Avista Corp. Reports Financial Results for First Quarter 2020, and Revises 2020 Earnings Guidance
"Our primary focus is the safety of our customers and employees while providing reliable energy service during this difficult and uncertain time. We know that many people are hurting, businesses are hard hit and communities are challenged as a result of the COVID-19 pandemic and we want to express our deepest sympathies to everyone who is suffering unprecedented hardships during the COVID-19 pandemic,” said
"Even with the challenges we faced this quarter, several important regulatory matters in
"With respect to results, our first quarter consolidated earnings were below expectations due to the impact of the
“AEL&P’s earnings were on track for the first quarter. We believe there will be a negative impact on the
"Our other business experienced a net loss during the first quarter due to impairment losses. We are expecting additional losses at non-utility businesses for the remainder of the year due to overall market declines, including the impacts of COVID-19."
The COVID-19 global pandemic is currently impacting all aspects of our business, as well as the global, national and local economies. We provide critical services to our customers. Accordingly, it is paramount that we keep our employees who operate our business safe so that we can continue to provide reliable service. We implemented business continuity plans in the context of this global pandemic. We believe that we will continue to be able to conduct our utility operations effectively and provide safe and reliable service to our customers.
Although we have not experienced any significant issues to date, there could be negative impacts on the ability of suppliers, vendors or contractors to perform. In combination with the economic downturn, we are expecting a decrease in retail loads and payments from customers. In addition, we are experiencing a shift in labor costs, from being capitalized to operations and maintenance expense, associated with COVID-19 protocols. We expect to offset at least some of the negative impacts of COVID-19 at
“We are lowering our consolidated earnings guidance for the year to reflect regulatory items, expected net impacts from COVID-19, and losses at our non-utility businesses. As a result, our consolidated earnings guidance is a range of
Summary Results: Avista Corp.’s results for the first quarter of 2020 as compared to the same period in 2019 are presented in the table below (dollars in thousands, except per-share data):
|Net Income (loss) by Business Segment:|
|Total net income attributable to
|Earnings per Diluted Share by Business Segment:|
|Total earnings per diluted share attributable to
Analysis of 2020 Consolidated Earnings
The table below presents the change in net income attributable to
|Net Income (a)||Earnings per Share|
|2019 consolidated earnings||$||115,794||$||1.76|
|Changes in net income and diluted earnings per share:|
|Electric utility margin (including intracompany) (b)||6,225||0.09|
|Natural gas utility margin (including intracompany) (c)||436||—|
|Other operating expenses (d)||(7,970||)||(0.12||)|
|Merger transaction costs (e)||13,284||0.19|
|Depreciation and amortization (f)||(1,899||)||(0.03||)|
|Merger termination fee (g)||(79,254||)||(1.19||)|
|Effective income tax rate (i)||2,917||0.04|
|Dilution on earnings||n/a||—|
|Other businesses earnings (j)||(1,291||)||(0.02||)|
|2020 consolidated earnings||$||48,424||$||0.72|
(a) The tax impact of each line item was calculated using
(b) Electric utility margin (operating revenues less resource costs) increased for the first quarter and was impacted primarily by the following:
- A decrease in power purchased prices and thermal fuel costs in the first quarter of 2020. We recognized a pre-tax benefit of
$5.2 millionin the first quarter of 2020 compared to a pre-tax expense of $2.5 millionfor the first quarter of 2019. For the full year of 2020, we expect to be in a benefit position under the ERM within the 90 percent customer/10 percent Company sharing band.
- Customer growth, which contributed additional retail electric revenue in the first quarter of 2020.
- The above increases were partially offset by an accrual of
$1.4 millionfor customer refunds related to our 2015 Washington general rate case that was remanded back to the Washington Commission(WUTC) during 2019.
(c) Natural gas utility margin (operating revenues less resource costs) increased for the first quarter of 2020 and was impacted primarily by the following:
- General rate increase in
Oregon, effective Jan. 15, 2020.
- Customer growth, which contributed additional retail electric revenue in the first quarter of 2020.
