Avista Corp

Positioning statement (150 words). Avista Corporation is a 137-year-old, vertically integrated combination electric and natural gas utility headquartered in Spokane, Washington. Its regulated operating division, Avista Utilities, serves approximately 429,000 electric and 386,000 natural gas customers across roughly 34,000 square miles of eastern Washington, northern Idaho and parts of southern and eastern Oregon, a territory with a population of about 1.5 million (FY2025 Form 10-K / Q2 2026 release). A wholly owned subsidiary chain — Alaska Energy and Resources Company (AERC) and its operating subsidiary Alaska Electric Light and Power Company (AEL&P) — serves approximately 18,000 electric customers in Juneau, Alaska. Avista owns eight hydroelectric developments and a portfolio of gas-fired and biomass thermal plants, and became coal-free on 1 January 2026 upon transferring its 15% Colstrip Units 3 & 4 interest to NorthWestern Energy. A small non-regulated portfolio (Avista Capital, Avista Development) holds venture and real-estate investments and introduces meaningful earnings volatility relative to the utility core.

The company's own characterization. Avista describes itself in its FY2025 filings and standard release boilerplate as an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. It identifies Avista Utilities as an operating division — not a subsidiary — comprising the regulated Pacific Northwest utility, and AERC/AEL&P as the Alaska regulated utility subsidiary. The FY2025 Form 10-K states that as of 31 December 2025 the company has two reportable business segments, Avista Utilities and AEL&P, plus other businesses that do not constitute a reportable segment and are conducted through various direct and indirect subsidiaries of Avista Corp.

Independent characterization. Avista is a small-capitalization, rate-base-growth utility whose economics are driven almost entirely by three variables: (i) the size and pace of regulated capital deployment into rate base; (ii) the constructiveness of authorized returns and cost-recovery mechanisms across four jurisdictions (Washington, Idaho, Oregon, Alaska) plus FERC; and (iii) the behaviour of power supply costs relative to the level embedded in base rates, which flows through the Washington Energy Recovery Mechanism (ERM) with a 90% customer / 10% company sharing band. It is not a growth-by-volume business: retail load growth is modest, decoupling mechanisms mute weather and usage variance in Washington, and roughly the entire earnings base is rate-regulated. The residual — a venture and real-estate portfolio held through Avista Capital and Avista Development — is economically immaterial to rate base but disproportionately important to reported GAAP earnings volatility. In FY2025 the non-regulated businesses produced a USD 14 million net loss against USD 207 million of non-GAAP utility earnings; in the first half of 2026 the same portfolio swung to USD 13 million of income. Management has responded to this by shifting its guidance construct: from and including FY2026, Avista guides only to non-GAAP utility earnings, explicitly declining to provide GAAP guidance on the grounds that investment gains and losses are not reasonably estimable.

Revenue model. Essentially 100% regulated tariff revenue. There is no subscription, licensing or product-sale mix in any conventional sense. Revenue is earned through:

• Retail electric delivery and supply — bundled cost-of-service rates by customer class, plus special contracts for very large industrial loads.
• Retail natural gas delivery and supply — bundled rates with purchased gas adjustment (PGA) pass-through; in Washington, Climate Commitment Act (CCA) compliance costs are also recovered through designated riders.
• Wholesale electric and natural gas transactions — resource optimization, surplus sales and market purchases, the margins on which are largely shared with customers via the ERM and PGA mechanisms.
• Electric transmission — FERC-jurisdictional open-access transmission service.
• Non-regulated other — approximately USD 1 million of annual revenue plus unrealized/realized investment gains and losses recorded below the revenue line.

Value-chain position. Avista is vertically integrated in electricity: it owns generation (hydro, gas, biomass), transmission and distribution, and holds the retail franchise. In natural gas it is a distribution-only utility (LDC) — it purchases supply and transportation and delivers to end users; it does not own upstream production or interstate pipelines. This asymmetry matters: the electric business carries resource-adequacy, hydrology and commodity-procurement risk that the gas business substantially passes through.

