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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses financial statement items and comparisons between 2024 and 2023. Discussion of 2022 financial statement items and comparisons between 2023 and 2022 not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Conditions and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Business Segments

As of December 31, 2024, we have two reportable business segments, Avista Utilities and AEL&P. We also have other businesses which do not represent a reportable business segment and are conducted by various direct and indirect subsidiaries of Avista Corp. See “Part I, Item 1. Business – Company Overview” for further discussion of our business segments.

The following table presents net income (loss) for each of our business segments and the other businesses, for the year ended December 31 (dollars in millions):

Other non-reportable segment income (loss) (7 ) (5 ) 30

ExecutiveOverview

Overall Results

Net income increased primarily due to the effects of general rate cases. This increase in earnings was partially offset by increases in other operating expenses, depreciation and amortization expense, taxes other than income taxes and interest expense.

More detailed explanations of the fluctuations are provided in the results of operations and business segment discussions (Avista Utilities, AEL&P, and the other businesses).

Resource Adequacy

Peak Load Requirements

Extreme weather events, both in summer and winter, have recently occurred in the Pacific Northwest. These events have resulted in system load peaks that were higher than anticipated. Historically, we have had excess capacity as compared to peak load, but during some extreme events we have had to purchase short-term energy from the wholesale market to meet demand when our energy resources were not operating at full capacity or were otherwise unavailable. These weather events have highlighted the growing need for additional generating capacity both on our system and in the Pacific Northwest region. Accordingly, we are taking the increased peaks in demand into account as we consider our resource adequacy and generation requirements.

Annual Energy Requirements

The transition to clean energy (including the replacement of emitting facilities with non-emitting facilities, which are impacted by conditions outside of our control), and electrification, combined with expected load growth, factor into the analysis of the need for additional generation.

2025 IRP

Our 2025 IRP was filed with the WUTC and IPUC in December 2024. While the IRP is subject to change from time to time due to changing circumstances, assumptions and projections, given the exit of Colstrip (222 MW) from our system by December 31, 2025 and the expected retirement of the Northeast CT (65 MW) in 2030, our preferred resource strategy includes

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the addition of approximately 490 MW of generating capacity by 2030 and a total addition of approximately 950 MW through 2035. We believe the additional capacity would likely consist primarily of wind resources and a natural gas combustion turbine. The new capacity would likely be a combination of resources owned by the Company and resources committed under PPAs, to be determined on a case-by-case basis depending upon financial, tax and regulatory considerations. See “Part I, Item 1. Business – Company Overview – Future Resource Needs” for further discussion of the IRP.

We also expect expanded transmission infrastructure will provide access to additional resources and improve reliability in our region. We signed a non-binding memorandum of understanding to join the North Plains Connector transmission line project, constructing a transmission line from Bismarck, North Dakota to Colstrip, Montana.

2024 Hydroelectric Generation

Our hydroelectric generation is affected not only by precipitation levels, but also by temperatures since warmer weather causes earlier melting and runoff of snowpack, and extremely cold weather can result in the formation of ice which can decrease streamflow. During 2024, our region experienced low precipitation, resulting in low snowpack levels and streamflows when compared to historical averages. This had a negative impact on our hydroelectric generation resources. Lower hydroelectric generation increased net power supply costs and resulted in us absorbing additional costs under the ERM in Washington. In 2024, we had a $8 million pre-tax expense under the ERM in Washington.

Washington Climate Commitment Act

Effective January 1, 2023, the CCA went into effect in the State of Washington, requiring us to secure carbon allowances to cover our carbon emissions over a certain amount each year. Costs associated with the CCA are being deferred and are included in Washington natural gas customer rates starting in April 2024. The resulting aggregate increase to customer bills was 3.7 percent over a one year period, and impacts customers differently based on revenue class, income level, and meter connection date. An additional customer bill increase to recover costs associated with the CCA of 9.1 percent became effective in November 2024.

Costs associated with the CCA related to our electric operations are deferred and included in the ERM for Washington customers. Amounts allocated to Idaho are not approved for recovery from customers. Costs incurred for CCA compliance did not have a material effect on our results of operations for 2024 and 2023. See "Note 22 of the Notes to Consolidated Financial Statements" for further discussion of the CCA costs associated with our electric operations and impacts on our financial results.

Regulatory Lag

Regulatory “lag” is inherent in utility ratemaking; a result of the delay between the investment in utility plant and/or the increase in costs and the receipt of an order of a public utility commission authorizing an increase in rates sufficient to recover such investment or costs. Regulatory lag can be mitigated to some extent by the incorporation of reasonably expected forward-looking information into an authorization of increased rates. However, there is no protection against unexpected inflation and increased interest rates, as experienced in 2022 and 2023. See “Regulatory Matters” for additional discussion of the general rate cases.

Potential Tariffs on Imports

The President of the United States of America has announced plans to impose tariffs on certain imported goods. The implementation of these tariffs has been paused until March 2025. We anticipate that any such tariffs would apply to natural gas and electricity imported from Canada, as well as wood waste used as fuel at the Kettle Falls GS. As we import a significant amount of natural gas from Canada, both to serve our retail natural gas customers and as fuel for electric generation, these tariffs could have a significant impact on our resource costs. In addition, we cannot predict how the broader energy markets would respond and change as a result of the tariffs. The impact of an increase in resource costs on our results of operations from the tariffs would be partially mitigated by various deferral and recovery mechanisms (ERM, PCA, and PGAs), but there could be an immediate impact on our cash flow. These tariffs could also impact the cost of other equipment and materials that are critical to our business, and could increase capital and operating expenses.

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Regulatory Matters

General Rate Cases

We regularly review the need for electric and natural gas rate changes in each state in which we provide service. We will continue to file for rate adjustments to:

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seek recovery of operating costs and capital investments, and

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seek the opportunity to earn reasonable returns as allowed by regulators.

The assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs, as well as specific factors that can affect the timing of rate filings. Such factors include, but are not limited to, in-service dates of major capital investments and the timing of changes in major revenue and expense items.

Avista Utilities

Washington General Rate Cases

2022 General Rate Cases

In December 2022, the WUTC issued an order approving the multi-party settlement agreement filed in June 2022. The approved rates were designed to increase annual base electric revenues by $38 million, or 6.9 percent, effective in December 2022, and $13 million, or 2.1 percent, effective in December 2023. The approved rates were also designed to increase annual base natural gas revenues by $8 million, or 6.5 percent, effective in December 2022, and $2 million, or 1.2 percent, effective in December 2023.

To mitigate the overall impact of the revenue increases on customers, part of the 2022 base rate increase was offset with tax customer credits. The total estimated benefits of these credits, $28 million for electric customers and $13 million for natural gas customers, were returned over a two-year period from December 2022 to December 2024.

In addition, the order approved a separate tracking mechanism and tariff for purposes of recovering existing and prospective Colstrip costs through December 31, 2025. See "Colstrip Tracker" below.

The WUTC approved an ROR of 7.03 percent, but the settlement does not specify an explicit ROE, cost of debt or capital structure.

2024 General Rate Cases

In December 2024, the WUTC issued orders related to our multi-year electric and natural gas general rate cases filed with the WUTC in January 2024.

The approved rates within the orders are designed to increase annual electric base revenues by $12 million (or 2.0 percent), effective January 1, 2025 (Rate Year 1), and $44 million (or 7.5 percent) for Rate Year 2. The difference in approved rates for Rate Year 1 and those included in our original request of a $77 million increase is primarily due to a $56 million decrease in power supply costs compared to those set forth in the original request, and also due to a lower approved return on equity than what was requested. The Rate Year 2 increase represents the effective increase to customers resulting from the $69 million approved in the order, partially offset by a $25 million decrease due to the expiration of a separate tariff in effect during Rate Year 1 to collect remaining Colstrip expenses by December 31, 2025 (see further discussion below).

The approved rates are also designed to increase annual natural gas base revenues by $14 million (or 11.2 percent), effective January 1, 2025, and $4 million (or 2.8 percent) for Rate Year 2.

The WUTC approved an ROE of 9.8 percent, based on a common equity ratio of 48.5 percent, and an ROR of 7.32 percent.

The WUTC did not approve our request to modify the ERM under which differences between actual net power supply costs and the amount reflected in base retail customer rates are tracked. Based on our forecast energy commodity costs in 2025 and

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2026, we expect actual net power supply costs to exceed the level included in base rates. We plan to continue to address how net power supply costs are set in base rates in future regulatory proceedings.

The Commission continued its support for important recovery mechanisms such as wildfire and insurance balancing accounts, and decoupling.

Colstrip Tariff

In 2019, the Washington State Legislature passed the CETA, which, among other things, requires costs associated with coal-fired generation facilities to be removed from rates no later than December 31, 2025. The WUTC order approving the settlement of the 2022 general rate cases, discussed above, required us to establish a tracker for our Colstrip-related costs, including operating and maintenance expense, depreciation and amortization expense, and a return on rate base. In October 2024, we filed a cost recovery tariff seeking to recover the costs associated with our ownership of Colstrip in 2025. In the filing, we requested an increase in annual Colstrip tariff revenues of $19 million – from $24 million in 2024 to $43 million in 2025, effective January 1, 2025. In its review, WUTC Staff raised three concerns related to (1) whether forecasted 2025 investments are allowed in rates; (2) whether the capital investment included in the filing will be used and useful for customers prior to the end of 2025; and (3) one major capital investment that will not be in service until 2027. In December 2024, the WUTC allowed our filed tariff to go into effect, but set the rates as subject to refund. The WUTC set the matter for adjudication in 2025, but also ordered us, WUTC Staff, and other interested parties to meet and resolve the issues. A status report is due to the WUTC by March 31, 2025. If the parties cannot resolve the concerns of WUTC Staff, we believe a procedural schedule will be developed and a hearing date set.

