20040602Responses of Avista to Potlatch.pdf

Avista Corp.
1411 East Mission PO Box 3727
Spokane, Washington 99220-3727.
Telephone [phone]
Toll Free 800-727-9170 ~~~'iI'ST Ae
Corp.
June 1 , 2004 Idaho PupJic Utifities Commission
Office of the SecretaryRECEIVED
JUN 200~
ConleyE. Ward
GNENS PURSLEY LLP
601 W. Bannock Street
PO Box 2720
Boise, ill 83701-2720
SoIse. Idaho
Re:Production Request of Potlatch Corporation
in Case Nos. A VU - E-04-0 1 and A VU -04-0 1
Mr. Ward
I have attached one copy of Avista s response to Potlatch Data Request No.(s) 28, 72, and73.
If you have any questions, please call me at [phone] or Don Falkner at (509) 495-
4326.
Mike Fi
Rate Analyst
Enclosures
Cc:s. Woodbury
D. Peseau
A. Yankel
(IPUC)
(Utility Resources, Inc.
(Yankel & Assoc, Inc.
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01 / A VU-O4-
Potlatch
Data Request
DATE PREPARED:
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
OS/28/2004
Malyn Malquist
Paul Kimball
Finance
[phone]
REQUEST:
Please provide copies of all rating agency reports on A vista Corporation s debt from January 1
1999 to the present. Please re-calculate the schedule appearing on pages 5-7 of Avista
response to Staff Data Request No. 118 assuming that Avista s debt rating had remained at the
pre-downgrade levels. Assume the same issuance dates and specify any other assumptions and
calculations made. Provide details sufficient to verify and replicate the results.
RESPONSE:
Please see the attached rating agency reports and the recalculation of the requested schedules.
A vista Corp. was downgraded to below investment grade in October 2001. The attached
recalculated rates assumed that the two issuances subsequent to the corporate downgrade were
issued with an A- rating. To mitigate the impact of being downgraded on these issuances, we
chose to issue the bonds as first mortgage bonds, which have an investment grade rating of BBB-
and implemented the following impacts:
Assumes issuing the debt listed below with an A- rating.
$150 million 7.75% located on Line No. 43 of the tab titled
Adjusted Debt would have been issued with a coupon 125 basis
points lower then actual An assumed A- spread of approximately
225 basis points. Avista issued with a 350 basis point spread.
$45 million 6.1250/0 locted on Line No. 47 of the tab titled
Adjusted Debt would have been issued with a coupon 75 basis
points lower then actual An assumed A- spread of approximately
75 basis points. Avista issued with a 150 basis point spread.
:c:~~
~=:::o,.s Service Fundamental Credit Research
Rating Action
Published 27 Jul 2000
A vista Corp.
New York
Susan D. Abbott
Managing Director
Corporate Finance
Moody s Investors Service
Clients: 1.212.553.1653
New York
Kevin G. Rose
Vice President - Senior Analyst
Corporate Finance
Moody s Investors Service
Clients: 1.212.553.1653
, MOODY'S DOWNGRADES CREDIT RATINGS OF AVISTA CORP. (SR. SEC.
Baa1); ALSO CONTINUES TO REVIEW RATINGS FOR POSSIBLE FURTHER
DOWNGRADE
Approximately $1.2 billion of Debt Securities Affected.
Moody s Investors Service downgraded the senior secured debt ratings of Avista Corp. to Baa 1 frorn-A3. The rating action reflects
expectations that even a satisfactory resolution of the companys pending electric and gas base rate cases is likely to result in
prospective debt protection measurements that would be considered more in line with tI"Ie lower rating level. The ratings had been
placed under review for possible downgrade on June 22, 2000.
Moody s is also continuing to review Avista Corp.'s security ratings for possible further downgrade, reflecting lingering concems
about the adverse staff recommendation in the pending rate cases, as well as the adverse financial effects from unprecedented
spikes in power supply prices in the West and Northwest, which were magnified by a wholesale short position exceeding
management guidelines, and the aggressive growth strategy that management continues to pursue. The outcome of the review for'
possible further downgrade will also be influenced by Avista s ability to add to its liquidity position, which would provide additional
. flexibility to respond to increas~d collateral calls. Such calls for collateral could increase, depending on the extent of volatility in the
power supply market over the next several months, among other factors.
