All of this supports the strength of our utility over the long term. We remain committed to delivering safe, reliable energy to the communities we serve and creating value for our shareholders. As we close out 2025, Avista Utilities’ results were impacted by both the one-time adjustment of Colstrip-related investments, which on its own decreased our earnings per share by $0.07, and other timing-related items. Even with those headwinds, we were able to land within the original utility guidance range. And excluding those factors, utility results would have been above the midpoint of our 2025 utilities earnings guidance. With 2025 concluded, we are excited to look ahead to 2026.
Last month, we filed a four-year rate plan with the Washington Utilities and Transportation Commission. This filing reflects how we are thinking about supporting safe and reliable service over the long term. Among other considerations, our proposal addresses rising costs related to grid modernization, clean energy compliance, purchased power, hydropower infrastructure investments, and emerging risks such as wildfires and extreme weather. By filing a four-year case rather than a two-year case, we aim to reduce the frequency of regulatory proceedings, provide greater stability in our cost recovery and shareholder returns, and provide more transparency and predictability for our customers. Last month, we announced the projects we selected from our RFP process.
The first selection is an upgrade to existing natural gas turbines, which will add 14 megawatts of capacity without increasing carbon emissions. Second, we selected a 100-megawatt battery energy storage system to be located in Eastern Washington and to be built and transferred to Avista Corporation under a build-transfer agreement. Finally, we selected a 200-megawatt power purchase agreement for wind from Montana and approximately 40 megawatts of demand response programs across our service territory. These projects will bring valuable, resilient energy solutions to our portfolio.
Since we first reported on our queue of interest from potential new large-load customers last year, we have continued to work through conversations with these potential customers, and I am happy to announce that we have a significant deposit from a data center developer intending to locate in our service territory in Washington. The initial load is expected to be 125 megawatts, quickly ramping up to a maximum of 500 megawatts. We expect the initial load to come online by 2030. We will keep you updated as we make progress. As expected, as we have worked with customers in our queue to evaluate their projects, we are narrowing in on the most feasible opportunities.
At present, including the customer just mentioned, approximately 1,700 megawatts remain in our queue of potential large-load customers. We continue to receive inbound interest and we expect to begin curated recruiting to attract additional interest that could align with specific geographic and electric infrastructure areas of the system that are best suited for large-load interconnections. We know affordability is critically important. And as we look to add new large load in our service territory, it is our expectation that agreements we reach, both with our current negotiations and future prospective customers, would make a significant contribution to customer affordability. We have also made significant strides in expanding our energy assistance programs for our customers in need.
These programs help make energy bills more affordable for those that most need the support. Recent enhancements to our best-in-class programs have expanded our reach for energy assistance to as much as four times as many customers in need in the last two years. These programs are fundamental to how we think about serving our communities now and into the future. The opportunities that were a highlight of 2025 continue into 2026. The Washington Commission has encouraged Avista Corporation to explore early acquisition of resources to capitalize on tax credit opportunities.
We are still evaluating several other RFP-bid projects, exploring the acquisition or long-term contracting of these projects to take advantage of tax credits, serve large loads, and enhance flexibility until Avista Corporation has a need for serving more load. Beyond generation, additional transmission is needed to move energy from generation resources to load centers. The North Plains Connector is one such project that supports this need, and we have significant additional opportunities closer to home that would improve regional grid reliability and resilience as customer demand evolves. Finally, earlier this month, the Board of Directors raised the dividend for our shareholders to $1.97 per share.
Our dividend is an important component of shareholder return, and for 24 consecutive years, the Board of Directors has raised the dividend for our shareholders, resulting in compound annual growth of more than 5% over that time period. We remain committed to the importance of returns for our shareholders and to the financial strength of our company. We are now targeting a competitive payout range of 60% to 70%, which is in line with our peers. And for the last few years, we have been a bit above our target payout range, which was 65% to 75% during that period.
