Avista Corp. is counting on technology businesses for growth andsees its Internet-based bill consolidation business as the frontdoor to a nationwide marketing presence. During press briefingslast week in Houston and Washington, DC, executives outlinedAvista’s continuing evolution.
“Avista [formerly Washington Water Power] was the typicalmid-sized utility that existed for many years paying a nicedividend, but the problem is 11 of the last 12 years it paid outmore in dividend than it earned, and we had to restructure thecompany,” said Avista Corp. CEO Thomas M. Matthews. Growth has beenconstricted in some measure by location. In the future, however, hesaid growth will come from technology nationwide, including itsInternet bill consolidation business Avista Advantage,telecommunications in Avista Fiber and Avista Communications, andfuel cell and distributed power technology in Avista Labs. Matthewsis considering spinning off some of the new technology units inIPOs to get their so-far unrecognized value on the books. The newunregulated businesses should double the $1 billion value of thecompany in three years, he predicted.
“I don’t want to be a utility company. We want to be known as atrading and technology company leveraging our expertise across thecountry,” Matthews said.
By signing up multiple-site end users for bill consolidationthrough Avista Advantage, the company is building a list ofcustomers Avista Energy plans to target for sales of gas, power,and other commodities and services. The cmopany currently manages15,000 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 Avistaaffiliate Avista Energy. “You go to the CFO of the company and yousay, ‘let me manage all of your bills for your 29 sites or 2,900sites around the country,’ and it’s a no-brainer. It’s overheadsavings. Then we’re in the door and the next step is we go to themand say, ‘now that we’re managing your bills, why don’t we manageyour purchases for you also…..'” Not only will Avista beapproaching prospects with whom it already has a relationship, butby having managed prospects’ commodity and services billing, thecompany will be on the inside track with information on customerenergy consumption and costs. “We’re in a race to establishcustomer relationships and branding,” said Avista Energy PresidentMichael R. Kutsch. The idea is to sell things “to establish brandrecognition, anything, ‘place holders’ to get in the que.”
Avista Energy began doing business in July 1997 and had 1998power trading volume of 54.4 million MWh, making it about the 13thlargest power marketing company. Gas volumes at the end of 1998averaged 1.6 Bcf/d. The company had electric and gas revenues of$2.4 billion for the year. Earlier this year Avista Energycompleted the purchase of Vitol Gas & Electric, expanding itspresence in the eastern United States and giving the company aplace in the emerging coal marketing arena. Avista Energy alsopicked up its chairman and president, Kelley and Kutsch, fromVitol.
Manage Now, Acquire Later
Avista has stepped back from the asset acquisition race afterseeing assets going for three to four times book value. InsteadAvista will take the opportunity now to help those new assetholders who may not have the necessary expertise or infrastructureto manage their purchases. Later, the company plans to takeownership positions in assets themselves, but not in a manner thatwould put it in competition with its existing asset optimizationclients, Kutsch said. For instance Avista has no competingproperties in the East where a number of power generation plantshave been sold off to absentee owners.
“Our view of where the business is going is that many of the newat-risk asset owners lack commercial involvement capability,”Kutsch said. “Everyone is rushing out to be involved in the assetside of the business, buying other peoples’ assets.
“A power plant is an upside-down oil refinery. An oil refinerytakes in one product, crude oil, and produces a bunch of otherproducts. The value of that machine is determined by the inputs andthe outputs. What’s different in a power plant?
“You take in a bunch of input – natural gas, oil, coal – and youput out an output. The only difference is in the oil business younever had ratepayers. In businesses where you have these sorts ofrelationships between the inputs and the outputs, historically whatwe’ve seen is cyclical….. We don’t see a reason that isn’t goingto happen in electricity. The approach that we’re taking at Avistais to build the commercial capability and then look atopportunities to make direct investments.”
Avista Power was formed in November to develop and owngeneration and gas storage assets throughout North America, mainlyin support of Avista Energy’s gas and power marketing efforts. Itsinitial generation development is focused on the western andsoutheastern United States. Avista executives also are excitedabout opportunities for distributed generation. Avista Labs inApril selected Logan Industries as its initial contractmanufacturing partner for fuel cells.
To put its strategy in motion, Avista has acquired a bundle oftalent from some big name energy players. Avista Energy last weekannounced six new vice presidents, picking up talent from IllinoisPower/Illinova Energy and Enron Capital and Trade among others.
Kelley, formerly chairman of Vitol Gas & Electric, announcedthe new hires, saying the company was attracting talent by offeringa chance to create value and participate in the company’s successwith incentives and options.
Joining Avista Energy, David Dickson, working out of theSpokane, WA, office, will manage gas trading and marketing-westernregion. Dickson was the managing director for energy trading atIllinois Power. In Houston, Brent Friedman will become vicepresident, risk management. He was managing director for commodityrisk for both Illinois Power and marketing affiliate IllinovaEnergy. From Enron Capital and Trade Avista picked up Darren Lobellto run the Midwest electric desk as vice president,trading-Midwest. Lobell had been director of trading for ECT’sMidwest regions. Another recruit from Enron, Sean P. O’Neal, willbe Avista’s vice president, trading-Southeast, moving over frommanaging ECT’s trading at the Entergy and TVA hubs. In addition,Mark T. Stugart has been named vice president, trading, to overseecoal, SO2 and oil activities. Stugart had co-founded and managedSoundview Energy, a petroleum marketing company in Boston. And EricJ. Melvin, who had established the structured marketing program atHess Energy Trading in New York, will be in charge of the same areafor Avista as vice president.
Joe Fisher, Houston; Ellen Beswick, Washington
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