Idaho General Rate Cases

2023 General Rate Cases

In August 2023, the IPUC approved the multi-party settlement agreement designed to increase annual base electric revenues by $22 million, or 8.0 percent, effective in September 2023, and $4 million, or 1.4 percent, effective in September 2024. The agreement was designed to increase annual base natural gas revenues by $1 million, or 2.7 percent, effective in September 2023, and a negligible increase effective in September 2024.

The settlement was based on an ROE of 9.4 percent, with a common equity ratio of 50 percent, and an ROR of 7.19 percent.

2025 General Rate Case

In January 2025, we filed multiyear electric and natural gas general rate cases with the IPUC. If approved, new rates would be effective in September 2025 and September 2026. The proposed rates are designed to increase annual base electric revenues by $43 million, or 14.0 percent, effective in September 2025, and $18 million, or 5.0 percent, effective in September 2026. For natural gas, the proposed rates are designed to increase annual base natural gas revenues by $9 million, or 17.7 percent, effective September 2025, and $1 million, or 1.7 percent, effective September 2026. The proposed electric and natural gas revenue increase requests are based on an ROR of 7.68 percent, with a common equity ratio of 50 percent and an ROE of 10.4 percent. Ongoing capital infrastructure investment (including replacement of wood poles and natural gas distribution pipe, continued investment in the wildfire resiliency plan, and technology) and increases in operations, maintenance, and power supply costs are the main drivers of the proposed increases. The IPUC has up to nine months to review the general rate case filings and issue a decision.

Oregon General Rate Cases

2023 General Rate Case

In October 2023, the OPUC approved the all-party settlement agreement filed in August 2023. The approved rates are designed to increase annual base natural gas revenues by $7 million, or 9.4 percent. The OPUC approved an ROR of 7.24 percent, a common equity ratio of 50 percent, and an ROE of 9.5 percent. New rates were effective on January 1, 2024.

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2024 General Rate Case

In November 2024, we filed a general rate case with the OPUC, which is designed to increase overall revenue by $8 million, or 9.2 percent, effective September 1, 2025. The case is based on a proposed ROR of 7.67 percent with a common equity ratio of 50 percent and an ROE of 10.4 percent. Ongoing capital infrastructure investment (including replacement and expansion of natural gas distribution pipe and technology) is the main driver of the proposed increase. The OPUC has up to ten months to review the general rate case filing and issue a decision.

Power Cost Deferrals, Decoupling, Earnings Sharing Mechanisms, and Purchased Gas Adjustments

See "Note 23 of the Notes to Consolidated Financial Statements" for discussion of these regulatory mechanisms.

Alaska Electric Light and Power Company

2022 General Rate Case

In August 2023, the RCA issued a final order related to AEL&P’s electric general rate case, which was originally filed in July 2022.

The order reflects an ROE of 11.45 percent, a common equity ratio of 60.7 percent, and an ROR of 8.79 percent. The order results in an approved base electric revenue increase of 6.0 percent (designed to increase annual electric revenues by $2 million), and makes non-refundable the interim rate increase of 4.5 percent that was approved by the RCA in August 2022 and took effect in September 2022. The final increase to rates was effective in October 2023.

AEL&P is required to file its next general rate case by August 2027.

Results of Operations - Overall

The following provides an overview of changes in our Consolidated Statements of Income. More detailed explanations are provided, particularly for operating revenues and operating expenses, in the business segment discussions (Avista Utilities, AEL&P and the other businesses) that follow this section.

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2024 compared to 2023

The following graph shows the total change in net income for 2024 to 2023, as well as the various factors that caused such change (dollars in millions):

Utility revenues increased at Avista Utilities primarily due to increased electric retail rates (due to the effects of general rate cases), and increased sales of fuel. These increases were partially offset by decreased natural gas retail sales volumes (due to warmer weather and lower usage) and rates, and decreased electric wholesale revenue due to decreased sale prices.

Utility resource costs increased at Avista Utilities primarily due to increased prices and volumes of purchased power, and an increase in net amortizations and deferrals of costs and benefits under our regulatory mechanisms. These increases were partially offset by a decrease in fuel for generation and purchased natural gas, resulting from decreased natural gas prices.

The increase in utility operating expenses was primarily due to increased thermal generation costs, legal costs and employee benefit costs (primarily related to medical). In addition, amortizations and base levels of wildfire mitigation costs and insurance costs have increased, with corresponding increases to revenue which result in no impact to earnings.

Utility depreciation and amortization increased primarily due to additions to utility plant.

Interest expense increased due to increased borrowings outstanding during the period and increased interest rates compared to 2023.

Income tax was an expense in 2024, compared to a benefit in 2023. The change is primarily due to the decrease in tax customer credits offsetting the bill impact of rate increases included in our prior general rate cases. There is a corresponding change in retail revenues related to tax customer credits such that there is minimal impact on net income. See “Note 13 of the Notes to Consolidated Financial Statements” for further details and a reconciliation of our effective tax rate.

Non-GAAP Financial Measures

The following discussion for Avista Utilities includes two financial measures that are considered “non-GAAP financial measures,” electric utility margin and natural gas utility margin. In the AEL&P section, we also include a discussion of electric utility margin.

Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included (excluded) in the most directly comparable measure calculated and presented in accordance with GAAP. Electric utility margin is electric operating revenues less electric resource costs, while natural gas utility margin is natural gas operating revenues less natural gas resource costs. The most directly comparable GAAP

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financial measure to electric and natural gas utility margin is utility operating revenues as presented in “Note 24 of the Notes to Consolidated Financial Statements.”

The presentation of electric utility margin and natural gas utility margin is intended to enhance understanding of our operating performance. We use these measures internally and believe they provide useful information to investors in their analysis of how changes in loads (due to weather, economic or other conditions), rates, supply costs and other factors impact our results of operations. Changes in loads, as well as power and natural gas supply costs, are generally deferred and recovered from customers through regulatory accounting mechanisms. Accordingly, the analysis of utility margin generally excludes most of the change in revenue resulting from these regulatory mechanisms. We present electric and natural gas utility margin separately below for Avista Utilities since each portion of our business has different cost sources, cost recovery mechanisms and jurisdictions, so we believe that separate analysis is beneficial. These measures are not intended to replace utility operating revenues as determined in accordance with GAAP as an indicator of operating performance. Reconciliations of operating revenues to utility margin are set forth below.

Results of Operations - Avista Utilities

Resource Optimization

We engage in resource optimization, which involves the selection from available energy resources to serve our load obligations and the use of these resources to capture economic value through wholesale market transactions, which is ultimately intended to lower net power and natural gas supply costs. Our resource optimization transactions can take the form of physical sales and purchases of electric capacity and energy and fuel for electric generation, purchases and sales of natural gas to optimize use of pipeline and storage capacity, as well as financial derivative contracts related to capacity, energy, fuel and fuel transportation. See Item 1. "Business - Avista Utilities - Electric Operations - General" and "Business - Avista Utilities - Natural Gas Operations - General".

We typically enter into multiple transactions simultaneously to capture value. Even though these transactions are considered together when determining the net impact, they are recorded in separate items within components of utility operating revenue and resource costs and can cause fluctuations in each item. Gains and losses on financial derivative contracts in certain line items below (such as wholesale sales and purchases of power and natural gas, sales of fuel, and other fuel costs). The ERM, PCA and PGAs are based on net supply costs and consider all transactions related to resource procurement and optimization (both physical and financial).

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2024 compared to 2023

Utility Operating Revenues

The following graphs present Avista Utilities' electric operating revenues and MWh sales for 2024 and 2023, respectively (dollars in millions and MWhs in thousands):

(1)

This balance includes public street and highway lighting, which is considered part of retail electric revenues, and deferrals/amortizations to customers related to federal income tax law changes.

Total electric operating revenues in the graph above include intracompany sales of $4 million and $6 million for 2024 and 2023, respectively.

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The following table presents the current year decoupling deferrals and the amortization of prior year decoupling balances reflected in utility electric operating revenues for the years ended December 31 (dollars in millions):

Electric Decoupling Revenues

Current year decoupling deferrals (a) $ 5 $ (3 )

Amortization of prior year decoupling deferrals (b) 18 15

Total electric decoupling revenue $ 23 $ 12

(a)

Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years.

(b)

Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total electric revenues increased $129 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $96 million increase in retail electric revenues due to an increase in revenue per MWh (increased revenues $83 million), and an increase in total MWhs sold (increased revenues $13 million).

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The increase in revenue per MWh was primarily due to the effects of our general rate cases, as well as the ERM surcharge to customers that commenced in July 2023.

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The increase in total retail MWhs sold was primarily the result of customer growth, including a large industrial customer that we began serving in August 2024.

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a $25 million decrease in wholesale electric revenues due to a decrease in sales prices (decreased revenues $41 million), partially offset by an increase in sales volumes (increased revenues $16 million). The increase in volumes was due to increased opportunities to optimize our generation assets based on market conditions.

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a $39 million increase in revenues from sales of fuel due to thermal generation resource optimization activities, which includes net losses on derivative instruments resulting from commodity price volatility in early 2023.

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an $11 million increase in electric decoupling revenue, resulting from current year deferrals in a surcharge position, compared to a rebate position in the prior year, as well as an increase in amortization of prior year rebate balances.

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a $10 million increase in other electric revenues, primarily resulting from increased transmission and REC revenues.

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The following graphs present Avista Utilities' natural gas operating revenues and therms delivered for 2024 and 2023, respectively (dollars in millions and therms in thousands):

(1)

This balance includes interruptible and industrial revenues, which are considered part of retail natural gas revenues, and deferrals/amortizations to customers related to federal income tax law changes.