As a result, we expect that our dividend growth rate will be less than the growth in our earnings per share until we reach our target payout range. I will now turn the call over to Kevin Christie for additional discussion of earnings.
Kevin Christie: Thank you, Heather, and good morning, everyone. In each of the last four quarters, I have shared with you how strong our utility performance is and how our utility earnings form the foundation of our business and future plans. And that is still true today. We are focused on delivering results at our utility. Of course, we are disappointed by the order we received late in December from the Washington Commission requiring us to adjust recovery of needed investments at Colstrip. Were it not for the impact of that order, Avista Utilities would have reported earnings above the midpoint of our 2025 earnings guidance for the segment.
I want to emphasize that our utility earnings in 2025 reflect the strength of our operational execution and the continued diligence in the cost management that we have reported in each of our 2025 earnings calls, alongside constructive regulatory outcomes, with the exception of the Colstrip order in December. We had a quiet fourth quarter in our non-regulated business results, and it appears that valuations have steadied from earlier in 2025. Alongside our other initiatives, regulatory outcomes are key to our success. As Heather mentioned, in January, we filed a four-year rate plan with the Washington Commission. The single largest driver of our requested rate increase in rate year one is power supply cost.
Setting an appropriate baseline for power supply cost is pivotal to the success of our rate plan. We believe the workshops undertaken with the parties after our last rate case provided an understanding of the shifts in our regional power markets. We will continue to work through the regulatory process beginning with the initial settlement conference set for May 22 and the evidentiary hearings in September. We continue to invest in our utility and infrastructure to support customer growth and maintain safe and reliable service. Capital expenditures at Avista Utilities were $553 million in 2025 and are expected to be $585 million in 2026.
From 2026 through 2030, we expect capital expenditures of $3.4 billion, a base capital compound annual growth rate of 5%. This reflects the addition of $164 million to our capital plan associated with the self-build natural gas combustion turbine upgrades and build-transfer battery energy storage system selected from our 2025 RFP. We continue to estimate a potential capital investment of up to $350 million associated with integrating a new large customer that would be incremental to the $3.4 billion five-year expenditure plan. Integrating that investment in our five-year projection would result in a compound capital growth rate of 12%.
Our base capital plan does not include incremental transmission projects like regional grid expansion or additional generation pulled forward from our 2025 RFP. In 2025, we issued $120 million of long-term debt and $78 million of common stock. For 2026, we are updating our funding plans and now expect to issue approximately $230 million of long-term debt and up to $90 million of common stock, compared to $120 million of debt and $80 million of common stock disclosed in Q3. This increase reflects higher capital expenditures in 2025 as well as additional debt to support liquidity, given the recovery timing of deferrals while maintaining a prudent capital structure.
We are initiating non-GAAP utility earnings guidance with a range of $2.52 to $2.72 per diluted share for 2026. As Stacey mentioned, utility earnings include earnings from our Avista Utilities and AEL&P segments, with no other adjustments. The closest GAAP measure is consolidated earnings, and since we are removing the impact of our non-regulated businesses, we are required to refer to utility earnings as a non-GAAP measure. Last year, we set guidance for these other businesses at zero and indicated that we expected variability in results due to ongoing costs, dilution, and periodic valuation updates.
As a management team, we cannot control public policy, and the valuation losses we experienced in 2025 were the direct result of shifts in public policy and sentiment due to the administration change. By discussing our non-GAAP utility earnings and giving you guidance that is focused where we as a management team are focused, we are striving to limit the noise in our results and communicate with you about where we are headed as a business. In 2024, a large industrial customer in our service territory contracted with us for electric service. This customer owns transmission rights and has access to procure their own energy. They sought relief in a period of high market power prices through service with us.
