Spokane Journal of Business

Power-plant projects taken off Avista’s menu

Avista Power unit will lay quiet due to market changes, company woes

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Avista Corp. has quietly mothballed its Avista Power subsidiary, citing changes in the power-plant development business and the parent companys financial troubles.

The subsidiarys mission was to develop so-called merchant power plants, which are independent generating stations that sell power on the wholesale market.

Although the Avista Power unit still exists on paper, theres just no activity now, says Hugh Imhof, Avista Corp.s spokesman.

In a one-sentence announcement contained in its last two quarterly earnings statements, Avista declared that Avista Power will no longer pursue the development of additional new, non-regulated, generation projects.

The company came to that decision after reviewing the amount of power-plant construction already in the regions pipeline, the volatility in energy markets, and other factors, Imhof says. You have to weigh that against the financial picture we are facing at Avista Corp. and make decisions about where to commit available capital, he says.

Avista Corp.s credit rating dropped below investment grade in October, as a result of the companys weak financial condition and unresolved regulatory issues. After receiving approval of a 25 percent surcharge effective Oct. 1, the financially strapped company filed Dec. 3 a general rate case that it doesnt expect to be resolved for 11 months.

Under the circumstances, the company concluded that it was not advisable for us to go forward with any new power-plant development, Imhof says.

A recently published report on power-plant construction highlights changes in the power-development industry. The report, which was published jointly earlier this month by Engineering News-Record and Power magazines, notes that there has been an unprecedented and unexpected boom in power-plant construction in the last three years, but says the activity is plateauing and is expected to wane by 2003.

The report also says that a shakeout in ownership of independent power plants is under way, with a small number of financially strong players consolidating their positions as weaker groups fade.

Avista, then still called Washington Water Power Co., formed Avista Power three years ago when it announced a deal to build a 270-megawatt gas-fired plant on the Rathdrum Prairie with Cogentrix Energy Inc., of Charlotte, N.C. Avista Power still owns half of the Rathdrum power plant with Cogentrix.

The company also is half-owner of a 280-megawatt power plant being constructed in Boardman, Ore., called Coyote Springs 2. Avista recently sold the other half of that project to Mirant Corp., a big energy company based in Atlanta.

Last summer, Avista Power sold to Mirant its interest in another facility, a 286-megawatt power plant in Longview, Wash.

Since Avista made its decision to stop pursuing power-generation projects, Avista Powers five employees have scattered. Several landed at Mirant, which recently opened offices here and in Boise and Portland, Ore.

Lloyd Meyers, president of Avista Power and a 30-year employee of Avista, now works for Avista Utilities as vice president for power supply wholesale marketing, Imhof says.

Avista also has dissolved a 2-year-old partnership with a big German power producer, Steag AG, that was to help Avista Power buy, build, or develop power plants throughout North America. Steag said at the time the partnership was announced, in 1999, that it intended to invest hundreds of millions of dollars during the next decade to capitalize the varied endeavors of Avista Power.

Imhof says the breakup with Steag was a friendly parting. There were some issues with their corporate board, directions they wanted to take versus ours. Our styles didnt match in terms of where we were going.

The decision to mothball Avista Power preceded the sale of most of the assets of another Avista subsidiary, Avista Communications, which occurred in two transactions this fall.

At the time of the first of those two sales, Avista said, The transaction is part of a previously announced strategy to refocus Avista Corp. activities on energy and energy-related businesses.

James Bellessa, vice president and senior research analyst at the D.A. Davidson & Co. office in Helena, Mont., says both moves reflect Avistas desire to hold back the reins in using their capital. The company is trying to weather tough economic conditionscaused by drought and wildly fluctuating energy pricesby trimming back its non-core businesses, he says.

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