D.A. Davidson & Co., a Great Falls, Mont.-based stock brokerage, has lowered its estimate for Avista Corp.s earnings for 2002, based on a recent court judgment against the Spokane energy company.


In a report on Avista released last week, D.A. Davidson also maintained a neutral rating on Avista Corp.s shares.


Davidson lowered its 2002 earnings estimate for Avista by 5 cents, to 70 cents a share. The adjustment occurred after Avista recently disclosed a $9.25 million out-of-court settlement with Creative Solutions Group Inc., of Boston, a former Avista subsidiary that the Spokane company had spun off. In the lawsuit, Creative Solutions alleged breach of representations and warranties by Pentzer Corp., another Avista subsidiary.


In a report by analyst James L. Bellessa Jr., Davidson said that the Federal Energy Regulatory Commission announced Aug. 13 that it had launched an investigation to determine whether Avista or its Avista Energy subsidiary had engaged in inappropriate conduct while facilitating energy trades between Enron Corp. and an affiliate. If Avista is found to have violated FERC rules or federal law, its licenses to sell energy at market-based rates could be revoked, which could seriously impair the companys energy-trading unit and hurt its utility business, Bellessa said. Consequently, D.A. Davidson will maintain its neutral rating on Avistas stock unless FERC recants its threat to revoke Avistas trading licenses, the report said.


Avista spokesman Hugh Imhof says theres nothing surprising in the D.A. Davidson report, and the company is working with FERC and trying to address the commissions concerns. Were just trying to get through the current issues and get back to doing business, Imhof says.


Davidsons report also said that the recent layoff of 15 employees at Avista Labs should have a minimal impact on near-term results. The report continued, We have our doubts about a quick attainment of profitability, and our earnings model continues to call for losses in 2002 and 2003 from this unit, which we suspect will be divested if profitability is not reached or if strategic partners are not obtained, the report said.