AVISTA CORP

The following provides an overview of changes in our Consolidated Statements of Income. More detailed explanations are provided, particularly for operating revenues and operating expenses, in the business segment discussions (Avista Utilities, AEL&P and the other businesses) that follow this section.

The following graph shows the total change in net income for 2023 to 2022, as well as the various factors that caused such change (dollars in millions):

Utility revenues increased at Avista Utilities primarily due to increased retail rates (including natural gas PGAs), increased electric wholesale sales prices and volumes, and increased electric decoupling revenues. These increases were partially offset by decreased natural gas wholesale prices, as well as financial losses from our fuel sale hedging activities that are netted with revenues.

Utility resource costs decreased at Avista Utilities primarily due to decreased market prices for natural gas and lower fuel costs for power generation, as well as financial gains related to our hedging activities that are netted with our expenses. These decreases were partially offset by increased purchased power and increased net deferrals and amortizations under regulatory mechanisms. The change related to regulatory mechanisms represents a reduction in deferred costs as well as an increase in amortizations of previously deferred power and natural gas costs.

The increase in utility operating expenses was primarily due to increased labor costs, insurance costs, as well as increased amortizations of previously deferred costs now included in customer rates (resulting in no impact to net income). These increases were partially offset by a decrease due to the $4.0 million write off of Dry Ash Disposal System assets in 2022.

Utility depreciation and amortization increased primarily due to additions to utility plant.

Interest expense increased due to higher interest rates, as well as increased borrowings outstanding during the period. Borrowings increased due to capital expenditures, higher deferred resource costs, and additional requirements for cash collateral.

Income tax benefit increased primarily due to the tax customer credits offsetting the bill impact of rate increases included in our 2021 Washington and Idaho GRCs, and the 2022 Washington GRC. Our effective tax rate for 2023 was negative 24.4 percent. See “Note 13 of the Notes to Consolidated Financial Statements” for further details and a reconciliation of our effective tax rate.

The decrease in other was primarily related to net investment losses recognized in 2023 compared to net investment gains recognized in 2022. See “Note 7 of the Notes to Consolidated Financial Statements” for further details of our investment gain and losses. The decrease related to net investment losses was partially offset by increased interest income, as well as decreased non-utility operating expenses and property taxes in 2023 compared to 2022.