As market prices have since declined, they notified us earlier this year of their intent to return to procuring their power independently in the power market sooner in 2026 than what we had expected. Our 2026 non-GAAP utility earnings guidance reflects a one-time decrease of $0.12 as a result of this departure. Our guidance includes an expected negative impact from the energy recovery mechanism of $0.10 at the midpoint in the 90% customer, 10% company sharing band. While our current hydro forecast shows normal levels of generation for the year, even if we were above or below normal, there would be no material change to our position in the ERM.
Over the long term, we expect that our earnings will grow 4% to 6% from the midpoint of our 2025 consolidated earnings guidance. We are raising our long-term expected return on equity at Avista Utilities to approximately 9%, excluding any impact from the ERM. This reflects expected structural lag of 60 basis points. Now we will be happy to take your questions.
Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Shar Pourreza of Wells Fargo Securities. Your line is now open.
Whitney Wutalama: Hi. Good morning. This is Whitney Wutalama on for Shar. So, just to take a step back and think about the financing, there are multiple moving pieces in 2026, from the customer departure to the headwind variability, and obviously, the Washington rate case. How are you sequencing financing decisions? What would cause you to pull forward or push out equity issuance? How much flexibility do you have to bridge with debt or hybrids without pressuring the credit profile?
Kevin Christie: Hi, Whitney. For the guidance that we have expressed here for 2026, we have incorporated the base plan that we have described. So that includes the capital investment, and to the extent that we had additional capital investment opportunities, we would need to reassess how much debt and equity we would issue. We issue our equity through a periodic offering program, and so you would see steady progress throughout the year towards that $90 million, again barring some kind of additional investment opportunity, which would be a positive thing if we had that opportunity.
As far as using other mechanisms, again, we would likely stick with our periodic offering program unless we had a much more significant investment opportunity, and then we would have to reassess whether we would visit other mechanisms or vehicles.
Whitney Wutalama: Understood. And then just following up on the incremental CapEx, I think it is $250 million to integrate a new large-load customer. So what is the internal go-or-no-go threshold before you commit to that type of incremental build? How do you ensure existing customers are insulated if the large load does not fully materialize?
Kevin Christie: I would start by saying that the next step, now that we have a significant deposit on board from that potential customer, is moving towards an MOU, and we would expect to move towards that MOU in the next 90 or so days. And as we work forward there, we would likely have ongoing conversations with the customer. And again, I want to emphasize a point: to the extent that we are able to add this customer, they would make a significant contribution back to the system and our existing customers such that it would help with affordability.
And we would ensure that those same customers would not be negatively impacted to the extent that the customer were to start conversations with us, maybe even go to construction, and then walk away. We would have in place, in addition to the deposit, collateral and security to protect our business and our customers—significant amounts such that we would expect no impact if they were to walk away. Now that is not the intent. We would expect them to go forward and contribute revenue to the system on an ongoing basis for many years into the future.
Whitney Wutalama: Well said. Thank you.
Kevin Christie: Thank you.
Operator: Our next question comes from the line of Julien Dumoulin-Smith of Jefferies. Your line is now open.
Brian J. Russo: Hi. Good morning. It is Brian Russo on for Julien. Just to follow up on the financing plan for the potential $350 million upside CapEx. Should we kind of generally model that as a 50/50 debt and equity? And would you possibly consider hybrids?
Kevin Christie: Yes. To be clear, we would expect that spending to start maybe in earnest, to the extent that we are able to proceed, sometime later this year, but really in 2027–2028 and into 2029. And we would expect a 50/50 capital structure or funding approach with incremental capital beyond what we have described here. And to your question around hybrids, we would consider that option if we were able to move forward with that much additional capital beyond the base plan.
Brian J. Russo: Okay. And would you also consider monetizing the other businesses, which according to the 10-K have an equity interest value of $148 million as of December 2025? I am wondering because of your shift in reporting, it just seems that there is a much bigger focus on the utility. And are any of those investments considered non-core so to speak?