Total natural gas operating revenues in the graph above include intracompany sales of $16 million and $33 million for 2024 and 2023, respectively.

The following table presents the current year decoupling deferrals and the amortization of prior year decoupling balances reflected in natural gas operating revenues for the years ended December 31 (dollars in millions):

Natural Gas Decoupling Revenues

Current year decoupling deferrals (a) $ 15 $ —

Amortization of prior year decoupling deferrals (b) (3 ) (7 )

Total natural gas decoupling revenue $ 12 $ (7 )

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(a)

Positive amounts are increases in decoupling revenue in the current year and will be surcharged to customers in future years. Negative amounts are decreases in decoupling revenue in the current year and will be rebated to customers in future years.

(b)

Positive amounts are increases in decoupling revenue in the current year and are related to the amortization of rebate balances that resulted in prior years and are being refunded to customers (causing a corresponding decrease in retail revenue from customers) in the current year. Negative amounts are decreases in decoupling revenue in the current year and are related to the amortization of surcharge balances that resulted in prior years and are being surcharged to customers (causing a corresponding increase in retail revenue from customers) in the current year.

Total natural gas revenues increased $35 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $14 million decrease in retail natural gas revenues (including a $4 million decrease in interruptible and industrial revenues, which are included in other) due to decreased sales volumes (decreased revenues $11 million) and decreased retail rates (decreased revenues $3 million).

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Retail natural gas sales volumes decreased primarily due to lower residential and commercial usage due to warmer weather. Compared to 2023, residential use per customer decreased 4 percent and commercial use per customer decreased 1 percent. Heating degree days in Spokane during 2024 were 11 percent below historical average, compared to 8 percent below historical average in 2023. These decreases were partially offset by customer growth.

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Retail rates decreased due to PGA rate decreases (which do not impact utility margin), partially offset by the effects of our general rate cases and net rate increases associated with the CCA.

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a $6 million increase in wholesale natural gas revenues due to an increase in prices (increased revenues $4 million) and an increase in volumes (increased revenues $2 million). Differences between revenues and costs from sales of resources in excess of retail load requirements and from resource optimization are accounted for through the PGA mechanisms.

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a $19 million increase in decoupling revenues due to surcharge deferrals in the current year resulting from lower customer usage, compared to rebate deferrals in the prior year. There were also lower amortizations of prior year surcharges compared to amortizations in 2023.

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a $20 million increase in other natural gas revenue due to revenues associated with the sale of CCA emissions credits, which are deferred and are amortized as they are passed through to customers through decreases in retail rates. The increase in other revenues is offset by decreased retail rates, resulting in no impact to utility margin.

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Utility Resource Costs

The following graph presents Avista Utilities' electric resource costs for 2024 and 2023, respectively (dollars in millions):

Total electric resource costs in the graph above include intracompany resource costs of $16 million and $33 million for 2024 and 2023, respectively.

Total electric resource costs increased $58 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $27 million increase in power purchased due to an increase in wholesale prices (increased costs by $15 million), and an increase in the volume of power purchases (increased costs by $12 million). In mid-January 2024, our service territory experienced much colder than normal weather, requiring purchases at a time when wholesale prices were substantially elevated due to capacity constraints in our region.

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a $9 million decrease in fuel for generation primarily due to decreased natural gas prices and decreased thermal generation.

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a $3 million decrease in other fuel costs, including gains on financial derivative instruments associated with our hedging activities. This represents fuel and the related derivative instruments that were purchased for generation but later sold when conditions indicated that it was more economical to sell the fuel as part of the resource optimization process. When the fuel or related derivative instruments are sold, that revenue is included in sales of fuel.

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a $43 million increase in other electric resource costs, primarily related to an increase in amortization of previously deferred costs, and an increase in deferred benefits under the PCA in Idaho related to current year power supply costs. There was also an increase in the deferral of funds related to our customer assistance payment programs (low income rate assistance and demand side management).

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The following graph presents Avista Utilities' natural gas resource costs for 2024 and 2023, respectively (dollars in millions):

Total natural gas resource costs in the graph above include intracompany resource costs of $4 million and $6 million for 2024 and 2023, respectively.

Total natural gas resource costs increased $18 million for 2024 as compared to 2023. The primary differences in the results for these periods were as follows:

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a $98 million decrease in natural gas purchased due to a decrease in the price of natural gas.

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a $116 million increase in other costs, primarily due to a decrease in deferred costs during the period, largely a result of lower natural gas prices, as well as the amortization of costs associated with the CCA that were recovered from customers, resulting in no impact to utility margin.

Utility Margin

The following table reconciles Avista Utilities' operating revenues, as presented in “Note 24 of the Notes to Consolidated Financial Statements”, to the Non-GAAP financial measure utility margin for the years ended December 31 (dollars in millions):

Electric Natural Gas Intracompany Total

Electric utility margin increased $71 million and natural gas utility margin increased $17 million.

Electric and natural gas utility margin increased primarily due to our general rate cases, as well as customer growth. The effects of general rate cases include decreased tax customer credits, which increase operating revenues, and therefore utility margin, with a corresponding increase to income tax expense. This has a minimal impact on net income.

In both 2024 and 2023, we had an $8 million pre-tax expense under the ERM.

Intracompany revenues and resource costs represent purchases and sales of natural gas between our natural gas distribution operations and our electric generation operations (as fuel for our generation plants). These transactions are eliminated in the presentation of total results for Avista Utilities and in the consolidated financial statements but are included in the separate results for electric and natural gas presented above.

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Results of Operations - Alaska Electric Light and Power Company

2024 compared to 2023

Net income for AEL&P was $8 million for 2024, compared to $9 million for 2023.

The following table presents AEL&P's operating revenues, resource costs and resulting utility margin for the years ended December 31 (dollars in millions):

Electric

Operating revenues $ 50 $ 48

Resource costs 4 4

Utility margin $ 46 $ 44

Utility margin increased for 2024 primarily due to higher sales volumes and rate increases. The increase in utility margin was offset by increased operating expenses, resulting in a decrease to net income in 2024 compared to 2023. Utility margin is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" above.

Results of Operations - Other Businesses

2024 compared to 2023

Our other businesses had a net loss of $7 million for 2024 compared to a net loss of $5 million for 2023. The fluctuation in results is primarily related to higher net investment losses due to changes in fair value and recognizing our portion of equity investment losses.

Accounting Standards to be Adopted in 2025

We are not expecting the adoption of accounting standards to have a material impact on our financial condition, results of operations and cash flows in 2025. For more information on accounting standards expected to be adopted in future periods, see "Note 2 of the Notes to the Consolidated Financial Statements".

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on our consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. The following accounting policies represent those that management believes are particularly important to the consolidated financial statements and require the use of estimates and assumptions:

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Regulatory accounting, in accordance with ASC Topic 980, Regulated Operations, among other things, requires that costs and/or obligations that, in our judgement, are probable of recovery through rates charged to customers, but are not yet reflected in rates, not be reflected in our Consolidated Statements of Income until the period in which they are reflected in rates and matching revenues are recognized. Meanwhile, these costs and/or obligations are deferred and reflected on our Consolidated Balance Sheets as regulatory assets or liabilities. We generally receive regulatory orders before deferring costs as regulatory assets and liabilities; however, in certain instances in which we have regulatory precedent, we may not request an order before deferring the costs. If we no longer met the criteria to apply regulatory accounting or no longer allowed recovery of these costs, we would be required to recognize significant write-offs of regulatory assets and liabilities in the Consolidated Statements of Income. See “Notes 1, 4 and 23 of the Notes to Consolidated Financial Statements” for further discussion of our regulatory accounting policy and mechanisms.

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Pension plans and other postretirement benefit plans, discussed in further detail below.

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Equity investments, specifically valuations performed to determine the fair value of certain investment holdings, require judgement in the selection of assumptions used to estimate fair value of investments for which there is not a

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quoted active market price. We primarily use a market approach to determine fair value of an investment, and transactions involving comparable securities may need to be adjusted to estimate our investment's fair value. See “Notes 7 and 18 of the Notes to Consolidated Financial Statements” for further discussion of our equity investments and method for determining their fair value.

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Contingencies, related to unresolved regulatory, legal and tax issues as to which there is inherent uncertainty for the ultimate outcome of the respective matter. We accrue a loss contingency if it is probable that an asset is impaired or a liability has been incurred and the amount of the loss or impairment can be reasonably estimated. To the extent material, we also disclose losses that do not meet these conditions for accrual, if there is a reasonable possibility that a potential loss may be incurred. For all material contingencies, we have made a judgment as to the probability of a loss occurring and as to whether or not the amount of the loss can be reasonably estimated. However, no assurance can be given as to the ultimate outcome of any contingency. See “Notes 1 and 22 of the Notes to Consolidated Financial Statements” for further discussion of our commitments and contingencies.

Pension Plans and Other Postretirement Benefit Plans - Avista Utilities

We have a defined benefit pension plan covering substantially all regular full-time employees at Avista Utilities hired prior to January 1, 2014 and regular full-time union employees that were hired prior to January 1, 2024. See “Note 12 of the Notes to Consolidated Financial Statements” for further discussion of these individual plans.

Pension cost (including the SERP) was $7 million for 2024, $9 million for 2023 and $23 million for 2022. Included in our 2022 pension cost is $12 million of settlement cost, which was deferred as a regulatory asset and therefore did not impact our net income in 2022. See “Note 12 of the Notes to Consolidated Financial Statements” for further discussion of pension settlement accounting treatment. Of our pension cost (excluding the SERP), approximately 55 percent is expensed and 45 percent is capitalized consistent with labor charges. The cost related to the SERP is expensed. Our cost for the pension plan is determined in part by actuarial formulas that are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience.