Customer types and end-markets. Residential (the largest customer count and the most politically sensitive class), commercial, industrial (wood products, paper, food processing, mining, aerospace and technology suppliers in the Inland Northwest), pumping/irrigation (a distinctive agricultural load in eastern Washington), street and area lighting, and interruptible/transportation gas customers. The industrial concentration is real and currently negative: in its 2026 guidance Avista disclosed that a large industrial customer gave notice it would return to procuring power independently in wholesale markets sooner than expected, reducing 2026 non-GAAP utility earnings guidance by USD 0.12 per diluted share. Prospectively, the most consequential end-market question is data centres — addressed in Sections 10, 14 and 22.

10.1 Stated strategic themes

Avista's FY2025 annual report is titled around the themes of resilience and progress, and the strategic architecture management has articulated across the FY2025 results call (25 February 2026), the 13 May 2026 investor update and the Q2 2026 call (3 August 2026) rests on five pillars:

1. Utility-first capital deployment. Base capital expenditure at Avista Utilities of USD 615 million in 2026 rising to USD 800 million in 2028, supporting a projected rate base CAGR of approximately 7% measured from the 2025 average-of-monthly-averages rate base.
2. Regulatory execution and lag reduction. The centrepiece is the four-year Washington rate plan — the first multi-year plan of that length filed in the state.
3. Wildfire resiliency as a licence-to-operate priority. Grid hardening, vegetation management, situational awareness, weather-station deployment, hourly fire-risk modelling, Fire Safety Mode automation and Public Safety Power Shutoffs, with new deferral mechanisms for resiliency and insurance costs.
4. Clean energy transition on a least-reasonable-cost basis. Coal exit completed; CETA compliance; CEIP approved March 2026.
5. Disciplined pursuit of growth optionality — large loads, transmission, and demand-side resources — subject to a net-benefit test for existing customers.

Management's own framing of the FY2025 result was that the utility core is strong but that results were negatively affected by the late-December Washington order on the Colstrip exit.

10.2 Announced strategic initiatives, last 24 months

10.3 Medium-term financial targets and guidance

Capital plan — Avista Utilities base capital expenditure (USD millions)

These estimates include expenditure for the projects selected through the 2025 RFP but exclude incremental transmission projects such as regional grid expansion, additional generation, and the North Plains Connector. AEL&P capital expenditure is expected at USD 17 million (2026), USD 16 million (2027) and USD 11 million (2028). In the February 2026 iteration of the plan the 2026 figure was USD 585 million and management flagged hypothetical additional capital of up to USD 350 million associated with integrating a new large-load customer; following the June 2026 pause, that upside was removed from the plan.

For a rate-regulated utility, the "product catalog" is the tariff book plus the customer-facing programs approved by each commission. The following is organized by segment.

5.1 Avista Utilities — Electric service (Washington, Idaho)

5.2 Avista Utilities — Natural gas service (Washington, Idaho, Oregon)

Average Washington residential natural gas bill at 61 therms per month: USD 91.06, per the January 2026 rate filing.

5.3 Customer affordability and assistance programs

• My Energy Discount — income-qualified monthly bill discount with a two-year enrolment period. Avista states that nearly one in three Washington customers is eligible, and that Oregon eligibility has been broadened relative to legacy programs.
• Comfort Level Billing — levelized annual billing.
• Preferred due date and payment arrangements.
• Energy efficiency rebates, free home energy audits and online energy-insight tools — funded through commission-approved conservation tariff riders. The February 2026 Idaho filing sought approximately USD 25.2 million (7.4%) of additional electric revenue solely to true up energy-efficiency program funding, with no earnings impact.
• CARES team — referral service connecting customers to housing, medical and other assistance.
• Community partnerships — emergency grants, weatherization and heating-system improvements, and, under CETA, dedicated benefits for Named Communities.

5.4 Generation portfolio (the physical "product" base)

Owned hydroelectric — eight developments. Noxon Rapids (Sanders County, Montana; the largest in the fleet); Cabinet Gorge (Bonner County, Idaho; ~263 MW licensed, four turbines, 208 feet); Long Lake, Little Falls, Nine Mile, Monroe Street and Upper Falls (all on the Spokane River, Washington); Post Falls (Idaho). Per the 2023 Electric IRP presentation materials, the owned hydro fleet provided approximately 783 MW of winter maximum capacity and 881 MW of summer maximum capacity. Cabinet Gorge and Noxon Rapids together are described by the company as generating more than 800 MW.