Kevin Christie: Yes, I appreciate you noticing all of that, Brian, and that is exactly the intent here. We would look to monetize some of our non-regulated investments to the extent that there is an opportunity to do so with a material gain, and if that were to take place, that would help affect equity, meaning that we would issue less equity on a go-forward basis. That would be the likely plan.
Brian J. Russo: Okay. Great. And one more question. Just to be clear, the 4% to 6% long-term EPS CAGR correlates to the 5% rate base CAGR. Therefore, this 12% hypothetical rate base CAGR would, in theory, be accretive to the 4% to 6%. Correct?
Kevin Christie: Yes. Let me walk you through that. So the way I think about it is the 5% CAGR on our capital investment plan over the next five years—you will notice from the graphic that we were displaying that we have an increase in the middle due to the RFP. And so to call it 5%, I would say that is a bit conservative. We have a significant increase from year one through three when we execute on the investments related to the RFP in 2028. And then in the back end, we would expect to have additional investment opportunities—hopefully the large load and more—and then that would pull us up to the 12% rate base CAGR.
If we had that opportunity and all those investments came to fruition, that would help pull us up to the top end of the 4% to 6% range. I do not have exact figures, and we do not yet know all the investment opportunities that we might have in subsequent quarters, whether we could get above the 6%, but we would talk to you about that in subsequent quarters.
Brian J. Russo: Great. And then one more lastly on the large customer. Would you look to file a large tariff or an ESA?
Kevin Christie: Yes. We call it a special contract, and we would file that special contract with the commission in both Washington and Idaho. And when we file those special contracts, which is a pretty standard approach in our states for large customers, we would expect the commission to look favorably upon a large-load special contract to the extent, as we have said before, we would be providing significant benefit back to existing customers from an affordability perspective. So I think that the commission would carefully review, but we are encouraged by the fact that it could help with affordability.
Brian J. Russo: Great. Thank you very much.
Operator: Thank you. Thank you, Brian. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Chris Hark of Mizuho. Your line is now open.
Kevin Christie: Hi. Good morning, everybody. How are you?
Heather Rosentrater: Good. Good morning, Chris.
Chris Hark: I just have a follow-up question on the CAGR there. Just given the low result in 2025, do you still expect to be in a 4% to 6% range? And then what kind of ROE are you using to get to the midpoint of 2026 guidance?
Kevin Christie: Yes, we certainly believe that we can get to our 4% to 6% growth. 2025 was our baseline, and although we fell short there, over the next three, four, or five years, we would expect to be in that 4% to 6% range. So that is the plan, and we think we can get there. What was your second question, Chris?
Chris Hark: And then the ROE that you are using to get to 2026 guidance.
Kevin Christie: Assumed ROE? Well, again, we have expressed here that we expect to be, on a long-run basis, at 9%, which is an increase from 8.8%, and that incorporates—or does not include, I should say—the ERM. So in 2026, as we have described to you here, we are going to have pressure on that 9% due to the fact that we are likely to be, as we have said here, $0.10 or so negative. And then we continue to have structural lag around 60 basis points. We also lost that large customer, which has an impact. So overall, we would expect to be in the low-to-mid 8s in 2026 from a utility ROE.
Chris Hark: Okay. Thank you. Super helpful. And then just one last thing. Just looking for some clarity on the rate base CAGR. Have you included that upside CapEx in the CAGR at all?
Kevin Christie: The upside CapEx is not included. We are using the incremental $350 million related to a potential large load as for how it could help from an overall investment opportunity. And to the extent that we are able to pull forward additional items or investments from the RFP and we have the opportunity to invest in additional transmission, that would all be incremental to that base.
Chris Hark: Okay. Thank you. That is it for me. Have a good one, guys.
Kevin Christie: Great. Thanks, Chris.
Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Stacey Walters for closing remarks.
Stacey Walters: Thank you all for joining us today and for your interest in Avista Corporation. Have a great day.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
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Avista (AVA) Q4 2025 Earnings Call Transcript was originally published by The Motley Fool
