Avista Energy won’t trade gas on speculation

Avista Corp.’s energy trading subsidiary will discontinue speculative trading of natural gas due to losses the company incurred in the third quarter.

Avista Energy, which has been trading gas since 1997, instead will focus on its other business segments: electricity trading, gas storage and sales to large commercial customers, said Malyn Malquist, Avista’s chief financial officer.

“Until we’re convinced we fully understand the gas market, which has been very erratic, we will stay out of the business,” Malquist said.

Avista Energy posted a loss of 17 cents a share for the third quarter, contributing to a loss for its parent corporation of 19 cents a share, or $9 million. The loss was larger than analysts had expected from the traditionally weak third quarter and caused Avista to revise downward its projected earnings for 2005. Originally the company was projecting 2005 earnings of 95 cents to $1.05 per share, but they were adjusted to a range of 65 to 75 cents per share.

Avista Utilities posted a 4 cent per share loss, but Avista Advantage, the company’s energy billing subsidiary, posted earnings of 3 cents per share. However, Malquist said the bulk of Avista Energy’s reported loss is misleading due to accounting rules that the federal Securities and Exchange Commission may change. The rule requires Avista to record as a loss natural gas that has been sold, but is not scheduled to be delivered until January. The profit earned on that sale cannot be recorded until the gas is delivered, according to the rules, so in the interim the company records a loss, Malquist said.

Despite that, Avista Energy still has not performed as expected, Malquist said, resulting in the decision to exit the natural gas trading business. The sale of the gas in storage, he said, should result in earnings of 25 cents a share in the first quarter of next year, just for that segment of Avista Energy’s business.

During a morning conference call, analysts asked if Avista Energy’s poor performance would cause its corporate parent to sell the business. Malquist said other divisions of the subsidiary are doing well and prior to the past three quarters, Avista Energy recorded 20 consecutive profitable quarters.

“Can we get back to earning a reasonable rate of return? If we can’t we should look for ways to exit the business, but we believe that we can. Most lines of the business have been profitable, but for this one segment,” Malquist said, referring to natural gas trading.

Despite the disappointing third quarter, company earnings are still running ahead of last year. Avista Corp.’s net income for the first nine months of 2005 was $19.8 million, or 40 cents per share, up from $12.6 million, or 26 cents per share, last year.

Last year, the company reported a loss for the third quarter of $9.8 million, or 20 cents a share, due primarily to the Idaho Public Utilities Commission’s refusal to allow the company to charge ratepayers for certain expenses.