Avista Targeting Growth Through Technology
Avista Corp. is counting on technology businesses for growth and
sees its Internet-based bill consolidation business as the front
door to a nationwide marketing presence. During press briefings
last week in Houston and Washington, DC, executives outlined
Avista's continuing evolution.
"Avista [formerly Washington Water Power] was the typical
mid-sized utility that existed for many years paying a nice
dividend, but the problem is 11 of the last 12 years it paid out
more in dividend than it earned, and we had to restructure the
company," said Avista Corp. CEO Thomas M. Matthews. Growth has been
constricted in some measure by location. In the future, however, he
said growth will come from technology nationwide, including its
Internet bill consolidation business Avista Advantage,
telecommunications in Avista Fiber and Avista Communications, and
fuel cell and distributed power technology in Avista Labs. Matthews
is considering spinning off some of the new technology units in
IPOs to get their so-far unrecognized value on the books. The new
unregulated businesses should double the $1 billion value of the
company in three years, he predicted.
"I don't want to be a utility company. We want to be known as a
trading and technology company leveraging our expertise across the
country," Matthews said.
By signing up multiple-site end users for bill consolidation
through Avista Advantage, the company is building a list of
customers Avista Energy plans to target for sales of gas, power,
and other commodities and services. The cmopany currently manages
15,000 sites and is targeting 50,000 by the end of the year.
"It's all your bills, your water, your sewer, your electric,
your telephone, your gas," said Neil E. Kelley, chairman of Avista
affiliate Avista Energy. "You go to the CFO of the company and you
say, 'let me manage all of your bills for your 29 sites or 2,900
sites around the country,' and it's a no-brainer. It's overhead
savings. Then we're in the door and the next step is we go to them
and say, 'now that we're managing your bills, why don't we manage
your purchases for you also.....'" Not only will Avista be
approaching prospects with whom it already has a relationship, but
by having managed prospects' commodity and services billing, the
company will be on the inside track with information on customer
energy consumption and costs. "We're in a race to establish
customer relationships and branding," said Avista Energy President
Michael R. Kutsch. The idea is to sell things "to establish brand
recognition, anything, 'place holders' to get in the que."
Avista Energy began doing business in July 1997 and had 1998
power trading volume of 54.4 million MWh, making it about the 13th
largest power marketing company. Gas volumes at the end of 1998
averaged 1.6 Bcf/d. The company had electric and gas revenues of
$2.4 billion for the year. Earlier this year Avista Energy
completed the purchase of Vitol Gas & Electric, expanding its
presence in the eastern United States and giving the company a
place in the emerging coal marketing arena. Avista Energy also
picked up its chairman and president, Kelley and Kutsch, from
Manage Now, Acquire Later
Avista has stepped back from the asset acquisition race after
seeing assets going for three to four times book value. Instead
Avista will take the opportunity now to help those new asset
holders who may not have the necessary expertise or infrastructure
to manage their purchases. Later, the company plans to take
ownership positions in assets themselves, but not in a manner that
would put it in competition with its existing asset optimization
clients, Kutsch said. For instance Avista has no competing
properties in the East where a number of power generation plants
have been sold off to absentee owners.
"Our view of where the business is going is that many of the new
at-risk asset owners lack commercial involvement capability,"
Kutsch said. "Everyone is rushing out to be involved in the asset
side of the business, buying other peoples' assets.
"A power plant is an upside-down oil refinery. An oil refinery
takes in one product, crude oil, and produces a bunch of other
products. The value of that machine is determined by the inputs and
the outputs. What's different in a power plant?
"You take in a bunch of input - natural gas, oil, coal - and you
put out an output. The only difference is in the oil business you
never had ratepayers. In businesses where you have these sorts of
relationships between the inputs and the outputs, historically what
we've seen is cyclical..... We don't see a reason that isn't going
to happen in electricity. The approach that we're taking at Avista
is to build the commercial capability and then look at
opportunities to make direct investments."
Avista Power was formed in November to develop and own
generation and gas storage assets throughout North America, mainly
in support of Avista Energy's gas and power marketing efforts. Its
initial generation development is focused on the western and
southeastern United States. Avista executives also are excited
about opportunities for distributed generation. Avista Labs in
April selected Logan Industries as its initial contract
manufacturing partner for fuel cells.
To put its strategy in motion, Avista has acquired a bundle of
talent from some big name energy players. Avista Energy last week
announced six new vice presidents, picking up talent from Illinois
Power/Illinova Energy and Enron Capital and Trade among others.
Kelley, formerly chairman of Vitol Gas & Electric, announced
the new hires, saying the company was attracting talent by offering
a chance to create value and participate in the company's success
with incentives and options.
Joining Avista Energy, David Dickson, working out of the
Spokane, WA, office, will manage gas trading and marketing-western
region. Dickson was the managing director for energy trading at
Illinois Power. In Houston, Brent Friedman will become vice
president, risk management. He was managing director for commodity
risk for both Illinois Power and marketing affiliate Illinova
Energy. From Enron Capital and Trade Avista picked up Darren Lobell
to run the Midwest electric desk as vice president,
trading-Midwest. Lobell had been director of trading for ECT's
Midwest regions. Another recruit from Enron, Sean P. O'Neal, will
be Avista's vice president, trading-Southeast, moving over from
managing ECT's trading at the Entergy and TVA hubs. In addition,
Mark T. Stugart has been named vice president, trading, to oversee
coal, SO2 and oil activities. Stugart had co-founded and managed
Soundview Energy, a petroleum marketing company in Boston. And Eric
J. Melvin, who had established the structured marketing program at
Hess Energy Trading in New York, will be in charge of the same area
for Avista as vice president.
Joe Fisher, Houston; Ellen Beswick, Washington