Ratings downgraded include Avista Corp.s senior secured debt rating to Baa1 from A3: its senior unsecured debt, revolving
bank credit facility, and issuer ratings to Baa2 from Baa 1: its junior subordinated debt rating to Baa3 from Baa2: its preferred stock
rating to 8baa38 from 8baa2.; and its shelf registration ratings for prospective issuance of unsecured debt, junior subordinated debt
or preferred capital securities to (P)~aa2l(P)Baa3/(P) 8baa28 from (P)6aa1/(P)Baa2l(P) 8baa 1., respectively. Ratings also
downgraded include the preferred capital securities of Avista Corp. Capital I and Avista Corp. Capital II to 8baa2. from 8baa18, as
well as the shelf registration.r~ting for prospective issuance of preferred capital securities or ju~ior subordinated debt of Avista Corp.
Capital III to (P) 8baa2.'(P)Ba.a3 from (P) 8baa18/(P)Baa2.
Moodys will continue t6 closely monitor the ongoing Washington State regulatory proceedings, which include Avista's request
for approval to increase base electric rates by 10.7% and i":,plement a power cost adjustment mechanism, as well as a request to
raise gas rates by 6.4%. The staff of the Washington commission has recommended a combined $16 million rate reduction in these
proceedings which, it upheld in the final orde , would limit the utiTity's finaTicial performance and put further pressure- on its credit'
ratings. Moody s will also f()Cus on the outcome of an emergency filing for deferred accounting treatment of extraordinary power
supply costs, which is expected by early- to mid-August. A favorable outcome would allow Avista to defer such costs for future
recovery. Furthermore, Moody s notes that management is taking other steps to add to its liquidity position and restore more
acceptable financial results. These currently include: ongoing negotiations to renew expiring credit facilities, to obtain an additional
short-term credit line, and to issue medium-term notes; the recent hiring of Williams Energy Marketing & Trading Company to advise
Avista Utilities on risk management, risk analysis, and resource optimization issues for all system requirements; operating expense
and capital spending reductions; more conservative strategies with respect to wholesale energy sales in'the utility sector, plans 'to
add generation; and strategies to strengthen the company s balance sheet. Moody s remains concerned that these steps, against
the backdrop of a possible adverse outcome in its regulatory proceedings, may not be enough to permit the company to achieve
more favorable and consistent consolidated financial results.
Finally, Moodys will continue to assess the ability for Avista's more risky non-regulated businesses, including Avista Energy,
AvistB Advantage, Avista Labs, Avista Power, and Avista Communications, to be self funding as they aggressively pursue their
respective growth objectives. Moodys remains concemed about the extent to which Avista expects to rely on eamings from its
more risky non-regulated businesses going forward.
Avista Corp. is an energy, information, and technology company, with utility and subsidiary operations throughout North
America. Its headquarters are located in Spokane, Washington.
ALL INFORMATION CONTAINED HEREIN IS COPYRIGHTED IN THE NAME OF MOODY'S INVESTORS SERVICE, INC.
MOODY'
),
AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED
REPACKAGED FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED REDISTRIBUTED OR RESOLD
STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER.
OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRll1EN CONSENT. All
information contained herein is obtained by MOODY'S from sources believed by it to be accurate and teliable. Because of
the possibility of human or mechanical error as well as other factors, however, such information is provided "as is. without
warranty of any kind and MOODY', in particular, makes no representation or warranty, express or implied, as to the
accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no
circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused
by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the
control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection,
compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect
special, consequential, compensatory or incidental damages whatsoever (includi~g without limitation, lost profits), even il
MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such
information. The credit ratings. if any. constituting part of the information contained herein are, and must be construed solely
as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities.
WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION
GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be
weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein,
and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of
and each provider of credit support for, each security that it may consider purchasing, holding or selling. Pursuant to Section
17(b) of the Securities Act of 1933, MOODY'S hereby discloses that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY'S have, prior to assignment
of any rating. agreed to pay to MOODY'S for appraisal and rating services rendered by it fees ranging from $1,000 ' to
$1,500,000.
MADE IN U.
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MfJody. f".v..t~ S8."",c.
Global Credit Research
Rating Action
8 OCT 2001
Rating Action: Avista Corp.
