Executive Summary / Key Takeaways

• Avista (NYSE: AVA) is a regulated electric and natural gas utility in the Pacific Northwest and Alaska, underpinned by a long history of service and a strategic focus on infrastructure investment, clean energy transition, and risk mitigation.
• The company's core utility business demonstrated strong performance in Q1 2025, driven by constructive regulatory outcomes and customer growth, contributing significantly to consolidated net income of $79 million ($0.98 per diluted share).
• A substantial capital expenditure plan, totaling nearly $3 billion from 2025 through 2029, is aimed at enhancing reliability, supporting customer growth, and modernizing the system, forming the basis for a projected long-term earnings growth rate of 4% to 6% from a 2025 base year.
• Strategic initiatives, including the planned exit from the Colstrip coal plant by the end of 2025, the pursuit of new generation and transmission resources through an upcoming RFP process (50-400 MW by 2029), and discussions with potential large load customers, are poised to shape future growth and resource adequacy.
• Key challenges include volatility in power supply costs and the limitations of the current Energy Recovery Mechanism (ERM), expected to result in a negative $0.12 per diluted share impact in 2025, and ongoing regulatory processes in Idaho and Oregon, whose outcomes are critical to realizing planned capital recovery and earnings growth.

Setting the Scene: A Century of Service and a Utility in Transition

Avista Corporation, operating as a regulated electric and natural gas utility primarily across eastern Washington, northern Idaho, and parts of Oregon, boasts a history stretching back over 135 years. This deep regional presence has shaped its business model, which centers on the reliable production, transmission, and distribution of energy to a growing customer base. While its core operations remain steadfast in providing essential utility services, Avista is currently navigating a significant transition driven by evolving energy markets, environmental mandates, and the increasing demands of a modern grid.

The competitive landscape for Avista, like many regulated utilities, is defined less by direct price competition for retail customers within its service territory and more by the strategic positioning and operational efficiency relative to neighboring utilities and the emergence of alternative energy solutions. Key direct competitors in the western U.S. include larger players like PG&E Corporation (PCG), as well as regional peers such as Idaho Power Company (IDA), Black Hills Corporation (BKH), and Portland General Electric (POR). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Avista holds an estimated 5-7% aggregate market share in its primary service areas.

Avista's strategic response to this environment is multi-faceted: investing heavily in infrastructure modernization, transitioning its generation portfolio towards cleaner resources, actively mitigating operational risks like wildfires, and engaging proactively in regulatory processes to ensure cost recovery and a reasonable return on investment. This strategy is underpinned by a blend of traditional and emerging technologies designed to enhance reliability and meet future energy needs.

Technological Foundation and Evolving Capabilities

Avista's operational backbone relies on a diversified mix of generation resources, including hydroelectric, thermal (natural gas and biomass), and wind. Its hydroelectric facilities, leveraging the region's river systems, provide a foundational source of clean energy. The company's Kettle Falls biomass generating station, brought online 40 years ago as the first utility-owned facility of its kind in the U.S., exemplifies an early commitment to utilizing renewable fuel sources from the timber industry.

Beyond traditional generation, Avista is increasingly integrating technology for grid management and risk mitigation. Investments made since the 2021 Heat Dome event have demonstrably improved system performance during prolonged periods of extreme heat, highlighting the impact of targeted infrastructure enhancements. In response to escalating wildfire risks, the company has deployed artificial intelligence (AI)-enabled cameras capable of detecting wildfire smoke up to 10 miles away, providing early alerts to partner agencies. While specific quantitative metrics on the overall efficiency gains or cost advantages derived solely from these technologies compared to peers are not explicitly detailed, their strategic intent is clear: to enhance grid reliability, improve operational safety, and contribute to environmental goals, thereby strengthening the utility's core service offering and supporting its competitive position.

The company's strategic roadmap includes exploring new technological avenues. The planned all-source RFP for new generation resources by 2029 is open to various technologies, including potential ownership options for Avista through self-build or build transfer agreements. Furthermore, the 2025 Natural Gas IRP considers technologies like renewable natural gas and carbon capture (starting in 2035 in Oregon) to meet emissions compliance requirements, indicating a forward-looking approach to integrating new solutions into its resource planning. These technological pursuits, while some are in early stages, are critical for Avista to maintain service quality, manage costs, and meet evolving regulatory and customer expectations in a dynamic energy landscape.

