 2018, compared to 34.9 percent for the first quarter of 2017. The effective tax rate decreased during 2018 due to federal income tax law changes which were enacted during the fourth quarter of 2017, which lowered the federal income tax rate from 35 percent to 21 percent. In addition, there were reductions to the effective tax rate in 2018 due to plant excess deferred income taxes being amortized. | |
(j) | Losses at our other businesses for the first quarter 2018 were due to increased expenses at one of our subsidiaries associated with the insolvency of the general contractor on a renovation project. The general contractor's insolvency resulted in the recording of a liability to various subcontractors. In addition, we recognized an impairment loss on one equity investment and our portion of net losses from our other equity investments, which were larger in the first quarter of 2018 as compared to the first quarter of 2017. | |
Non-Generally Accepted Accounting Principles (Non-GAAP) Financial Measures
The tables above and below include electric gross margin and natural gas gross margin, two financial measures that are considered “non-GAAP financial measures.” 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 that are included (or excluded) in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (GAAP). The presentation of electric gross margin and natural gas gross margin for
The following table presents
Operating Revenues | Resource Costs | Gross Margin (Pre-Tax) | Income Taxes (a) | Gross Margin (Net of Tax) | |||||||||||||||
For the three months ended March 31, 2018: | |||||||||||||||||||
Electric | $ | 262,477 | $ | 98,890 | $ | 163,587 | $ | 37,707 | $ | 125,880 | |||||||||
Natural Gas | 143,448 | 69,946 | 73,502 | 16,942 | 56,560 | ||||||||||||||
Less: Intracompany | (17,171 | ) | (17,171 | ) | — | — | — | ||||||||||||
Total | $ | 388,754 | $ | 151,665 | $ | 237,089 | $ | 54,649 | $ | 182,440 | |||||||||
For the three months ended March 31, 2017: | |||||||||||||||||||
Electric | $ | 263,718 | $ | 90,875 | $ | 172,843 | $ | 39,840 | $ | 133,003 | |||||||||
Natural Gas | 170,212 | 90,287 | 79,925 | 18,423 | 61,502 | ||||||||||||||
Less: Intracompany | (18,549 | ) | (18,549 | ) | — | — | — | ||||||||||||
Total | $ | 415,381 | $ | 162,613 | $ | 252,768 | $ | 58,263 | $ | 194,505 | |||||||||
(a) | Income taxes were calculated using Avista Corp.'s statutory tax rate (federal and state combined) of 23.05 percent. | |
Liquidity and Capital Resources
We have a
During 2018, we expect to issue approximately
2018 Earnings Guidance and Outlook
We expect
For 2018, we expect AEL&P to contribute in the range of
We expect the other businesses to be between a loss of
Our guidance generally includes only normal operating conditions and does not include unusual items such as settlement transactions or acquisitions/dispositions until the effects are known and certain.
NOTE: We will host a conference call with financial analysts and investors on
This news release contains forward-looking statements, including statements regarding our current expectations for future financial performance and cash flows, capital expenditures, financing plans, our current plans or objectives for future operations and other factors, which may affect the company in the future. Such statements are subject to a variety of risks, uncertainties and other factors, most of which are beyond our control and many of which could have significant impact on our operations, results of operations, financial condition or cash flows and could cause actual results to differ materially from those anticipated in such statements.
The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: weather conditions, which affect both energy demand and electric generating capability, including the effect of precipitation and temperature on hydroelectric resources, the effect of wind patterns on wind-generated power, weather-sensitive customer demand, and similar effects on supply and demand in the wholesale energy markets; our ability to obtain financing through the issuance of debt and/or equity securities, which can be affected by various factors including our credit ratings, interest rates and other capital market conditions and the global economy; changes in interest rates that affect borrowing costs, our ability to effectively hedge interest rates for anticipated debt issuances, variable interest rate borrowing and the extent to which we recover interest costs through retail rates collected from customers; changes in actuarial assumptions, interest rates and the actual return on plan assets for our pension and other postretirement benefit plans, which can affect future funding obligations, pension and other postretirement benefit expense and the related liabilities; deterioration in the creditworthiness of our customers; the outcome of legal proceedings and other contingencies; economic conditions in our service areas, including the economy's effects on customer demand for utility services; declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation; changes in long-term climates, both globally and within our utilities' service areas, which can affect, among other things, customer demand patterns and the volume and timing of streamflows to our hydroelectric resources; state and federal regulatory decisions or related judicial decisions that affect our ability to recover costs and earn a reasonable return including, but not limited to, disallowance or delay in the recovery of capital investments, operating costs, commodity costs, interest rate swap derivatives and discretion over allowed return on investment; volatility and illiquidity in wholesale energy markets, including the availability of willing buyers and sellers, changes in wholesale energy prices that can affect operating income, cash requirements to purchase electricity and natural gas, value received for wholesale sales, collateral required of us by counterparties in wholesale energy transactions and credit risk to us from such transactions, and the market value of derivative assets and liabilities; default or nonperformance on the part of any parties from whom we purchase