MOODY'S DOWNGRADES CREDIT RATINGS OF AVISTA CORPORATION (SR.SEC. TO Baa3)
Approximately $1.3 Billion of Debt Securities Affected.
New York, October 08, 2001 -- Moody s Investors Service downgraded the ratings of Avista Corporation (Sr.
Secured to Baa3). The downgrade of Avista s ratings is in response to concerns about an expected longer
period for financial recovery than had originally been anticipated, as well as lingering regulatory uncertainties
in the state of Washington. The outlook for Avista s ratings is negative, reflecting the still considerable
challenges that the company must overcome to restore earnings, cash flow, and liquidity to healthier levels.
Ratings downgraded include Avista Corporation s senior secured debt to Baa3 from Baa1; its senior
unsecured debt and issuer ratings to Ba1 from Baa2; its preferred stock rating to Ba3 from Ba1; and its shelf
registration ratings for prospective issuance of unsecured debt to (P)Ba1 from (P)Baa2.
Ratings also downgraded include the preferred capital securities of Avista Corp. Capital I and Avista Corp.
Capital II to Ba2 from Baa3, as well as the shelf registration rating for prospective issuance of preferred
capital securities or subordinated debt of Avista Corp. Capital III to (P)Ba2l(P)Ba2 from (P)Baa3/(P)Baa3,
respectively.
Moody s has downgraded these ratings despite the Washington Utilities and Transportation Commission
(WUTC) recent approval of a 25% temporary electric rate surcharge for Avista, covering the period from
October 1 , 2001 to December 31 2002. The surcharge is less than the 36.9% requested, is in effect for 15
months versus the 27 months requested, and is subject to refund, pending a prudence determination
expected to be part of the general rate case that Avista is mandated to file by December 1 , 2001. Also, of
particular concern to Moody s is the fact that the existing energy cost deferral mechanism is being eliminated
effective December 31 2001. In taking this action, Moody s has factored in the expectation that Avista will
receive a ruling relating to its request for a 14.7% electric surcharge in its substantially smaller Idaho
jurisdiction within the next several days. Moody s notes that Idaho regulators have been demonstrating solid
support for utilities in recent decisions rendered and that Idaho regulation has in place a tested deferral
mechanism, which serves to provide a high degree of certainty around the eventual recovery of the deferred
power costs.
The recent WUTC order signals some support of Avista s need to address the sizable build up of energy cost
deferrals due to a confluence of circumstances, including the worst drought conditions in over 70 years
volatile pricing for power in the wholesale market, and other changing market conditions (e.; price caps
imposed by the Federal Energy Regulatory Commission). However, the order also creates a longer period for
financial recovery than would have been the case if the WUTC order approved Avista s request for interim
rate relief entirely as filed earlier this year. Moody s remains concerned that Avista is still left with ongoing
challenges, following the recent WUTC order. Therefore, the downgrading of Avista s credit ratings
anticipates that the utility will still need to cope with ongoing, albeit less severe, cash flow pressures because
rates will still not completely cover power supply costs and the existing energy cost deferral mechanism is
being eliminated.
Against the backdrop of the recent WUTC order, Moody s will continue to assess Avista s ability to finance
construction of the Coyote Springs II generation plant, its ability to withstand the expected delay in a planned
common equity offering due to the current market environment, and whether the utility s other strategies to
reduce costs and rationalize nonregulated investments can be implemented successfully. Although Avista
was able to add to its liquidity in the face of 'challenging circumstances, Moody s considers success in regard
to the aforementioned matters as integral to improving earnings, cash flow, and liquidity to more healthy
levels. In addition, a favorable outcome of the general rate filing to be made by December 1 , 2001 would help
stabilize the current negative rating outlook. This would be especially so if the outcome implements a power
cost adjustment mechanism to create more certainty surrounding recovery of Avista s power supply costs
incurred to serve its customers in the Washington jurisdiction.
file:/ IC: \ TE1v1P\M OOD Y'0/020DO WN GRAD ES %20CREDITo/020RA TIN GS 200 Fo/020i 03-25-2003
Avista Corporation is an energy company with utility and other subsidiary operations throughout North
America. Its headquarters are located in Spokane, Washington.
