Avista Corp. outlook revised to stable, ratings affirmed by S&P Global Ratings

Investing.com -- Spokane, Washington-based Avista Corp (NYSE:AVA). has had its outlook revised to stable from negative by S&P Global Ratings, following the recent release of its full-year 2024 results. The company’s financial measures showed an improvement, with its consolidated funds from operations (FFO) to debt ratio rising to 14.1% in 2024.

Avista also received a favorable rate case outcome in Washington in late 2024, which included multi-year rate increases. The company has nearly completed its customer rate refunds, which were ordered from a previous rate case. These developments have led to the expectation that Avista will maintain its improved financial measures, with its FFO to debt expected to remain consistently between 14%-16% over the forecast period.

In addition to revising the outlook, S&P Global Ratings also affirmed its ratings on Avista, including the ’BBB’ issuer credit rating, the ’A-’ rating on the company’s senior secured debt, the ’A-2’ short term rating, and the ’BB+’ rating on Avista Capital II’s preferred stock.

The stable outlook reflects the expectation that Avista will maintain steady financial measures, including an FFO-to-debt ratio of 14%-16% during the forecast period, while effectively managing regulatory risk.

Avista’s FFO to debt improved to 14.1% in 2024, up from 13.1% in 2023 and 11.6% in 2022. This improvement was largely due to a significant reduction in customer rate refunds and positive regulatory outcomes in Washington, Idaho, and Oregon. In December 2024, the Washington commission approved another multi-year rate increase for Avista, increasing electric revenue by $56.4 million and gas revenue by $18.2 million over 2025-2026.

Avista’s business risk profile is assessed as strong, reflecting the company’s low-risk, regulated electric and gas utility operations, which contribute over 99% of the company’s consolidated EBITDA. The company’s diverse geographic footprint, with regulated operations across five states, further contributes to this assessment, despite Washington and Idaho accounting for over 90% of its rate base.

Several legislative proposals are ongoing that could support Avista’s credit quality. House Bills 1990 and 1522 introduced in the Washington legislature aim to establish a process for utility companies to submit wildfire mitigation plans to the Washington commission and allow utilities to use securitization financing to fund emergency disaster related costs. These proposals are still pending.

Avista’s financial risk profile is assessed as significant, reflecting the company’s mostly lower-risk regulated utility operations and effective management of regulatory risk. The base case incorporates about $525 million in average capital spending, $160 million in assumed average dividends, $80 million in equity issuance for 2025, and periodic net electric and gas rate increases through the forecast period.

S&P Global Ratings could lower the rating over the next 24 months if Avista’s FFO to debt weakens consistently below 14%. This could occur if adverse regulatory outcomes, persistent regulatory lag, or unforeseen liabilities related to wildfires weaken the company’s FFO to debt without sufficient counter measures to offset it.

On the other hand, Avista could see an upgrade over the next 24 months if the company significantly improves its financial measures, including maintaining FFO to debt consistently above 20%, without any weakening of its business risk.

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