Washington Water Power’s (WWP) energy marketing affiliate,Avista Energy, embarked on a two-day expansion spree last week byacquiring Vitol Gas and Electric Co. and Coast Pacific ManagementCo., and in the process became a top-10 power marketer. Supportingthese additions is WWP’s joint venture with Cogentrix Energy Inc.,announced Dec. 11, to build or buy gas-fired electric generationprojects in the Pacific Northwest. Terms for deals were notdisclosed.

Pat Lynch, a WWP spokesman said, “Avista Energy has become aknown player on a national level, which was the idea all along.”

Tom Matthews, who moved over from NGC Corp. (Dynegy) six monthsago to become CEO of WWP, viewed the acquisitions as a strong movetoward attaining the company’s goal of becoming an asset-backednational energy marketing company, “The deals give us additionalsize and scope.They’ll also provide us with a higher nationalprofile and the additional attention will allow more deals to comeour way.”

Jim Bellessa, an analyst with D.A. Davidson &amp Co., agreedwith Matthews that the energy company needs more growth. “They’re(Avista Energy) eating instead of being eaten. Starting lastAugust, they cut their dividends and said that they wanted toquadruple their size. This is a move in that direction, but theyhave a long way to go.” Bellessa added that Matthews was hired withthe expansion strategy in mind, and “If he doesn’t grow the companyfast enough, somebody else will.” Matthews was hired over thesummer 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 anecessity because WWP’s regulated utility business is not growingfast enough, “Everything you’ve read about that can be done to helpa utility grow, they’ve done. They’ve upgraded computer systems andeverything. Its utility business still grows at a small 1-2%annually. So the move makes perfect sense. By expanding itsnonregulated energy marketing, WWP has given itself a good chanceto increase net income.”

Vitol Adds Eastern Presence

The Vitol acquisition is Avista’s largest move this year, acompany spokesman said. In NGI’s Power Marketer Rankings for 1998’sthird quarter, Vitol ranked 16th and Avista Energy ranked 18th involume production. For that quarter, the two companies’ combinedoutput equaled 30.7 MWh, which would have placed this alliance inthe top ten. The spokesman added the combined gas volumes soldwould amount to 2.8 Bcf/d after the deal is finished.

The acquisition made sense, said Matthews, because Avista’smarketing operations are focused on the West and Vitol’s businesstakes place east of the Rocky Mountains. “The fact that there wasminimal overlap in the markets our two companies serve wascritically 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 branchesto increase their earnings by 8% to 10% annually. This acquisitionwill help Avista attain that goal.” Lynch added that in 1999, WWPwill invest $130 to $150 million in Avista Energy. The utilityexpects a 15% return from that investment.

Neil Kelly, chairman of Boston-based Vitol, cited Avista’sexperience with gas and electric infrastructures and its ability tocontrol physical assets as reasons for the deal. “We recognizedthat success in the long term would require partnering with alarger, customer-focused company. We found the right partner inAvista Energy,” he said. Kelly will become chairman of AvistaEnergy once the deal is finished. Michael Kutsch, currentlypresident of Vitol, will become Avista Energy’s president. Thecurrent president of Avista, Lloyd Myers, will become AvistaPower’s president.

Canadian Move

Avista Energy Canada, Avista Energy’s Canadian arm, last weekannounced it was acquiring Coast Pacific Management, a gas managerfor industrials throughout British Columbia. Coast Pacific will beincorporated 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 increaseits presence north of the border, and to reach a new pool ofend-users.”[This acquisition] presents us with the opportunity toserve more customers, provide those customers with more choices andenhances our access to Canadian natural gas supplies that may helpus in the development of future business opportunities, such aspower generation projects.” he said. Coast Pacific Management,located in Vancouver, acts as gas manager and marketer for morethan 40% of the large industrial market in BC. It manages andtransports 70,000 MMBtu/d to 70 large and medium-sized industrialcustomers throughout the region.

Cogentrix, Avista Join

Two weeks ago, Avista Energy’s sister company, Avista PowerInc., and Cogentrix Energy Inc. agreed to jointly build and/or buyinterests in gas-fired electric generation plants in the PacificNorthwest states of Washington, Oregon and Idaho. The first projectunder the new agreement is a 270 MW facility to be located inRathdrum, ID. A power purchase agreement for the Rathdrum projectwas signed simultaneously with the development agreement.

“The Cogentrix joint venture is a starting point in acquiringadditional generation assets-first in the Pacific Northwest andthen in strategic locations across the country,” Matthews said. “Wemay also be able to gain access to generation that Cogentrixalready owns in support of our marketing and trading effortsnationally.”

Cogentrix will have the lead role for the development,construction and operation of the facility. Commercial operation isexpected in the third quarter of 2001. Avista Energy will delivergas to the plant and purchase the electrical output of the facilityunder a long-term power purchase agreement. The installed cost ofthe Rathdrum facility is anticipated to be about $150 million.

John Norris

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