Pension cost is affected by among other things:

•

employee demographics (including age, compensation and length of service by employees),

•

the amount of cash contributions to the pension plan,

•

the actual return on pension plan assets,

•

expected return on pension plan assets,

•

discount rate used in determining the projected benefit obligation and pension costs,

•

assumed rate of increase in employee compensation,

•

life expectancy of participants and other beneficiaries, and

•

expected method of payment (lump sum or annuity) of pension benefits.

We make estimates and assumptions as to many of these factors. In accordance with accounting standards, changes in pension plan obligations associated with these factors may not be immediately recognized as pension costs in our Consolidated Statements of Income, but we generally recognize the change in future years over the remaining average service period of pension plan participants. As such, our cost recorded in a period may not reflect the actual level of cash benefits provided to pension plan participants.

We revise the key assumption of the discount rate each year. In selecting a discount rate, we consider yield rates at the end of the year for highly rated corporate bond portfolios with cash flows from interest and maturities similar to the expected payout of pension benefits.

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The expected long-term rate of return on plan assets is reset or confirmed annually based on past performance and economic forecasts for the types of investments held by our plan.

The following chart reflects the assumptions used each year for the pension discount rate (exclusive of the SERP), the expected long-term return on plan assets and the actual return on plan assets and their impacts to the pension plan associated with the change in assumption (dollars in millions):

Discount rate (exclusive of SERP)

Increase/(decrease) to projected benefit obligation $ (17 ) $ 14 $ (198 )

Return on plan assets (a)

Expected long-term return on plan assets 7.80 % 8.30 % 5.80 %

Increase/(decrease) to pension costs $ 3 $ (13 ) $ (3 )

Actual return on plan assets, net of fees 7.30 % 15.00 % (21.80 )%

Actual gain (loss) on plan assets $ 42 $ 79 $ (164 )

(a)

The SERP has no plan assets. The plan assets in this disclosure are for the pension plan only.

The following chart reflects the sensitivities associated with a change in certain actuarial assumptions by the indicated percentage (dollars in millions):

Expected long-term return on plan assets (0.5 )% $ — * $ 3

Expected long-term return on plan assets 0.5 % — * (3 )

Discount rate (0.5 )% 31 3

Discount rate 0.5 % (28 ) (3 )

*Changes in the expected return on plan assets would not affect our projected benefit obligation.

We provide certain health care and life insurance benefits for substantially all of our retired employees. We accrue the estimated cost of postretirement benefit obligations during the years that employees provide service.

Liquidity and Capital Resources

Overall Liquidity

Avista Corp.'s consolidated operating cash flows are primarily derived from the operations of Avista Utilities. The primary source of operating cash flows for Avista Utilities is revenues from sales of electricity and natural gas. Significant uses of cash flows from Avista Utilities include the purchase of power, emissions allowances, fuel and natural gas, and payment of other operating expenses, taxes and interest, with any excess being available for other corporate uses such as capital expenditures and dividends.

We design operating and capital budgets to control operating costs and to direct capital expenditures to projects that support immediate and long-term strategies, particularly for our regulated utility operations. In addition to operating expenses, we have continuing commitments for capital expenditures for construction and improvement of utility facilities.

Our annual net cash flows from operating activities usually do not fully support the amount required for annual utility capital expenditures. As such, from time-to-time, we need to access capital markets to fund these needs as well as fund maturing debt. See further discussion at “Capital Resources.”

We regularly file for rate adjustments for recovery of operating costs and capital investments and to seek the opportunity to earn reasonable returns.

We have regulatory mechanisms in place that provide for the deferral and recovery of the majority of power and natural gas supply costs. However, when power and natural gas costs exceed the levels currently recovered from customers, net cash flows are negatively affected. Factors that could cause purchased power and natural gas costs to exceed the levels currently recovered

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from customers under base rates include, but are not limited to, higher prices in wholesale markets and/or an increased need to purchase power in the wholesale markets, and a lack of regulatory approval for higher authorized net power supply costs. Factors beyond our control that could result in an increased need to purchase power in the wholesale markets include, but are not limited to:

•

reduced snowpack and/or lower streamflows for hydroelectric generation (due to lower precipitation and/or warmer weather or extreme cold weather),

•

increases in demand (due to either weather or customer growth),

•

unplanned outages at generating facilities, and

•

failure of third parties to deliver on energy or capacity contracts.

In addition to the above, we enter into derivative instruments to hedge exposure to certain risks, including fluctuations in commodity prices, foreign exchange rates and interest rates (for purposes of issuing long-term debt in the future). These derivative instruments periodically require the posting of collateral (in the form of cash or letters of credit) or other credit enhancements or to reduce or terminate a portion of the contract through cash settlement, in the event of a downgrade in our credit ratings or changes in market prices. In periods of price volatility, the level of exposure can change significantly. As a result, sudden and significant demands may be made against our cash on hand and credit facilities. See “Enterprise Risk Management – Credit Risk Liquidity Considerations” below.

Material contractual obligations that demand cash arise in the normal course of business including energy purchase contracts and contractual obligations related to generation facilities and transmission and distributions services. See “Note 14 of the Notes to Consolidated Financial Statements” for additional information related to these contractual obligations.

Additional demands for cash include payments of borrowings and interest payments (see “Notes 15-17 of the Notes to Consolidated Financial Statements”), lease obligations (see “Note 5 of the Notes to Consolidated Financial Statements”), pension and other postretirement benefit plan contributions (see “Note 12 of the Notes to Consolidated Financial Statements”) and investment fund commitments (see “Note 6 of the Notes to Consolidated Financial Statements”).

See discussion in “Capital Resources” below for available liquidity under our credit facilities. With our available liquidity under these agreements, we believe that we have adequate liquidity to meet our needs for the next 12 months.

Review of Consolidated Cash Flow Statement

2024 compared to 2023

Consolidated Operating Activities

Net cash provided by operating activities was $534 million for 2024 compared to $447 million for 2023. The increase in net cash provided by operating activities primarily relates to a $97 million increase in net power and natural gas cost amortizations compared to 2023 due to decreases in commodity prices and recovery of previously deferred costs from customers. Net cash flows associated with accounts payable increased $58 million due to large balances paid in early 2023 associated with elevated commodity prices at the end of 2022, and net cash flows associated with other current assets increased $42 million due to timing of payments.

These increases to operating cash flows are partially offset by a $111 million decrease in cash proceeds from collateral posted for derivative instruments. In 2023, large amounts of collateral were returned due to fluctuations in commodity prices.

Consolidated Investing Activities

Net cash used in investing activities was $539 million for 2024, an increase compared to $510 million for 2023. During 2024, we paid $533 million for utility capital expenditures, compared to $499 million for 2023.

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Consolidated Financing Activities

Net cash provided by financing activities was $0 million for 2024 compared to $85 million for 2023. The decrease in financing cash flows was primarily the result of a $84 million of long-term debt issuances in 2024, compared to $250 million issued in 2023, and $68 million of common stock issued in 2024 compared to $113 million in 2023. These decreases were partially offset by an increase in short-term borrowings of $5 million in 2024, compared to a decrease in borrowings of $114 million in 2023.

Capital Resources

Capital Structure

Our consolidated capital structure, including the current portion of long-term debt and short-term borrowings consisted of the following as of December 31, 2024 and 2023 (dollars in millions):

Amount Percentof total Amount Percentof total

Current portion of long-term debt and leases $ 8 0.1 % $ 22 0.4 %

Long-term debt to affiliated trusts 52 0.9 % 52 0.9 %

Total Avista Corporation shareholders’ equity 2,591 45.3 % 2,485 45.0 %

Our shareholders’ equity increased $106 million during 2024 primarily due to net income and the issuance of common stock, partially offset by dividends paid.

We need to finance capital expenditures and acquire additional funds for operations from time to time. The cash requirements needed to service our indebtedness, both short-term and long-term, reduce the amount of cash available to fund capital expenditures, purchased power, fuel and natural gas costs, dividends and other requirements.

Short Term Borrowings

Avista Corp.

Avista Corp. has a committed line of credit in the total amount of $500 million and an expiration date of June 2028, with the option to extend for an additional one year period (subject to customary conditions). Avista Corp. also has a continuing letter of credit agreement in the aggregate amount of $50 million, and either party may terminate the agreement at any time.

The following table summarizes the balances outstanding and available liquidity as of December 31, 2024 (dollars in millions):

Letter of credit facility 50 N/A 12 38

(1)

Letters of credit are not reflected on the Consolidated Balance Sheets. If a letter of credit were drawn upon by the holder, we would have an immediate obligation to reimburse the bank that issued that letter.

The Avista Corp. credit facilities contain customary covenants and default provisions, including a change in control (as defined in the agreements). The events of default under each of the credit facilities also include a cross default from other indebtedness (as defined) and in some cases other obligations. Some of these agreements also include a covenant which does not permit our ratio of “consolidated total debt” to “consolidated total capitalization” to be greater than 65 percent at any time. As of December 31, 2024, we complied with this covenant with a ratio of 54.7 percent.

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Balances outstanding and interest rates on borrowings (excluding letters of credit) under Avista Corp.'s lines of credit were as follows as of and for the year ended December 31 (dollars in millions):

$500 million line of credit, expiring June 2028

Maximum balance outstanding during the year $ 350 $ 357

Average balance outstanding during the year 270 246

Average interest rate during the year 6.26 % 6.06 %

Average interest rate at end of year 5.52 % 6.46 %

$100 million line of credit, terminated June 2023

Maximum balance outstanding during the period (1) N/A $ 15

Average balance outstanding during the period (1) N/A —

Average interest rate during the period (1) N/A 7.75 %

Average interest rate at end of year N/A N/A

(1)

Amounts for each period are from entering the agreement in December 2022 to the termination in June 2023.

