July 3, 2007 in Business

Avista Energy’s sale ends its bumpy history

Bert Caldwell The Spokesman-Review
 

Avista Corp. closed on the sale of its energy-trading subsidiary Saturday, all but closing the books on one of the most turbulent decades in its 118-year history.

Coral Energy, a Royal Dutch Shell subsidiary, will pay about $175 million cash for Avista Energy when accounts are settled. All but a few of the Spokane company’s 50 employees will keep their jobs, and those pushed out in the shuffle can bid on other jobs within Avista Corp.

Avista Energy, all of 10 years old, will fade away.

But at its peak in 2000, Avista Energy cleared $6.6 billion in trades for the year, enough to put the company among the 10 largest brokers of electricity and natural gas sales in the United States. The volume briefly lifted Avista Corp. into the Fortune 500.

Avista Energy earnings were often all that enabled its parent to report a quarterly profit.

In 2001, with Avista Corp. within a week or two of not making payroll, the subsidiary paid its parent $180 million in dividends.

“It probably saved the company,” Avista Corp. Chief Financial Officer Malyn Malquist said Monday.

Avista Energy was formed in the spring of 1997 as deregulation was creating new business opportunities. The first client was the Chelan County Public Utility District, which wanted help selling its surplus electricity. When Tom Matthews became Avista Corp. chairman a little more than a year later, trading surged as the freewheeling Texan sought to clear a space for the company amid the trading giants clustered in his native Houston.

Between 1997 and 2000, Avista Corp. invested $140 million in the trading business. Avista Energy flourished during the 2000-2001 West Coast energy crisis, but even then netted a relatively small return given the enormous trading volume, and the equally enormous risks. When the crisis passed, and the market manipulation by Enron Corp. and others surfaced, the high times were over.

Avista Energy took its hits and pulled back. Malquist said the company has been doing just a fraction of the business in recent years, and the contraction accelerated with a 2005 decision to get out of speculative natural gas trading.

Others, Idaho Power among them, made the same decision as operations backed by Bank of America, Goldman Sachs, BP and other corporate giants muscled their way to market dominance.

“We were the last remaining niche player in the Northwest,” he says. “We just couldn’t compete with those balance sheets.”

Still, Malquist notes, the $357 million generated by the sale and earlier dividend works out to a 16 percent rate of return on the investment in Avista Energy. “A pretty good investment,” he concludes.

Rather than beat its bigger foes, Avista Energy has joined them.

Coral is the second largest trader of natural gas in the United States, and the fifth largest electricity trader.

Chief Executive Officer Mark Hanafinsays Coral’s balance sheet runs into the billions of dollars aside from that of its parent.

Avista Energy may be small, he says, but it bridges a gap between Coral operations in California and Western Canada. The employees are high-quality, the customer relationships excellent.

“The Spokane office is important,” Hanafin says.

Avista, meanwhile, will return to its roots, as outgoing Chairman Gary Ely and successor Scott Morris promised when they were promoted five years ago. Avista Utilities will generate 90 percent of revenues, 100-percent owned Advantage IQ the rest.

Avista Energy was the last, active subsidiary to carry the Avista name. There used to be quite a brood. Avista Ventures, Avista Communications, Avista Power and others are gone, or inactive. Avista Development holds only a few properties in downtown Spokane, notably Steam Plant Square, where the company monitors a lingering underground diesel spill.

Avista Advantage is now Advantage IQ, which advises clients on energy use. Avista Laboratories is ReliOn, the fuel cell manufacturer. Avista Corp. sold most of that company to outside investors.

There’s one last name change that would be appropriate. For the utility. Washington Water Power Co. has a nice ring.


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