Avista says profits double in 2008

Higher electric and gas rates that took effect Jan. 1 helped double Avista Corp.’s year-to-date earnings, company officials said.

The utility reported net profits of $56.1 million through the end of September, compared with $24.4 million for the first nine months of 2007.

For Avista and its investors, the results are good news. Avista said the strong performance helps it borrow money at competitive interest rates. But the announcement contained no relief for ratepayers.

Avista customers are paying more for electricity and natural gas than they did last year. Another rate hike is pending for Washington customers. And the utility plans to file requests for additional rate hikes in Washington, Idaho and Oregon by March of next year, said Scott Morris, Avista’s chairman and chief executive officer.

Morris’s remarks came during a Tuesday conference call with analysts. Morris tied the stronger year-to-date earnings to higher rates for Washington customers, which he said helped the Spokane-based utility recoup the cost of providing energy to its customers. The rate hike that went into effect Jan. 1 will generate $33.4 million in new revenue for Avista this year.

Morris also credited the leap in earnings to several one-time events, including the sale of Avista Energy, a gas-and-electricity trading subsidiary that lost nearly $12 million last year.

“It’s a positive report,” said Avista spokeswoman Jessie Wuerst, describing the earnings through September.

Utility customers, hit by higher power costs, are likely to question the doubling in earnings, she acknowledged. However, “to the financial community this is good news. It shows that we’re a financially healthy company,” Wuerst said.

That matters when Avista borrows money, she added.

“It’s just like when you go out to get a loan on a house or a car,” she said. “The better our credit rating, the better our interest rate.”

Wuerst said Avista must strike a balance between turning profits for investors and keeping utility rates affordable. That’s why each rate increase request goes through the scrutiny of public utilities commissions in Washington, Idaho and Oregon – the three states where Avista has customers, she said.

In 2007, Avista’s profit margin was 5.2 percent. In Washington, regulators allow investor-owned utilities to earn annual profits of 10.2 percent, Wuerst said. In Idaho, the allowed profit margin is 8.45 percent.

Idaho regulators recently approved a 12 percent increase in base electric rates for Avista customers and a 4.7 percent increase in natural gas rates. The new rates took effect Oct. 1.

“Avista, like many utilities nationwide, remains in a situation where costs are increasing more rapidly than revenues,” wrote members of the Idaho Public Utilities Commission, which approved the increase.

A similar request is pending in Washington. However, the Washington attorney general’s office, which represents utility customers in rate cases, criticized Avista’s request for a 9.1 percent increase in base electric rates and 2.4 percent in natural gas rates.

Avista should trim back its request by 40 percent, the attorney general’s office wrote, saying the proposal went beyond what the company demonstrated it needed.

“We’re in a cycle where Avista and other customers are having rate cases almost annually,” Simon ffitch, a senior assistant attorney general said in September. “It’s really tough on customers.”

The annual requests will continue, Morris told analysts, to help Avista pay for $200 million annually that the company must spend to keep its facilities and transmission network up to date. The work includes ongoing upgrades to dams and transmission lines.

In other news:

•The company reported third-quarter net income of $7.4 million, compared with a net loss of $3.9 million during the third quarter of 2007.

•Avista projects slower employment and population growth for the region. But core customers in agriculture, mining, health care and manufacturing sectors are continuing to perform well, with the exception of sawmills, officials said. In addition, a relatively stable local housing market has kept foreclosures in check.

•Windmills five miles south of Reardan will be generating electricity for Avista by the end of 2013, about two years later than initially planned. Company officials said they will delay some of the expenditures associated with $125 million project.