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Avista Reaches an Agreement in the Oregon Rate Hike Appeal - Analyst Blog

Zacks Equity Research
Updated

Avista Corp. (AVA) announced that it has reached a settlement agreement with all parties involved in its natural gas general rate filing. The company filed for a rate hike on Sep 2, 2014. Once the settlement agreement gets the approval of the Public Utility Commission of Oregon (“PUC”), new rates would come into effect from Mar 1, 2015.

As per the settlement proposal, Avista would be granted a rate increase that would lead to an increase in annual billed revenues by 4.9%. Moreover, the settlement has proposed for a tracking mechanism, whose main objective is to check on customer growth, effective Mar 1, 2015. Thus, if the customer growth is higher than what was predicted by Avista while filing the rate request, the company will have to return the extra margin earned to its customers.

Upon approval by the PUC, those consuming an average of 47 therms on a monthly basis will pay an additional $3.23 or 5.3% more every month. However, there will be no impact on basic monthly charges. Also, the increase in bill charges would depend on the actual amount of energy consumed and vary from customer to customer.

The current settlement agreement reflects a rate of return of 7.52%, with a common equity ratio of 51% and a return on equity (“ROE”) of 9.5%. In Sep 2014, Avista filed for a base rate increase of 9.3%, which reflected a rate of return of 7.77%, a common equity ratio of 51% and an ROE of 9.9%. The company filed for the rate hike to recoup its investments made for upgrading technology and expanding facilities.

It is a common practice of the utilities to recoup funds invested in the development of utility assets from customers by hiking rates with approval from the concerned commissions. Positive outcomes of such filings in terms of rate hikes encourage the utility companies to invest more in infrastructure development ventures and thus improve reliability.

Avista carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include PG&E Corp. (PCG), Consolidated Edison, Inc. (ED) and CMS Energy Corp. (CMS), each carrying a Zacks Rank #2 (Buy).


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AVISTA CORP (AVA): Free Stock Analysis Report
 
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