Executive Summary / Key Takeaways

• Avista Corporation (NYSE: AVA) is demonstrating robust performance in its core utility operations, driven by constructive regulatory outcomes, diligent capital deployment, and strategic initiatives aimed at enhancing grid reliability and meeting growing energy demand.
• The company is actively investing in grid modernization and wildfire mitigation technologies, including AI-enabled cameras and weather stations, which are crucial for operational resilience and safety in its Pacific Northwest service territory.
• Significant growth opportunities are emerging from potential large load customers, with over 3,000 MW of requests in the pipeline, alongside a substantial capital expenditure plan of $3.7 billion through 2030, promising a 6% annual growth rate.
• Despite strong utility performance, consolidated earnings are impacted by volatility and valuation losses in its "other businesses" segment, particularly in clean technology investments, leading to a conservative consolidated earnings outlook for 2025.
• Avista faces ongoing challenges from its Energy Recovery Mechanism (ERM) in Washington, which is expected to exert a negative impact on earnings in 2025 and potentially 2026, necessitating strategic efforts to reset power supply costs at more appropriate levels.

A Foundation of Service and Strategic Evolution

Avista Corporation, tracing its roots back to 1889 as Washington Water Power, has grown into a diversified energy utility serving the Pacific Northwest and parts of Alaska. Its core business, Avista Utilities, provides essential electric and natural gas distribution and transmission services across eastern Washington, northern Idaho, and parts of Oregon. This long history has established a foundational presence and deep regional expertise, which now underpins its strategic response to a rapidly evolving energy landscape.

The utility industry is currently undergoing a profound transformation, driven by increased load growth, more frequent extreme weather events, and a global shift towards variable energy resources. The explosion of artificial intelligence is creating unprecedented demand for data centers, projected to consume up to 9.1% of U.S. electricity generation annually by 2030, up from 4% today. This, coupled with broader electrification trends, necessitates significant investment in electrical infrastructure. Utilities across the U.S. are making record capital expenditures, estimated at $174 billion in 2024 and projected to rise to $211 billion by 2027, to improve reliability, reduce congestion, and connect new energy sources. Avista's strategy is firmly aligned with these trends, focusing on grid modernization, resource adequacy, and clean energy transition while balancing affordability and reliability for its 423,000 electric and 383,000 natural gas customers.

Competitive Positioning in a Dynamic Market

Avista operates in a competitive regional utility market, with key direct competitors including Idaho Power Company (IDA), Portland General Electric (POR), Black Hills Corporation (BKH), and Xcel Energy (XEL). While Avista's diversified energy portfolio, offering both electric and natural gas services, provides a balanced approach, it often faces larger, more scaled competitors. Avista's regional concentration in the Pacific Northwest allows for deep local expertise and customer familiarity, potentially fostering stronger customer relationships through integrated services.

However, Avista's smaller scale compared to giants like Xcel Energy can lead to higher operating costs and potentially slower growth rates in large-scale projects. Xcel Energy, with its broader geographic spread and significant resources, can invest more heavily in advanced technologies and achieve greater economies of scale. Portland General Electric, while more electricity-centric, often leads in technological innovation for grid efficiency. Avista's strategic focus on regulatory compliance and localized service integration helps it compete effectively, but it must continuously adapt to maintain its edge against rivals who may have materially lower operating costs due to scale or faster innovation in specific renewable technologies.

Indirect competitors, such as solar and wind farm operators or battery storage companies, also pose a threat by offering alternative energy solutions that could reduce demand for traditional grid services. Avista's established infrastructure and regulatory licenses act as significant barriers to entry, providing pricing power and recurring revenue. However, these same barriers can favor larger, well-capitalized rivals, challenging Avista to meet performance thresholds for growth.

Technological Edge in Grid Modernization and Wildfire Mitigation

Avista's technological differentiators are primarily focused on enhancing grid resilience, operational efficiency, and safety, particularly in response to increasing wildfire risks and the demands of a modern energy system. The company has made significant strides in its wildfire resiliency program, concluding the 2025 wildfire season without needing a public safety power shutoff. This success is a direct result of strategic grid and process improvements.