New York
John Diaz
Managing Director
Corporate Finance
Moody s Investors Service
JOURNALISTS: [phone]
SUBSCRIBERS: [phone]
New York
Kevin G. Rose
Vice President - Senior Analyst
Corporate Finance
Moody s Investors Service
JOURNALISTS: [phone]
SUBSCRIBERS: [phone]
~ Copyright 2003, Moody s Investors Service, Inc. and/or its licensors including Moody s Assurance Company, Inc.
(together., MOODY'S). All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMmED, TRANSFERRED, DISSEMINATED
REDISTRIBUTED OR RESOLD, OR STORED FOR SUB;iEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRI1TEN CONSENT. All
Information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the
possibility of human or mechanical error as well as other factors, however, such information Is provided "as Is" without warranty
of any kind .and MOODY'S, In particular, makes no representation or warranty, express or Implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall
MOODY'S have any liability to any person or entity for (a) any loss or damage In whole or In part caused by, resulting from, or
relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or
any of Its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis,
interpretation, communication, publication or delivery of any such Information, or (b) any direct, indirect, special, consequential
compensatory or Incidental damages whatsoever (including without limltatloh, lost profits), even If MOODY'S Is advised In
advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings,
if any, constituting part of the InfOrmation contained herein are, and must be construed solely as, statements of opinion and not
statements of fact or recommendat)ons to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPUED, A$ TO
THE ACCURACY, TIMEUNESS, COMPLETENESS, MERCHANTABILITY OR ffiNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH
RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each
rating or other opinion must be weighed solely as one factor In any investment decision made by or on behalf of any user of the
Information contained herein, and each such user must accordingly make Its own study and evaluation of each security and of
each Issuer and guarantor of, and each provider of credit support for, each security that It may consider purchasing, holding or
selling. Pursuant to Section 17(b) of the Securities Act of 1933, MOODY'S hereby discloses that most issuers of debt securities
(Including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY'
have, prior to assignment of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered by It fees ranging
from $1,500 to $1 500 000.
file://C:\ TE:M.P\MOOD Y'%20DOWNGRADES %20CREDIT%20RA TINGS %200F%2t.. 03-25-2003
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Global Credit Research
Avista Corp.
8atingsllnditontat;ts '
Cat~ory
Issuer Rating
First Mortgage Bonds
Senior Secured
Sr Unsec Bank Credit Facility
Senior Unsecured
Jr Subordinate
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'oi,,;i;,Jf"'"
Moody
Baa2
Baal
Baal
Baa2
Baa2
Baa3
Preferred Stock
Analyst
Kevin G, Rose/New York
). SabatellelNew York
Susan D. Abbott/New York
April 2007
baa3"
Phone
1.212.553.1653
Baa1
Baa2
4/94 4/95 4/96 4/97 4/98 4/99 4/00 4/01
Revenue (US$ bi/.
Assets (US$ bil.)
Com, Equity (US$ bil.
Op. Margin (%)
ROA(%)
ROE(%)
Pretax Int. Cov. (X)
FFO In!. Cov. (X)
FFO % Total Debt
RCF % Gross (APEX
Total Cap. (US$ bil.)
TO % Cap.
Pfd. Stk. % Cap.
Common % Cap,
ect c Utility Operating St
Customer Se mentation Residential Commercial Industrial Wholesale TotalRevenue (US$ mil.) 158.1 149.8 83.0 864.8 1,287.3Kwh(mil.) 3279 2886 2048 15807 24045, ~Kwh 4.8 5.2 4.1 5.5 5.
Regional Average ' 4.. 5., 4.5.5 5.
11) For ,he 12 months ended December 31. Balance sheet items are as of December 31, 12) Five year average 2000-1996. 131 Five year compound annual growth rate.
eratin:g~a,ti$ticsl_~':" 4w~'
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Avista Corp. (Statistics in bold type)
Peer Group Median (Statistics in light type)
11120009 7.
12., 12.7 0.6 2.8 0.
12.2 12.3.4 3.4
1.1 1.4 0.
-49.2 -49.
1.8 1.
52.0 52.5 7.
40.4 40.
19982 3.9 3.9 0.
14.7 4.8 2.
12.4 11.5 2.5 5.
25.7 37.
114.9 225.
1.6
49.2 44.
5 25.
45.0 29.
19971.1 1.8 2.9 0.
15.1 14.6 4.
11.9 15.3.4 3.5 3.
