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Avista Targeting Growth Through Technology

Avista Targeting Growth Through Technology

Although Avista Corp. has yet to garner much attention on Wall Street, the company is expecting its share price will rise as its strategy unfolds. Corporate strategy views technology and bill consolidation services as the gateway to a significant nationwide marketing presence.

"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," Avista Corp. CEO Thomas M. Matthews told Houston energy reporters Tuesday. Matthews said future growth will come from technology and pointed to mid-cap utility Montana Power as the only success story among its peers because it has become a technology company.

On the technology side, Avista Corp. has the Internet bill consolidation business Avista Advantage, telecommunications in Avista Fiber and Avista Communications, and fuel cell and distributed power technology in Avista Labs.

By signing up multiple-site end users for bill consolidation through Avista Advantage, Avista is building a list of customers it plans to target for sales of gas, power, and other commodities and services.

"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.

Avista Energy sees the evolution of power generation as presenting two opportunities. One is to optimize generation assets for the asset holders. 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, said Michael R. Kutsch, Avista Energy president.

"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. If you think about it, that's what it is. 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? Let's reverse it. 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... Sometimes it's good to be in the downstream marketing business in the oil business. Sometimes it's not so good because the capacity changes with supply and demand in the marketplace. 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. In the intervening time of designing and implementing this strategy, we have been able to strengthen our financial capability, so we think that not only can we provide the commercial services if you will, we can participate as a financial investor in some of these projects as well."

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