Financial Performance: Building on Regulatory Outcomes

Avista's recent financial performance reflects the impact of its strategic focus, particularly on achieving constructive regulatory outcomes. For the first quarter of 2025, the company reported consolidated net income of $79 million, or $0.98 per diluted share, an increase from $71 million, or $0.91 per diluted share, in the first quarter of 2024. This improvement was primarily attributed to the positive effects of general rate cases.

Avista Utilities, the core operating division, saw its net income increase to $78 million in Q1 2025 from $67 million in the prior-year period. This growth was driven by an increase in electric utility margin ($36 million increase) and natural gas utility margin ($8 million increase), both primarily due to the effects of general rate cases and customer growth. Total operating revenues for Avista Utilities increased to $604 million in Q1 2025 from $595 million in Q1 2024, despite a decrease in wholesale electric revenues due to lower commodity prices. Resource costs decreased significantly, from $292 million to $256 million, largely due to decreased commodity prices and lower authorized costs in the Washington GRC, partially offset by higher purchased volumes. Operating expenses increased, driven by employee costs, thermal generation, and wildfire mitigation/insurance costs (the latter offset by corresponding revenue). Depreciation and amortization also rose due to additions to utility plant.

For the full year 2024, consolidated earnings were $2.29 per diluted share, up slightly from $2.24 in 2023. Utility earnings in 2024 were near the midpoint of original expectations despite headwinds from higher purchase power costs, demonstrating operational resilience. However, the "Other Businesses" segment recorded a $0.09 loss per diluted share in 2024, impacting consolidated results.

The "Other Businesses" segment, which includes non-regulated investments, continued to experience volatility, reporting a net loss of $3 million in Q1 2025 compared to break-even in Q1 2024. This loss was primarily due to net investment losses and losses from early-stage joint ventures, reflecting periodic market valuations.

Liquidity remains adequate, supported by existing credit facilities. As of March 31, 2025, Avista had $221 million available under its committed line of credit, $40 million under its letter of credit facility, and AELP had $12 million available under its facility. The company expects to issue $80 million of common stock and $120 million of long-term debt in 2025 to support its capital plan.

Strategic Momentum and Future Outlook

Avista is actively pursuing several strategic initiatives designed to position the company for future growth and meet evolving energy demands. A cornerstone of its clean energy transition is the planned divestiture of its 15% ownership interest in the Colstrip Units 3 and 4 coal plant to NorthWestern (NWE), scheduled to close on December 31, 2025. This move aligns with state mandates like Washington's CETA and allows Avista to retain its interest in the Colstrip transmission line, crucial for regional connectivity. The company is also integrating new renewable resources, such as the Clearwater Wind Project, which came online early and is already serving customers.

Meeting increasing energy demand, particularly from potential new large load customers in its service territory, is a key focus. These discussions are viewed not just as opportunities for incremental investment but as potential drivers for regional grid enhancements, employment, and future rate relief for existing customers. This growing demand underscores the need for new resources identified in the 2025 Electric IRP. The company plans to issue an all-source RFP by the end of May 2025, seeking bids for 50 MW up to 400 MW of generation capacity needed by 2029, with bids due in June and finalists selected by year-end. Avista is optimistic about including ownership options (self-build, build transfer) in this process, which could provide additional capital investment opportunities beyond the base plan. The MOU for the North Plains Connector transmission project is another strategic step to enhance regional reliability and access new markets/resources.

Regulatory strategy remains paramount. Following constructive outcomes in the Washington GRCs in December 2024 (approving electric base revenue increases of 2.0% for Rate Year 1 and 7.5% for Rate Year 2, and natural gas increases of 11.2% and 2.8%, with a 9.80% approved ROE), Avista is now focused on its Idaho and Oregon rate cases. In Idaho, multi-year electric and natural gas cases were filed in January 2025, proposing significant increases (electric: 14.0% Sept 2025, 5.0% Sept 2026; natural gas: 17.7% Sept 2025, 1.7% Sept 2026) based on a proposed 10.40% ROE. In Oregon, an all-party settlement agreement was reached in March 2025, proposing a 5.0% electric base revenue increase effective Sept 2025, based on a 9.50% ROE. The outcomes of these cases are critical for recovering capital investments and achieving targeted returns.