Owned thermal. Coyote Springs 2 (combined-cycle gas, near Boardman, Oregon; ~287–318 MW depending on season); Rathdrum (simple-cycle gas peaker, Idaho; ~166 MW nameplate); Northeast (gas peaker, Washington; ~62 MW); Boulder Park (gas reciprocating engines, Washington; ~24.6 MW); Kettle Falls Generating Station (wood-waste biomass, Washington; ~51 MW nameplate); Kettle Falls CT (gas; ~7 MW).

Divested. Colstrip Units 3 & 4, Montana — Avista's 15% share (222 MW maximum net capacity) was transferred to NorthWestern Energy effective 1 January 2026 to comply with CETA's requirement that coal-fired electricity be removed from Washington rates by 31 December 2025.

Contracted renewables. Long-term wind and hydro power purchase agreements, including a 100 MW Clearwater Wind PPA; hydro PPAs with Chelan County PUD (5% of Rock Island and Rocky Reach output for 2026–2030, rising to 10% for 2031–2045) and Columbia Basin Hydro; and legacy wind PPAs in the Palouse/Rattlesnake Flat area. Avista states that approximately 59–60% of its owned and contracted resource portfolio is renewable.

AEL&P (Juneau, Alaska). Five hydroelectric generation facilities totalling 102.7 MW, backed by four diesel generating facilities of approximately 107.5 MW for firm back-up. The system is islanded — not interconnected to any other grid.

5.5 Resources under development (selected via the 2025 All-Source RFP, announced 26 January 2026)

All figures in USD millions unless stated. Income statement, balance sheet and cash flow series compiled from Avista's Forms 10-K and 10-Q as standardized by S&P Global Market Intelligence / Fiscal.ai; headline items (revenue, net income, EPS, DPS, capital expenditure) cross-checked to Avista's own earnings releases.

6.1 Income statement

6.2 Margins and growth

Four-year CAGRs, FY2021–FY2025 (analyst-computed): revenue 8.1%; net income 7.0%; diluted EPS 3.2%; dividends per share 3.8%.

6.3 Balance sheet

Avista carries USD 52 million of goodwill (arising from the AERC acquisition) and no material other intangibles; tangible book is therefore only modestly below reported book. The material "soft" asset on the balance sheet is regulatory assets — USD 871 million long-term plus USD 135 million current at FY2025 — the recoverability of which is entirely dependent on continued regulatory accounting treatment. Loss of that treatment is disclosed as a principal utility regulatory risk.

6.4 Cash flow

6.5 Ratios

Cash conversion cycle (analyst-computed, FY2025): days sales outstanding approximately 41 days; days inventory outstanding approximately 125 days (inventory includes stored natural gas and materials and supplies); days payables outstanding approximately 86 days; implied cash conversion cycle approximately 80 days. This metric has limited analytical value for a rate-regulated utility, where working-capital swings are dominated by deferred power and gas cost balances rather than commercial terms, and is presented only for completeness.

6.6 Commentary on trends, inflections and drivers

Revenue. The 18.8% surge in FY2022 and 10.6% in FY2024 were commodity-driven, not volume-driven: fuel and purchased power expense rose to USD 736 million in FY2022 and USD 798 million in FY2024, and those costs are substantially passed through in retail rates. The FY2025 deceleration to 1.3% is the mirror image — resource costs fell to USD 691 million as thermal generation and gas purchase volumes declined, and the same pass-through mechanics reduced revenue. Analysts should therefore treat Avista's top line as a poor proxy for business performance; utility margin (revenue less resource costs) is the operative measure. Avista Utilities' after-tax utility margin rose from USD 863 million in FY2024 to USD 969 million in FY2025 — electric from USD 647 million to USD 735 million and natural gas from USD 216 million to USD 234 million.

