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 June 30, 2024 compared to the three months ended June 30, 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 June 30, 2024 and 2023:

The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the three months ended June 30, 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 $1.2 million and $2.1 million for the three months ended June 30, 2024 and 2023, 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 three months ended June 30 (dollars in thousands):

(a)

Positive amounts are increases in decoupling revenue in the current year due to lower customer usage and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year due to higher customer usage 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 due to higher customer usage 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 due to lower customer usage and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total electric revenues increased $6.3 million for the second quarter of 2024 as compared to the second quarter of 2023. The primary changes that occurred during the period were as follows:

•

A $12.7 million increase in retail electric revenue due to an increase in retail rates (increased revenues by $23.1 million), partially offset by a decrease in MWhs sold (decreased revenues by $10.4 million).

o

Retail rates increased mainly due to the effects of our general rate cases. The ERM surcharge to customers that commenced in July 2023 also increased retail rates.

o

Retail sales volumes decreased primarily due to decreased use by our residential and commercial customers. Compared to the second quarter of 2023, residential use per customer decreased 7 percent and commercial use per customer decreased 4 percent primarily due to milder weather and decreased cooling loads. The decrease in use per customer was partially offset by customer growth.

•

A $22.7 million decrease in wholesale electric revenues due to a decrease in sales volumes (decreased revenues $11.9 million), and a decrease in sales prices (decreased revenues $10.8 million). The change in volumes was due to fewer opportunities to optimize our generation assets based on market conditions.

•

An $11.5 million increase in electric decoupling revenue, resulting mostly from increased current year deferrals (due to lower use per customer), as well as increased amortization of prior year rebate balances.

•

A $5.2 million increase in other electric revenues primarily from increased REC revenue, as well as increased transmission revenue.

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the three months ended June 30, 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 $1.4 million and $6.0 million for the three months ended June 30, 2024 and 2023, respectively.

The following table presents the current year decoupling deferrals and the amortization of prior year decoupling deferrals reflected in utility natural gas operating revenues for the three months ended June 30 (dollars in thousands):

(a)

Positive amounts are increases in decoupling revenue in the current year due to lower customer usage and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year due to higher customer usage 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 due to higher customer usage 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 due to lower customer usage and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total natural gas revenues increased $10.5 million for the second quarter of 2024 as compared to the second quarter of 2023. The primary changes that occurred during the period were as follows:

•

A $9.3 million increase in natural gas retail revenues (including industrial, which is included in other) due to increased sales volumes (increased revenues $4.3 million), and higher retail rates (increased revenues $5.0 million). The increase in sales volumes was primarily due to increased residential and commercial usage, resulting from slightly higher heating degree days in the beginning of the second quarter. Compared to the second quarter of 2023, residential use per customer increased 4 percent, and commercial firm use per customer increased 7 percent primarily due to colder weather. Retail rates increased mainly due to the effects of our general rate cases and rate increases associated with the CCA.

•

A $2.3 million decrease in wholesale natural gas revenues, due to decreased optimization opportunities.

•

A $0.8 million decrease in natural gas decoupling revenue primarily due to current year surcharges to residential customers being lower than the prior year. This was partially offset by a decrease in amortization of prior year surcharge balances.

•

A $3.4 million increase in other gas revenues primarily due to amortizations of previously deferred CCA revenues, which began April 1, 2024.

Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for the three months ended June 30, 2024 and 2023 (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $1.4 million and $6.0 million for the three months ended June 30, 2024 and 2023, respectively.

Total electric resource costs decreased $9.2 million for the second quarter of 2024 as compared to the second quarter of 2023. The primary changes that occurred during the period were as follows:

•

A $1.2 million decrease in power purchased due to a decrease in the volume of power purchases (decreased costs $7.7 million), partially offset by an increase in wholesale prices (increased costs $6.5 million).

•

A $10.0 million decrease in fuel for generation. This was due to a decrease in fuel prices, as well as a decrease in thermal generation during the second quarter, resulting from a decrease in retail and wholesale sales volumes.

•

A $3.6 million decrease 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.

•

A $5.6 million increase in other electric resource costs, related to an increase in amortization of previously deferred costs, partially offset by a decrease in deferred current year power supply costs.

The following graph presents Avista Utilities' natural gas resource costs for the three months ended June 30, 2024 and 2023 (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $1.2 million and $2.1 million for the three months ended June 30, 2024 and 2023, respectively.

Total natural gas resource costs increased $6.9 million for the second quarter of 2024 as compared to the second quarter of 2023 primarily due 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 16 of the Notes to Condensed Consolidated Financial Statements" to the Non-GAAP financial measure utility margin for the three months ended June 30, 2024 and 2023 (dollars in thousands):

Electric utility margin increased $15.6 million and natural gas utility margin increased $3.5 million, primarily due to the effects of our general rate cases.

In the second quarter of 2024, we had a $1.3 million pre-tax benefit under the ERM in Washington, compared to a $1.0 million pre-tax benefit for the second 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.

