AVISTA CORP

Resource Optimization

We engage in resource optimization, which involves the selection from available energy resources to serve our load obligations and the use of these resources to capture economic value through wholesale market transactions, which is ultimately intended to lower net power and natural gas supply costs. Our resource optimization transactions can take the form of physical sales and purchases of electric capacity and energy and fuel for electric generation, purchases and sales of natural gas to optimize use of pipeline and storage capacity, as well as financial derivative contracts related to capacity, energy, fuel and fuel transportation. See Item 1. "Business - Avista Utilities - Electric Operations - General" and "Business - Avista Utilities - Natural Gas Operations - General".

We typically enter into multiple transactions simultaneously to capture value. Even though these transactions are considered together when determining the net impact, they are recorded in separate items within components of utility operating revenue and resource costs and can cause fluctuations in each item. Gains and losses on financial derivative contracts in certain line items below (such as wholesale sales and purchases of power and natural gas, sales of fuel, and other fuel costs). The ERM, PCA and PGAs are based on net supply costs and consider all transactions related to resource procurement and optimization (both physical and financial).

Utility Operating Revenues

The following graphs present Avista Utilities' electric operating revenues and MWh sales for 2024 and 2023, respectively (dollars in millions and MWhs in thousands):

(1)

This balance includes public street and highway lighting, which is considered part of retail electric revenues, and deferrals/amortizations to customers related to federal income tax law changes.

Total electric operating revenues in the graph above include intracompany sales of $4 million and $6 million for 2024 and 2023, respectively.

The following table presents the current year decoupling deferrals and the amortization of prior year decoupling balances reflected in utility electric operating revenues for the years ended December 31 (dollars in millions):

(a)

Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years.

(b)

Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total electric revenues increased $129 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $96 million increase in retail electric revenues due to an increase in revenue per MWh (increased revenues $83 million), and an increase in total MWhs sold (increased revenues $13 million).

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The increase in revenue per MWh was primarily due to the effects of our general rate cases, as well as the ERM surcharge to customers that commenced in July 2023.

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The increase in total retail MWhs sold was primarily the result of customer growth, including a large industrial customer that we began serving in August 2024.

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a $25 million decrease in wholesale electric revenues due to a decrease in sales prices (decreased revenues $41 million), partially offset by an increase in sales volumes (increased revenues $16 million). The increase in volumes was due to increased opportunities to optimize our generation assets based on market conditions.

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a $39 million increase in revenues from sales of fuel due to thermal generation resource optimization activities, which includes net losses on derivative instruments resulting from commodity price volatility in early 2023.

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an $11 million increase in electric decoupling revenue, resulting from current year deferrals in a surcharge position, compared to a rebate position in the prior year, as well as an increase in amortization of prior year rebate balances.

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a $10 million increase in other electric revenues, primarily resulting from increased transmission and REC revenues.

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for 2024 and 2023, respectively (dollars in millions and therms in thousands):

(1)

This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues, and deferrals/amortizations to customers related to federal income tax law changes.

Total natural gas operating revenues in the graph above include intracompany sales of $16 million and $33 million for 2024 and 2023, respectively.

The following table presents the current year decoupling deferrals and the amortization of prior year decoupling balances reflected in natural gas operating revenues for the years ended December 31 (dollars in millions):

(a)

Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years.

(b)

Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total natural gas revenues increased $35 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $14 million decrease in retail natural gas revenues (including a $4 million decrease in interruptible and industrial revenues, which are included in other) due to decreased sales volumes (decreased revenues $11 million) and decreased retail rates (decreased revenues $3 million).

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Retail natural gas sales volumes decreased primarily due to lower residential and commercial usage due to warmer weather. Compared to 2023, residential use per customer decreased 4 percent and commercial use per customer decreased 1 percent. Heating degree days in Spokane during 2024 were 11 percent below historical average, compared to 8 percent below historical average in 2023. These decreases were partially offset by customer growth.

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Retail rates decreased due to PGA rate decreases (which do not impact utility margin), partially offset by the effects of our general rate cases and net rate increases associated with the CCA.

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a $6 million increase in wholesale natural gas revenues due to an increase in prices (increased revenues $4 million) and an increase in volumes (increased revenues $2 million). Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.

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a $19 million increase in decoupling revenues due to surcharge deferrals in the current year resulting from lower customer usage, compared to rebate deferrals in the prior year. There were also lower amortizations of prior year surcharges compared to amortizations in 2023.

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a $20 million increase in other natural gas revenue due to revenues associated with the sale of CCA emissions credits, which are deferred and are amortized as they are passed through to customers through decreases in retail rates. The increase in other revenues is offset by decreased retail rates, resulting in no impact to utility margin.

Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for 2024 and 2023, respectively (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $16 million and $33 million for 2024 and 2023, respectively.

Total electric resource costs increased $58 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $27 million increase in power purchased due to an increase in wholesale prices (increased costs by $15 million), and an increase in the volume of power purchases (increased costs by $12 million). In mid-January 2024, our service territory experienced much colder than normal weather, requiring purchases at a time when wholesale prices were substantially elevated due to capacity constraints in our region.

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a $9 million decrease in fuel for generation primarily due to decreased natural gas prices and decreased thermal generation.

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a $3 million decrease in other fuel costs, including gains on financial derivative instruments associated with our hedging activities. This represents fuel and the related derivative instruments that were purchased for generation but later sold when conditions indicated that it was more economical to sell the fuel as part of the resource optimization process. When the fuel or related derivative instruments are sold, that revenue is included in sales of fuel.

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a $43 million increase in other electric resource costs, primarily related to an increase in amortization of previously deferred costs, and an increase in deferred benefits under the PCA in Idaho related to current year power supply costs. There was also an increase in the deferral of funds related to our customer assistance payment programs (low income rate assistance and demand side management).

The following graph presents Avista Utilities' natural gas resource costs for 2024 and 2023, respectively (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $4 million and $6 million for 2024 and 2023, respectively.

Total natural gas resource costs increased $18 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $98 million decrease in natural gas purchased due to a decrease in the price of natural gas.

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a $116 million increase in other costs, primarily due to a decrease in deferred costs during the period, largely a result of lower natural gas prices, as well as the amortization of costs associated with the CCA that were recovered from customers, resulting in no impact to utility margin.

Utility Margin

The following table reconciles Avista Utilities' operating revenues, as presented in “Note 24 of the Notes to Consolidated Financial Statements”, to the Non-GAAP financial measure utility margin for the years ended December 31 (dollars in millions):

Electric utility margin increased $71 million and natural gas utility margin increased $17 million.

Electric and natural gas utility margin increased primarily due to our general rate cases, as well as customer growth. The effects of general rate cases include decreased tax customer credits, which increase operating revenues, and therefore utility margin, with a corresponding increase to income tax expense. This has a minimal impact on net income.

In both 2024 and 2023, we had an $8 million pre-tax expense under the ERM.

Intracompany revenues and resource costs represent purchases and sales of natural gas between our natural gas distribution operations and our electric generation operations (as fuel for our generation plants). These transactions are eliminated in the presentation of total results for Avista Utilities and in the consolidated financial statements but are included in the separate results for electric and natural gas presented above.