Operating income and EBITDA. The FY2022 trough (operating income USD 190 million; EBITDA margin 25.9%) reflects the compounding of high power supply costs, an ERM sharing charge, and cost inflation ahead of rate relief — the classic small-utility regulatory-lag problem. The recovery through FY2025 (operating income USD 354 million; EBITDA margin 32.7%) is almost entirely a regulatory story: three jurisdictions' rate cases concluded in 2024–2025, with authorized ROEs of 9.8% (Washington), 9.6% (Idaho) and 9.5% (Oregon).

The operating expense inflection. O&M rose 14.0% in FY2025 to USD 504 million after 6.8% in FY2024. Management attributes this to higher employee salaries and benefits and to increased amortizations and deferrals associated with wildfire mitigation and insurance costs — the latter with corresponding revenue increases and therefore no earnings impact. Analysts should discount the headline O&M growth accordingly, but the underlying labour and insurance inflation is real and is a central driver of the four-year Washington rate filing.

Tax. Avista's effective tax rate has been anomalously low and highly variable — negative in FY2022 and FY2023 as tax customer credits from the 2017 Tax Cuts and Jobs Act were returned to customers, then 1.6% in FY2024 and 11.1% in FY2025 as those credits largely ran off. Management guides to 12% for FY2026. The mechanical implication is that the tax tailwind that flattered FY2022–FY2024 net income has now substantially exhausted; from here, EPS growth must come from rate base.

Balance sheet and leverage. Total debt has grown from USD 2,484 million (FY2021) to USD 3,194 million (FY2025), a 6.5% CAGR, funding a capital programme that consumed USD 2,494 million cumulatively over the five years. Yet net debt to EBITDA has improved from 6.31x (FY2022) to 4.94x (FY2025) as EBITDA recovered — a meaningful de-risking. The debt-to-total-capitalization covenant ratio was 54.9% at 31 December 2025 and 54.4% at 30 June 2026 against a 65% ceiling; AEL&P was at 50.0% and 48.3% against a 67.5% ceiling.

Free cash flow. Avista has been free-cash-flow negative in four of the last five years, with FY2024's USD 1 million the only positive print. Cumulative five-year FCF is approximately negative USD 653 million against cumulative dividends of USD 697 million. The gap is funded with debt and equity issuance — the latter creating 2.8% to 4.7% annual share-count dilution. This is the central structural tension in the equity story: the dividend is not covered by free cash flow and will not be for the foreseeable future given the capital plan.

Returns. ROE has been range-bound at 6.9% to 7.3% throughout — persistently 200 to 300 basis points below authorized ROEs of 9.5% to 9.8%. That earned-versus-authorized gap is the single most important number in the file. It reflects regulatory lag, the ERM sharing charge, non-regulated losses, and equity issuance at prices near or below book. Closing it is the explicit purpose of the four-year Washington rate plan filed in January 2026.

22.1 Management guidance

Trajectory to date. Half-year 2026 non-GAAP utility EPS of USD 1.38 represents 53% of the guidance midpoint of USD 2.62 — broadly on pace, though Avista's earnings are seasonally first-half weighted, so the run-rate is tighter than it appears. GAAP EPS of USD 1.54 for the half is flattered by USD 0.16 of non-regulated income that management has already signalled will partially reverse.

22.2 Bull case

1. The four-year Washington rate plan is a step-function opportunity to close the ROE gap. Avista has earned 6.9% to 7.3% against authorizations of 9.5% to 9.8% for five straight years. A four-year plan with pre-approved annual steps of 13.9%, 4.7%, 3.5% and 2.8% would substantially eliminate regulatory lag in the jurisdiction that drives most of the earnings base. Management notes that Staff's position is not far from the company's — a constructive signal even absent a settlement.
2. The capital plan is accelerating into a supportive rate base construct. Base capital expenditure steps from USD 615 million in 2026 to USD 800 million in 2028, driving an approximately 7% rate base CAGR — comfortably above the 4% to 6% earnings growth target and implying either upside to that target or a deliberately conservative framing. Critically, the North Plains Connector stake, incremental transmission and any future large load are all excluded from that plan.
3. The risk profile has structurally improved. Coal is gone. Net debt to EBITDA has fallen from 6.31x to 4.94x. Idaho now provides a statutory presumption of non-negligence for wildfire litigation where an approved plan is reasonably implemented, and Washington provides securitization for disaster costs. The August 2026 fires — devastating for the community — did not implicate Avista's equipment, and its PSPS programme demonstrably prevented at least one ignition. At 1.16x book and a 5.0% yield, the equity is not pricing much of this.

