Arrow-right Camera

The Spokesman-Review Newspaper The Spokesman-Review

Saturday, September 21, 2019  Spokane, Washington  Est. May 19, 1883
Partly Cloudy Day 71° Partly Cloudy
News >  Business

Avista shareholders’ expected approval today of a merger with Hydro One of Canada is a long time coming

UPDATED: Tue., Nov. 21, 2017, 1:27 p.m.

 (Colin Mulvany / The Spokesman-Review)
(Colin Mulvany / The Spokesman-Review)
By Bert Caldwell For The Spokesman-Review

Power companies that don’t anticipate consolidation “still have their heads in the sand,” a Spokane utility’s chief executive said following a shareholder vote to merge with another company.

That was November 1994. The speaker was Paul Redmond, chairman and chief executive officer of what was then the Washington Water Power Co.

Shareholders had just approved a merger with Reno-based Sierra Pacific Resources, which was expected to become a template for other deals that would attract more capital and increase the industry’s efficiency.

Despite approvals from Sierra Pacific shareholders and the six state utility commissions that reviewed the merger, WWP killed the proposal when the Federal Energy Regulatory Commission challenged proposed rates for a transmission line between the companies.

But the pressures that brought WWP and Sierra Pacific to the altar did not abate. The Reno utility subsequently merged with Nevada Power. WWP, rebranded as Avista Corp. in 1999, continued to look for new ways to go forward. Acquisition by Hydro One may be that avenue.

Avista shareholders today are expected to approve the transaction. Officials anticipate little regulatory interference. The utility world has evolved much as Redmond foresaw in 1994.

Washington’s other big private utilities have long since surrendered to larger partners that, like Hydro One, are based outside the United States. Puget Sound Energy was purchased in 2009 by Macquarie Group of Australia. Scottish Power bought PacificCorp in 2001.

Of the private utilities serving Washington ratepayers, only Northwest Natural Gas remains independent.

And Avista would hardly be the first of once-iconic Spokane-area companies to be swallowed up by national or international firms.

Old National Bancorporation was purchased by US Bancorp in 1987. ISC Systems, which once employed more than 2,000 making computer systems for the savings and loan industry, was sold to Olivetti Spa in 1989. That was the first of a series of ownership changes that have sequentially diminished employment.

For Avista, the struggle for independence predated the engagement with Sierra Pacific. During its 128-year history, the utility has survived the breakup of a holding company, a dalliance with nuclear power and convictions of company officials for obstructing justice. Fraud convictions were overturned in 1986.

Avista barely avoided bankruptcy during the 2000-2001 energy crisis. And it has, literally, survived the trials of fire and ice.

Along the way, though, the company has also been a pioneer in building long transmission lines and high dams. The 108-mile line extended to the Silver Valley mines in 1903 was a world record, as was the height of the Long Lake Dam when built in 1910.

Even then, dams were controversial. In 1911, the company posted armed guards at its Post Falls dam to discourage landowners who threatened to dynamite the structure, claiming they were inadequately compensated for their flooded property.

Yet recent dam re-licensing efforts built around collaboration with environmentalists, regulators, area tribes and other stakeholders became a model for other utilities.

Avista has also spun off other companies, such as Itron Inc., that have become major employers. Its executives sit on numerous local boards, and its employees are a go-to resource for nonprofit organizations, as is the company’s charitable foundation.

The company bought, and later sold, the Spokane Industrial Park, and it nurtured new technologies like remote meter reading and fuel cells.

It all started with an effort to electrify downtown Spokane. Almost immediately, the great fire of 1889 destroyed the tiny grid, which was stitched back together with barbed and baling wire. The Monroe Street Generating Station, the company’s first, was completed the following year.

With new dams and new wire, WWP became an economic powerhouse. In 1928, a holding company – American Power & Light – bought out shareholders and wrapped the company into a regional portfolio that included Pacific Power and Light Co., Northwestern Electric Co., Idaho Power Co., Montana Power Co. and such now-forgotten entities like the Stevens County Power and Light Co. and Kootenai Power.

