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Avista Rate Case Ok'd by IPUC

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AVISTA CORP. (AVA - Free Report) has received approval from the Idaho Public Utilities Commission (IPUC) to increase electric and natural gas rates. The company had requested for a rate hike in Oct 2012 which was followed by a multi-party settlement agreement in Feb 2013. The new rates will be effective in two phases with the first phase beginning on Apr 1, 2013 and the second on Oct 1, 2013.

Post approval, natural gas base rates will increase by 4.9%. From Apr 1, 2013, a residential natural gas customer in Idaho using an average 60 therms per month would experience a $2.82 per month increase which would increase the monthly bill to $55.37. In the second phase, effective from Oct 1, 2013, the customers will witness an additional increase of 31 cents per month resulting in a revised monthly bill of $55.68. This 2% or $1.3 million increase will be offset by a $1.6 million credit to customers. This amount will be refunded to the customers from Oct. 1, 2013, through Dec. 31, 2014, bringing the net annual average electric rate increase to only 0.3%.
Beginning Apr 1, 2013, there will be no change in base rates for electric customers. However, multi-party settlement agreement includes a clause for recovery of the costs of the Palouse Wind Project through the Power Cost Adjustment mechanism.

From Oct. 1, 2013, a residential electric customer using 930 kilowatt hours per month will see an increase of $2.04, bringing the monthly bill to $80.73. This calls for an increase of 3.1% or $7.8 million which will be offset by a $3.9 million credit resulting from a payment made to Avista by the Bonneville Power Administration related to its prior use of Avista's transmission system. This amount will be credited to the customers from Oct. 1, 2013, through Dec. 31, 2014, bringing the net annual average electric rate increase to just 1.9%.

Following this approval, Avista plans to file a general rate case in 2014. However, there will be no increase in base retail rates prior to Jan 1, 2015.

The approval provides more certainty to the customers with respect to rates over the next two years. The main objective behind the rate increase request was recovery of costs associated with capital investments and other expenses necessary to maintain Avista's system.

Avista Corporation is engaged in the generation, transmission, and distribution of energy and other energy-related businesses primarily in the United States and Canada. Going forward, the company’s significant capital investments in generation, transmission and distribution systems would add to the top and bottom line. Moreover, its trend of dividend increase would add value to the stock. In Feb 2013, Avista Corp. increased its quarterly dividend by 5.17%, bringing the annualized dividend to $1.22 per share from the previous payout of $1.16 per share.

However, we remain concerned due to the price fluctuations in the wholesale power and natural gas markets, lower demand for electricity and a tepid economy. The company presently retains a short-term Zacks Rank #3 (Hold).

Other stocks worth considering are The AES Corporation (AES - Free Report) , CenterPoint Energy, Inc. (CNP - Free Report) and CMS Energy Corp. (CMS - Free Report) , all with a Zacks Rank #2 (Buy).

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