WWP Increases Asset Base, Breaks into the Top 10 in Power
Washington Water Power's (WWP) energy marketing affiliate,
Avista Energy, embarked on a two-day expansion spree last week by
acquiring Vitol Gas and Electric Co. and Coast Pacific Management
Co., and in the process became a top-10 power marketer. Supporting
these additions is WWP's joint venture with Cogentrix Energy Inc.,
announced Dec. 11, to build or buy gas-fired electric generation
projects in the Pacific Northwest. Terms for deals were not
Pat Lynch, a WWP spokesman said, "Avista Energy has become a
known player on a national level, which was the idea all along."
Tom Matthews, who moved over from NGC Corp. (Dynegy) six months
ago to become CEO of WWP, viewed the acquisitions as a strong move
toward attaining the company's goal of becoming an asset-backed
national energy marketing company, "The deals give us additional
size and scope.They'll also provide us with a higher national
profile and the additional attention will allow more deals to come
Jim Bellessa, an analyst with D.A. Davidson & Co., agreed
with Matthews that the energy company needs more growth. "They're
(Avista Energy) eating instead of being eaten. Starting last
August, they cut their dividends and said that they wanted to
quadruple their size. This is a move in that direction, but they
have a long way to go." Bellessa added that Matthews was hired with
the expansion strategy in mind, and "If he doesn't grow the company
fast enough, somebody else will." Matthews was hired over the
summer after being President of NGC Corp. for less than two years.
"He is the expansion strategy" Bellessa said.
BT Alex Brown analyst Ed Tirello said that the strategy became a
necessity because WWP's regulated utility business is not growing
fast enough, "Everything you've read about that can be done to help
a utility grow, they've done. They've upgraded computer systems and
everything. Its utility business still grows at a small 1-2%
annually. So the move makes perfect sense. By expanding its
nonregulated energy marketing, WWP has given itself a good chance
to increase net income."
Vitol Adds Eastern Presence
The Vitol acquisition is Avista's largest move this year, a
company spokesman said. In NGI's Power Marketer Rankings for 1998's
third quarter, Vitol ranked 16th and Avista Energy ranked 18th in
volume production. For that quarter, the two companies' combined
output equaled 30.7 MWh, which would have placed this alliance in
the top ten. The spokesman added the combined gas volumes sold
would amount to 2.8 Bcf/d after the deal is finished.
The acquisition made sense, said Matthews, because Avista's
marketing operations are focused on the West and Vitol's business
takes place east of the Rocky Mountains. "The fact that there was
minimal overlap in the markets our two companies serve was
critically important and made the deal a perfect fit," he said.
According to Lynch, "Overall, from an earnings standpoint, Mr.
Matthews has made it very clear that he wants all of WWP's branches
to increase their earnings by 8% to 10% annually. This acquisition
will help Avista attain that goal." Lynch added that in 1999, WWP
will invest $130 to $150 million in Avista Energy. The utility
expects a 15% return from that investment.
Neil Kelly, chairman of Boston-based Vitol, cited Avista's
experience with gas and electric infrastructures and its ability to
control physical assets as reasons for the deal. "We recognized
that success in the long term would require partnering with a
larger, customer-focused company. We found the right partner in
Avista Energy," he said. Kelly will become chairman of Avista
Energy once the deal is finished. Michael Kutsch, currently
president of Vitol, will become Avista Energy's president. The
current president of Avista, Lloyd Myers, will become Avista
Avista Energy Canada, Avista Energy's Canadian arm, last week
announced it was acquiring Coast Pacific Management, a gas manager
for industrials throughout British Columbia. Coast Pacific will be
incorporated into Avista's Vancouver operations, the company said.
The deal became effective at the time of the announcement.
Matthews said the move represents Avista's desire to increase
its presence north of the border, and to reach a new pool of
end-users."[This acquisition] presents us with the opportunity to
serve more customers, provide those customers with more choices and
enhances our access to Canadian natural gas supplies that may help
us in the development of future business opportunities, such as
power generation projects." he said. Coast Pacific Management,
located in Vancouver, acts as gas manager and marketer for more
than 40% of the large industrial market in BC. It manages and
transports 70,000 MMBtu/d to 70 large and medium-sized industrial
customers throughout the region.
Cogentrix, Avista Join
Two weeks ago, Avista Energy's sister company, Avista Power
Inc., and Cogentrix Energy Inc. agreed to jointly build and/or buy
interests in gas-fired electric generation plants in the Pacific
Northwest states of Washington, Oregon and Idaho. The first project
under the new agreement is a 270 MW facility to be located in
Rathdrum, ID. A power purchase agreement for the Rathdrum project
was signed simultaneously with the development agreement.
"The Cogentrix joint venture is a starting point in acquiring
additional generation assets-first in the Pacific Northwest and
then in strategic locations across the country," Matthews said. "We
may also be able to gain access to generation that Cogentrix
already owns in support of our marketing and trading efforts
Cogentrix will have the lead role for the development,
construction and operation of the facility. Commercial operation is
expected in the third quarter of 2001. Avista Energy will deliver
gas to the plant and purchase the electrical output of the facility
under a long-term power purchase agreement. The installed cost of
the Rathdrum facility is anticipated to be about $150 million.