Business Context and Reporting Period
Company: Avista Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2000
Business Overview: Avista operates as an energy, information, and technology company. Its primary segments include Avista Utilities (regulated electric and natural gas services), Energy Trading and Marketing (wholesale trading), Information and Technology (e-commerce and telecommunications), and Avista Ventures (investment and portfolio management).
Key Financial Metrics
| Metric (in thousands) | Q2 2000 | Q2 1999 | YTD 2000 | YTD 1999 |
|---|---|---|---|---|
| Operating Revenues | $1,353,414 | $1,411,736 | $2,735,387 | $2,647,931 |
| Net Income (Loss) | $(21,493) | $8,509 | $(10,968) | $27,897 |
| Income (Loss) Available for Common Stock | $(22,101) | $3,125 | $(33,486) | $17,130 |
| Earnings (Loss) Per Share (Basic) | $(0.47) | $0.08 | $(0.76) | $0.42 |
| Cash and Cash Equivalents | $62,970 | $40,041 | $62,970 | $40,041 |
| Total Assets | $7,869,962 | $3,713,494 | $7,869,962 | $3,713,494 |
| Total Long-Term Debt | $593,293 | $718,203 | $593,293 | $718,203 |
| Net Cash Provided by (Used in) Operating Activities (YTD) | $(12,723) | $77,074 | $(12,723) | $77,074 |
Material Changes vs. Prior Period
- Significant Losses in Utilities: Avista Utilities recorded a pre-tax operating loss of $92.0 million in Q2 2000, compared to a profit of $37.0 million in Q2 1999. This was driven by unprecedented spikes in wholesale power prices (averaging $60-$180/MWh vs. forecasted $19-$22/MWh) and a short position in wholesale sales that required covering at higher market rates.
- Energy Trading Turnaround: The Energy Trading and Marketing segment reported income of $47.3 million in Q2 2000, reversing a $10.7 million loss in the prior year, aided by a well-positioned portfolio in volatile markets.
- Balance Sheet Expansion: Total assets more than doubled from $3.7 billion to $7.9 billion, primarily due to a massive increase in energy commodity assets and liabilities ($5.0 billion combined) reflecting mark-to-market accounting on derivative positions.
- Restructuring and Exit Costs: The company incurred $2.96 million in exit costs for Avista Energy's Eastern business in Q2 2000 and $1.94 million in restructuring charges for Pentzer Corporation.
- Preferred Stock Conversion: In February 2000, all Series L Preferred Stock was converted to common stock, resulting in a one-time charge of $21.3 million to preferred dividend requirements, impacting YTD net income.
Guidance, Outlook, and Risks
- Full Year Outlook: Management expects to post a loss for the full year 2000. Additional power costs of $30 million to $40 million are projected for the second half of the year related to retail customer sales.
- Regulatory Mitigation: On August 9, 2000, the Washington Utilities and Transportation Commission (WUTC) approved deferred accounting treatment for certain power costs incurred between July 1, 2000, and June 30, 2001. This allows the company to defer costs related to wholesale price spikes, hydro generation, and thermal generation for future recovery.
- Operational Changes: Avista Utilities has ceased short-term wholesale commodity sales and trading activities not essential to optimizing system resources. The company has hired Williams Energy Marketing & Trading Company to advise on risk management.
- Legal Contingencies: Multiple securities class-action lawsuits were filed in July and August 2000 alleging misstatements regarding trading activities and risk management. The company denies liability. Additionally, there are ongoing environmental remediation obligations at the Spokane Gas Plant site and litigation regarding the sale of the Creative Solutions Group.
- Liquidity: The company anticipates satisfying cash requirements through the remainder of 2000, supported by $230 million in committed lines of credit and a $60 million commercial paper program.
Investor Verification Checklist
- Wholesale Trading Exposure: Verify the extent of remaining short positions and the effectiveness of the new risk management protocols implemented post-Q2.
- Regulatory Recovery: Monitor the upcoming ratemaking proceedings in Washington to confirm the approval and timing of the recovery of deferred power costs.
- Legal Liabilities: Track the status of the securities litigation filed in August 2000 and the potential financial impact of the Eastern Pacific Energy appeal.
- Capital Expenditures: Review the revised capital expenditure forecast ($92 million for 2000) and the progress of the new Coyote Springs 2 power plant project ($190 million estimated cost).
- Commodity Collateral: Assess the sufficiency of liquidity given the $83 million in cash deposited with counterparties and $103 million in letters of credit outstanding for Avista Energy.