Avista ready to cut its risks

Avista Corp. is selling most of its energy trading subsidiary to a company controlled by the Shell Group, marking an end to a decade of experience in the hustle-bustle business of working the power and natural gas markets.

Financial terms of the deal, announced Tuesday afternoon, were not disclosed.

As of March 31, Avista Energy’s book value was $202 million, though that’s not necessarily a reflection of the subsidiary’s market value.

Avista spokeswoman Jessie Wuerst said the transaction is expected to close in the next few months. Most money from the sale would be pumped into Avista’s core utility operation, serving ratepayers across the Pacific Northwest.

Avista Energy has about 54 employees in offices in Spokane, Great Falls, Mont., and Vancouver, British Columbia. Most are expected to be retained by Shell’s subsidiary, Coral Energy Holding L.P.

Avista Energy has been an up-and-down business venture, enabling Avista to post handsome gains when it accurately forecasts power and gas markets.

The business has also delivered disappointing results.

Gary Ely, who in February announced his resignation as Avista chairman and chief executive officer effective at the end of this year, said the sale wraps up a deliberate plan to sell the assets of the trading subsidiary.

He has talked about selling Avista Energy during telephone conferences with analysts and other forums.

The concern is that energy markets are too speculative and risky for Avista.

It was the energy trading activities that nearly bankrupted Avista when it had to buy electricity at soaring prices during 2000 and 2001 to meet its obligations.

The company still considers itself in recovery mode.

And it was Avista Energy that was fined $2.1 million six years ago by the Commodities Futures Trading Commission when a handful of its traders allegedly helped manipulate electricity futures markets.

In a separate investigation, Avista Energy was caught up in the unscrupulous business activities of Enron Corp., though Avista closed its Houston office and was exonerated by the Federal Energy Regulatory Commission.

With those problems behind it, Avista Energy is ripe for sale.

Among the assets to be sold are power purchase agreements with the Lancaster natural gas-fired power plant on the Rathdrum Prairie and storage rights at the large Jackson Prairie natural gas storage facility in Lewis County in western Washington.

Avista will receive cash for the assets sold to Coral. Other assets will be sold to other buyers.

The company is holding a conference call today to discuss the deal, though the sale is not expected to generate a significant gain or loss.