IMPROVING LIVES 125 YEARS and COUNTING the YEAR WAS 1889 the Year Was 1889
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ANNUAL REPORT 2013 EMPOWERING COMMUNITIES IMPROVING LIVES 125 YEARS AND COUNTING THE YEAR WAS 1889 The year was 1889. Washington was soon to declare statehood. The thriving community of Spokane Falls was the hub of the Inland Northwest region with nearly 20,000 residents. The streets of the city were bustling with commerce, from hotels and banks to department stores and restaurants. Then tragedy struck. The Great Fire of 1889 wiped out the wooden buildings in the heart of downtown and the city was dark...but only for a short time. The resourceful, innovative and dedicated employees of the newly formed Washington Water Power Co. rewired the city core overnight with whatever wire they could nd — barbed to baling — so the city could start rebuilding the very next day. This is the foundation upon which our company is built. Washington Water Power (WWP), now known as Avista, remains committed to its legacy today and for the future — empowering communities and improving lives...for 125 years and counting. 2 DEAR FELLOW SHAREHOLDERS: AS WE EMBARK ON OUR JOURNEY TO THE NEXT 125 YEARS OF SERVICE, AVISTA CONTINUES TO MEET THE GROWING ENERGY NEEDS OF OUR CUSTOMERS BY ASSURING THAT OUR COMPANY’S OPERATIONS ARE RELEVANT TO A RAPIDLY CHANGING SOCIETY. Our strength comes in our ability to recognize emerging trends, and then to use our intuition, knowledge and persistence to assure they bring value to our customers and our investors. In this letter I want to give you a summary of our nancial results for 2013 and some thoughts about what we see in our future. Then, I hope you’ll take the time to look through the brief historic perspective on our company. We believe it will give you a good idea of who we are, where we’ve been and some of the ways in which we’ve evolved and continue to shape Avista into the kind of company in which you want to invest. An Overview of 2013 Financial Results I am pleased to report that Avista Corp. performed well in 2013. Consolidated earnings were $1.85 per diluted share. All segments of the company improved their performance over the challenging previous year through the implementation of purposeful and directed strategies, including the voluntary severance program that went into effect at the beginning of the year. Avista Utilities Our core business — Avista Utilities — had results above our expectations for 2013, contributing $1.81 to earnings for the year. Increased revenues for the utility resulted from warmer than normal weather through the summer, cooler than normal fall temperatures and lower than expected operating costs. The timely recovery of the costs of our capital investments continues to be essential to gaining adequate return on our shareholders’ investment. In 2013, we saw the implementation of new rates in Washington and Idaho. Both are two-year settlement agreements, which are a win-win for our customers and our shareholders. For customers, it provides rate certainty and clarity for two years, and for shareholders, the settlements provide us the ability to earn a return closer to our allowed rates of return and reduce the regulatory lag we’ve experienced in the past. In August, we led a general rate case in Oregon, and through a settlement agreement, new rates will go into effect in February and November 2014. On the other side of the coin, an unexpected outage at our Colstrip generating plant in Montana resulted in increased purchased power costs to replace the energy lost due to the outage, tempering our 2013 utility earnings. The unit went back on line early in 2014. 3 Overall, our legacy generating plants have served our result of our focus on replacing aging infrastructure, continued customers well. Now that we’ve completed the upgrades cost management, increased efciencies in business processes to our major hydro facilities on the Clark Fork River, we’re and sustained growth at Ecova. turning our attention to the facilities on the Spokane River. In 2013 we began upgrades to our Nine Mile Falls plant. 2014 and Counting… Built in 1908, it will receive an overhaul and new equipment During this anniversary year, we have many things to update it to serve our customers for generations to come. to celebrate as well as plans to put into action for the Two other major capital projects are also proceeding well. years ahead. First, a natural gas pipe replacement program is in its third year of a 20-year plan. We’re replacing some 700 miles of » In November, we signed a denitive agreement to pre-1987 plastic pipeline in our service territory. Second, acquire Alaska Energy and Resources Company (AERC), OUR EMPLOYEES we are nearing completion of a major project to upgrade our whose primary subsidiary is Alaska Electric Light and ARE THE digital technology to enhance processes for our business and Power. This small, privately-owned utility serves our