AVISTA CORP

Overall Results

Avista Utilities' net income increased primarily due to increased utility margin, including benefits from our completed general rate cases, lower property taxes, and the recognition of tax customer credits which resulted in higher income tax benefit for 2023. These positive factors to net income were partially offset by increased interest expense, depreciation and amortization expense, and other operating expenses.

AEL&P net income increased, primarily due to higher sales volumes and rate increases.

The decrease in net income at our other businesses was primarily due to net investment losses recognized in 2023, compared to net investment gains recognized in 2022.

More detailed explanations of the fluctuations are provided in the results of operations and business segment discussions (Avista Utilities, AEL&P, and the other businesses).

2023 Hydroelectric Generation

In May and June of 2023, our region experienced historically high temperatures, causing the snowpack to melt more rapidly than expected. The quick runoff had a significant negative impact on our hydrogeneration resources, resulting in one of our worst years for hydroelectric generation. As a result, we increased thermal generation and purchased power to compensate for the decrease in available hydroelectric generation, and our ability to optimize our generation assets was limited compared to the opportunities we originally expected for the year. The decreased availability of hydroelectric generation compared to our expectations had a significant impact on the ERM in Washington, as well as our financial results.

Washington Climate Commitment Act

Effective January 1, 2023, the CCA went into effect in the State of Washington, requiring us to secure carbon allowances to cover our carbon emissions for our natural gas operations over a certain amount each year. Costs associated with the CCA have been deferred, and will be included in natural gas customer rates starting in March 2024. The resulting aggregate increase to customer bills is expected to be approximately 3.8 percent, and will impact customers differently based on revenue class, income level, and the age of a residential customers residence. The CCA is expected to have limited financial impact on our electric operations in its initial years.

See "Environmental Issues and Contingencies" for further discussion of the CCA.

Regulatory Lag

Regulatory “lag” is inherent in utility ratemaking; a result of the delay between the investment in utility plant and/or the increase in costs and the receipt of an order of a public utility commission authorizing an increase in rates sufficient to recover such investment or costs. Regulatory lag can be mitigated to some extent by the incorporation of reasonably expected forward-looking information into an authorization of increased rates. However, there is no protection against unexpected inflation and increased interest rates, as experienced in 2022 and 2023. While we believe our recent general rate settlements are helpful, some increases in our operating expenses and interest costs will have to be addressed in future rate cases, including our 2024 Washington general rate cases. See “Regulatory Matters” for additional discussion of the general rate cases.

Operational Events

In November 2023, we had the largest natural gas outage in our Company’s history. Nearly 37,000 natural gas customers were impacted when a third party damaged a pipeline that transports natural gas to our system. Natural gas service was restored to every impacted customer in less than one week. We filed petitions for regulatory accounting orders with the WUTC and IPUC and received approval to defer $10.3 million of costs of the incident for recovery to be addressed in a future regulatory proceeding.

In mid-January 2024, there were two operational issues impacting our gas distribution system, as well as the natural gas transportation system in the Pacific Northwest. These challenges, combined with very cold temperatures, resulted in high commodity prices. The first issue involved a mechanical problem with a third party transmission pipeline that delivers natural gas to our service territory. The second issue involved a mechanical problem with Jackson Prairie. These issues reduced the capacity of natural gas that could be delivered to our natural gas distribution system, as well as natural gas fuel for electric generation. We made operational decisions and contingency plans in response to the issues and we did not experience any disruptions in service to customers. We experienced higher energy commodity prices and an increased need to purchase energy, which will be accounted for under the ERM, PCA and PGAs.