AVISTA CORP

Overall Results

Net income for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023, primarily due to the effects of general rate cases and the timing impact of spreading less tax customer credits to annual income taxes in 2024, as compared to 2023. These increases in earnings were partially offset by increased operating expenses and depreciation and amortization expense.

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

2024 Hydroelectric Generation and Snowpack Conditions

During the first quarter of 2024, our region experienced low precipitation, resulting in low snowpack levels when compared to historical averages. These lower snowpack and precipitation levels had a negative impact on our hydroelectric generation resources during the quarter and are expected to continue to negatively impact forecast hydroelectric generation throughout the year. The decrease in hydroelectric generation will increase net power supply costs and result in us absorbing additional costs under the ERM in Washington. In the first quarter of 2024, we had a $6.0 million pre-tax expense under the ERM in Washington.

Severe Weather; Resource Adequacy

In mid-January 2024, our operations were impacted by the extreme cold experienced in the Pacific Northwest, which resulted in system load peaks that were higher than anticipated. This event highlighted the growing need for additional electric capacity in the region, and as a result we are taking the increase in demand related to more frequent severe weather events into account as we consider our resource adequacy and generation needs. The transition to clean energy (including the replacement of emitting generation assets with renewable energy which can be weather-reliant) and increasing electrification also factor into our integrated resource planning to ensure we have adequate resources to serve our customers. We are in the process of evaluating potential acceleration of our generation additions as compared to our most recent integrated resource plan.

Washington Climate Commitment Act (CCA)

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 over a certain amount each year. Costs associated with the CCA have been deferred and have been included in natural gas customer rates starting in April 2024. The resulting aggregate increase to customer bills is expected to be 3.7 percent, and impacts customers differently based on revenue class, income level, and meter connection date. See "Environmental Issues and Contingencies" within our Form 10-K for 2023 for further discussion of the CCA and expected impacts on our financial results.

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.