and/or sell capacity or energy; potential environmental regulations or lawsuits affecting our ability to utilize or resulting in the obsolescence of our power supply resources; severe weather or natural disasters, including, but not limited to, avalanches, wind storms, wildfires, earthquakes, snow and ice storms, that can disrupt energy generation, transmission and distribution, as well as the availability and costs of materials, equipment, supplies and support services; explosions, fires, accidents, mechanical breakdowns or other incidents that may impair assets and may disrupt operations of any of our generation facilities, transmission, and electric and natural gas distribution systems or other operations and may require us to purchase replacement power; explosions, fires, accidents or other incidents arising from or allegedly arising from our operations that may cause wildfires, injuries to the public or property damage; blackouts or disruptions of interconnected transmission systems (the regional power grid); terrorist attacks, cyber attacks or other malicious acts that may disrupt or cause damage to our utility assets or to the national or regional economy in general, including any effects of terrorism, cyber attacks or vandalism that damage or disrupt information technology systems; work force issues, including changes in collective bargaining unit agreements, strikes, work stoppages, the loss of key executives, availability of workers in a variety of skill areas, and our ability to recruit and retain employees; increasing costs of insurance, more restrictive coverage terms and our ability to obtain insurance; delays or changes in construction costs, and/or our ability to obtain required permits and materials for present or prospective facilities; increasing health care costs and cost of health insurance provided to our employees and retirees; third party construction of buildings, billboard signs, towers or other structures within our rights of way, or placement of fuel containers within close proximity to our transformers or other equipment, including overbuild atop natural gas distribution lines; the loss of key suppliers for materials or services or other disruptions to the supply chain; adverse impacts to our
For a further discussion of these factors and other important factors, please refer to our Quarterly Report on Form 10-Q for the quarter ended
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Issued by:
AVISTA CORPORATION | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | |||||||
(Dollars in Thousands except Per Share Amounts) | |||||||
First Quarter | |||||||
2018 | 2017 | ||||||
Operating revenues | $ | 409,361 | $ | 436,470 | |||
Operating expenses: | |||||||
Utility resource costs | 154,618 | 165,586 | |||||
Other operating expenses | 84,122 | 78,622 | |||||
Acquisition costs | 672 | — | |||||
Depreciation and amortization | 44,914 | 42,173 | |||||
Utility taxes other than income taxes | 30,829 | 32,662 | |||||
Total operating expenses | 315,155 | 319,043 | |||||
Income from operations | 94,206 | 117,427 | |||||
Interest expense, net of capitalized interest | 24,061 | 23,006 | |||||
Other income - net | 4,479 | (1,060 | ) | ||||
Income before income taxes | 65,666 | 95,481 | |||||
Income tax expense | 10,710 | 33,344 | |||||
Net income | 54,956 | 62,137 | |||||
Net loss (income) attributable to noncontrolling interests | (66 | ) | (21 | ) | |||
Net income attributable to Avista Corp. shareholders | $ | 54,890 | $ | 62,116 | |||
Weighted-average common shares outstanding (thousands), basic | 65,639 | 64,362 | |||||
Weighted-average common shares outstanding (thousands), diluted | 65,931 | 64,469 | |||||
Earnings per common share attributable to Avista Corp. shareholders: | |||||||
Basic | $ | 0.84 | $ | 0.97 | |||
Diluted | $ | 0.83 | $ | 0.96 | |||
Dividends declared per common share | $ | 0.3725 | $ | 0.3575 | |||
Issued May 2, 2018 | |||||||
AVISTA CORPORATION | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
(Dollars in Thousands) | |||||||
March 31, | December 31, | ||||||
2018 | 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 26,273 | $ | 16,172 | |||
Accounts and notes receivable | 168,534 | 185,664 | |||||
Other current assets | 114,940 | 135,698 | |||||
Total net utility property | 4,418,237 | 4,398,810 | |||||
Other non-current assets | 160,755 | 153,131 | |||||
Regulatory assets for deferred income taxes | 90,519 | 90,315 | |||||
Regulatory assets for pensions and other postretirement benefits | 206,637 | 209,115 | |||||
Regulatory asset for interest rate swaps | 151,667 | 169,704 | |||||
Other regulatory assets | 137,907 | 146,295 | |||||
Other deferred charges | 9,714 | 9,828 | |||||
Total Assets | $ | 5,485,183 | $ | 5,514,732 | |||
Liabilities and Equity | |||||||
Accounts payable | $ | 67,168 | $ | 107,289 | |||
Current portion of long-term debt and capital leases | 275,066 | 277,438 | |||||
Short-term borrowings | 50,000 | 105,398 | |||||
Other current liabilities | 277,463 | 207,377 | |||||
Long-term debt and capital leases | 1,491,395 | 1,491,799 | |||||
Long-term debt to affiliated trusts | 51,547 | 51,547 | |||||
Regulatory liability for utility plant retirement costs | 288,019 | 285,786 | |||||
Pensions and other postretirement benefits | 200,162 | 203,566 | |||||
Deferred income taxes | 464,596 | 466,630 | |||||
Regulatory liability for excess deferred income taxes | 413,491 | 442,319 | |||||
Other non-current liabilities, regulatory liabilities and deferred credits | 147,705 | 145,099 | |||||
Total Liabilities | 3,726,612 | 3,784,248 | |||||
Equity | |||||||
Avista Corporation Shareholders' Equity: | |||||||
Common stock (65,668,477 and 65,494,333 outstanding shares) | 1,131,549 | 1,133,448 | |||||
Retained earnings and accumulated other comprehensive loss | 626,840 | 596,380 | |||||
Total Avista Corporation Shareholders' Equity | 1,758,389 | 1,729,828 | |||||
Noncontrolling interests | 182 | 656 | |||||
Total Equity | 1,758,571 | 1,730,484 | |||||
Total Liabilities and Equity | $ | 5,485,183 | $ | 5,514,732 | |||
Issued May 2, 2018 | |||||||
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Source: Avista Corporation