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; this is ultimately intended to lower net power and natural gas supply costs. Our resource optimization transactions can include physical sales and purchases of electric capacity and energy, fuel for electric generation, natural gas to optimize use of pipeline and storage capacity, as well as financial derivative contracts related to capacity, energy, fuel and fuel transportation. See our 2025 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).

Intercompany Revenues and Resource Costs

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 below.

Three months ended June 30, 2026 compared to the three months ended June 30, 2025

Utility Operating Revenues

The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the three months ended June 30, 2026 and 2025 (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 million for both the three months ended June 30, 2026 and 2025.

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 millions):

(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 did not change materially for the second quarter of 2026 as compared to the second quarter of 2025. The primary fluctuations that occurred during the period were as follows:

•

A $5 million increase in retail electric revenue due to an increase in retail rates (increased revenues by $25 million) offset by a decrease in MWhs sold (decreased revenues by $20 million).

o

Retail rates increased mainly due to the effects of our general rate cases, including base rate increases associated with higher authorized power supply expenses resulting from removing Colstrip from our generation portfolio. These increases to base rates were partially offset by the removal of revenues related to recovery of Colstrip related costs other than power supply costs.

o

Retail sales volumes decreased due to a 21 percent decrease in industrial electric sales volumes, partially due to the departure of a large industrial customer in April 2026. Additionally, milder weather reduced customer usage. Residential and commercial use per customer decreased 5 percent and 3 percent, respectively.

•

An $8 million decrease in wholesale electric revenues due to a decrease in sales volumes (decreased revenues $4 million) and a decrease in sales prices (decreased revenues $4 million).

•

A $4 million increase in electric decoupling revenue primarily due to increased current year surcharge deferrals associated with decreased customer usage compared to the second quarter of 2025.

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the three months ended June 30, 2026 and 2025 (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 $0 million and $1 million for the three months ended June 30, 2026 and 2025.

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 millions):

(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 did not change materially for the second quarter of 2026 as compared to the second quarter of 2025. The primary fluctuations that occurred during the period were as follows:

•

A $3 million decrease in wholesale natural gas revenues due to a decrease in prices (decreased revenues $2 million) and a decrease in volumes (decreased revenues $1 million).

•

A $4 million increase in other gas revenues primarily due to the amortization of previously deferred revenues associated with the sale of CCA emissions credits. We amortize the deferred revenues as they are passed on to customers through decreases in retail rates. The increase in other revenues was offset by decreased retail revenues, resulting in no impact on net income.

Customers

The following table presents Avista Utilities' average number of electric and natural gas retail customers for the three months ended June 30, 2026 and 2025:

Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for the three months ended June 30, 2026 and 2025 (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $0 million and $1 million for the three months ended June 30, 2026 and 2025.

Total electric resource costs decreased $3 million for the second quarter of 2026 as compared to the second quarter of 2025. The primary changes that occurred during the period were as follows:

•

A $5 million increase in power purchased due to an increase in the volume of power purchases (increased costs $3 million) and an increase in wholesale prices (increased costs $2 million).

•

A $15 million decrease in fuel for generation due to decreased thermal generation due to increased hydroelectric generation. Thermal generation decreased due to the removal of Colstrip from our generation portfolio, as well as major maintenance at the Coyote Springs 2 facility in 2026.

•

A $9 million increase in other electric resource costs primarily related to a decrease in deferred costs under the ERM. The decrease in deferred costs was due to an increase in authorized power supply costs primarily due to the removal of Colstrip from our generation portfolio. There were also increased costs related to our customer assistance payment programs (low-income rate assistance and demand side management).

In the second quarter of 2026, we had a pre-tax expense of $6 million under the ERM in Washington compared to a pre-tax expense of $1 million in the second quarter of 2025.

The following graph presents Avista Utilities' natural gas resource costs for the three months ended June 30, 2026 and 2025 (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $1 million for both the three months ended June 30, 2026 and 2025.

Total natural gas resource costs decreased $2 million for the second quarter of 2026 as compared to the second quarter of 2025 due to a $2 million decrease in natural gas purchased from a decrease in volumes, consistent with a decrease in retail and wholesale sales volumes.

Six months ended June 30, 2026 compared to the six months ended June 30, 2025

Utility Operating Revenues

The following graphs present Avista Utilities' electric operating revenues and megawatt-hour (MWh) sales for the six months ended June 30, 2026 and 2025 (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 million for both the six months ended June 30, 2026 and 2025.

