Avista Corp. Reports Financial Results for Fourth Quarter and Fiscal Year 2018, and Initiates 2019 Earnings Guidance
For the fourth quarter of 2018, net income attributable to
"I want to express my deepest gratitude to everyone who worked with us on the
"Looking ahead, we will remain focused on the utility and will continue to invest prudent capital to maintain and update our infrastructure and provide reliable energy service to our customers. To facilitate the timely recovery of our costs, including capital investments made in 2017 and 2018 that are not included in our current rates, we expect to file general rate cases in
"Looking back to 2018, we are pleased with our earnings results.
“We are initiating our 2019 earnings guidance with a consolidated range of
Summary Results: Avista Corp.’s results for the fourth quarter of 2018 and the year ended
|Fourth Quarter||Full Year|
|Net Income (Loss) by Business Segment:|
|Alaska Electric Light and Power (AEL&P)||2,414||3,093||8,292||9,054|
|Total net income attributable to Avista Corp. shareholders||$||45,843||$||27,578||$||136,429||$||115,916|
|Earnings (Loss) per diluted share by Business Segment:|
|Total earnings per diluted share attributable to Avista Corp. Shareholders||$||0.70||$||0.42||$||2.07||$||1.79|
The table below presents the change in net income attributable to
|Fourth Quarter||Full Year|
|Net Income (a)||Earnings per Share||Net Income (a)||Earnings per Share|
|2017 consolidated earnings||$||27,578||$||0.42||$||115,916||$||1.79|
|Changes in net income and diluted earnings per share:|
|Electric utility margin (including intracompany) (b)||(4,685||)||(0.07||)||(10,490||)||(0.16||)|
|Natural gas utility margin (including intracompany) (c)||(2,643||)||(0.04||)||(3,715||)||(0.05||)|
|Other operating expenses (d)||1,212||0.03||(6,287||)||(0.10||)|
|Transaction costs (e)||4,234||0.06||9,639||0.15|
|Depreciation and amortization (f)||(2,120||)||(0.03||)||(8,870||)||(0.13||)|
|Interest expense (g)||(1,083||)||(0.02||)||(3,632||)||(0.06||)|
|Effective income tax rate (h)||18,762||0.28||43,657||0.66|
|Dilution on earnings||n/a||—||n/a||(0.04||)|
|Total Avista Utilities||14,054||0.22||20,158||0.27|
|AEL&P earnings (i)||(679||)||(0.01||)||(762||)||(0.01||)|
|Other businesses earnings (j)||4,890||0.07||1,117||0.02|
|2018 consolidated earnings||$||45,843||$||0.70||$||136,429||$||2.07|
Analysis of 2018 Consolidated Earnings
|(a)||The tax impact of each line item was calculated using Avista Corp.'s statutory tax rate (federal and state combined) of 23.05 percent. See item (h) below for further discussion of our effective tax rate.
|(b)||Electric utility margin (operating revenues less resource costs) decreased for both the fourth quarter and full year primarily due to the following:
|(c)||Natural gas utility margin (operating revenues less resource costs) decreased for both the fourth quarter and full year primarily due to the following:
|(d)||Other operating expenses decreased for the fourth quarter of 2018, but increased for the full year 2018. For the fourth quarter of 2018, the decrease was primarily due to decreases in transmission and distribution operating and maintenance costs primarily related to the timing of expenses. For the full year 2018, there were increases in generation and distribution operating costs.
|(e)||Transaction costs were $1.1 million pre-tax for the fourth quarter of 2018, compared to $6.6 million pre-tax for the fourth quarter of 2017. Transaction costs for the full year 2018 were $3.7 million pre-tax, compared to $14.6 million pre-tax for the full year 2017. The transaction costs decreased for the fourth quarter and full year because 2018 consisted primarily of employee time incurred directly related to the transaction, whereas 2017 included consulting, banking fees, legal fees and employee time. None of the transaction costs are being passed through to customers.