Key technological initiatives include:

• Strategic Undergrounding and Covered Conductors: Avista completed pilot projects for both strategic undergrounding and the installation of covered conductors. These initiatives are critical for hardening the grid, reducing the risk of ignition from falling trees or branches, and improving overall system reliability. Lessons learned from these pilots will inform future deployment decisions as the company advances towards its grid hardening goals.
• Weather Stations: The company has begun installing weather stations throughout its service territory, with an ambitious goal to have a weather station installed on every circuit by 2029. These stations provide critical real-time data to operations teams, enabling faster reactions to changing conditions and informing future system design decisions. This granular data enhances predictive capabilities for weather-related risks.
• AI-enabled Cameras: Avista has expanded its network of AI-enabled cameras, which offer enhanced wildfire monitoring and early detection tools. These cameras provide greater access to real-time information for both Avista teams and first responders. The company expects to achieve coverage of a majority of its high-risk areas through these technologically advanced cameras by the end of 2026. This technology significantly improves the data feeding into Avista's fire-weather dashboard, allowing for quicker response times and better risk mitigation.
• Enterprise Resource Planning (ERP) System: Avista is planning to implement a new ERP system, replacing a variety of existing technology tools. This system is designed to accurately maintain financial records, enhance operational functionality, and provide timely information to management. The project is expected to involve capital expenditures between $100 million to $130 million over its life, with implementation anticipated in 2028. This investment aims to streamline administrative and operational processes, improving overall efficiency.

These technological advancements are not merely operational upgrades; they form a critical part of Avista's competitive moat. By proactively mitigating wildfire risks and enhancing grid intelligence, Avista aims to reduce operational costs associated with outages and repairs, improve service reliability, and strengthen its regulatory standing. The "so what" for investors is a more resilient and efficient utility operation, better positioned to manage climate-related risks and meet evolving customer expectations, ultimately contributing to more stable financial performance and long-term value creation.

Financial Performance and Strategic Capital Deployment

Avista's financial performance in 2025 reflects the strength of its core utility operations, even as it contends with challenges in its non-utility ventures. For the nine months ended September 30, 2025, consolidated net income increased to $122 million, up from $113 million in the same period of 2024. Diluted earnings per common share rose to $1.51 from $1.44. This improvement was primarily driven by the positive effects of general rate cases.

Avista Utilities, the company's primary segment, reported a net income of $131 million for the first nine months of 2025, a significant increase from $111 million in the prior year. Its year-to-date results of $1.63 per diluted share represent a nearly 15% increase over 2024, underscoring the success of constructive regulatory outcomes and diligent capital deployment. Electric utility margin increased by $86 million for the first nine months of 2025, fueled by general rate cases, customer growth, and non-decoupled load growth. Natural gas utility margin also saw a $19 million increase, primarily due to rate case effects.

However, the "Other Businesses" segment has been a drag on consolidated results. This segment recorded a net loss of $13 million for the first nine months of 2025, a substantial increase from a $3 million loss in the prior year. These losses are largely attributed to lower valuations of clean technology-focused venture funds, impacted by shifts in public policy and market sentiment. Approximately 75% of the investment losses in 2025 were related to clean technology, with another 25% due to ownership dilution from new share issuances.

From a liquidity standpoint, Avista maintains a healthy position. As of September 30, 2025, the company had $210 million of available liquidity under its committed line of credit and $43 million under its letter of credit facility. Its consolidated total debt to total capitalization ratio stood at 54.70%, well within its 65% covenant. Net cash provided by operating activities was $394 million for the nine months ended September 30, 2025, though this was a decrease from $444 million in the prior year, mainly due to changes in power and natural gas cost deferrals.

Capital expenditures remain a significant focus, with Avista Utilities investing $363 million in the first three quarters of 2025. The company projects base capital expenditures of $525 million in 2025, and a total of $3.7 billion from 2025 through 2030, representing an impressive annual growth rate of 6%. This substantial investment is directed towards enhancing service, improving system reliability, and replacing aging infrastructure.