The series of transactions ensnared WWP in a web that came to threaten its existence as the threads unwound.

In 1942, the U.S. Securities and Exchange Commission ordered the liquidation of American Power. Not much happened during World War II, but as soon as the guns fell silent the SEC renewed hostilities with the holding company, which was itself a subsidiary of another holding company founded by famed banker J.P. Morgan Jr.

American first proposed consolidation of WWP, Puget and Pacific Power. When that did not fly, American’s president tried to sell it to public utility districts in Pend Oreille, Chelan and Stevens counties. He was pitted against his subordinate, Kinsey Robinson, WWP president since 1938.

Robinson wanted to keep the company private. With the forces behind public power that had been ascendant during the prewar years suddenly condemned as “socialist” postwar, Spokane voters rejected an effort to take over WWP assets in the city.

Robinson and his allies had prevailed. WWP stock was distributed to American shareholders, and the company was again free to chart its own course.

Installation of the first generator at Cabinet Gorge dam on the Clark Fork River was completed in 1952. Generation at Noxon Rapids upstream followed in 1954. Those dams remain Avista’s most important resources.

In 1958, WWP added gas service by buying the Spokane Natural Gas Co.

As electricity demand increased, the company turned to coal power, then nuclear. Although it retains its ownership in the Colstrip coal-fired generating plant, the historic collapse of the Washington Public Power Supply System put WWP in a squeeze that compromised its financial health for several years despite substantial rate increases.

With WWP’s high dividend – $1.24 per share – in jeopardy, the company went looking for a partner and found Sierra Pacific. As if the demise of that deal was not discouragement enough, an unprecedented ice storm destroyed much of the power grid serving Spokane in November 1996. Full restoration took 10 days and millions more dollars. One lineman was killed.

In a search for fresh leadership, the WWP board of directors in June 1998 introduced Texan Tom Matthews as chairman and chief executive. Within weeks, the dividend prized by its many small, local shareholders was slashed 61 percent, and WWP, beloved by its employees as “the Water Power,” became Avista.

Matthews justified the dividend cut by arguing Avista could not survive as a small utility without retained earnings to support investment. He spent some of the cash on a bid to expand the company’s tiny telecommunications business, a strategy that seemed to be working for Montana Power – until it destroyed that company.

Avista no longer has a telecommunications business.

But it was energy trading that brought Avista to its knees. In the spring of 2000, after selling its interest in the Centralia, Washington, coal plant, the company found itself short of power in the wake of an early snow runoff. With no hydropower to backfill for Centralia, the utility had to buy more in a wholesale market where prices were soaring to 100 times normal.

Those were heydays for companies like Enron Corp., where traders reveled in the pain they were inflicting on grandmothers and other victims of their predatory ways.

For Avista, the period was calamitous. The utility found itself on the wrong side of an electricity trade that precipitated runaway losses that ultimately exceeded $120 million. A company that had been a rock of the Spokane economy could not pay its bills.

Reluctant regulators, fearing a bankruptcy, approved double-digit rate increases. Matthews, the first chairman from outside the company, was ousted, and homegrown leadership restored.

Avista has recovered, but the pressures Redmond identified more than 20 years ago had not gone away.

The company’s 379,000 electricity and 343,000 natural gas ratepayers are a fraction of those served by industry giants like Duke Energy, with its 7 million customers. Prospective partner Hydro One serves 1.3 million.

The global forces that swept up PacifiCorp and Puget before it – twice, counting the years under American Power – have caught up with Avista.

Hydro One may be the partner Avista has sought for more than 20 years. With its assurances of continued local control, and oversight by utility commissions, the deal may at last provide the stability that has been so elusive for so many years.

Until the next trial by fire, or ice.

Bert Caldwell retired in 2016 as opinion page editor of The Spokeman-Review following a 32-year tenure with the newspaper. He covered Avista as a business reporter for almost 20 years.

Subscribe to the Morning Review newsletter

Get the day’s top headlines delivered to your inbox every morning by subscribing to our newsletter.

You have been successfully subscribed!
There was a problem subscribing you to the newsletter. Double check your email and try again, or email webteam@spokesman.com