AVISTA CORP

Environmental Issues and Contingencies

We are subject to environmental regulation by federal, state, tribal and local authorities. The generation, transmission, distribution, service and storage facilities in which we have ownership interests or which we may need to acquire or develop are subject to environmental laws, regulations and rules relating to construction permitting, air quality and emissions, water quality, fisheries, wildlife, endangered species, avian interactions, wastewater and stormwater discharges, waste handling, natural resource protection, historic and cultural resource protection, and other similar activities. These laws and regulations require the Company to make substantial investments in compliance activities and to acquire and comply with a wide variety of environmental licenses, permits, approvals and settlement agreements. These items are enforceable by public officials and private individuals. Some of these regulations are subject to ongoing interpretation, whether administratively or judicially, and are often in the process of being modified. We conduct periodic reviews and audits of pertinent facilities and operations to enhance compliance and to respond to or anticipate emerging environmental issues. The Company's Board of Directors has established a committee to oversee environmental issues and to assess and manage environmental risk.

We monitor legislative and regulatory developments at different levels of government for environmental issues, particularly those with the potential to impact the operation of our generating plants and other assets, and our ability to provide service to natural gas customers. We continue to be subject to increasingly stringent or expanded application of environmental and related regulations from all levels of government.

Environmental laws and regulations may restrict or impact our business activities in many ways, including, but not limited to:

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increasing the operating costs of generating plants, natural gas and electric transmission and distribution facilities and other assets,

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increasing the lead time and capital costs for the construction of new generating plants, natural gas and electric transmission and distribution facilities and other assets,

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requiring modification of existing generating plants, natural gas and electric transmission and distribution facilities,

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requiring existing generating plant, natural gas and/or operations to be curtailed or shut down,

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reducing the amount of energy available from generating plants,

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restricting the types of generating plants that can be built or contracted with,

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requiring construction of specific types of generation plants at higher cost, and

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increasing costs of distributing, or limiting our ability to distribute, electricity and/or natural gas.

Compliance with environmental laws and regulations could result in increases to capital expenditures and operating expenses. We intend to seek recovery of such costs through the ratemaking process.

Policies and Other Impacts Related to Climate Change

Legal and policy changes responding to concerns about climate changes, and the potential impacts of such changes, could have a significant effect on our business. Direct impacts of climate changes include, without limitation, variations in the amount and timing of energy demand throughout the year, variations in the level and timing of precipitation throughout the year, as well as variations in temperature, and the resulting impact on the availability of hydroelectric resources at times of peak demand as well as an increased risk of wildfire and other impacts of extreme weather. Indirect impacts include, without limitation, changes in laws and regulations intended to mitigate the risk of, or alter, climate changes, including restrictions on the operation of our power generation resources and obligations or limitations imposed on the sale of natural gas. When direct or indirect impacts of climate change cause increased operational costs or capital investments, we intend to recover such costs through the ratemaking process.

Washington Legislation and Regulatory Actions

Clean Energy Transformation Act

In 2019, the Washington State Legislature passed the CETA, which effectively prohibits sales of energy produced by coal-fired generation to Washington retail customers after December 31, 2025 (with some exceptions for coal generated short-term purchases). In addition, the CETA establishes the policy of Washington State that retail sales of electricity to Washington customers must be carbon-neutral by January 1, 2030, however a utility may satisfy up to 20 percent of this requirement with specified emitting resources paired with either renewable offsets, credits and/or investments in qualifying energy transformation projects. By December 2044, 100 percent of retail sales of electricity to Washington State customers must be carbon free.

The law had direct, specific impacts on Colstrip, which were unique to the former owners of Colstrip who serve Washington customers. See “Colstrip” section and “Note 22 of the Notes to Consolidated Financial Statements” for further details on the impacts of the CETA on Colstrip and the transfer of our ownership interest in Colstrip to NorthWestern. Our hydroelectric and biomass generation facilities can be used to comply with the CETA’s clean energy standards. We intend to seek recovery of costs associated with the clean energy legislation and regulations through the regulatory process.

In compliance with the CETA, we filed our first CEIP in October 2021, that was approved by the WUTC in June 2022. The CEIP’s four-year compliance period of 2022-2025 proposed targets and specific actions to meet Washington State’s clean energy goals and the equitable distribution of benefits and reduction of burdens to all customers. We have delivered on our commitments under the 2022-2025 CEIP.