Strategic Initiatives and Future Outlook

Avista's strategic roadmap is designed to capitalize on growth opportunities while addressing industry challenges. The company issued an all-source Request for Proposals (RFP) in May 2025, seeking up to 425 MW of new capacity and at least 5 MW of demand response by 2029. This initiative, which garnered over 80 bids including diverse resource options like wind, solar, storage, and thermal, is crucial for meeting projected resource needs and complying with clean energy mandates. Final project selections and negotiations are expected by year-end 2025, with a focus on projects that can leverage federal tax credits by starting construction by July 2026.

A significant growth driver is the engagement with potential large load customers, with over 3,000 MW of requests in the pipeline for system integration within the next 3 to 5 years. To put this in perspective, Avista's peak electric native load is just under 2,000 MW. Serving this demand will require not only new generation but also regional grid expansion, with system impact studies indicating capacity to accommodate a portion of these requests. The company views these opportunities as a catalyst for innovation, infrastructure investment, and an important tool to support customer affordability by bringing net benefits to existing customers.

In regulatory affairs, Avista achieved constructive outcomes in its 2024 Washington general rate cases, securing an increased return on equity of 9.8%. It also received approval for all-party settlement agreements in Oregon (May 2025) and Idaho (August 2025), designed to increase base revenues and allow for cost recovery. The company plans to file its next Washington general rate case in Q1 2026, evaluating a multi-year rate plan with objectives for annual power supply resets.

For 2025, Avista has confirmed its consolidated earnings guidance in the range of $2.52 to $2.72 per diluted share, with consolidated results expected at the lower end due to valuation losses in "other businesses." Avista Utilities is projected to contribute towards the upper end of its $2.43 to $2.61 per diluted share range. The "Other Businesses" segment is expected to have a zero contribution to earnings in 2025, reflecting anticipated volatility. Over the long term, Avista expects earnings to grow 4% to 6% from the midpoint of its 2025 guidance.

Risks and Challenges

Despite the positive momentum, Avista faces several notable risks. The Energy Recovery Mechanism (ERM) in Washington continues to be a challenge, with an expected negative impact of $0.14 per diluted share in 2025. Management explicitly stated that, given current projections and the denial of their proposed ERM modification, there is "no probable scenario" for a turnaround in 2025. This persistent drag is attributed to unpredictable weather, regional resource adequacy concerns, and new carbon emission policies.

The volatility and valuation losses in the "other businesses" segment, particularly in clean technology investments, pose an ongoing risk to consolidated earnings. These investments are subject to shifts in public policy and market sentiment, and while strategic value is seen in learning about future energy technologies, significant valuation increases are unlikely without exits from these investments.

Operational risks, particularly from wildfires, remain a concern. Although Avista has made significant progress in mitigation, severe weather events can still disrupt operations and incur substantial costs. Regulatory lag, inherent in utility ratemaking, can also delay the recovery of capital investments and increased operating costs. Furthermore, changes in environmental laws, such as Washington State Building Codes promoting all-electric heating, could adversely impact the natural gas business while potentially benefiting the electric business.

Conclusion

Avista Corporation stands at a pivotal juncture, leveraging its deep regional roots and strategic investments to power growth in a transforming energy landscape. The company's core utility operations are robust, driven by effective regulatory engagement and a disciplined approach to capital deployment. Its proactive embrace of technological solutions for grid modernization and wildfire mitigation, including AI-enabled cameras and advanced weather stations, underscores a commitment to operational excellence and resilience. These initiatives are not just about compliance; they are about building a more reliable, efficient, and safer energy delivery system for the future.

The significant opportunities presented by large load customers and the ambitious capital expenditure plan signal a clear pathway for long-term earnings growth. While the volatility in its "other businesses" and the persistent drag from the ERM present headwinds, Avista's management is transparently addressing these challenges through strategic adjustments and a focused approach to resetting power supply costs. The company's ability to integrate new generation, expand its regional grid, and maintain constructive regulatory relationships will be critical in realizing its 4% to 6% long-term earnings growth target. For investors, Avista represents a utility with a strong, well-managed core, strategically positioned to benefit from the ongoing energy transition and increasing demand, underpinned by a commitment to operational innovation and shareholder returns.