Avista Corporation (Avista), a company involved in the production, transmission and distribution of energy and other energy-related businesses, has reported operating revenues of $447.4 million for the fourth quarter of 2008, compared with the operating revenues of $387 million in the year-ago quarter.
It also reported a net income of $17.5 million, or $0.32 per diluted share, for the fourth quarter of 2008, compared with the net income of $14.1 million, or $0.26 loss per diluted share, in the year-ago quarter.
The company has reported net income was $73.6 million, or $1.36 per diluted share, for the year-end 2008, compared to net income of $38.5 million, or $0.72 per diluted share, in the previous year.
The company reported consolidated 2008 results improved over 2007 due to increased earnings at Avista Utilities, which had weak earnings in 2007. Avista’s consolidated 2008 results also improved as compared to the prior year due to the net loss from Avista Energy in 2007.
We are pleased with our overall results, which showed considerable improvement over a disappointing 2007. We expect continued improvement in our financial results for 2009, said Avista chairman, president and chief executive officer Scott L. Morris. Although the 2008 results for the utility represent an improvement over 2007, we are still earning less than the return authorized by state regulatory commissions due to the lag in recovery of costs related to capital investments and operating expenses. We recognize and understand the financial pressure that our customers are facing in these difficult economic times. We’ll continue to diligently manage our operating costs and find additional efficiencies to help keep costs down.
Fourth Quarter and Fiscal Year 2008 Highlights
Avista Utilities: Net income for company’s utilities in the fourth quarter and fiscal year 2008 increased compared to the same period a year ago. This is mainly the result of increased gross margin (operating revenues less resource costs) from the implementation of new rates in Washington and Idaho effective January 1 and October 1, 2008, correspondingly. Additionally, customers increased their energy usage as the result of colder weather in the first quarter of 2008.
As approved by the Washington utilities and transportation commission (WUTC), electric rates for our Washington customers increased, effective January 1, 2008, by an average of 9.4% (designed to increase annual revenues by $30.2 million), and natural gas rates increased by an average of 1.7% (designed to increase annual revenues by $3.3 million).
As approved by the idaho public utilities commission, electric rates for our Idaho customers increased, effective October 1, 2008, by an average of 12.0% (designed to increase annual revenues by $23.2 million), and natural gas rates increased by 4.7% (designed to increase annual revenues by $3.9 million).
The improvement in annual results for 2008 as compared to 2007 was also due to the impairment of a turbine, as well as a regulatory disallowance, both of which were recorded in the third quarter of 2007.
In addition to this the improved results reflect a decrease in interest expense that was achieved by refinancing maturing higher cost debt with lower cost debt issuances.
Also contributing to the increase in net income for 2008 was $5.7 million (pre-tax) of interest income, partly counterbalanced by $1.4 million (pre-tax) of interest expense, related to income tax settlements reached during the third quarter of 2008 and the resulting refunds received and payments made to the internal revenue service.
The company also reported other utility operating expenses increased for the fourth quarter and fiscal year 2008 as compared to the year-ago quarter. For the full year 2008, the utility recognized increased operating expenses, mainly due to an increase in operating and maintenance expenses at our generation facilities, as well as an increase in electric distribution expenses.
The company’s utilities absorbed $7.4 million of costs for the full year 2008 under the energy recovery mechanism in Washington, compared to $8.5 million in the previous year. Despite a good winter snowpack in early 2008, the late spring runoff resulted in excess water being spilled, which yielded lower-than-normal hydroelectric generation for the first half of the year. Purchased power costs were higher than expected due in part to colder than normal temperatures during the first quarter heating season and an increase in the price of wholesale power.
Advantage IQ: As earlier reported, Advantage IQ acquired Cadence Network, Inc. (Cadence Network), a Cincinnati-based energy and expense management company, effective July 2, 2008. As consideration, the previous owners of Cadence Network received a 25% ownership interest in Advantage IQ. Net income from Advantage IQ for the fourth quarter and fiscal year 2008 has declined as compared to the fourth quarter and fiscal year 2007 primarily due to our condensed ownership percentage in the business and amortization of intangible assets resulting from the transaction.
Advantage IQ’s revenues for 2008 increased 25% as compared to the previous year and totaled $59.1 million. The increase in revenues was due to an increase in service revenues of 40 percent, partly counterbalanced by a 37% decrease in interest revenue. In 2008, Advantage IQ processed bills totaling $16.7 billion, an increase of $4.2 billion, or 34 percent, as compared to the previous year. The acquisition of Cadence Network added $2.1 billion in processed bills for 2008.
Other Businesses: For the fourth quarter of 2008, the net loss from our other businesses was primarily due to losses on venture fund investments and litigation costs. For the full year 2008, results from our other businesses improved as compared to 2007 which were lower mainly due to the net loss at Avista Energy in 2007. The remaining activities of Avista Energy are no longer a reportable business segment and are included in other for segment reporting purposes.
Liquidity and Capital Resources: The company is committed to maintaining adequate liquidity and plan to continue utilizing cash flows from operations, long-term debt and common stock issuances to fund our capital expenditures and maturing debt, and use short-term debt for these purposes on an interim basis.
In 2008 debt maturities were $404 million, the greater part being the $273 million of 9.75% unsecured senior notes that matured on June 1, 2008. In April 2008, Avista issued $250 million of 5.95% First Mortgage Bonds to fund a major portion of this debt that matured. In December 2008, we issued $30 million of 7.25% first mortgage bonds due in 2013 and refinanced $17 million of pollution control bonds. The proceeds from the $30 million issuance, together with funds borrowed under the $320 million committed line of credit, were used to fund $25 million of medium term notes that matured in December 2008 and to purchase $66.7 million of pollution control bonds in December 2008 that we will hold until they are refunded at a later date.
The company has $250 million of cash borrowings and $24.3 million in letters of credit outstanding as of December 31, 2008, under our $320 million committed line of credit.
In November 2008, Avista entered into a new committed line of credit in the total amount of $200 million with an expiration date of Nov. 24, 2009. The company had no borrowings outstanding as of Dec. 31, 2008, under this committed line of credit.
Avista sold $17 million of accounts receivable under our $85 million revolving accounts receivable sales facility as of December 31, 2008.
As of Dec. 31, 2008, Avista has combined $313.7 million of available liquidity under our $320 million committed line of credit, $200 million committed line of credit, and $85 million revolving accounts receivable sales facility. The company expects issuing long-term debt during the second half of 2009 to decrease the balances outstanding under our committed line of credit agreements. In addition to this the company is planning to remarket or refund the $66.7 million of Pollution Control Bonds during 2009.