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Avista's Marketing Brings Down Results

Avista's Marketing Brings Down Results

Avista Energy had a difficult second quarter, bringing in about half the net income ($8.5 million) it posted in the second quarter of last year ($15.6 million), mainly because of an $11.6 million net loss in its marketing and trading division and costs associated with expanding its non-regulated businesses. But CEO T. M. Matthews said he's comfortable that earnings this year will fall within the range of securities analysts' current estimates, which are between $1.25 and $1.35 per share. He also predicted the company is in for some significant changes ahead.

"We are in a multi-year process of transforming our company from a regional utility into a national energy, information and technology company," he said. "In meeting our objectives, we will likely continue to see some quarter-to-quarter earnings volatility in the near term."

"Whether the analysts like it or not, I cannot be worried about quarter-to-quarter earnings, but I am worried about where I'm going to be in three years," he added in a recent interview with NGI.

Since he came over from Dynegy last summer, Matthews has helped the Avista board make some tough decisions, such as chopping the company's dividend and sinking lots of cash into expensive non-regulated endeavors.

Matthews said he recently terminated merger discussions with four potential partners in the Pacific Northwest region but expects to complete a merger with another regional utility in the near future. The current premiums are still a little too rich for Avista, he said. "Unless it makes fundamental economic sense, don't do a deal just to do one. So we decided to back off and accelerate the growth of the technology companies."

He noted that Avista's utility operations are some of the best in the nation. "We're the lowest cost provider in gas and power. [We have] the highest customer service ratings, the lowest prices, the best customer call centers, but we cover the inland empire and that area is not growing. So we have to do something to transform the company for both growth and survival.

"Our utility is very healthy but we're using cash to grow these new businesses - about eight to 10 cents a share for research and development in four major ventures: Internet, fiber optics, telecommunications and distributed generation fuel cells."

The utility division posted income available to common stock of $15.9 million during the second quarter compared with $9.5 million in 2Q95. But improvements in energy delivery and generation were offset by continued losses in marketing and trading. Avista's trading and marketing division had a $19.2 million net loss for the first half of the year compared to $6.1 million in net income during the same period last year. Avista attributed the losses to "weak energy prices and the lack of volatility within virtually all commodities." It saw improvements near the end of the second quarter and expects improvements for the remainder of 1999. Despite the division's setback, Matthews said marketing and trading is "fundamental to our company's ultimate goal of becoming a full-service energy services provider."

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