Washington state-based energy transmission and distribution company, Avista Corporation (AVA) has filed for a gas rate decline of 10.7% under its Purchase Gas Cost Adjustment (“PGA”) program with the Public Utility Commission of Oregon (“PUC”). If approved Avista’s 96,000 customers in the Oregon region will reap the benefit from this rate decrease from November 1, 2012.
The proposal of rate reduction by Avista comes on the heels of lower wholesale natural gas prices, owing to its abundant supply in the US. Along with this, the rates take into account the acquisition of the Klamath Falls Lateral, which is expected to result in customer savings of roughly $1 million annually from 2013.
The company usually files PGA’s each year to bring about symmetry between the real cost of natural gas purchased and the amount included in the rates. Avista had previously filed electric and natural gas rate decline cases of 2% and 8% respectively in the Idaho region in late July 2012 and is further planning to file general rate cases in Idaho in the second half of 2012.
On receiving approval from the regulatory authority, rate adjustments will take place in two stages. The first adjustment will be effective from November 1, 2012 while the second will come into effect from January 1, 2013. If PUC sanctions the proposed rates, Avista’s annual top-line results related to the natural gas segment will witness an aggregate decline of $10.8 million by January 1, 2013.
The first adjustment would lead to a revenue decrease of $10.0 million (9.9%) while the second a decrease of $0.8 million (0.8%). The company does not mark-up the cost of natural gas it purchases and as a result Avista’s earnings remain unaffected.
Avista’s total natural gas consumer bill constitutes 55% from its combined cost of purchase of gas and transport while the remaining 45% includes the cost of supplying natural gas, the equipment and workers required for safe and reliable service.
We believe there is a sense of uncertainty as PUC could overrule the rate decline proposed by the company which could hurt customers’ confidence. This could impact the company’s stock position severely in the market.
For 2012, the company expects earnings in the range of $1.62-$1.85 per share. Due to reduction in retail loads, Avista expects its earnings to diminish by 10 cents to 12 cents per share in 2012.The Zacks Consensus Estimate for the third quarter and full year 2012 are currently pegged at 19 cents per share and $1.65 per share, respectively.
Avista Corporation holds a Zacks #4 Rank implying a short-term Sell rating. The company's closest competitor is IdaCorp, Inc. (IDA).
Avista Corporation is an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. Avista Utilities provide electric service and natural gas in eastern Washington, northern Idaho and parts of southern and eastern Oregon.
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