AVISTA CORP

Overall Results

Net income for the three and six months ended June 30, 2024 increased compared to the three and six months ended June 30, 2023, primarily due to the effects of general rate cases and the quarterly distribution of fewer 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.

Severe Weather; Resource Adequacy

Extreme weather events, both in summer and winter, are becoming more frequent and more severe. These events have resulted in system load peaks that were higher than anticipated and, at certain times, higher than the capacity available at the time from resources owned by us or under firm contract. These unplanned capacity deficits are exacerbated by weather and other factors that reduce the availability of generating facilities, particularly hydroelectric and other renewable resources. Historically, we have been able to meet peak demand with short-term purchases of energy in the wholesale market. However, these weather events have highlighted the growing need for additional generating capacity both on our system and in the Pacific Northwest region. Accordingly, we are taking the increased peaks in demand into account as we consider our resource adequacy and generation requirements. In addition, the transition to clean energy (including the replacement of emitting facilities with non-emitting facilities, which are impacted by conditions outside of our control), electrification and other increasing needs for electric energy also factor into the analysis of the need for additional generation. As a result, we expect additional generating capacity will be needed earlier than reflected in our 2023 integrated resource plan. We are in the process of evaluating potential acceleration of our generation additions as compared to our most recent integrated resource plan filed in June 2023. A draft preferred resource plan will be submitted to the WUTC and IPUC in September 2024, and the final integrated resource plan will be filed in January 2025.

2024 Hydroelectric Generation and Snowpack Conditions

During the first half of 2024, our region experienced low precipitation, resulting in low snowpack levels and streamflows when compared to historical averages. This had a negative impact on our hydroelectric generation resources during the first half of the year and will continue to negatively impact hydroelectric generation for the remainder of the year. Expected lower hydroelectric generation increased net power supply costs and resulted in us absorbing additional costs under the ERM in Washington. In the six months ended June 30, 2024, we had a $4.7 million pre-tax expense under the ERM in Washington. We expect to absorb additional costs under the ERM in the second half of 2024.

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 are being deferred and are included in Washington natural gas customer rates starting in April 2024. The resulting aggregate increase to customer bills was approximately 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 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.