customers. The new system, which will be rolled out this the customers of Juneau with clean, renewable PARTNERS IN THE summer, includes upgrades to customer information, billing hydroelectric power. We expect the transaction to COMMUNITY, THE processes, and work and asset management. close by July 1, following receipt of the necessary regulatory and AERC shareholder approvals. TRUSTED ENERGY Non-Regulated Businesses ADVISORS, AND Ecova, Avista’s primary, non-regulated business, is an » Our 2013 capital expenses totaled $294.4 million. energy and sustainability management company, with over We plan to increase our capital budget to $335 million THE HEROES 700 multi-site clients, representing more than 700,000 in 2014 and $355 million in 2015 to complete important WHO BRING sites in North America. Its 2013 results showed marked utility capital projects, including upgrades to our improvement over 2012. The implementation of business transmission and distribution systems, hydroelectric LIGHT AND HEAT process improvements, along with increased revenues facilities and our company’s operating technology. TO HOMES AND from service offerings, helped Ecova contribute $0.12 per share to 2013 corporate earnings. Total revenues grew by » At Ecova, we will continue to expand the company BUSINESSES 14 percent in 2013. through organic growth, while maintaining client AFTER THE Through our other businesses under Avista Capital, we retention that exceeds 95 percent. continue to explore strategic opportunities for corporate STORM. growth. As part of the process, we will incur costs and » We are focusing our efforts on leadership training, may have to write down some of our investments that succession planning and the recruitment of talented don’t perform, as we did in 2013. However, we believe it’s graduates and veterans into our work force to ll important to continue to look for new opportunities, utilizing behind the baby boomers that are retiring. a disciplined approach for examining the potential new markets and ways for customers to use energy. The face of Avista may change over the years, but the culture of trust, innovation and collaboration is well woven Credit and Liquidity throughout our company and all we do. Our employees Our balance sheet and credit ratings remain healthy. are the partners in the community, the trusted energy At year-end, Avista had $201.6 million of available liquidity advisors, and the heroes who bring light and heat to homes under our $400 million line of credit. In August 2013, we and businesses after the storm. I am proud of each and entered into a $90 million term loan agreement that matures every one of them and thankful for their dedication and in 2016. The proceeds from this transaction were used to commitment to our company, our customers and repay a portion of corporate indebtedness in anticipation our shareholders. of $50 million in First Mortgage Bonds that matured in December 2013. We issued $4.6 million of common stock Thank you for your interest in Avista. in 2013 under the dividend reinvestment and direct stock Sincerely, purchase plan, and the employee plans. Earnings Growth We continue to target long-term corporate earnings growth Scott L. Morris of 4 percent to 5 percent. While our projection for customer Chairman, President and Chief Executive Ofcer growth remains near 1 percent due to slow regional economic recovery, we believe earnings growth will prove positive as the 4 IN ENERGY DELIVERY CREATING A SUSTAINABLE FUTURE FOR 125 YEARS, AVISTA HAS BEEN A LEADER IN The safe and reliable generation and delivery of energy is the foundation of any utility. At Avista, we believe that it’s also vital to develop sustainable ways to deliver energy more efciently, at a fair cost, FUELING THE COMMUNITY with even better safety and reliability. Innovation in energy is woven throughout our 125-year history. AND ECONOMIC ENGINES THAT HAVE DRIVEN THE Hydro Power Leadership Avista’s power generation is founded along the waterways of the Inland Northwest. The Long Lake DEVELOPMENT OF THE hydroelectric project, completed in 1914, has spillways 170 feet high — the highest in the world at the INLAND NORTHWEST. time — and the largest turbines then in operation. Eighty-ve years later, in 1999, Avista set a new THIS IS REFLECTED IN national standard for stakeholder engagement and implementation of its relicensing process for the Noxon Rapids and Cabinet Gorge hydroelectric projects on the Clark Fork River in Montana and Idaho. THE INNOVATION OF OUR EMPLOYEES AND THE Biomass Innovation STRONG PARTNERSHIPS In 1983, the Kettle Falls plant was the rst project in the nation built specically to generate power from biomass. As a key part of Avista’s diverse mix of power generation, which includes more than THEY HAVE BUILT 50 percent coming from renewable resources, the plant continues to be a vital generation resource for WITH THE BUSINESSES, our utility and a partner with the area’s forestry and timber concerns.