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Avista Reaches Settlement in Idaho Electric and Natural Gas Rate Requests

If approved, overall electric rates for residential customers could increase by less than 2 percent with no net change in natural gas rates

SPOKANE, Wash., June 16 // -- Avista (NYSE: AVA) and all other parties involved in the company's electric and natural gas rate filing have reached a settlement agreement that, if approved by the Idaho Public Utilities Commission (IPUC), would result in a residential rate increase of less than two percent for electric customers and no net rate increase for natural gas customers. The new rates would take effect Aug. 1, 2009.

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"The cost of natural gas is a major driver in the price customers pay on their bill," said Dennis Vermillion, president of Avista Utilities. "Natural gas prices have decreased substantially since we filed for rate adjustments this past January. Just as customers have seen a decrease in the cost of natural gas that they use in their homes, we've experienced a decrease in the cost of natural gas used to generate electricity. We're pleased that the settlement reflects these decreased costs for the benefit of our customers.

"We also believe the components of the settlement, when taken as a whole, represent a fair resolution of the issues in the case, will provide recovery of the company's costs, and will also provide an opportunity to earn a fair return for shareholders," Vermillion said.

The settlement agreement sets Avista's rate of return on rate base at 8.55 percent, with a common equity ratio of 50 percent and a 10.5 percent return on equity.

Lower natural gas prices related to electric generation are one of the major reasons that the electric rate increase in the agreement is lower than the company's original request. Additional factors include the exclusion of the costs associated with short-term power supply contracts that will be recovered through the existing power cost adjustment (PCA) mechanism. The agreement also provides 100 percent recovery of the fixed costs associated with the Lancaster Project through the PCA when Avista begins receiving power from the project in January 2010.

Under the terms of the settlement agreement, electric revenues could increase by an overall 5.7 percent, or $12.5 million. Offsetting the electric increase will be an overall 4.2 percent decrease in the current PCA surcharge. As a result of the two adjustments, a residential customer using an average of 982 kilowatt hours per month would see a 1.9 percent, or $1.50, increase per month for a revised monthly bill of $79.97.

Included in the rate proposal are relicensing costs for the company's Spokane River hydropower projects. The parties have agreed that if Avista receives approval from the Federal Energy Regulatory Commission (FERC) for the relicensing of its Spokane River hydropower projects before July 22, the relicensing costs will be included in the electric rate increase. Avista's relicensing application is currently on FERC's meeting agenda for June 18, 2009.

If Avista does not receive a new FERC license before July 22, under the terms of the settlement the relicensing costs would continue to be deferred with a carrying charge. The resulting increase in revenues would be 4.3 percent, or $9.4 million. With the offsetting PCA decrease, a residential customer using an average of 982 kilowatt hours per month would see a 0.6 percent, or $0.48, increase per month for a revised monthly bill of $78.95.

For natural gas service, rates under the terms of the settlement agreement would increase by 2.11 percent for $1.9 million in additional revenue. Offsetting the natural gas rate increase for residential customers will be an equivalent purchased gas adjustment (PGA) decrease. As a result, a residential customer using an average of 65 therms per month would see no change in their $78.23 per month bill.

"The offsetting PGA decrease in the settlement agreement, the third natural gas decrease for our residential customers since January, means natural gas rates will have decreased by about 13 percent this year. If prices continue at current levels, we still plan to request a significant PGA reduction this fall," Vermillion said.

To help customers most impacted by rising energy prices, Avista will continue to support legislation in Idaho during the next legislative session to establish a new energy assistance program similar to the Low-Income Rate Assistance Program (LIRAP) for Avista's Washington customers. Avista will also continue to support low-income energy efficiency programs.

Avista Corp. is an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. Avista Utilities is our operating division that provides service to 355,000 electric and 315,000 natural gas customers in three Western states. Avista's primary, non-regulated subsidiary is Advantage IQ. Avista stock is traded under the ticker symbol "AVA." For more information about Avista, please visit www.avistacorp.com.

Avista Corp. and the Avista Corp. logo are trademarks of Avista Corporation.

This news release contains forward-looking statements regarding the company's current expectations. Forward-looking statements are all statements other than historical facts. Such statements speak only as of the date of the news release and are subject to a variety of risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the expectations. These risks and uncertainties include, in addition to those discussed herein, all of the factors discussed in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2008, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

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SOURCE: Avista Corp.

Web site: http://www.avistacorp.com/

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