In October 2025, the Company filed its 2025 CEIP with the WUTC in compliance with the Clean Energy Transformation Act. The CEIP proposed targets and specific actions to meet Washington State’s clean energy goals and the equitable distribution of benefits and reduction of burdens to all customers.

Some highlights of the 2025 CEIP include:

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Updated clean energy targets: We propose increasing the amount of clean energy delivered to Washington customers from 66 percent in 2026 to 76.5 percent by 2029. The resulting projects from our 2025 RFP will contribute to reaching these targets.

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Modern energy management: Between 2026 and 2029, we plan to expand demand response programs that could reduce electricity usage by up to 55 MW during peaks. The electricity reductions include projects from the RFP process described above, and may include smart thermostats, battery storage, and other tools that help customers shift or lower their energy use when demand is highest.

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Energy efficiency programs: We will grow energy-saving programs to help customers use less electricity without giving up comfort or convenience.

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Community engagement: The CEIP emphasizes meaningful engagement with all communities, especially named communities, which are populations disproportionately affected by environmental, financial and societal factors, among others.

Emissions Performance Standard

Washington applies a GHG emissions performance standard to electric generation facilities used to serve retail loads, whether the facilities are located within Washington or elsewhere. The emissions performance standard prevents utilities from constructing or purchasing generation facilities, or entering into power purchase agreements of five years or longer duration to purchase energy produced by plants that have emission levels higher than 925 pounds of GHG per MWh. The Washington State Department of Commerce reviews the standard every five years. We intend to seek recovery of costs related to ongoing and new requirements through the ratemaking process.

Washington Climate Commitment Act

The CCA, and its implementing regulations, established a cap and trade program to reduce GHG emissions and achieve the GHG limits previously established under state law. The final rules implement a cap on emissions, provide mechanisms for the sale and tracking of tradable emissions allowances and establish additional compliance and accountability measures. The state issues allowances necessary to serve our Washington retail electric load; off-system wholesale sales may result in additional obligation costs. The CCA also has direct impacts on our Idaho electric operations as it applies to power that is delivered in Washington but is allocated to Idaho customers (wholesale sales) or power generated in Washington that is delivered to Idaho customers. Annually, the final calculated results must be certified by an independent third party and submitted to Ecology for approval. If the independent third party or Ecology disagrees with the approach or any of the calculations, it could result in a change to the number of allowances needed for compliance and could result in changes to anticipated costs for our electric operations. For Washington electric, we are allowed to defer any incremental costs associated with the CCA in accordance with our regulatory accounting order; however, in Idaho we are not allowed to recover any costs associated with CCA compliance from customers.

For our Washington natural gas operations, we have additional financial burdens associated with compliance which are being deferred and recovered from customers in accordance with our regulatory accounting order in Washington.

Washington State Building Codes

In April 2022, the Washington State Building Code Council (SBCC) approved a revised energy code requiring most new commercial buildings and large multifamily buildings to install all-electric space heating. An amendment to the code allows for natural gas to supplement electric heat pumps. In addition, in November 2022, the SBCC approved new building and energy codes for residential housing, requiring new residential buildings in Washington to use electricity as the primary heat source.

Both the commercial and residential building and energy codes were the subject of legal challenges in both Washington State Superior Court (the State Action) and in the Federal District Court for the Eastern District of Washington (the Federal Action). In the Federal Action, to which the Company was a party, the plaintiffs challenged the amendments on the grounds that they were preempted by the federal Energy Policy and Conservation Act (EPCA), citing the Ninth Circuit’s decision in California Restaurant Association v. Berkeley (the Berkeley Decision), which involved similar restrictions on the use of natural gas in new construction in Berkeley, California.

In May 2023, the SBCC voted to delay the effective date of the code amendments and commenced an emergency rulemaking process to evaluate additional amendments to the code in light of the Berkeley Decision. As a result of this action, in July 2023, the Federal District Court declined to issue a preliminary injunction to prevent the amendments from taking effect. The plaintiffs in the Federal Action subsequently dismissed the action, without prejudice to their ability to refile after the SBCC rulemaking process is complete.

The SBCC has since voted to approve revised residential and commercial energy regulations that continue to require new residential and commercial buildings in Washington to use electricity as the primary heat source. In light of this action, the plaintiffs in the State Action amended their complaint to challenge the new regulations. The State Action remains pending.

In May 2024, we, along with Cascade Natural Gas Corporation, Northwest Natural Gas Company, and a coalition of homebuilders, heating unit dealers and other parties, filed a lawsuit challenging the approved building codes on the grounds that they are preempted by EPCA. The lawsuit was filed in the United States District Court for the Western District of Washington. This lawsuit remains pending.

