Taking its name and direction from its unregulated subsidiary,Washington Water Power announced last week it will be cutting itsdividend by 61% and putting the money saved into growing allaspects of its business. The aim is to grow “a bigger and strongercompany” and the second priority is speed, the company’s newchairman and CEO Tom Matthews said.

“We cannot survive as a small northwestern utility, but we canbe THE Northwest Utility,” Matthews said in a conference call,describing it as a case of “eat or be eaten.” He said WashingtonWater Power which will take the name Avista Corp. after its energytrading subsidiary next Jan. 1 would be spending between $300 and$400 million a year acquiring generation, pipeline and both gas andelectric distribution assets.

The dividend will drop from $1.24 to $0.48, a rate that willyield 2.3% based on last Friday’s closing price of $20.875 “placingit more in line with growth-oriented utility companies and stillabove the dividend yield of the average Standard &amp Poor’s 500company,” the announcement said.. (The yield is close to Enron’s2.03, and considerably under the 5% plus registered by utilitiessuch as Baltimore Gas &amp Electric and Houston Power &amp Light).WWP’s stock closed Monday after the announcement at $18 and 7/8.The new dividend will be effective for the payout expected Dec. 15,1998. For now the company will pay its regular quarterly dividendof 31 cents per common share.

WWP has offered to provide a safety net for shareholders whodepend on dividend income by offering an exchange of 35% ofoutstanding common shares for an equal number of mandatorilyconvertible preferred shares, each of which will pay an annualdividend of $1.24 per share for a period of about three years. Atthat point the new-issue shares will automatically convert back tocommon stock on a one-for-one basis. The plan must receiveregulatory approval to be put in place. WWP said if more than 20million shares are tendered for exchange, they will be subject toproration.

The announcement was made by Matthews, who left Dynegy Corp. tojoin the Spokane, WA-based utility 45 days ago. The change”immediately improves our cash flows, enhances our ability toacquire needed capital in a cost-effective manner, and establishesa solid foundation for our continued growth and superior financialperformance.” The aim is “to act quickly and purposefully tocapture emerging opportunities….I am growth-oriented by natureand, with our industry in a state or rapid change, we need to makesignificant moves within the next year to position our company tosucceed.”

At the end of July the utility reported increased earnings forthe first half over 1997, but said because of lower streamflowlevels for the hydroelectric generating system corporate earningsfor the year were not projected to match expectations. WashingtonWater Power has had to buy power to supply customers and it hasbeen expensive.

Standard &amp Poor’s revised its ratings outlook for WWP tonegative from stable. S&ampP also affirmed WWP’s single-‘A’ seniorsecured and corporate credit ratings and single-‘A’-minus seniorunsecured, preferred stock, and bank loan ratings.

WWP’s strategy “is likely to accelerate the evolution toward ariskier business profile and to pressure key financial measures,which are already somewhat weak for the current ratings. WWP hasalready placed increasing emphasis on inherently riskiernonregulated business activities, mainly those of Avista Energy,the energy trading unit,” S&ampP said.

Meanwhile, Moody’s Investors Service confirmed the securitiesratings of Washington Water Power Company (Sr. Secured at A3) andmaintained its stable rating outlook, saying that despite its moreaggressive plans Moody’s expects WWP’s “penchant for discipline inits business transactions will allow its future financialperformance to support its current rating. Moody’s will carefullyconsider the size and nature of the businesses that the company mayinvest in as it pursues its current business strategy. Anunexpected divergence from management’s past tendency toconservatively finance its investments could pressure the rating.”

Ellen Beswick

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