AEL&P

AEL&P has a $25 million committed line of credit with an expiration date in June 2028. As of December 31, 2024, there was $12 million outstanding at an average interest rate of 6.13 percent, and $13 million of available liquidity under this line of credit.

The AEL&P credit facility contains customary covenants and default provisions including a covenant which does not permit the ratio of “consolidated total debt at AEL&P” to “consolidated total capitalization at AEL&P,” (including the impact of the Snettisham obligation) to be greater than 67.5 percent at any time. As of December 31, 2024, AEL&P complied with this covenant with a ratio of 49.7 percent.

As of December 31, 2024, Avista Corp. and its subsidiaries complied with the covenants of their financing agreements, and none of Avista Corp.'s subsidiaries constituted a “significant subsidiary” as defined in Avista Corp.'s committed line of credit.

Long-Term Debt

In April 2024, Avista Corp. closed on the remarketing of $67 million (series A) and $17 million (series B) of City of Forsyth, Montana Pollution Control Revenue Refunding Bonds due in 2032 and 2034, respectively. The interest rate on both series of bonds is 3.875 percent. The net proceeds from the remarketing of the Forsyth bonds were used to repay a portion of the borrowings outstanding under Avista Corp.'s committed line of credit. In connection with the pricing of the Forsyth bonds in March 2024, we cash-settled two interest rate swap derivatives (notional aggregate amount of $20 million) and received a net amount of $4 million, which will be amortized as a component of interest expense over the life of the bonds. The effective interest cost of the bonds is 3.61 percent for series A and 3.97 percent for series B, including the effects of the settled interest rate swap derivatives and issuance costs.

Common Stock

We issued common stock in 2024 for total net proceeds of $68 million. Most of the stock was issued through our sales agency agreements under which we may offer and sell new shares of our common stock from time to time through our sales agents, with the balance related to compensation plans. In 2024, 1.8 million shares were issued under these agreements.

2025 Liquidity Expectations

During 2025, we expect to issue up to $120 million of long-term debt and up to $80 million of common stock to fund planned capital expenditures.

After considering the expected issuances of long-term debt and common stock during 2025, we expect net cash flows from operating activities, together with cash available under our credit facilities, to provide adequate resources to fund capital expenditures, dividends, and other contractual commitments.

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Limitations on Issuances of Preferred Stock and First Mortgage Bonds

We are restricted under our Restated Articles of Incorporation, as amended, as to the additional preferred stock we can issue. As of December 31, 2024, we could issue $1.7 billion of preferred stock at an assumed dividend rate of 6.875 percent. We are not planning to issue preferred stock.

See “Note 16 of the Notes to Consolidated Financial Statements” for discussion of first mortgage bonds issuance limits.

Utility Capital Expenditures

We make capital investments at our utilities to enhance service and system reliability for our customers and replace aging infrastructure. The following table summarizes our actual and expected capital expenditures as of and for the year ended December 31, 2024 (dollars in millions):

Avista Utilities AEL&P

2024 Actual capital expenditures

Capital expenditures (per the Consolidated Statement of Cash Flows) $ 510 $ 23

Expected total annual capital expenditures (by year)

The following graph shows Avista Utilities' expected capital expenditures for 2025-2027 by category (in millions):

These estimates of capital expenditures are subject to continuing review and adjustment. Actual expenditures may vary from our estimates due to factors such as changes in business conditions, construction schedules and environmental requirements. In particular, these estimates do not include expenditures for additional generation or transmission facilities that are contemplated in our IRP but have not been specifically identified and approved.

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Non-Regulated Investments and Capital Expenditures

We make investments and capital expenditures at our other businesses including those related to economic development projects in our service territory that demonstrate the latest energy and environmental building innovations and house several local college degree programs. In addition, we make investments in emerging technology companies, venture capital funds, and other business ventures. The following table summarizes our actual and expected investments and capital expenditures at our other businesses as of and for the year ended December 31, 2024 (dollars in millions):

Other

2024 Actual investments and capital expenditures

Investments and capital expenditures $ 10

Expected total annual investments and capital expenditures (by year)

These estimates of investments and capital expenditures are subject to continuing review and adjustment. Actual expenditures may vary from our estimates due to factors such as changes in business conditions or strategic plans.

See “Liquidity” for information regarding other material cash requirements for 2025 and thereafter.

Pension Plan

We contributed $10 million to the pension plan in 2024. We expect to contribute a total of $50 million to the pension plan in the period 2025 through 2029, with an annual contribution of $10 million.

The final determination of pension plan contributions for future periods is subject to multiple variables, most of which are beyond our control, including changes to the fair value of pension plan assets, changes in actuarial assumptions (in particular the discount rate used in determining the benefit obligation), or changes in federal legislation. We may change our pension plan contributions in the future depending on changes to any variables, including those listed above.

See “Note 12 of the Notes to Consolidated Financial Statements” for additional information regarding the pension plan.

Credit Ratings

Our access to capital markets and our cost of capital are directly affected by our credit ratings. In addition, many of our contracts for the purchase and sale of energy commodities contain terms dependent upon our credit ratings. See “Enterprise Risk Management – Credit Risk Liquidity Considerations” and “Note 8 of the Notes to Consolidated Financial Statements.”

The following table summarizes our credit ratings as of February 25, 2025:

Standard & Poor's (1) Moody's (2)

Corporate/Issuer rating BBB Baa2

Senior Secured Debt A- A3

Senior Unsecured Debt BBB Baa2

(1)

Standard & Poor’s lowest “investment grade” credit rating is BBB-.

(2)

Moody’s lowest “investment grade” credit rating is Baa3.

A security rating is not a recommendation to buy, sell or hold securities. Each security rating is subject to revision or withdrawal at any time by the assigning rating organization. Each security rating agency has its own methodology for assigning ratings, and, accordingly, each rating should be considered in the context of the applicable methodology, independent of all other ratings. The rating agencies provide ratings at the request of Avista Corp. and charge fees for their services.

Dividends

See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for a detailed discussion of our dividend policy and the factors which could limit the payment of dividends.

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Competition

Our electric and natural gas distribution utility business has historically been recognized as a natural monopoly. In each regulatory jurisdiction, our rates for retail electric and natural gas services (other than specially negotiated retail rates for industrial or large commercial customers, which are subject to regulatory review and approval) are generally determined on a “cost of service” basis. In theory, rates are designed to provide, after recovery of allowable operating expenses and capital investments, an opportunity to earn a reasonable return on investment as allowed by our regulators.

In retail markets, we compete with various rural electric cooperatives and public utility districts in and adjacent to our service territories in the provision of service to new electric customers. We have service territory agreements with certain rural electric cooperatives and public utility districts, approved in applicable jurisdictions, to set forth conditions under which one or the other utility will provide service to customers. Alternative energy technologies, including customer-sited solar, wind or geothermal generation, and energy storage, may also compete for sales to existing customers. Advances in power generation, energy efficiency, energy storage and other alternative energy technologies could lead to more wide-spread usage of these technologies, thereby reducing customer demand for the energy supplied by us. This reduction in usage and demand would reduce our revenue and negatively impact our financial condition including possibly leading to our inability to fully recover our investments in generation, transmission and distribution assets. Similarly, our natural gas distribution operations compete with other energy sources including heating oil, propane and other fuels.

Certain natural gas customers could bypass our natural gas system, reducing both revenues and recovery of fixed costs. To reduce the potential for such bypass, we price natural gas services, including transportation contracts, competitively and have varying degrees of flexibility to price transportation and delivery rates by means of individual contracts. These individual contracts are subject to regulatory review and approval. We have long-term transportation contracts with several of our largest industrial customers under which the customer acquires its own commodity while using our infrastructure for delivery. Such contracts reduce the risk of these customers bypassing our system in the foreseeable future and minimizes the impact on our earnings.

Customers may have a choice in the future over the sources from which to receive their energy. To effectively compete for our customers in the future, we continue to strive to create value through product and service offerings. We are also attempting to enhance the effectiveness and ease of our customer interactions by tailoring internal initiatives to focus on choices for customers to increase their overall satisfaction with the Company.

Also, non-utility businesses are developing new technologies and services to help energy consumers manage energy in new ways that may improve productivity and could alter demand for the energy we sell.

In wholesale markets, competition for available electric supply is influenced by the:

•

localized and system-wide demand for energy,

•

type, capacity, location and availability of generation resources, and

•

variety and circumstances of market participants.

These wholesale markets are regulated by the FERC, which requires electric utilities to transmit power and energy to or for wholesale purchasers and sellers, enlarge or construct additional transmission capacity for the purpose of providing these services, and transparently price and offer transmission services without favor to any party, including the merchant functions of the utility.

Participants in the wholesale energy markets include:

•

other utilities,

•

federal power marketing agencies,

•

energy marketing and trading companies,

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•

independent power producers,

•

financial institutions, and

•

commodity brokers.

Utility Customer and Load Growth

We develop customer and load growth forecasts for the next five years. For 2025-2029, we expect electric and natural gas customer growth of 1.3 percent and 0.5 percent, respectively. Expected load growth for the same period is 0.6 percent for electric and 0.4 percent for natural gas. These estimates do not include the impact of adding any large load customers.

Recent and emerging legislation with potential restrictions to new connections does create further uncertainty when forecasting natural gas customer and load growth, with additional potential impacts to our electric customer and load growth from resulting electrification efforts. Further, natural gas extension allowance programs (which encourage customer growth) have been phased out in Washington and are in the process of being phased out in Oregon. See further discussion regarding regulations impacting our natural gas operations as included in “Environmental Issues and Contingencies”.

