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 energy (natural gas or electricity), electric capacity and fuel for electric generation, as well as financial derivative contracts related to capacity, energy, fuel and fuel transportation. See our 2023 Form 10-K for further discussion of our optimization activities.

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 financial 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).

Three months ended March 31, 2024 compared to the three months ended March 31, 2023

Utility Operating Revenues

Customers

The following table presents Avista Utilities' average number of electric and natural gas retail customers for the three months ended March 31, 2024 and 2023:

The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the three months ended March 31, 2024 and 2023 (dollars in millions and MWhs in thousands):

(1)

This balance includes public street and highway lighting, which is considered part of retail electric revenues.

Total electric operating revenues in the graph above include intracompany sales of $1.9 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents the current year deferrals and the amortization of prior year decoupling balances reflected in utility electric operating revenues for the three months ended March 31 (dollars in thousands):

(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 $109.6 million for the first quarter of 2024 as compared to the first quarter of 2023. The primary changes that occurred during the period were as follows:

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a $33.9 million increase in retail electric revenue due to an increase in retail rates (increased revenues by $26.7 million) and an increase in MWhs sold (increased revenues by $7.2 million).

o

Retail rates increased mainly due to the effects of our general rate cases, including the tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023, which resulted in increased rates. The ERM surcharge to customers that commenced in July 2023 also increased retail rates.

o

Retail sales volumes increased primarily due to increased use by our residential and commercial customers. Compared to the first quarter of 2023, residential use per customer increased 3 percent and commercial use per customer increased 2 percent. Customer growth also contributed to the increased sales volumes.

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a $35.4 million increase in wholesale electric revenues due to an increase in sales volumes (increased revenues $40.0 million), partially offset by a decrease in sales prices (decreased revenues $4.6 million). The fluctuation of volumes was due to increased opportunities to optimize our generation assets.

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a $37.1 million increase in sales of fuel as part of thermal resource optimization activities, including associated financial hedging activities.

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a $1.9 million increase in electric decoupling revenue, resulting mostly from increased amortization of prior year rebate balances, partially offset by increased deferrals (due to higher use per customer).

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the three months ended March 31, 2024 and 2023 (dollars in millions and therms in thousands):

(1)

This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues.

Total natural gas operating revenues in the graph above include intracompany sales of $4.0 million and $6.3 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents the current year deferrals and the amortization of prior year decoupling balances reflected in utility natural gas operating revenues for the three months ended March 31 (dollars in thousands):

(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 increased $23.5 million for the first quarter of 2024 as compared to the first quarter of 2023. The primary changes that occurred during the period were as follows:

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a $13.8 million decrease in natural gas retail revenues (including industrial, which is included in other) due to decreased sales volumes (decreased revenues $14.1 million), partially offset by higher retail rates (increased revenues $0.3 million). The decrease in sales volumes was primarily due to decreased residential and commercial usage, resulting from milder winter weather. Compared to the first quarter of 2023, residential use per customer decreased 8 percent, and commercial firm use per customer decreased 5 percent. Heating degree days in Spokane decreased 3 percent from the first quarter of 2023, and were 4 percent below the historical average. Heating degree days in Medford decreased 18 percent compared to the first quarter of 2023, and were 10 percent below historical average.

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a $17.2 million increase in wholesale natural gas revenues primarily due to financial losses associated with our hedging activities in the first quarter of 2023, which net with our wholesale revenues. Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.

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a $20.1 million increase in natural gas decoupling revenue primarily due to current year surcharges to residential customers (due to lower use per customer) compared to rebates associated with higher usage in 2023, and decreased amortization of prior year surcharge balances.

Utility Resource Costs

The following graphs present Avista Utilities' resource costs for the three months ended March 31, 2024 and 2023 (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $4.0 million and $6.3 million for the three months ended March 31, 2024 and 2023, respectively.

Total electric resource costs increased $81.6 million for the first quarter of 2024 as compared to the first quarter of 2023. The primary changes that occurred during the period were as follows:

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a $33.0 million increase in power purchased due to an increase in wholesale prices (increased costs $24.3 million) and an increase in the volume of power purchases (increased costs $8.7 million). In mid-January 2024, our service territory experienced much colder than normal weather, requiring purchases at a time when wholesale prices were substantially elevated due to capacity constraints in our region.

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a $24.2 million increase in fuel for generation. This is primarily due to financial gains recognized in the first quarter of 2023 associated with our hedging activities, which net with our physical purchases, as well as increased thermal generation in the first quarter of 2024 compared to 2023.

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a $3.6 million increase in other fuel costs. These costs represent fuel and the related derivative instruments purchased for generation which were later sold when conditions indicated it was more economical to sell the fuel as part of the resource optimization process. When the fuel is sold either physically or through a derivative instrument, that revenue is included in sales of fuel.

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a $20.9 million increase in other electric resource costs, primarily related to a decrease in deferred power supply costs and an increase in amortization of previously deferred costs.

Total natural gas resource costs in the graph above include intracompany resource costs of $1.9 million and $1.2 million for the three months ended March 31, 2024 and 2023, respectively.

Total natural gas resource costs increased $17.1 million for the first quarter of 2024 as compared to the first quarter of 2023 primarily due to the following:

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a $61.9 million decrease in natural gas purchased due to a decrease in the price of natural gas (decreased costs $53.7 million), and a decrease in volumes (decreased costs $8.2 million). The decrease in volumes is primarily due to decreased retail usage.

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a $79.0 million increase from net amortizations and deferrals of natural gas costs, primarily related to a decrease in deferred costs during the period, as well as an increase in amortization of previously deferred costs.

Utility Margin

The following table reconciles Avista Utilities' operating revenues, as presented in "Note 15 of the Notes to Condensed Consolidated Financial Statements" to the Non-GAAP financial measure utility margin for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Electric utility margin increased $28.0 million and natural gas utility margin increased $6.4 million.

Electric utility margin increased primarily due to the effects of general rate cases (including the tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023).

In the first quarter of 2024, we had a $6.0 million pre-tax expense under the ERM in Washington, compared to a $7.6 million pre-tax expense for the first quarter of 2023.

Natural gas utility margin increased primarily due to general rate cases (including the tranche of tax customer credits that were returned to customers as of the fourth quarter of 2023).

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 condensed consolidated financial statements but are included in the separate results for electric and natural gas presented above.