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Volatile market drives Avista Energy losses

Avista Corp.’s energy trading subsidiary, Avista Energy, recorded a loss of 17 cents per share in the first quarter due to volatile natural gas prices and a misjudging of the energy trading market, company officials said Wednesday.

“Gas prices moved very significantly. That’s the big driver behind this issue,” said Avista Corp. Chief Financial Officer Malyn Malquist, noting a 40 percent swing in prices during the first quarter. “That’s pretty radical movement. Ordinarily, we might see a 10 percent swing in prices.”

The loss, which Avista warned Wall Street analysts about earlier this month, dragged down company earnings despite increased income from the company’s utility operation. The company revised its projected earnings for the year from a range of $1.20 to $1.35 per share to 95 cents to $1.05 per share, primarily because of the loss at Avista Energy, a company news release said.

Avista reported net income of $10.2 million, or 21 cents per share, for the first quarter. That’s down from income of $12.2 million, or 25 cents per share for the first quarter of 2004. Avista Utilities reported $19 million in net income, or 39 cents per share, for the first quarter, up from $10.8 million, or 22 cents per share, last year. The company’s utility billing subsidiary, Avista Advantage, reported earnings of 2 cents per share, up from zero for the first quarter of last year.

However, Avista Energy’s loss of $8.4 million, or 17 cents per share, compared with a gain of $3.5 million, or 7 cents per share, during the first quarter of 2004.

Malquist attributed two-thirds of the loss to accounting practices. In the early part of the quarter, he said, Avista Energy decided that since the Northwest winter was so warm, it could make more money selling its stored natural gas next year than it could this year. So it locked in a price with customers to deliver the gas next year. Then prices went up. That forces the company to record that price difference as a loss even though the company will profit when the gas is actually delivered, Malquist said.

That accounting practice reflects long-term gains in a somewhat misleading manner in the short term, but it happens every quarter, Malquist said. The difference this quarter was the 40 percent swing in prices which exaggerated the result, he said, adding that this is Avista Energy’s first loss in five years.

“The market normally isn’t this volatile and it’s really being driven largely by oil prices,” he said. “I don’t think anybody in this business is right 100 percent of the time. To be right 19 out of 20 quarters is really a pretty good batting average.”

The remainder of the loss was due to misjudging the market, said Dennis Vermillion, president and chief operating officer for Avista Energy. With a warm winter and high storage levels for natural gas, the company was expecting prices to stay low and made some deals based on that assumption, he said. Then prices went up.

“The market went against us,” he said. “We’re just not right all the time.”