The forward-looking statements set forth above regarding retail load growth are based, in part, upon purchased economic forecasts and publicly available population and demographic studies. The expectations regarding retail load growth are also based upon various assumptions, including:

•

assumptions relating to weather and economic and competitive conditions,

•

internal analysis of company-specific data, such as energy consumption patterns,

•

internal business plans,

•

an assumption that we will incur no material loss of retail customers due to self-generation or retail wheeling, and

•

an assumption that demand for electricity and natural gas as a fuel for mobility will for now be immaterial.

Changes in actual experience can vary significantly from our projections.

See also “Competition” above for a discussion of competitive factors that could affect our results of operations in the future.

Environmental Issues and Contingencies

We are subject to environmental regulation by federal, state, tribal and local authorities. The generation, transmission, distribution, service and storage facilities in which we have ownership interests or which we may need to acquire or develop are subject to environmental laws, regulations and rules relating to construction permitting, air quality and emissions, water quality, fisheries, wildlife, endangered species, avian interactions, wastewater and stormwater discharges, waste handling, natural resource protection, historic and cultural resource protection, and other similar activities. These laws and regulations require the Company to make substantial investments in compliance activities and to acquire and comply with a wide variety of environmental licenses, permits, approvals and settlement agreements. These items are enforceable by public officials and private individuals. Some of these regulations are subject to ongoing interpretation, whether administratively or judicially, and are often in the process of being modified. We conduct periodic reviews and audits of pertinent facilities and operations to enhance compliance and to respond to or anticipate emerging environmental issues. The Company's Board of Directors has established a committee to oversee environmental issues and to assess and manage environmental risk.

We monitor legislative and regulatory developments at different levels of government for environmental issues, particularly those with the potential to impact the operation of our generating plants and other assets, and our ability to provide service to natural gas customers. We continue to be subject to increasingly stringent or expanded application of environmental and related regulations from all levels of government.

Environmental laws and regulations may restrict or impact our business activities in many ways, including, but not limited to:

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•

increasing the operating costs of generating plants, natural gas and electric transmission and distribution facilities and other assets,

•

increasing the lead time and capital costs for the construction of new generating plants, natural gas and electric transmission and distribution facilities and other assets,

•

requiring modification of existing generating plants, natural gas and electric transmission and distribution facilities,

•

requiring existing generating plant, natural gas and/or operations to be curtailed or shut down,

•

reducing the amount of energy available from generating plants,

•

restricting the types of generating plants that can be built or contracted with,

•

requiring construction of specific types of generation plants at higher cost, and

•

increasing costs of distributing, or limiting our ability to distribute, electricity and/or natural gas.

Compliance with environmental laws and regulations could result in increases to capital expenditures and operating expenses. We intend to seek recovery of such costs through the ratemaking process.

Policies and Other Impacts Related to Climate Change

Legal and policy changes responding to concerns about climate changes, and the potential impacts of such changes, could have a significant effect on our business. Direct impacts of climate changes include, without limitation, variations in the amount and timing of energy demand throughout the year, variations in the level and timing of precipitation throughout the year, as well as variations in temperature, and the resulting impact on the availability of hydroelectric resources at times of peak demand as well as an increased risk of wildfire and other impacts of extreme weather. Indirect impacts include, without limitation, changes in laws and regulations intended to mitigate the risk of, or alter, climate changes, including restrictions on the operation of our power generation resources and obligations or limitations imposed on the sale of natural gas. When direct or indirect impacts of climate change lead to increased operational costs or capital investments, we intend to recover such costs through the ratemaking process.

Washington Legislation and Regulatory Actions

Clean Energy Transformation Act

In 2019, the Washington State Legislature passed the CETA, which effectively prohibits sales of energy produced by coal-fired generation to Washington retail customers after December 31, 2025. In addition, the CETA establishes the policy of Washington State that retail sales of electricity to Washington customers must be carbon-neutral by January 1, 2030 and requires that each electric utility demonstrate compliance with this standard by using electricity from renewable and other non-emitting resources for 100 percent of the utility’s retail electric load over consecutive multi-year compliance periods; provided, however, that through December 31, 2044 the utility may satisfy up to 20 percent of this requirement with specified payments, credits and/or investments in qualifying energy transformation projects.

The law has direct, specific impacts on Colstrip, which are unique to those owners of Colstrip who serve Washington customers. See “Colstrip” section and “Note 22 of the Notes to Consolidated Financial Statements” for further details on the impacts of the CETA on Colstrip and our plans to exit Colstrip through an agreement with NorthWestern. Our hydroelectric and biomass generation facilities can be used to comply with the CETA’s clean energy standards. We intend to seek recovery of costs associated with the clean energy legislation and regulations through the regulatory process.

In compliance with the CETA, we filed our first CEIP in October 2021, that was approved by the WUTC in June 2022. The CEIP’s four-year compliance period of 2022-2025 proposes targets and specific actions to meet Washington State’s clean energy goals and the equitable distribution of benefits and reduction of burdens to all customers. We have and will continue to deliver on our commitments under the current CEIP and are planning targets and actions for

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our next CEIP. The 2025 CEIP detailing targets and actions for the 2026-2029 compliance period will be filed with the WUTC by October 1, 2025. Some highlights of the proposed plan include:

•

increasing the annual targets for renewable and non-emitting energy delivered to Washington electric customers,

•

continuing to provide cost-effective energy efficiency programs to lower electric energy consumption,

•

measuring a set of customer benefit indicator metrics to ensure the equitable distribution of energy and non-energy benefits and reduction of burden to all customers and those residing in Named Communities, and

•

the Named Communities Investment Fund that will invest up to $5 million annually in projects, programs, and initiatives that directly benefit customers residing in historically disadvantaged and vulnerable communities.

Through the third quarter of 2025, we will seek input from the public and interested parties on the 2025 CEIP. The plan will represent our objectives when filed in October 2025, and will be subject to change through the approval process with the WUTC.

Emissions Performance Standard

Washington applies a GHG emissions performance standard to electric generation facilities used to serve retail loads, whether the facilities are located within Washington or elsewhere. The emissions performance standard prevents utilities from constructing or purchasing generation facilities, or entering into power purchase agreements of five years or longer duration to purchase energy produced by plants that have emission levels higher than 925 pounds of GHG per MWh. The Washington State Department of Commerce reviews the standard every five years. We intend to seek recovery of costs related to ongoing and new requirements through the ratemaking process.

Washington Climate Commitment Act

The CCA, and its implementing regulations, established a cap and trade program to reduce GHG emissions and achieve the GHG limits previously established under state law. The final rules implement a cap on emissions, provide mechanisms for the sale and tracking of tradable emissions allowances and establish additional compliance and accountability measures. The state issues allowances necessary to serve our Washington retail electric load; off-system wholesale sales may result in additional obligation costs. The CCA also has direct impacts on our Idaho electric operations as it applies to power that is delivered in Washington but is allocated to Idaho customers (wholesale sales) or power generated in Washington that is delivered to Idaho customers. Annually, the model and its resulting calculations must be certified by an independent third party and submitted to Ecology for approval. If the independent third party or Ecology disagrees with the approach or any of the calculations, it could result in a change to the number of allowances needed for compliance and could result in changes to anticipated costs for our electric operations. For Washington electric, we are allowed to defer any incremental costs associated with the CCA in accordance with our regulatory accounting order; however, in Idaho we are not allowed to recover any costs associated with CCA compliance from customers. See "Note 22 of the Notes to Condensed Consolidated Financial Statements" for further discussion of the CCA costs associated with our electric operations and impacts on our financial results.

For our Washington natural gas operations, we have additional financial burdens associated with compliance which are being deferred and recovered from customers in accordance with our regulatory accounting order in Washington (see "Executive Overview" for discussion of the CCA).

Washington State Building Codes

In April 2022, the Washington State Building Code Council (SBCC) approved a revised energy code requiring most new commercial buildings and large multifamily buildings to install all-electric space heating. An amendment to the code allows for natural gas to supplement electric heat pumps. In addition, in November 2022, the SBCC approved

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new building and energy codes for residential housing, requiring new residential buildings in Washington to use electricity as the primary heat source.

Both the commercial and residential building and energy codes were the subject of legal challenges in both Washington State Superior Court (the State Action) and in the Federal District Court for the Eastern District of Washington (the Federal Action). In the Federal Action, to which the Company was a party, the plaintiffs challenged the amendments on the grounds that they were preempted by the federal Energy Policy and Conservation Act (EPCA), citing the Ninth Circuit’s decision in California Restaurant Association v. Berkeley (the Berkeley Decision), which involved similar restrictions on the use of natural gas in new construction in Berkeley, California.

In May 2023, the SBCC voted to delay the effective date of the code amendments and commenced an emergency rulemaking process to evaluate additional amendments to the code in light of the Berkeley decision. As a result of this action, in July 2023, the Federal District Court declined to issue a preliminary injunction to prevent the amendments from taking effect. The plaintiffs in the Federal Action subsequently dismissed the action, without prejudice to their ability to refile after the SBCC rulemaking process is complete.

The SBCC has since voted to approve revised residential and commercial energy regulations that continue to require new residential and commercial buildings in Washington to use electricity as the primary heat source. In light of this action, the plaintiffs in the State Action amended their complaint to challenge the new regulations. The State Action remains pending.

In May 2024, we, along with Cascade Natural Gas Corporation, Northwest Natural Gas Company, and a coalition of homebuilders, heating unit dealers and other parties, filed a lawsuit challenging the approved building codes on the grounds that they are preempted by EPCA. The lawsuit was filed in the United States District Court for the Western District of Washington. This lawsuit remains pending.