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

Utility Operating Revenues

Customers

The following table presents Avista Utilities' average number of electric and natural gas retail customers for the six months ended June 30, 2024 and 2023:

The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the six months ended June 30, 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 $3.1 million and $3.3 million for the six months ended June 30, 2024 and 2023, 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 six months ended June 30 (dollars in thousands):

(a)

Positive amounts are increases in decoupling revenue in the current year due to lower customer usage and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year due to higher customer usage 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 due to higher customer usage 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 due to lower customer usage and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total electric revenues increased $115.9 million for the first half of 2024 as compared to the first half of 2023. The primary changes that occurred during the period were as follows:

•

A $46.5 million increase in retail electric revenue due to an increase in retail rates (increased revenues by $49.8 million), partially offset by a decrease in MWhs sold (decreased revenues by $3.3 million).

o

Retail rates increased mainly due to the effects of our general rate cases. The ERM surcharge to customers that commenced in July 2023 also increased retail rates.

o

Retail sales volumes decreased primarily due to decreased use by our industrial customers.

•

A $12.7 million increase in wholesale electric revenues due to an increase in sales volumes (increased revenues $13.5 million), partially offset by a decrease in sales prices (decreased revenues $0.8 million). The change in volumes was due to increased opportunities to optimize our generation assets based on market conditions.

•

A $37.1 million increase in sales of fuel as part of thermal generation resource optimization activities, including associated financial hedging activities, which includes net losses on derivative instruments resulting from commodity price volatility early in 2023.

•

A $13.4 million increase in electric decoupling revenue, resulting from amortization of larger prior year rebate balances. In addition, there were larger surcharge balances for the current year, as compared to the first half of 2023, resulting from lower usage from residential customers compared to the prior year.

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the six months ended June 30, 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 $5.4 million and $12.3 million for the six months ended June 30, 2024 and 2023, respectively.

The following table presents the current year decoupling deferrals and the amortization of prior year decoupling deferrals reflected in utility natural gas operating revenues for the six months ended June 30 (dollars in thousands):

(a)

Positive amounts are increases in decoupling revenue in the current year due to lower customer usage and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year due to higher customer usage 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 due to higher customer usage 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 due to lower customer usage and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total natural gas revenues increased $34.0 million for the first half of 2024 as compared to the first half of 2023. The primary changes that occurred during the period were as follows:

•

A $4.4 million decrease in natural gas retail revenues (including industrial, which is included in other) due to decreased sales volumes (decreased revenues $10.5 million), partially offset by higher retail rates (increased revenues $6.1 million)

o

Retail rates increased mainly due to the effects of our general rate cases and rate increases associated with the CCA.

o

Retail natural gas sales volumes decreased primarily due to decreased use by all our customer classes, partially offset by customer growth. Compared to the first half of 2023, residential use per customer decreased 5 percent, commercial use per customer decreased 2 percent and industrial use per customer decreased 10 percent due to warmer weather and decreased heating loads.

•

A $14.9 million increase in wholesale natural gas revenues due to an increase in prices (increased revenues $18.5 million), partially offset by a decrease in sales volumes (decreased revenues $3.6 million). The increase in prices includes the impact of financial losses associated with our hedging activities, which nets 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.

•

A $19.2 million increase in natural gas decoupling revenue primarily due to surcharge deferrals in the current year resulting from lower customer usage, compared to rebate deferrals in the prior year. There were also lower amortizations in the current year of prior year refunds, compared to the first half of 2023.

Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for the six months ended June 30, 2024 and 2023 (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $5.4 million and $12.3 million for the six months ended June 30, 2024 and 2023, respectively.

Total electric resource costs increased $72.5 million for the first half of 2024 as compared to the first half of 2023. The primary changes that occurred during the period were as follows:

•

A $31.8 million increase in purchased power costs due to an increase in wholesale prices (increased costs $34.2 million), partially offset by a decrease in the volume of power purchases (decreased costs $2.4 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.

•

A $14.2 million increase in fuel for generation 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 as compared to the prior year, because of higher sales volumes (retail and wholesale activities combined).

•

A $26.5 million increase in other electric resource costs related to an increase in amortization of previously deferred costs, as well as an increase in deferrals related to current year power supply costs.

The following graph presents Avista Utilities' natural gas resource costs for the six months ended June 30, 2024 and 2023 (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $3.1 million and $3.3 million for the six months ended June 30, 2024 and 2023, respectively.

Total natural gas resource costs increased $24.0 million for the first half of 2024 as compared to the first half of 2023 primarily due to the following:

•

A $61.9 million decrease in natural gas purchased due to a decrease in the price of natural gas (decreased costs $54.6 million), and a decrease in volumes (decreased costs $7.3 million). The decrease in the price of natural gas occurred primarily in the first quarter of 2024 due to milder weather (other than a specific January cold event).

•

A $85.9 million increase in other primarily related to a decrease in deferred costs during the period, as well as an increase in amortization of previously deferred costs. Deferred costs decreased during the period due to lower natural gas prices, mainly in the first quarter of 2024.

Utility Margin

The following table reconciles Avista Utilities' operating revenues, as presented in "Note 16 of the Notes to Condensed Consolidated Financial Statements" to the Non-GAAP financial measure utility margin for the six months ended June 30, 2024 and 2023 (dollars in thousands):

Electric utility margin increased $43.6 million and natural gas utility margin increased $9.9 million, primarily due to the effects of general rate cases.

In the first half of 2024, we had a $4.7 million pre-tax expense under the ERM in Washington, compared to a $6.5 million pre-tax expense for the first half 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.