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 derivative transactions 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 derivative contracts are included 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 2025 and 2024, 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 $3 million and $4 million for 2025 and 2024, respectively.

The following table presents the current year decoupling deferrals and the amortization of prior year decoupling deferrals 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 $43 million for 2025 as compared to 2024. The primary differences in the results for these periods were as follows:

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a $122 million increase in retail electric revenues due to an increase in revenue per MWh (increased revenues $90 million), and an increase in total MWhs sold (increased revenues $32 million).

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retail rates increased mainly due to the effects of our general rate cases.

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retail sales volumes increased primarily due to customer growth.

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a $38 million decrease in wholesale electric revenues due to decreases in prices in the wholesale market (decreased revenues $68 million), partially offset by an increase in sales volumes (increased revenues $30 million). The change in volumes was due to increased opportunities to optimize our generation assets based on market conditions.

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a $24 million decrease in electric decoupling revenue, primarily due to decreases of amortizations of prior year rebate balances compared to 2024. In addition, deferrals of surcharge balances decreased compared to 2024.

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a $23 million decrease in other electric revenues, primarily resulting from a $9 million refund to be issued to customers for adjustments related to Colstrip investments, as well as decreased transmission and REC revenues.

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for 2025 and 2024, 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 $9 million and $16 million for 2025 and 2024, 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 decreased $22 million for 2025 as compared to 2024. The primary differences in the results for these periods were as follows:

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a $53 million decrease in retail natural gas revenues (including industrial, which is included in other) due to decreased retail rates (decreased revenues $43 million) and decreased sales volumes (decreased revenues $10 million). 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. Residential use per customer decreased 5 percent and commercial use per customer decreased 4 percent compared to 2024 due to warmer weather in the fourth quarter.

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a $9 million decrease in wholesale natural gas revenues due to a decrease in volumes (decreased revenues $10 million), partially offset by an increase in prices in the wholesale market (increased revenues $1 million).

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a $12 million increase in decoupling revenues primarily due to increased surcharge deferrals in the current year resulting from lower customer usage.

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a $27 million increase in other natural gas revenues primarily due to the amortization of previously deferred revenues associated with the sale of CCA emissions credits. We amortize the deferred revenues as they are passed on to customers through decreases in retail rates. The increase in other revenues was offset by decreased retail rates, resulting in no impact to utility margin, and a provision for earnings sharing related to natural gas operations in Washington, which resulted in a refund to be issued to customers.

Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for 2025 and 2024, respectively (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $9 million and $16 million for 2025 and 2024, respectively.

Total electric resource costs decreased $69 million for 2025 as compared to 2024. The primary differences in the results for these periods were as follows:

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a $12 million decrease in power purchased due to a decrease in prices in the wholesale market (decreased costs by $51 million), partially offset by an increase in the volume of power purchases (increased costs by $39 million). Prices during the first quarter of 2024 were elevated due to extreme cold temperatures in our region that created capacity constraints.

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a $58 million decrease in other electric resource costs, primarily related to an increase in deferred costs, as well as a decrease in the amortization of previously deferred costs. The increase in deferred costs was primarily due to the effects of the Washington general rate case and a lower level of authorized power supply costs. This was partially offset by increased costs 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 2025 and 2024, respectively (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $3 million and $4 million for 2025 and 2024, respectively.

Total natural gas resource costs decreased $44 million for 2025 as compared to 2024. The primary differences in the results for these periods were as follows:

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a $24 million decrease in natural gas purchased due to a decrease in the volume of purchases (decreased costs by $14 million) and a decrease in prices of natural gas in the wholesale market (decreased costs by $10 million).

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a $20 million decrease in other costs, primarily due to a decrease in amortizations of previously deferred costs under our PGAs, partially offset by increased amortization of costs associated with the CCA that were recovered from customers (resulting in no impact to utility margin) and an increase in costs related to our customer assistance payment programs (low-income rate assistance and demand side management).

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 $112 million and natural gas utility margin increased $22 million.

Electric utility margin increased primarily due to the effects of general rate cases, customer growth, and non-decoupled load growth, partially offset by a $9 million refund to be issued to customers for adjustments related to Colstrip investments. See "Regulatory Matters" for further details regarding the Colstrip final order. Natural gas utility margin increased primarily due to the effects of general rate cases.

In 2025 and 2024, we had a pre-tax expense under the ERM of $14 million and $8 million, respectively. The increase is due to the lower level of base net power supply costs established in the most recent Washington general rate case.

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.