22.3 Bear case

1. The business does not self-fund and the dilution is permanent. Free cash flow has been negative in four of five years, cumulatively negative USD 653 million, while dividends consumed USD 697 million. The share count has grown from 70 million to 84 million. With the capital plan rising to USD 800 million by 2028 and the incremental cost of debt now above 6%, equity issuance at 1.16x book — barely above the value at which issuance is accretive to book value per share — will continue indefinitely. A 4% to 6% earnings growth target funded with 3% annual dilution is a 1% to 3% per-share value-creation business before any regulatory disappointment.
2. Regulatory risk has moved from theoretical to demonstrated, and the current case is contested. The WUTC did not merely trim the Colstrip request — it prorated recovery and disallowed any coal investment placed in service after 1 January 2026, producing a USD 5.86 million revenue decrease and a USD 9 million pre-tax refund. Management has now conceded that fundamental differences on the four-year term make settlement quite difficult, with Public Counsel contesting both the return level and power supply adjustments. An adverse or truncated outcome in December 2026 would leave Avista under-earning through 2027 with no reset mechanism. S&P's downgrade trigger — FFO to debt consistently below 14% — is explicitly linked to adverse regulatory outcomes and persistent lag.
3. The growth optionality is impaired precisely where peers are converting it. Black Hills is advancing a data-centre pipeline exceeding 3 GW with 600 MW inside its five-year plan; PGE reported 13% to 14% industrial load growth from data centres and semiconductors. Avista's single 500 MW opportunity was paused within two weeks of becoming public, the up-to-USD-350-million associated capital was removed from the plan, and Spokane imposed a one-year moratorium by a 6–1 vote. Layer on the confirmed departure of a large industrial customer (negative USD 0.12 per share), AEL&P's shrinking revenue and net income, and structural gas demand erosion, and the load-growth foundation of the 4% to 6% target looks thinner than the plan implies.

22.4 Catalysts and monitorables — next twelve months

22.5 Analyst verdict (300 words)

Avista is a competently run, structurally sub-scale regulated utility that has spent five years improving its risk profile without improving its returns. The de-risking is genuine and underappreciated: coal is gone, leverage has fallen from 6.3x to 4.9x net debt to EBITDA, the maturity wall is empty until 2035, wildfire mitigation is producing evidence of efficacy, and two states have enacted statutory frameworks that materially improve the liability posture. Management has also done the intellectually honest thing in abandoning GAAP guidance rather than pretending a venture portfolio is forecastable.

But the return economics have not moved. Realized ROE has sat in a 6.9% to 7.3% band for five consecutive years against authorizations near 9.6%, free cash flow has been negative in four of five, and the equity base has grown 20% to fund a dividend that earnings do not cover on a cash basis. The dividend increase of 0.5% in February 2026 is the clearest statement management has made about the true state of coverage — and it will need to keep making that statement for several more years to reach a 60% to 70% payout.

Everything therefore turns on the December 2026 Washington order. Approved substantially as filed, the four-year plan closes most of the lag, validates the 7% rate base CAGR, and makes the 4% to 6% growth target look conservative against a 1.16x book multiple and a 5.0% yield. Truncated to two years or delivered with an ROE haircut, Avista under-earns through 2027 with a rising capital plan, a more expensive marginal cost of debt, an impaired large-load story and live rating-agency triggers.

The stock is cheap because the outcome is genuinely uncertain and the wildfire cause determination remains open. Hold, with the December order as the decision point. Ownership below that date is a bet on a regulator, not on a business.

Prepared from public sources as of 17 August 2026. All figures are stated in USD with the relevant fiscal year identified. Items marked "not publicly disclosed" or "not verified in this review" have deliberately not been estimated. Where sources conflict — notably on customer counts and service-territory size in company boilerplate, on the presentation of the December 2024 Washington rate decision, on insider ownership percentages, and on the FY2025 CEO pay ratio — both readings have been noted and the discrepancy flagged for verification before external use.

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