ON THE COVER Summer storms hitting 10 days apart caused extensive damage throughout Avista’s Washington/Idaho service area in 2014, knocking out power to nearly 100,000 customers. Crews and office staff worked around the clock, restoring power quickly and safely, keeping customers informed through traditional and social media channels. 1411 EAST MISSION AVENUE | SPOKANE, WASHINGTON 99202 | 509.489.0500 | AVISTACORP.COM One thread that weaves throughout our 125-year history is that of innovation. A LANDMARK Dear Fellow Shareholder: It’s been a landmark year at Avista for many reasons — we celebrated our milestone 125th anniversary; we sold Ecova, our home-grown energy and sustainability management business; we acquired Alaska Energy and Resources Company (AERC) and its primary subsidiary Alaska Electric Light and Power Company (AEL&P) in Juneau, Alaska; and we continued to make significant progress in achieving our goals of investing in our infrastructure, upgrading our technology and preparing our utility to effectively and efficiently implement 21st century energy delivery. For the first time in a generation, we can consider ourselves close to being a “pure play” utility. None of this would have been possible without our cadre operations were $1.93 per diluted share, with net income of dedicated and knowledgeable employees. There’s a from continuing operations attributable to Avista Corp. confidence that comes with competence, a steadiness that shareholders of $119.8 million for 2014. builds on itself and makes things happen. It’s not flashy, but Our balance sheet and credit ratings remain healthy. the effects speak for themselves. Avista’s employees embody At year-end, Avista Corp. had $262.4 million of available that premise. They are simply and resolutely proficient liquidity under our $400 million line of credit. We issued at what they do. They truly are the people powering the $60 million of Avista Corp. first mortgage bonds, bearing an possible at Avista. interest rate of 4.11 percent, which mature in December 2044. We issued $154.2 million of common stock, which includes An Overview of 2014 Financial Results 4.5 million shares valued at $150.1 million associated with Our financial results this year were strong: the result the acquisition of AERC, while the remainder of the shares of a gain on the sale of Ecova, general rate case decisions were issued under the dividend reinvestment and direct in Washington, Idaho and Oregon, and focused leadership stock purchase and employee plans. We carried out a in managing our operating expenses. stock repurchase plan in the last six months of 2014 that Our earnings included a $70 million net gain on the resulted in repurchasing and retiring 2.5 million shares of sale of Ecova. Consolidated earnings from continuing our outstanding stock at a total cost of $79.9 million and an 1 average price of $31.57 per share. In December, our board of our Washington electric and natural gas general rate directors approved the repurchase of up to 800,000 shares cases with new rates in effect in January 2015. In Idaho, of our common stock through March 31, 2015. And I’m a settlement agreement resulted in a one-year extension pleased to note that the board raised the dividend on Avista to our current electric and natural gas rate plans, with base Corp. common stock for the 12th consecutive year, for an retail rates unchanged through 2015. Both settlements annualized dividend of $1.27. include provisions for earnings sharing with our customers. We continue to expect long-term corporate earnings We filed a natural gas rate case in Oregon in September growth of 4 percent to 5 percent. Our projection for customer 2014, and we expect new rates to go into effect in that growth remains near 1 percent due to modest regional state in July 2015. economic recovery. Our earnings growth will come through Upgrades to our legacy hydroelectric plants on the our focus on replacing aging infrastructure and continued Spokane River got underway in 2014. At the head of the effective cost management. Spokane River near Coeur d’Alene, Idaho, the South Channel Dam of the Post Falls Hydroelectric Project is getting a Regulated Operations well-deserved update with new concrete, spillway gates AVISTA UTILITIES and gate operation systems. Avista Utilities contributed $1.83 per diluted share to Further down the Spokane River, at the Nine Mile Falls earnings in 2014, which exceeded our original expectations. Hydroelectric Project, two turbine generating units original Continuing our investment in replacing and updating aging to the century-old plant will be replaced along with infrastructure, our new capital costs totaled $323.9 million associated equipment, resulting in an increase in the for the year. We are planning to invest $375 million in 2015 generation of clean, renewable power. and $350 million in 2016 to maintain the reliability and Our employees strive to find new and better ways