Avista's capital expenditure plan is a key driver of future earnings. Planned Avista Utilities capital expenditures are approximately $525 million in 2025, $575 million in 2026, and $600 million in 2027. The total expected capital expenditures from 2025 through 2029 are nearly $3 billion, representing an annual growth rate of 5% to 6%. This robust investment program underpins the company's long-term earnings growth outlook.

The company confirmed its consolidated earnings guidance for 2025 in the range of $2.52 to $2.72 per diluted share. Avista Utilities is expected to contribute $2.43 to $2.61 per diluted share, while AELP is expected to contribute $0.09 to $0.11 per diluted share. The "Other Businesses" segment is guided to a zero contribution in 2025, reflecting expected volatility. The midpoint of the Avista Utilities guidance includes an expected negative impact from the ERM of $0.12 per diluted share, with roughly half absorbed in Q1. The expected return on equity at Avista Utilities going forward is 8.8%. Over the long term, assuming constructive outcomes in the Idaho and Oregon rate cases and excluding potential incremental capital from the RFP or large load opportunities, Avista expects earnings to grow 4% to 6% from a forecast 2025 base year.

Risks and Challenges

Despite strategic progress and a positive outlook, Avista faces notable risks. Regulatory risk is inherent, as commission decisions can impact the ability to recover costs and earn authorized returns. The Washington Commission's decision not to modify the ERM, for example, directly contributes to the expected negative earnings impact in 2025 due to volatility in power supply costs. The outcomes of the ongoing Idaho and Oregon rate cases are critical and subject to uncertainty.

Operational risks include the increasing frequency and intensity of severe weather and natural disasters, particularly wildfires, which can disrupt service, damage infrastructure, and result in significant liabilities. While Avista is investing in mitigation and pursuing legislative solutions (like wildfire mitigation plan approval and potential securitization), these risks remain material. Legal proceedings related to past incidents, such as the Babb Road Fire (though settled with expected insurance coverage) and the Boyds Fire (with a trial scheduled), highlight the potential for litigation costs and reputational damage.

External mandates, including environmental regulations (like CETA and EPA rules) and potential tariffs on imported materials or natural gas, could increase operating and capital costs. Changes in state building codes promoting electrification could adversely impact the natural gas business over time, although potentially benefiting the electric side.

Financial risks include exposure to fluctuating interest rates and energy commodity prices, which can impact borrowing costs and power supply expenses, respectively. While hedging strategies are employed, volatility can lead to significant demands for collateral on derivative contracts. Credit risk from counterparties and potential credit rating downgrades could exacerbate collateral requirements. The performance of the "Other Businesses" segment, subject to market valuations, introduces earnings volatility, though its impact on consolidated results is currently guided to be zero.

Competition, while not direct price competition for retail customers, exists in securing new generation resources and transmission capacity, and from the growth of distributed generation and energy efficiency measures that could reduce demand for utility-supplied energy. Avista's competitive positioning, while strong in regional regulatory relationships and diversified generation, faces challenges from larger peers with potentially greater scale and faster technology adoption in certain areas.

Conclusion

Avista Corporation is a regulated utility navigating a period of significant transition, marked by a robust capital investment program, a strategic pivot towards cleaner energy, and ongoing efforts to manage operational and regulatory risks. The company's core utility business demonstrated solid performance in the first quarter of 2025, underpinned by favorable rate case outcomes that are expected to provide a foundation for earnings growth in 2025 and beyond.

The ambitious capital plan, totaling nearly $3 billion over the next five years, is central to the investment thesis, promising to enhance system reliability, support customer growth, and drive a projected long-term earnings growth rate of 4% to 6%. Strategic initiatives, including the Colstrip exit, the pursuit of new generation and transmission resources, and engagement with potential large load customers, are critical for meeting future energy needs and unlocking additional investment opportunities.

However, investors must weigh these opportunities against persistent challenges, particularly the volatility associated with power supply costs and the limitations of the current ERM, which will pressure 2025 earnings. The outcomes of ongoing rate cases in Idaho and Oregon are also key determinants of future financial performance. While Avista's technological capabilities and risk mitigation efforts, such as investments in grid hardening and AI-enabled wildfire detection, enhance its operational resilience, the dynamic nature of energy markets and the regulatory environment necessitate careful monitoring. Avista's ability to successfully execute its capital plan, secure constructive regulatory outcomes, and adapt to evolving market dynamics will be crucial in realizing its growth potential and delivering value to shareholders.