In November 2024, Washington voters approved Initiative 2066, which would prohibit state and local governments from restricting access to natural gas, prohibit the SBCC from discouraging or penalizing the use of natural gas, and prohibit the WUTC from approving any multi-year rate plan that requires or incentivizes natural gas companies to terminate or limit natural gas service. In March 2025, a Washington state court held that the initiative violates the "single subject rule" and is invalid. That decision has been appealed and the appeal remains pending.

Over time, the building code changes would likely have an adverse impact on our natural gas business and natural gas customers but could also have a positive effect on our electric business. While we are in the process of studying the implications of the changes on our business, at this time we are not able to quantify the likely net effect, positive or negative, on our overall results of operations over the long term. However, the changes would clearly require that additional generating capacity be available to utilities and customers in Washington state.

Oregon Legislation and Regulatory Actions

Climate Protection Plan

In March 2020, Oregon Governor Kate Brown issued Executive Order No. 20-04, “Directing State Agencies to Take Actions to Reduce and Regulate Greenhouse Gas Emissions.” The Executive Order launched rulemaking proceedings for every Oregon agency with jurisdiction over GHG-related matters, with the aim of reducing Oregon’s overall GHG emissions to 80 percent below 1990 levels by 2050. This Executive Order led to the Oregon Department of Environmental Quality developing cap and reduce rules known as the CPP. The CPP, which became effective in January 2022, outlines GHG emissions reduction goals of 50 percent by 2035 and 90 percent by 2050 from the 1990 baseline. The first three-year compliance period was 2022 through 2024.

In March 2022, we, along with the utilities NW Natural and Cascade Natural Gas, filed a lawsuit requesting judicial review of the CPP. This action was subsequently consolidated with a lawsuit filed by several other parties. In December 2023, the Oregon Court of Appeals issued a decision declaring the CPP regulations invalid. The Oregon Department of Environmental Quality did not appeal the decision, but instead went back through the rulemaking process. The result of that process was a new version of the CPP that is very similar to the original. We are reviewing the new rules, and considering what legal action, if any, may be taken. To the extent the new rules impose additional compliance costs, we will seek to recover those costs through the ratemaking process.

Emissions Performance Standard

Oregon applies a GHG emissions performance standard to electric generation facilities, requiring that new baseload natural gas plant, non-base load natural gas plant, and non-generating facility reduce its net carbon dioxide emissions 17 percent below what the Oregon Facility Siting Council identifies as the most efficient combustion-turbine plant in the United States. The Oregon Energy Facility Siting Council issues rules periodically to update the standard, as more efficient power plants are built. The standard can be met by combination of efficiency, cogeneration, and offsets from carbon dioxide mitigation measures. We have thermal generation located in Oregon, and as such this standard applies to that facility. We intend to seek recovery of costs related to requirements through the ratemaking process.

Clean Air Act (CAA)

The CAA creates numerous requirements for our thermal generating plants. Kettle Falls GS, Coyote Springs and Rathdrum CT all require CAA Title V operating permits. The Boulder Park GS, Northeast CT and other operations require minor source permits or simple source registration permits. We have secured these permits and certify our compliance with Title V permits on an annual basis. These requirements can change over time as the CAA or applicable implementing regulations are amended and new permits are issued. We actively monitor legislative, regulatory and other program developments of the CAA that may impact our facilities.

2024 EPA Regulations for Power Plants

On April 25, 2024, the EPA released a package of final regulations addressed to electric generation facilities. These include:

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Greenhouse gas regulations for new natural gas-based turbines and existing coal-based units, pursuant to section 111 of the Clean Air Act. This rule finalizes (a) the repeal of the Affordable Clean Energy rule; (b) guidelines for GHG emissions from existing fossil fuel-fired steam generating electric generating units; and (c) revisions to existing performance standards for new, reconstructed or heavily modified fossil fuel-fired stationary combustion turbine electric generating units. The rule is currently being challenged in the D.C. circuit, and that litigation remains pending.

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Supplemental Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category (ELG Rule). The ELG Rule applies to wastewater discharges from coal-based generating units and establishes pollution control requirements. The Rule builds upon the 2015 and 2020 ELG Rules. It includes a subcategory of requirements for coal plants that will be retired or repowered by the end of 2028 and provides additional compliance pathways for coal plants that retire by the end of 2034. The EPA is currently in the process of reconsidering the rule and compliance deadlines have been extended for certain provisions to allow for further evaluation.