|(f)||Depreciation and amortization increased for the fourth quarter and full year 2018 due to additions to utility plant.
|(g)||Interest expense increased for the fourth quarter and full year 2018 due to additional outstanding debt during 2018 as compared to 2017.
|(h)||During the fourth quarter of 2018, our effective tax rate was 15.8 percent compared to 53.1 percent for the fourth quarter of 2017 and it was 16.0 percent for the full year 2018 compared to 41.7 percent for 2017. The effective tax rate decreased during 2018 primarily due to federal income tax law changes which were enacted during the fourth quarter of 2017, which lowered the federal income tax rate from 35 percent to 21 percent. Additionally, during the fourth quarter of 2017, due to the federal tax law changes, we revalued deferred tax assets and liabilities at the new federal income tax rate, which resulted in a $10.2 million adjustment to income tax expense in 2017. Of this income tax expense amount, $7.5 million related to Avista Utilities and $2.7 million related to our other businesses reflected in (j) below.
|(i)||AEL&P earnings decreased slightly for the fourth quarter and full year 2018 primarily due to an increase in depreciation and amortization and other miscellaneous expenses as well as a decrease in sales volumes to residential and commercial customers primarily during the fourth quarter of 2018.
|(j)||Losses at our other businesses decreased during 2018 as 2017 included a one-time tax expense in the fourth quarter from revaluing deferred taxes to the new tax rate of 21 percent as a result of federal income tax law changes. This was partially offset by increased expenses associated with a renovation project in 2018, impairment losses and an increase in equity method losses on our investments.|
Non-Generally Accepted Accounting Principles (Non-GAAP) Financial Measures
The tables above and below include electric utility margin and natural gas utility margin, two financial measures that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included (or excluded) in the most directly comparable measure calculated and presented in accordance with GAAP, which for utility margin is utility operating revenues.
The presentation of electric utility margin and natural gas utility margin is intended to enhance the understanding of operating performance. We use these measures internally and believe they provide useful information to investors in their analysis of how changes in loads (due to weather, economic or other conditions), rates, supply costs and other factors impact our results of operations. Changes in loads, as well as power and natural gas supply costs, are generally deferred and recovered from customers through regulatory accounting mechanisms. Accordingly, the analysis of utility margin generally excludes most of the change in revenue resulting from these regulatory mechanisms. We present electric and natural gas utility margin separately below for
The following table presents our operating revenues, resource costs and resulting utility margin (pre-tax and after-tax) for the fourth quarter and the year ended
(Net of Tax)
|For the three months ended Dec. 31, 2018:|
|For the three months ended Dec. 31, 2017:|
|For the year ended Dec. 31, 2018:|
|For the year ended Dec. 31, 2017:|
(a) Income taxes were calculated using
Liquidity and Capital Resources
2018 Liquidity Transactions
We have a
During 2018, we issued
2019 Liquidity Expectations
After consideration of the net termination fee received from
In addition, we expect to invest about
2019 Earnings Guidance and Outlook
Due in part to the on-going regulatory proceedings for the
Our 2019 earnings guidance range encompasses unrecovered structural costs estimated to reduce the return on equity by approximately 90 basis points. In addition, our 2019 guidance range includes regulatory timing lag estimated to reduce the return on equity by approximately 105 basis points. This results in an expected return on equity for
For 2019, we expect AEL&P to contribute in the range of
We expect the other businesses to be between a loss of
Our guidance generally includes only normal operating conditions and does not include unusual items such as settlement transactions or acquisitions/dispositions until the effects are known and certain.
NOTE: We will host a conference call with financial analysts and investors on
This news release contains forward-looking statements, including statements regarding our current expectations for future financial performance and cash flows, capital expenditures, financing plans, our current plans or objectives for future operations and other factors, which may affect the company in the future. Such statements are subject to a variety of risks, uncertainties and other factors, most of which are beyond our control and many of which could have a significant impact on our operations, results of operations, financial condition or cash flows which could cause actual results to differ materially from those anticipated in such statements.
