AVISTA CORP

Overall Results

Net income increased primarily due to the effects of general rate cases. This increase in earnings was partially offset by increases in other operating expenses, depreciation and amortization expense, taxes other than income taxes and interest expense.

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).

Resource Adequacy

Peak Load Requirements

Extreme weather events, both in summer and winter, have recently occurred in the Pacific Northwest. These events have resulted in system load peaks that were higher than anticipated. Historically, we have had excess capacity as compared to peak load, but during some extreme events we have had to purchase short-term energy from the wholesale market to meet demand when our energy resources were not operating at full capacity or were otherwise unavailable. 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.

Annual Energy Requirements

The transition to clean energy (including the replacement of emitting facilities with non-emitting facilities, which are impacted by conditions outside of our control), and electrification, combined with expected load growth, factor into the analysis of the need for additional generation.

2025 IRP

Our 2025 IRP was filed with the WUTC and IPUC in December 2024. While the IRP is subject to change from time to time due to changing circumstances, assumptions and projections, given the exit of Colstrip (222 MW) from our system by December 31, 2025 and the expected retirement of the Northeast CT (65 MW) in 2030, our preferred resource strategy includes the addition of approximately 490 MW of generating capacity by 2030 and a total addition of approximately 950 MW through 2035. We believe the additional capacity would likely consist primarily of wind resources and a natural gas combustion turbine. The new capacity would likely be a combination of resources owned by the Company and resources committed under PPAs, to be determined on a case-by-case basis depending upon financial, tax and regulatory considerations. See “Part I, Item 1. Business – Company Overview – Future Resource Needs” for further discussion of the IRP.

We also expect expanded transmission infrastructure will provide access to additional resources and improve reliability in our region. We signed a non-binding memorandum of understanding to join the North Plains Connector transmission line project, constructing a transmission line from Bismarck, North Dakota to Colstrip, Montana.

2024 Hydroelectric Generation

Our hydroelectric generation is affected not only by precipitation levels, but also by temperatures since warmer weather causes earlier melting and runoff of snowpack, and extremely cold weather can result in the formation of ice which can decrease streamflow. During 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. Lower hydroelectric generation increased net power supply costs and resulted in us absorbing additional costs under the ERM in Washington. In 2024, we had a $8 million pre-tax expense under the ERM in Washington.

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 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 3.7 percent over a one year period, and impacts customers differently based on revenue class, income level, and meter connection date. An additional customer bill increase to recover costs associated with the CCA of 9.1 percent became effective in November 2024.

Costs associated with the CCA related to our electric operations are deferred and included in the ERM for Washington customers. Amounts allocated to Idaho are not approved for recovery from customers. Costs incurred for CCA compliance did not have a material effect on our results of operations for 2024 and 2023. See "Note 22 of the Notes to Consolidated Financial Statements" for further discussion of the CCA costs associated with our electric operations and 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. See “Regulatory Matters” for additional discussion of the general rate cases.

Potential Tariffs on Imports

The President of the United States of America has announced plans to impose tariffs on certain imported goods. The implementation of these tariffs has been paused until March 2025. We anticipate that any such tariffs would apply to natural gas and electricity imported from Canada, as well as wood waste used as fuel at the Kettle Falls GS. As we import a significant amount of natural gas from Canada, both to serve our retail natural gas customers and as fuel for electric generation, these tariffs could have a significant impact on our resource costs. In addition, we cannot predict how the broader energy markets would respond and change as a result of the tariffs. The impact of an increase in resource costs on our results of operations from the tariffs would be partially mitigated by various deferral and recovery mechanisms (ERM, PCA, and PGAs), but there could be an immediate impact on our cash flow. These tariffs could also impact the cost of other equipment and materials that are critical to our business, and could increase capital and operating expenses.