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 millions):

(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 decreased $17 million for the first half of 2026 as compared to the first half of 2025. The primary changes that occurred during the period were as follows:

•

A $1 million decrease in retail electric revenue due to a decrease in MWhs sold (decreased revenues by $42 million), offset by an increase in retail rates (increased revenues by $41 million).

o

Retail rates increased mainly due to the effects of our general rate cases, including base rate increases associated with higher authorized power supply expenses resulting from removing Colstrip from our generation portfolio. These increases to base rates were partially offset by the removal of revenues related to recovery of Colstrip related costs other than power supply costs.

o

Retail sales volumes decreased due to a 12 percent decrease in industrial electric sales volumes, partially due to the departure of a large industrial customer in April 2026. Additionally, milder weather led to reduced customer usage. Residential and commercial use per customer decreased 8 percent and 4 percent, respectively. Heating degree days in Spokane were 87 percent of the historical average during the first half of 2026, while they were 94 percent of the historical average during the first half of 2025.

•

A $34 million decrease in wholesale electric revenues due to a decrease in sales prices (decreased revenues $29 million) and a decrease in sales volumes (decreased revenues $5 million).

•

An $18 million increase in electric decoupling revenue primarily due to current year surcharge deferrals associated with decreased customer usage compared to rebate deferrals in the first half of 2025.

The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for the six months ended June 30, 2026 and 2025 (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 million and $4 million for the six months ended June 30, 2026 and 2025, 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 millions):

(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 decreased $34 million for the first half of 2026 as compared to the first half of 2025. The primary changes that occurred during the period were as follows:

•

A $50 million decrease in natural gas retail revenues (including industrial, which is included in other) due to a decrease in retail rates (decreased revenues $26 million) and decreased sales volumes (decreased revenues $24 million).

o

Retail rates decreased mainly due to PGA rate decreases and rebates to Washington customers for revenues related to the sale of CCA emissions credits, neither of which impact net income. These decreases were partially offset by increases to base rates resulting from our general rate cases.

o

Retail sales volumes decreased due to milder weather, which reduced customer usage. Residential and commercial use per customer each decreased 12 percent. Heating degree days in Spokane were 87 percent of the historical average during the first half of 2026, while they were 94 percent of the historical average in the first half of 2025.

•

An $11 million decrease in wholesale natural gas revenues due to a decrease in prices (decreased revenues $8 million) and a decrease in volumes (decreased revenues $3 million).

•

A $16 million increase in natural gas decoupling revenues primarily due to increased surcharge deferrals in the current year associated with lower customer usage.

•

An $11 million increase in other gas revenues primarily due to the amortization of previously deferred revenues associated with the sale of CCA emissions credits. We amortize the deferred revenues as they are passed on to customers through decreases in retail rates. The increase in other revenues was offset by decreased retail rates as discussed above, resulting in no impact on net income. This increase was partially offset by a decrease in transportation revenue, as well as a provision for rate refunds associated with overearnings in Washington recorded in the first half of 2026.

Customers

The following table presents Avista Utilities' average number of electric and natural gas retail customers for the six months ended June 30, 2026 and 2025:

Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for the six months ended June 30, 2026 and 2025 (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $1 million and $4 million for the six months ended June 30, 2026 and 2025, respectively.

Total electric resource costs decreased $17 million for the first half of 2026 as compared to the first half of 2025. The primary changes that occurred during the period were as follows:

•

A $2 million decrease in power purchased due to a decrease in wholesale prices (decreased costs $6 million), partially offset by an increase in the volume of power purchases (increased costs $4 million).

•

A $37 million decrease in fuel for generation due to decreased thermal generation due to increased hydroelectric generation. Thermal generation decreased due to the removal of Colstrip from our generation portfolio, as well as major maintenance at the Coyote Springs 2 facility in 2026.

•

A $22 million increase in other electric resource costs primarily related to a decrease in deferred costs under the ERM. The decrease in deferred costs was due to an increase in authorized power supply costs primarily due to the removal of

Colstrip from our generation portfolio. There were also increased costs related to our customer assistance payment programs (low-income rate assistance and demand side management).

In the first half of 2026, we had a pre-tax expense of $7 million under the ERM in Washington compared to a pre-tax expense of $9 million in the first half of 2025.

The following graph presents Avista Utilities' natural gas resource costs for the six months ended June 30, 2026 and 2025 (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $1 million for both the six months ended June 30, 2026 and 2025.

Total natural gas resource costs decreased $40 million for the first half of 2026 as compared to the first half of 2025 due to the following:

•

A $12 million decrease in natural gas purchased due to a decrease in the volumes purchased.

•

A $28 million decrease in other costs primarily related to a decrease in the amortization of costs associated with the CCA that were recovered from customers, resulting in no impact on net income, as well as a decrease in net deferrals and amortizations of previously deferred costs under our PGAs.