Avista Corp., headquartered in Spokane, WA, announced Wednesday it plans to implement several measures to improve its liquidity, conserve cash and reduce its debt. Rocked by internal problems and federal investigations of its Avista Energy unit that resulted in a $2 million fine, the company plans to sell 50% of its stake in the 280 MW Coyote Springs 2 power project under construction near Boardman, OR, to Mirant and reduce its utility capital expenditures by $15 million through the end of this year and another $40 million in 2002.

The Coyote Springs transaction, which is expected to close by the end of this year, would allow both Avista and Mirant to share equally in the costs of construction and operation of the plant and jointly own the project. Overall, the plant has an estimated cost of $180-190 million and is set to come on line in mid-2002. Avista estimates it has already invested about $140 million in the project.

“We view this as a positive development both for our company and Mirant,” said CEO Gary G. Ely said. “We will retain a significant portion of this important generation project in addition to working with Mirant, a strong and valued partner.”

As previously announced, Avista is “actively” pursuing a plan to divest itself of interests in Avista Communications, its telecommunications affiliate. which will be completed by the end of the year. With that closing, the company expects to have an after-tax expense of approximately $35 million in the third quarter.

However, Avista’s third quarter earnings, which will be announced next week (Oct. 31), are expected to exceed Wall Street estimates of breakeven, exclusive of charges related to the writedown on Avista Communications.

“We are focused on rebuilding the strength of our core energy businesses, improving liquidity and continuing to rebuild the financial strength of our company,” Ely said in a written statement. He also cited several factors that are expected to improve Avista’s liquidity and debt position in the next 12-24 months, including increased cash flow from the temporary rate surcharges, an expected return to more normal hydroelectric generation conditions and completion of regulatory filings in Washington and Idaho to address recovery of remaining deferred power costs, as well as other issues. Avista will file a general rate case in Washington, DC, before Dec. 1, the company said.

Last year, the company was beset by legal troubles, and federal investigators started looking into possible energy futures trading rule violations that may have occurred three years ago at a Houston subsidiary. Investigators from the Commodity Futures Trading Commission (CFTC) were investigating whether subsidiary Avista Energy illegally manipulated futures markets that in turn drove up the price of an electricity futures contract in 1998/

In August, without admitting guilt, Avista Energy agreed to pay $2.1 million to settle charges that it manipulated prices on electricity futures contracts at the New York Mercantile Exchange. Two traders also were fined $160,000 (see NGI, Aug. 27).

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