25.8 25.
124.6 134.0 1.
49.5 45.0 9.
44.9 44.
19993 7.1 3.8 0.
16.0 0.
12.7 1.5 1.
4.4 ' 2.
24.6 9.
94.7' 30.0 1.
50.0 47.
1 26.
44.3 25.
1215- Yr.Avg ,
13150.7 13)60.
13135.5 (3143.
131-7 13)0.
13.0 8.1 2.
12.2 10.5 2.8 3.
20.6 19.
82.89.
13)-3 1312.
49.9 47.
0 15.
44.0 37.
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Rating Rationale
Avista s Baal senior secured raring reflects sub-par profits
from utility operations, reduced cash flow due to sizable cost
deferrals, and the need for regulatory support to achieve
more favorable financial results. The Baal also reflects the
impacts of Avina s ongoing pursuit of growth in its nonregu-
lated businesses. The r.ating also takes into account manage- ,
ment s efforts to achieve more favorable and consistent
financial results, against the backdrop of a more volatile
wholesale power market, which highlights ,the need to strictly
enforce financial and credit risk management policies.
Avista has low-cost hydroelectric capacity, but plans to add
a signjficam amount of thennal generation by mid-2002 to
address the increased demands placed on its existing
resources since mid-2000. The large dependence on hydro
power and more volatile wholesale power prices in Avim
region leave it prone to earnings variability since there is cur-
rently no power cost adjustment (PCA) clause in 'VI'ashing-
ton. Regulators in Washington did not approve Avista s latest
attempt to establish:l PCA, which would have helped stabi-
lize earnings and cash flow.
Avista s reduced dividend' as of 1998 freed up cash
intended to support itS plans to grow its nonregulated busi-
nesses. Rationalizing investmentS in non regulated businesses
which are part of Avista Capital, and other opportunities to
extract value from energy, fuel cell technology, and commu-
nications businesses can also provide cash to fund growth ini-
tiatives.
Recent Developments
A disappointing September 2000 rate order and regional
wholesale power price volatility continue to pose large chal-
lenges. Meanwhile, Avista has adopted a more conservative
strategy for its nonregulated businesses and filed a proceed-
ing with state regulators to address the recovery of energy
and fuel cost deferrals. Another filing later this year will
address the idea of implementing a PCA clause in W;Jshing-
ton, among other things, Meanwhile, Avista added signifi-
cantly to its liquidity through a recent note offering and is
making good progress toward renewing its bank agreements.
Rating Outlook - Negative
Avista s rating outlook is negative, primarily reflecting uncer-
tainties surrounding its regulatory proceedings and plans to
add thennal generation by mjd-2002.
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Moody (0'
Coupon Type of Debt Maturity Rating
Avista Corp.
Revolvin~ Credit Facility 2001 Baa2
Issuer Ra I Baa2
7.450%First Mo~m Bonds 2018 Baal
Seeu red Program Baal
MTN Program Baa2
MTN Program Baa2
MTN Program Baa2
MTN Program Baa2
MTN Pr~ram Baa2
95% P . Stk.baa3"
Jr. Sub. Fit. Rate Deb.2037 Baa3
7.300%Sr. See. Medium-Term Notes 2023 Baal
6.3 70%Medium Term Notes 2028 Baa2
6.3 70%Medium Term Notes 2028 Baa2
880%Medium Term Notes 2028 Baa2
020%Medium Term Notes 2010 Baa2
060%Medium Term Notes 2008 Baa2
990%Medium Term Notes 2007 Baa2
625%Medium Term Notes 2003 'Baa2
000%Medium Term Notes 2001 Baa2
Sr. Notes 2008 Baa2
415 Shelf Registration ~Baa2
41 5 Shelf Registration (P Baa3
Avista Cor . Ca ital I
875% Gtd. Trst. Orig. Pid. Sees. (TOPrS)baa2"
Avista Cor . Ca italll
Gtd. F!t. Rate Cap. Sees.2037 baa2"
Avista Cor . Ca ital III
415 Shelf Registration 6Baa3
'-."
415 Shelf Registration (P)II aa2"
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Baa2
4/94 4/96 4/97 4/98 4/99 4/00 4/014/95
Avista Corp.Peer Group Average
The peer group on the front page includes 121 electric utilities. Members of the peer group may change from year to
year, which may slightly alter peer group data.