- The above increases were offset by an accrual of
$3.6 millionrelated to our 2015 Washington general rate case that was remanded back to the WUTC during 2019.
(d) Other operating expenses for the first quarter of 2020 increased as a result of an increase in generation and distribution operating and maintenance costs, employee benefit costs, a disallowance from the WUTC for the cost of replacement power during an unplanned outage at the Colstrip generating facility in 2018 and an accrual for the Colstrip community transition fund associated with the completion of our 2019 Washington general rate cases.
(e) There were no merger transaction costs for the first quarter of 2020, compared to
(f) Depreciation and amortization increased from additions to utility plant.
(g) As a result of the termination of the proposed merger, Hydro One paid
(h) Other for the first quarter of 2020 were increases to earnings primarily due to a decrease in property taxes.
(i) Our effective tax rate was 15.0 percent for the first quarter of 2020, compared to 20.6 percent for the first quarter of 2019. The decrease in the tax rate was primarily due to the tax effects of the regulatory treatment of utility plant differences. We expect our full year 2020 effective tax rate to be approximately 7 percent to 8 percent. The primary reason for the decrease in the annual effective tax rate is the offset of deferred income taxes against accelerated depreciation for Colstrip as provided in the 2019 Washington general rate case settlement. This will be recorded in the second quarter.
(j) The decrease in earnings at our other businesses was primarily related to impairment losses, which were partially offset by a gain on the sale of an equity investment and gains on our other investments.
Non-Generally Accepted Accounting Principles (Non-GAAP) Financial Measures
The tables above and below include electric utility margin and natural gas utility 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 GAAP, which for utility margin is utility operating revenues.
The presentation of electric utility margin and natural gas utility margin is intended to enhance the understanding of operating performance. We use these measures internally and believe they provide useful information to investors in their analysis of how changes in loads (due to weather, economic or other conditions), rates, supply costs and other factors impact our results of operations. Changes in loads, as well as power and natural gas supply costs, are generally deferred and recovered from customers through regulatory accounting mechanisms. Accordingly, the analysis of utility margin generally excludes most of the change in revenue resulting from these regulatory mechanisms. We present electric and natural gas utility margin separately below for
The following table presents
|Operating Revenues||Resource Costs||Utility Margin (Pre-Tax)||Income Taxes (a)||Utility Margin (Net of Tax)|
|For the three months ended
|For the three months ended
(a) Income taxes for 2019 and 2020 were calculated using
Liquidity and Capital Resources
We have a
During 2020, we expect to issue approximately
Capital Expenditures and Other Investments
In addition, we expect to invest about
2020 Earnings Guidance and Outlook
We are expecting that COVID-19 impacts at
We previously expected to experience regulatory lag during the period 2020 through 2022. We have extended the estimated timeframe of earning close to our authorized rates of return from 2022 to 2023. This is primarily due to the expected economic recession and anticipated delays in rate case filings as a result of COVID-19. We filed a general rate case in
We are revising our expectation for
For 2020, we expect AEL&P to contribute in the range of
We expect the other businesses to have 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. We cannot predict the duration and severity of the COVID-19 global pandemic. The longer and more severe the economic restrictions and business disruption, the greater the impact on our operations, results of operations, financial condition and cash flows.
