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Avista Corp. 10-Q Summary: Quarter Ended March 31, 2000

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2000. Avista Corporation operates as a diversified energy, information, and technology company. Its primary segments include Avista Utilities (regulated electric and natural gas services), Energy Trading and Marketing (commodity trading), Information and Technology (e-commerce and telecom), and Avista Ventures (investment and portfolio management).

Key Financial Metrics

Material Changes vs. Prior Period

• Net Loss for Common Shareholders: The company reported a loss of $11.4 million available for common stock, compared to a profit of $14.0 million in Q1 1999. This reversal was primarily driven by a one-time charge of $21.3 million related to the conversion of Series L Preferred Stock to common stock.
• Revenue Growth: Operating revenues increased 13.9% to $1.38 billion, driven by higher wholesale electric prices and increased retail sales volumes.
• Segment Performance:
  • Avista Utilities: Pre-tax operating income improved by $1.7 million due to higher rates and sales volumes, offset by increased resource costs.
  • Energy Trading: Losses narrowed to $3.5 million (from $7.3 million in 1999) but were impacted by a $1.6 million loss on the sale of its Eastern power book and restructuring costs.
  • Avista Ventures: Earnings dropped from $8.5 million to a loss of $0.1 million, largely due to the absence of a $10.1 million transactional gain from portfolio sales recorded in 1999.
• Capital Structure: Total common equity increased by $264.5 million due to the conversion of preferred stock. The capital mix shifted to 45% debt, 10% preferred securities, and 45% common equity.

Outlook, Risks, and Unusual Items

• Restructuring: Avista Energy is exiting national energy trading to focus on regional Western markets. This involves closing Houston and Boston offices, incurring $4.9 million in transition costs in Q1 2000, with additional costs expected in Q2.
• Regulatory Risk: The Washington Utilities and Transportation Commission (WUTC) staff recommended a 6.5% electric rate decrease and a reduction in the allowed rate of return to 8.8%. The company intends to contest this recommendation.
• Centralia Power Plant Sale: The company sold its 17.5% interest in the Centralia Power Plant, expecting to record a $33.9 million after-tax gain. Shareholders will benefit from $8.1 million of this gain.
• Legal Contingencies:
  • Spokane Gas Plant: Designated as a potentially liable person for environmental remediation; an Agreed Order was signed in March 2000.
  • Eastern Pacific Energy: Plaintiff appealed a dismissal of a breach of contract lawsuit; outcome remains uncertain.
  • Creative Solutions Group: Pentzer is defending against a $27 million lawsuit regarding alleged misrepresentations in a prior stock sale.
• Market Risk: Energy trading operations face significant market and credit risks. The estimated one-day Value-at-Risk (VAR) for commodity trading was $1.2 million as of March 31, 2000.

Investor Verification Checklist

• Verify the impact of the Series L Preferred Stock conversion on future dividend requirements and earnings per share calculations.
• Monitor the outcome of the Washington rate case, specifically the WUTC's final decision on rate adjustments and the allowed rate of return.
• Assess the progress of Avista Energy's restructuring, including the timeline for closing Eastern operations and the status of selling remaining natural gas/coal contracts.
• Review the Centralia Power Plant sale closing details and the specific timing of the $8.1 million shareholder gain recognition.
• Track the status of the $27 million lawsuit filed against Pentzer by Creative Solutions Group.