In November 2024, Washington voters approved Initiative 2066, which would prohibit state and local governments from restricting access to natural gas, prohibit the SBCC from discouraging or penalizing the use of natural gas, and prohibit the WUTC from approving any multi-year rate plan that requires or incentivizes natural gas companies to terminate or limit natural gas service. Opponents of the Initiative have since filed suit in Washington state court challenging the validity of the Initiative, while proponents of the Initiative have also filed suit in Washington state court to require the SBCC to comply with the new law. Both lawsuits remain pending.

Over time, the building code changes would likely have an adverse impact on our natural gas business and natural gas customers but could also have a positive effect on our electric business. While we are in the process of studying the implications of the changes on our business, at this time we are not able to quantify the likely net effect, positive or negative, on our overall results of operations over the long term. However, the changes would clearly require that additional generating capacity be available to utilities and customers in Washington state.

Oregon Legislation and Regulatory Actions

Climate Protection Plan

In March 2020, Oregon Governor Kate Brown issued Executive Order No. 20-04, “Directing State Agencies to Take Actions to Reduce and Regulate Greenhouse Gas Emissions.” The Executive Order launched rulemaking proceedings for every Oregon agency with jurisdiction over GHG-related matters, with the aim of reducing Oregon’s overall GHG emissions to 80 percent below 1990 levels by 2050. This Executive Order led to the Oregon Department of Environmental Quality developing cap and reduce rules known as the CPP. The CPP, which became effective in January 2022, outlines GHG emissions reduction goals of 50 percent by 2035 and 90 percent by 2050 from the 1990 baseline. The first three-year compliance period is 2022 through 2024.

In March 2022, we, along with the utilities NW Natural and Cascade Natural Gas, filed a lawsuit requesting judicial review of the CPP. This action was subsequently consolidated with a lawsuit filed by several other parties. In December 2023, the Oregon Court of Appeals issued a decision declaring the CPP regulations invalid. The Oregon

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Department of Environmental Quality did not appeal the decision, but instead went back through the rulemaking process. The result of that process was a new version of the CPP that is very similar to the original. We are reviewing the new rules, and considering what legal action, if any, may be taken. To the extent the new rules impose additional compliance costs, we will seek to recover those costs through the ratemaking process.

Emissions Performance Standard

Oregon applies a GHG emissions performance standard to electric generation facilities, requiring that new baseload natural gas plant, non-base load natural gas plant, and non-generating facility reduce its net carbon dioxide emissions 17 percent below what the Oregon Facility Siting Council identifies as the most efficient combustion-turbine plant in the United States. The Oregon Energy Facility Siting Council issues rules periodically to update the standard, as more efficient power plants are built. The standard can be met by combination of efficiency, cogeneration, and offsets from carbon dioxide mitigation measures. We have thermal generation located in Oregon, and as such this standard applies to that facility. We intend to seek recovery of costs related to requirements through the ratemaking process.

Clean Air Act (CAA)

The CAA creates numerous requirements for our thermal generating plants. Colstrip, Kettle Falls GS, Coyote Springs and Rathdrum CT all require CAA Title V operating permits. The Boulder Park GS, Northeast CT and other operations require minor source permits or simple source registration permits. We have secured these permits and certify our compliance with Title V permits on an annual basis. These requirements can change over time as the CAA or applicable implementing regulations are amended and new permits are issued. We actively monitor legislative, regulatory and other program developments of the CAA that may impact our facilities.

Other

For other environmental issues and other contingencies see “Note 22 of the Notes to Consolidated Financial Statements.”

Colstrip

Colstrip is a coal-fired generating plant in southeastern Montana that includes four units and which is owned by six separate entities. We have a 15 percent ownership interest in Units 3 and 4. The owners of Units 3 and 4 share operating and capital costs pursuant to the terms of an operating agreement among them (the Ownership and Operation Agreement). Due to the enactment of CETA in Washington, in January 2023 we entered into an agreement with NorthWestern under which, subject to the terms and conditions specified in the agreement, we will transfer our ownership of Colstrip. See “Note 22 of the Notes to Consolidated Financial Statements” for further discussion of the agreement.

Coal Ash Management/Disposal

In 2015, the EPA issued a final rule regarding coal combustion residuals (CCRs), also termed coal combustion byproducts or coal ash (Colstrip produces this byproduct). The CCR rule has been the subject of ongoing litigation. In August 2018, U.S. Court of Appeals for the D.C. Circuit struck down provisions of the rule. In December 2019, a proposed revision to the rule was published in the Federal Register to address the D.C. Circuit's decision. The rule includes technical requirements for CCR landfills and surface impoundments under Subtitle D of the Resource Conservation and Recovery Act, the nation's primary law for regulating solid waste. The Colstrip owners developed a multi-year compliance plan to address the CCR requirements along with existing state obligations expressed through the 2012 Administrative Order on Consent (AOC) with Montana Department of Environmental Quality (MDEQ). These requirements continue despite the 2018 federal court ruling.

The AOC requires MDEQ to review Remedy and Closure plans for all parts of the Colstrip plant through an ongoing public process. The AOC also requires the Colstrip owners to provide financial assurance, primarily in the form of surety bonds, to secure each owner’s pro rata share of various anticipated closure and remediation obligations. We are responsible for our share of two major areas: the Plant Site Area and the Effluent Holding Pond Area. Generally, the plans include the removal of boron, chloride, and sulfate from the groundwater, closure of the existing ash storage ponds, and installation of a new water treatment system to convert the facility to a dry ash storage. Our share of the posted surety bonds is $16 million. This amount is updated

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annually, with expected obligations decreasing over time as remediation activities are completed. The contemplated transfer of our interest in Colstrip to Northwestern will not relieve us of these obligations.

2024 EPA Regulations for Power Plants

On April 25, 2024, the EPA released a package of final regulations addressed to electric generation facilities. These include:

•

Greenhouse gas regulations for new natural gas-based turbines and existing coal-based units, pursuant to section 111 of the Clean Air Act. This rule finalizes (a) the repeal of the Affordable Clean Energy rule; (b) guidelines for GHG emissions from existing fossil fuel-fired steam generating electric generating units; and (c) revisions to existing performance standards for new, reconstructed or heavily modified fossil fuel-fired stationary combustion turbine electric generating units.

•

Supplemental Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category (ELG Rule). The ELG Rule applies to wastewater discharges from coal-based generating units and establishes pollution control requirements. The Rule builds upon the 2015 and 2020 ELG Rules. It includes a subcategory of requirements for coal plants that will be retired or repowered by the end of 2028 and provides additional compliance pathways for coal plants that retire by the end of 2034.

•

Updated Mercury and Air Toxics Standards, pursuant to section 112 of the Clean Air Act (MATS Rule). The MATS Rule sets emissions limits for filterable particulate matter for coal-based generating units. The Rule reduces those limits from the standards that were originally set in 2012.

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Disposal of Coal Combustion Residuals from Electric Utilities – Legacy CCR Surface Impoundments (CCR Rule). The CCR Rule builds on 2015 regulations, which apply to active power plants that dispose of coal combustion residuals in surface impoundments or landfills, by regulating inactive surface impoundments at inactive power plants and CCR management units at active and inactive power plants. In January 2025, the EPA issued a revised proposed and final rule to address language inconsistencies and submittal deadlines. The owners of Colstrip will be performing analyses to determine whether any potential changes to our existing remediation efforts are required.

We continue to analyze each of these rules to assess the impact, if any, it may have on our existing generating units, including Colstrip and/or our natural gas-fired generating units. A substantial number of legal challenges have been filed regarding these rules. At this time, we do not believe the implementation of these rules will impact our agreement to transfer our Colstrip ownership to NorthWestern, which is planned to close by December 31, 2025. Additionally, along with the other owners (including the operator), we have assessed the CCR Rule and believe there will not be a material change to our asset retirement obligation for Colstrip.

Colstrip Arbitration, Litigation, and Other Contingencies

See “Note 22 of the Notes to Consolidated Financial Statements” for disputes, arbitration, litigations and other contingencies related to Colstrip. We intend to seek recovery of costs associated with Colstrip through the ratemaking process.

2025 Presidential Executive Action

Since taking office, the U.S. President's Administration has issued a multitude of Executive Orders directed towards national energy resources and development. These include actions to (a) immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 or the Infrastructure and Jobs Act; (b) require agency review of regulations, programs and executive orders that might limit the development or use of domestic energy resources such as oil, natural gas, coal and nuclear; (c) revoke the prior Administration’s Executive Orders on climate policy; (d) withdraw from the Paris Accord; (e) require agency review of regulations, programs and executive orders that limit consumer choice for vehicles and appliances; (f) require review of the 2009 EPA endangerment finding for greenhouse gasses under the Clean Air Act; (g) direct the EPA to revise or eliminate the use of a social cost of carbon in federal decision-making; (h) terminate certain offshore wind projects; (i) expedite resource development and permitting in Alaska, including liquified natural gas; and (j) declare a national emergency to expedite the development of energy infrastructure.

We continue to assess potential impacts from these and other executive actions that may be taken by the Administration. To the extent that any action taken by the Administration results in increased costs for our business, we will seek to recover those costs through the rate-making process.

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Enterprise Risk Management

The following discussion focuses on our processes and procedures to identify and manage the principal known risks that we face. See "Item 1A: Risk Factors," "Item 1C: Cybersecurity," "Forward-Looking Statements," as well as "Environmental Issues and Contingencies."

We consider the management of these risks an integral part of managing our core businesses and a key element of our approach to corporate governance.