to Kettle Falls Sandpoint strength of our electric and natural gas energy systems. assure that our customers’ needs are met while bringing The timely recovery of these costs continues to be value to our shareholders. With that in mind, we are Noxon MONTANA Seattle essential to earning an adequate return on our shareholders’ replacing our 20-year-old customer information and work Spokane Coeur d’ Alene investment. In 2014 we reached an all-party settlement of management systems. This project is expected to be WASHINGTON Missoula Olympia Othello Helena Pullman Moscow Clarkston Lewiston Goldendale Stevenson Grangeville Portland La Grande AEL&P serves electric Salem customers in the City and Borough of Juneau, Alaska. IDAHO OREGON AL ASK A Boise AVISTA SERVICE TERRITORY Roseburg Electric and Natural Gas Medford AEL&P SERVICE TERRITORY Natural Gas Klamath Falls Electric Anchorage Juneau Sitka 2 Ketchikan completed during the first half of 2015. These are invest $15 million in capital expenditures in 2015. The City two critical elements of our technology infrastructure and Borough of Juneau have been very welcoming as we which are interconnected to many other systems in our get to know each other and develop plans for the future. company. We expect to spend approximately $110 million We are looking forward to becoming an active partner in (including internal labor) over the term of the project. As of the community, just as AEL&P has been. Dec. 31, 2014, we have spent $91 million on the project. In addition, we are completing our five-year investigation Non-regulated Operations into smart grid technologies. As we upgrade and improve One thread that weaves throughout our 125-year the operation of our power generation, we also history is that of innovation. Our employees continue to are successfully completing the pilot studies on the think creatively, to explore the possibilities and to develop Pacific Northwest Smart Grid Demonstration Project business opportunities that add value for our shareholders in southeastern Washington. and enhance the customer experience and business outcomes. Such was the case with Itron, a company we ALASKA ELECTRIC LIGHT & introduced in 1980, which has since been spun off to POWER COMPANY (AEL&P) become one of the world’s leaders in metering technology. We are very pleased to welcome the 59 employees And our company’s innovation continues today. and 16,000 customers of AEL&P to Avista Corp. The Ecova, founded in 1995, has become a leader in energy company, begun some 120 years ago, has been in the and sustainability management. Cofely, USA, Inc., a Corbus family nearly since its founding. The hydro-based subsidiary of GDF Suez, acquired Ecova in June. It was energy company holds similar values and commitments to the right time for us to monetize our investment in the safety, reliability and customer service as Avista, and the company, and we believe that with this new ownership, culture of trust, innovation and collaboration mirrors our Ecova is now poised to realize its full potential. I want to own. Our new Alaska operations contributed $0.05 per say a special thank you to the employees of Ecova for their diluted share to our earnings in the second half of 2014 transformative thinking, their diligence and their dedication and posted $1.6 million in capital expenditures. It plans to to excellence. Kettle Falls Sandpoint Avista Utilities Noxon MONTANA provides electric and Seattle Spokane Coeur d’ Alene natural gas services in portions of three WASHINGTON Missoula Olympia Othello Helena Northwest states. Pullman Moscow Clarkston Lewiston Goldendale Stevenson Grangeville Portland La Grande Salem IDAHO OREGON AL ASK A Boise AVISTA SERVICE TERRITORY Roseburg Electric and Natural Gas Medford AEL&P SERVICE TERRITORY Natural Gas Klamath Falls 3 Electric Anchorage Juneau Sitka Ketchikan Through our other businesses under Avista Capital, we mobile interactions with our utility currently account for more continue to explore strategic opportunities for corporate than 60 percent of our customer contacts. We’re on track growth. Salix LNG was launched to explore markets that to move to the next level of technology and provide could be served with liquefied natural gas (LNG), primarily our customers with better user adoption and satisfaction in the West and Pacific Northwest. We made an investment with their Avista Web experience. in Plum Energy, which is exploring ways to extend the Looking ahead 20 years in resource planning, we find significant benefits of natural gas beyond the traditional that we have sufficient natural gas pipeline resources until pipeline markets in energy generation, transportation and 2034. The process for evaluating the electric side of the small-scale LNG value chains. And with our new presence utility is underway, with the filing of our next Integrated in Southeast Alaska, we are exploring additional strategic Resource Plan scheduled for August 2015.