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
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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