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Updated Mercury and Air Toxics Standards, pursuant to section 112 of the Clean Air Act (MATS Rule). The MATS Rule sets emissions limits for filterable particulate matter for coal-based generating units. The Rule reduces those limits from the standards that were originally set in 2012. The EPA has since proposed repealing the reduction in applicable limits and has granted extensions of applicable compliance deadlines for certain power plants, including Colstrip.

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Disposal of Coal Combustion Residuals from Electric Utilities – Legacy CCR Surface Impoundments (CCR Rule). The CCR Rule builds on 2015 regulations, which apply to active power plants that dispose of coal combustion residuals in surface impoundments or landfills, by regulating inactive surface impoundments at inactive power plants and CCR management units at active and inactive power plants. In January 2025, the EPA issued a revised proposed and final rule to address language inconsistencies and submittal deadlines. Likewise, in February 2026, the EPA issued a final rule providing additional time for certain compliance deadlines regarding monitoring. Along with the other owners (including the operator), we have assessed the CCR Rule and believe there will not be a material change to our asset retirement obligation for Colstrip. See Coal Ash Management/Disposal, below for further discussion of the CCR Rule as it relates to Colstrip.

These rules potentially fall within the scope of a number of Presidential executive orders that have been issued, which are discussed in more detail under “2025 Presidential Executive Action” below. In addition, a substantial number of legal challenges have been filed regarding these rules, and those lawsuits remain pending. Finally, it is likely that the decision by the EPA to revoke its 2009 Endangerment Finding, discussed below, will have an impact on the status and implementation of these rules. At the same time, we continue to analyze each of these rules to assess the impact, if any, they may have on our existing generation units. To the extent there are any additional costs associated with compliance, we will seek to recover those costs through the ratemaking process.

EPA Endangerment Finding Revocation

In February 2026, the EPA formally revoked its 2009 Endangerment Finding, which was a landmark determination that six key greenhouse gases, including carbon dioxide and methane, threaten the public health and welfare of current and future generations. The Endangerment Finding provided the scientific and legal foundation for federal regulation of those identified greenhouse gases, including regulation of the release of greenhouse gases from power plants and other significant emissions sources.

The action taken by the EPA to repeal the Endangerment Finding is expected to result in significant deregulation of greenhouse gas emissions, including regulation of natural gas and coal-fired power plants. It is reasonably likely that the EPA’s decision will be the subject of future legal challenges, the outcome of which cannot be predicted. The precise extent of that deregulation, as well as any potential impact on the Company’s operations, cannot be determined at this time.

2025 Presidential Executive Actions

Since taking office, the U.S. President's Administration has issued a multitude of Executive Orders directed towards national energy resources and development. These include actions to:

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pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 or the Infrastructure and Jobs Act;

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require agency review of regulations, programs and executive orders that might limit the development or use of domestic energy resources such as oil, natural gas, coal and nuclear;

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revoke the prior Administration’s Executive Orders on climate policy;

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require agency review of regulations, programs and executive orders that limit consumer choice for vehicles and appliances;

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require review of the 2009 EPA endangerment finding for greenhouse gases under the Clean Air Act;

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direct the EPA to revise or eliminate the use of a social cost of carbon in federal decision-making;

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declare a national emergency to expedite the development of energy infrastructure;

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direct emergency action under section 202(c) of the Federal Power Act by streamlining and expediting the approval of orders allowing electric generation resources to operate at maximum capacity during times of anticipated grid failure;

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direct the United States Attorney General to identify and act against state and local laws that burden domestic energy production and may be unconstitutional, preempted by federal law, or otherwise unlawful, particularly those tied to climate change, carbon penalties or carbon cap and trade programs, and Environmental, Social and Governance policies;

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restrict tax credits, tighten requirements and eliminate subsidies for wind and solar projects; and

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require the incorporation of sunset provisions into regulations governing energy production.

Some of these Executive Orders are the subject of legal challenges and/or are the subject of federal court injunctions, either in whole or in part. We are assessing potential impacts, opportunities and risks that may arise from these and other executive actions that may be taken by the Administration. To the extent that any action taken by the Administration results in increased costs for our business, we will seek to recover those costs through the rate-making process.

Other

For other environmental issues and other contingencies see “Note 22 of the Notes to Consolidated Financial Statements.”