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:
Utility Regulatory Risk
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, the ordering of refunds to customers and discretion over allowed return on investment; the loss of regulatory accounting treatment, which could require the write-off of regulatory assets and the loss of regulatory deferral and recovery mechanisms;
pandemics (including the current COVID-19 pandemic), which could disrupt our business, as well as the global, national and local economy, resulting in a decline in customer demand, deterioration in the creditworthiness of our customers, increases in operating and capital costs, delays in capital projects, disruption in supply chains, and disruption, weakness and volatility in capital markets. In addition, any of these factors could negatively impact our liquidity and limit our access to capital, among other implications; wildfires ignited, or allegedly ignited, by
Cyber and Technology Risk
cyberattacks on the operating systems that are used in the operation of our electric generation, transmission and distribution facilities and our natural gas distribution facilities, and cyberattacks on such systems of other energy companies with which we are interconnected, which could damage or destroy facilities or systems or disrupt operations for extended periods of time and result in the incurrence of liabilities and costs; cyberattacks on the administrative systems that are used in the administration of our business, including customer billing and customer service, accounting, communications, compliance and other administrative functions, and cyberattacks on such systems of our vendors and other companies with which we do business, which could result in the disruption of business operations, the release of private information and the incurrence of liabilities and costs; changes in costs that impede our ability to effectively implement new information technology systems or to operate and maintain current production technology; changes in technologies, possibly making some of the current technology we utilize obsolete or introducing new cyber security risks; insufficient technology skills, which could lead to the inability to develop, modify or maintain our information systems;
growth or decline of our customer base due to new uses for our services or decline in existing services, including, but not limited to, the effect of the trend toward distributed generation at customer sites; the potential effects of negative publicity regarding our business practices, whether true or not, which could hurt our reputation and result in litigation or a decline in our common stock price; changes in our strategic business plans, which could be affected by any or all of the foregoing, including the entry into new businesses and/or the exit from existing businesses and the extent of our business development efforts where potential future business is uncertain; wholesale and retail competition including alternative energy sources, growth in customer-owned power resource technologies that displace utility-supplied energy or that may be sold back to the utility, and alternative energy suppliers and delivery arrangements; entering into or growth of non-regulated activities may increase earnings volatility; the risk of municipalization or other form of service territory reduction;
External Mandates Risk
changes in environmental laws, regulations, decisions and policies, including present and potential environmental remediation costs and our compliance with these matters; the potential effects of initiatives, legislation or administrative rulemaking at the federal, state or local levels, including possible effects on our generating resources, prohibitions or restrictions on new or existing services, or restrictions on greenhouse gas emissions to mitigate concerns over global climate changes; political pressures or regulatory practices that could constrain or place additional cost burdens on our distribution systems through accelerated adoption of distributed generation or electric-powered transportation or on our energy supply sources, such as campaigns to halt fossil fuel fired power generation and opposition to other thermal generation, wind turbines or hydroelectric facilities; failure to identify changes in legislation, taxation and regulatory issues that could be detrimental or beneficial to our overall business; policy and/or legislative changes in various regulated areas, including, but not limited to, environmental regulation, healthcare regulations and import/export regulations;
weather conditions, which affect both energy demand and electric generating capability, including the impact of precipitation and temperature on hydroelectric resources, the impact of wind patterns on wind-generated power, weather-sensitive customer demand, and similar impacts on supply and demand in the wholesale energy markets; our ability to obtain financing through the issuance of debt and/or equity securities, which could be affected by various factors including our credit ratings, interest rates, other capital market conditions and global economic conditions; 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 could affect future funding obligations, pension and other postretirement benefit expense and the related liabilities; 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; economic conditions nationally may affect the valuation of our unregulated portfolio companies; declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation; changes in the long-term climate and weather could materially affect, among other things, customer demand, the volume and timing of streamflows required for hydroelectric generation, costs of generation, transmission and distribution. Increased or new risks may arise from severe weather or natural disasters, including wildfires; industry and geographic concentrations which could increase our exposure to credit risks due to counterparties, suppliers and customers being similarly affected by changing conditions; deterioration in the creditworthiness of our customers;
Energy Commodity Risk
volatility and illiquidity in wholesale energy markets, including exchanges, the availability of willing buyers and sellers, changes in wholesale energy prices that could affect operating income, cash requirements to purchase electricity and natural gas, value received for wholesale sales, collateral required of us by individual counterparties and/or exchanges 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; explosions, fires, accidents, pipeline ruptures or other incidents that could limit energy supply to our facilities or our surrounding territory, which could result in a shortage of commodities in the market that could increase the cost of replacement commodities from other sources;
changes in laws, regulations, decisions and policies at the federal, state or local levels, which could materially impact both our electric and gas operations and costs of operations; and the ability to comply with the terms of the licenses and permits for our hydroelectric or thermal generating facilities at cost-effective levels.
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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Source: Avista Corporation