The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: weather conditions, which affect both energy demand and electric generating capability, including the impact of precipitation and temperature on hydroelectric resources, the impact of wind patterns on wind-generated power, weather-sensitive customer demand, and similar impacts on supply and demand in the wholesale energy markets; our ability to obtain financing through the issuance of debt and/or equity securities, which can be affected by various factors including our credit ratings, interest rates and other capital market conditions and the global economy; changes in interest rates that affect borrowing costs, our ability to effectively hedge interest rates for anticipated debt issuances, variable interest rate borrowing and the extent to which we recover interest costs through retail rates collected from customers; changes in actuarial assumptions, interest rates and the actual return on plan assets for our pension and other postretirement benefit plans, which can affect future funding obligations, pension and other postretirement benefit expense and the related liabilities; deterioration in the creditworthiness of our customers; the outcome of legal proceedings and other contingencies; economic conditions in our service areas, including the economy's effects on customer demand for utility services; declining energy demand related to customer energy efficiency, conservation measures and/or increased distributed generation; changes in the long-term global climate and the long-term climate within our utilities' service areas, which can affect, among other things, customer demand patterns, the volume and timing of streamflows to our hydroelectric resources, as well as increased risk of wildfires due to drier and warmer weather; state and federal regulatory decisions or related judicial decisions that affect our ability to recover costs and earn a reasonable return including, but not limited to, disallowance or delay in the recovery of capital investments, operating costs, commodity costs, interest rate swap derivatives and discretion over allowed return on investment; volatility and illiquidity in wholesale energy markets, including exchanges, the availability of willing buyers and sellers, changes in wholesale energy prices that can affect operating income, cash requirements to purchase electricity and natural gas, value received for wholesale sales, collateral required of us by individual counterparties and/or exchanges in wholesale energy transactions and credit risk to us from such transactions, and the market value of derivative assets and liabilities; default or nonperformance on the part of any parties from whom we purchase and/or sell capacity or energy; potential environmental regulations or lawsuits affecting our ability to utilize or resulting in the obsolescence of our power supply resources; explosions, fires, accidents, pipeline ruptures or other incidents that may limit energy supply to our facilities or our surrounding territory, which could result in a shortage of commodities in the market that could increase the cost of replacement commodities from other sources; severe weather or natural disasters, including, but not limited to, avalanches, wind storms, wildfires, earthquakes, snow and ice storms, that can disrupt energy generation, transmission and distribution, as well as the availability and costs of fuel, materials, equipment, supplies and support services; explosions, fires, accidents, mechanical breakdowns or other incidents that may impair assets and may disrupt operations of any of our generation facilities, transmission, and electric and natural gas distribution systems or other operations and may require us to purchase replacement power; explosions, fires, accidents or other incidents arising from or allegedly arising from our operations that may cause wildfires, injuries to the public or property damage; blackouts or disruptions of interconnected transmission systems (the regional power grid); terrorist attacks, cyberattacks or other malicious acts that may disrupt or cause damage to our utility assets or to the national or regional economy in general, including any effects of terrorism, cyberattacks or vandalism that damage or disrupt information technology systems; work force issues, including changes in collective bargaining unit agreements, strikes, work stoppages, the loss of key executives, availability of workers in a variety of skill areas, and our ability to recruit and retain employees; increasing costs of insurance, more restrictive coverage terms and our ability to obtain insurance; delays or changes in construction costs, and/or our ability to obtain required permits and materials for present or prospective facilities; increasing health care costs and cost of health insurance provided to our employees and retirees; third party construction of buildings, billboard signs, towers or other structures within our rights of way, or placement of fuel containers within close proximity to our transformers or other equipment, including overbuild atop natural gas distribution lines; the loss of key suppliers for materials or services or other disruptions to the supply chain; adverse impacts to our
For a further discussion of these factors and other important factors, please refer to our Quarterly Report on Form 10-Q for the quarter ended
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Source: Avista Corporation