Risk management includes identifying and measuring various forms of risk that may affect the Company. We have an enterprise risk management process for managing risks throughout the organization. Our Board of Directors and its Committees take an active role in the oversight of risk affecting the Company. We collect risk information across the Company, and senior management reviews the Company’s major risks and risk mitigation measures. Each area identifies risks and implements the related mitigation measures. The enterprise risk process supports management in identifying, assessing, quantifying, managing and mitigating the risks. Despite all risk mitigation measures, however, risks are not eliminated.

Our primary identified categories of risk exposure are:

• Utility regulatory • Strategic

• Operational • External mandates

• Climate Change • Financial

• Cybersecurity • Energy commodity

• Technology • Compliance

Our primary categories of risks are described in “Item 1A. Risk Factors.”

Utility Regulatory Risk

We have a regulatory group which seeks to mitigate regulatory risk through open communications with regulatory commissioners and staff regarding the Company’s business plans and concerns. The regulatory group also considers the regulator’s priorities and rate policies and makes recommendations to senior management on regulatory strategy for the Company. Oversight of our regulatory strategies and policies is performed by senior management and the Board of Directors. See “Regulatory Matters” for further discussion of regulatory matters affecting the Company.

Operational Risk

To manage operational and event risks, we maintain emergency operating plans, business continuity and disaster recovery plans, maintain insurance coverage against some, but not all, potential losses and seek to negotiate indemnification arrangements with contractors for certain event risks. In addition, we design and follow detailed vegetation management and asset management inspection plans, which help mitigate wildfire and storm event risks, as well as identify utility assets which may be failing and in need of repair or replacement. We also have an Emergency Operating Center, which is a team of employees that plan for and train to deal with potential emergencies or unplanned outages at our facilities, resulting from natural disasters or other events. To prevent unauthorized access to our facilities, we have both physical and cyber security in place.

To address the risk related to fuel cost, availability and delivery restraints, we have an energy resources risk policy, which includes a wholesale energy markets credit policy and control procedures to manage energy commodity price and credit risks. Development of the energy resources risk policy includes planning for sufficient capacity to meet our customer and wholesale energy delivery obligations. See further discussion of the energy resources risk policy below.

Oversight of the operational risk management process is performed by the Environmental, Technology and Operations Committee of the Board of Directors and from senior management with input from each operating department.

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Climate Change Risk

Multiple departments work to mitigate risks related to climate change. Climate change adds uncertainty to existing risks that we have historically managed and mitigated. These efforts are reflected in electric and gas operations, investments in assets and asset reliability and resiliency across our operations.

Power Supply staff monitor items such as snowpack and broader precipitation conditions, patterns and modeled or predicted climate change. These and other assessments are incorporated into our IRP processes. Environmental Affairs, Governmental Affairs and other departments monitor policy and regulatory developments that may relate to climate change to engage these efforts constructively and prepare for compliance matters.

Our Wildfire Resiliency Plan was also developed to mitigate the increased wildfire risk associated with climate change. See "Item 1. Business - Wildfire Resiliency Plan" for further discussion of the program.

In addition, issues concerning climate-related risk and our clean energy goals are reviewed and regularly discussed by the Board of Directors. The Board’s Environmental, Technology and Operations Committee regularly reviews and discusses environmental and climate related risks, and advises the full Board on critical or emerging risks and/or related policies. Likewise, the Audit Committee provides oversight of climate-related disclosures.

Cybersecurity Risk

See "Item 1C. - Cybersecurity" for discussion of Cybersecurity risk and processes for mitigation.

Technology Risk

Technology governance is led by senior management, and includes new technology strategy, risk planning and major project planning and approval. Oversight of technology risk is performed by the Board’s Environmental, Technology and Operations Committee. We are dedicated to securing, maintaining and evaluating and developing our information technology systems. We evaluate our technology for obsolescence and upgrade or replace systems as necessary. The technology project management office and enterprise business performance team provide project cost, timeline and schedule oversight.

Strategic Risk

Oversight of strategic risk is performed by the Board of Directors and senior management. We have a Senior Vice President, Energy Policy and Chief Strategy Officer who leads strategic initiatives, searches for and evaluates opportunities and makes recommendations to other members of senior management and the Board of Directors. We not only focus on whether opportunities are financially viable, but also consider whether these opportunities fall within our core policies and our core business strategies. We strive to mitigate reputational risk primarily through a focus on adherence to our core policies, including our Code of Conduct, maintaining an appropriate culture and tone at the top, and through communication and engagement with external stakeholders.

External Mandates Risk

Oversight of external mandate risk mitigation strategies is performed by the Environmental, Technology and Operations Committee of the Board of Directors and senior management. Our Environmental, Social and Governance program creates a framework that is intended to attract investment, enhancement of our brand, and promotion of sustainable long-term growth. We also have employees dedicated to actively engage and monitor federal, state and local government positions and legislative actions that may affect us or our customers.

To prevent the threat of municipalization, we work to build strong relationships with the communities we serve through, among other things:

•

communicating and being involved with local business leaders and community organizations,

•

providing customers with a multitude of limited income initiatives, including energy fairs, senior outreach, low income workshops, mobile outreach strategy and a Low Income Rate Assistance Plan,

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•

tailoring internal company initiatives to focus on choices for customers, to increase their overall satisfaction with the Company, and

•

engaging in the legislative process in a manner that fosters the interests of our customers and the communities we serve.

Financial Risk

Financial risk is impacted by many factors, including regulation and rates, weather risk, access to capital markets, interest rate risk, credit risk, and foreign exchange risk.Our Treasury department monitors our daily cash position and future cash flow needs, as well as monitoring market conditions to determine the appropriate course of action for capital financing strategies.Oversight of financial risk mitigation strategies is performed by senior management and the Finance Committee of the Board of Directors.

Regulation and Rates

The Regulatory Affairs department is critical in mitigation of financial risk as they have regular communications with state commission regulators and staff and they monitor and develop rate strategies. Rate strategies, such as decoupling and operating expense balancing accounts, help mitigate the impacts of revenue fluctuations due to weather, conservation or the economy.

Weather Risk

To partially mitigate the risk of financial under-performance due to weather-related factors, we developed decoupling rate mechanisms that were approved by the Washington, Idaho and Oregon commissions. Decoupling mechanisms are designed to break the link between a utility's revenues and consumers' energy usage and instead provide revenue based on the number of customers, thus mitigating a large portion of the risk associated with lower customer loads. See “Note 23 of the Notes to Consolidated Financial Statements” for further discussion of our decoupling mechanisms.

Access to Capital Markets

Our capital requirements rely to a significant degree on regular access to capital markets. We actively engage with rating agencies, banks, investors and state public utility commissions to understand and address the factors that support access to capital markets on reasonable terms. We manage our capital structure to maintain a financial risk profile that we believe these parties will deem prudent. We forecast cash requirements to determine liquidity needs, including sources and variability of cash flows that may arise from spending plans or from external forces, such as changes in energy prices or interest rates. Our financial and operating forecasts consider various metrics that affect credit ratings. Our regulatory strategies include working with state public utility commissions and filing for rate changes as appropriate to meet financial performance expectations.

Interest Rate Risk

Uncertainty about future interest rates causes risk related to a portion of existing debt, future borrowing requirements, and pension and other post-retirement benefit obligations. We manage debt interest rate risk by limiting variable rate debt to a percentage of total capitalization, monitoring market conditions when timing the issuance of long-term debt and optional debt redemptions and establishing fixed rate long-term debt with varying maturities. We may hedge a portion of our interest rate risk with financial derivative instruments, particularly to manage risk associated with significant concentrations of forecasted debt issuances. The Finance Committee of the Board of Directors periodically reviews and discusses interest rate risk management processes and the steps management has undertaken to control interest rate risk. Our Risk Management Committee (RMC) also reviews the interest rate risk management plan.

Our interest rate swap derivatives are considered economic hedges against the future forecasted interest rate payments of long-term debt. Interest rates on our long-term debt are generally set based on underlying U.S. Treasury rates plus credit spreads, which are based on our credit ratings and prevailing market prices for debt. The interest rate swap derivatives hedge against changes in the U.S. Treasury rates but do not hedge the credit spread.

Through regulatory accounting practices similar to energy commodity derivatives, interim mark-to-market gains or losses are offset by regulatory assets and liabilities. See "Energy Commodity Risk". Upon settlement of interest rate swap derivatives, the

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cash payments made or received are recorded as a regulatory asset or liability and (after a prudency review through a general rate case) are subsequently amortized as a component of interest expense over the life of the associated debt. The settled interest rate swap derivatives are included as a part of the cost of debt calculation for ratemaking purposes.

The following table summarizes interest rate swap derivatives outstanding as of December 31, 2024 and December 31, 2023 (dollars in millions):

December 31, December 31,

Number of agreements 1 3

Notional amount $ 10 $ 30

Short-term derivative assets (1) $ 1 $ 4

(1)

There are offsetting regulatory assets and liabilities for these items on the Consolidated Balance Sheets in accordance with regulatory accounting practices.

The interest rate on $52 million of long-term debt to affiliated trusts is adjusted quarterly, reflecting current market rates. Amounts borrowed under our committed line of credit agreements have variable interest rates.

The following table shows long-term debt and related weighted-average interest rates, by expected maturity dates as of December 31, 2024 (dollars in millions):

Weighted-average interest rate — — — 6.37 % 5.92 % 3.64 % 4.35 %

Variable rate long-term debt to affiliated trusts — — — — — $ 52 $ 52 $ 47

Weighted-average interest rate — — — — — 5.64 % 5.64 %

(1)

These balances include the fixed rate long-term debt of Avista Corp., AEL&P and AERC.