Authors
Kevin Rose
Aimee Eudy
Senior Associate
Jonathon M. Newman
Senior Production Associate
John Tzanos
CJ Copyright 2001 by Moody s Investors Service, Inc.. 99 Church Street, New York, New York 10007, All righl5 reserved, ALL INFORMATION CONTAINED HEREIN
COPYRIGHTED IN THE NAME OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"), AND NONE OF SUCH INFORMA nON MAYBE COPIED OR OTHERWISE
REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR
ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR
WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from 5OUrCe5 believed by it to be accurate and reliable, Because of the possibility
human or mechanical error as well as other factors, however, such information is provided Mas is' without warranty of any kind and MOODY'S, in particular, makes no
representation or warranty, express or implied, as to 'he accuracy, timeliness , completeness, merchantability or fitness jor particular purpose of any such information,
Under no circumstanCe5 shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to,
any error (negligent or otherwise) or other circumstance or contingency within or oul5ide the control of MOODY'S or any of its directors, officers, employees or agenls in
connection with the procurement, collection, compilation, analysis, interpretation, communicalion, publication or delivery of any such information, or (b) any direct,
indirect, special. consequential, compensatory or incidental damages whatsoever (including without limitation, lost profil5), even if MOODY'S is advised in advance of the
possibility of such damages, re5ulting from the use of or inability to use, any such information, The credit ratings if any, constituting part of the information contained
herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, NO
WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other
opinion must be weighed 5OIely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must
accordingly make ils own study and evaluation of each security and of each issuer and guarantor and each provider of credit suppa" for, each security that it may
consider purchasing. holding or selling, Pursuant to Section 17(b) of the Securilies Act of 1933, MOODY'S hereby discloses that most issuers of debt securitie5 (including
corporate and municipal bonds, debentures, note5 and commercial paper) and preferred stock rated by MOODY'S have, prior to assignment oj any rating, agreed to pay to
MOODY'S for appraisal and rating service5 rendered by it fees ranging from S 1 000 10 S 1 ,500,000, PRINTED IN U.
Moody s Analysis
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Additional steps required to combat critical hydro conditions, comfortably meet electricity demands of
retail customers, and minimize dependence on the volatile wholesale power market.
Depressed cash flow, primarily due to energy and gas cost deferrals, is causing increased dependence
on various sources ,of liquidity.
Satisfactory disposition of power cost deferrals In the \~Tashington jurisdiction hinges importantly on a
favorable outcome in a regulatory filing initiated in March 2001 and success in adding generation.
, . ,
Proximity to California may have some ancillary negative effeCtS on region/industry.
Despite a more conservative strategy, pursuit of groWth' in targeted unregulated business units still
eA-poses the company to risks associated with acquisitions, joint ventUres, and increased competition.
. A continued reliance on unregulated businesses to generate longer-tenn earnings growth adds risk to
Avista s consolidated business profile.
Use of the inside holding company strUcrore to house unregulated business invesnnents limits the
extent investOrs in the utility s fixed income securities can be inSulated from the higher risks associated
with energy marketing and trading and other invesnnents in diversified businesses.
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. Avista s gas and electric utility operations are pursuing strategies to ensure excess supplies that will
help the company maintain its historically favorable competitive position compared to its peers.
Regulatory support for a March 2001 regulatory filing and timely completion of the Coyote Springs-
generating plant would enhance future earnings and cash flow.
.'
Good progress in strengthening relationships with State regulators, as weB as the "go-slow It approach
to restructuring in the Pacific Northwest, particularly in light of the California siroation.
Continued development of unregulated businesses to provide furore earnings growth that could sup-
plement a more mature regulated utility business.
l\1anagementis considering strategic alternatives for unregulated businesses Avista Labs, Avista
Advantage, Avista Power and Avista Communications to maximize value from the invesnnents.
In addition to a regional strategy, the energy commodity trading business is managing its portfolio to
better match the size of the corporation s balance sheet, which will reduce capital at risk.
. ,
Strict risk management policies are in place, with a primary focus now on physical rather _than financial
transactions, to control exposure to business risks associated with energy commodity trading.
Avista Corporation does not provide any material financial,guarantees for its subsidiaries.
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Avista Corporation, formerly known as Washington
, Water Power Company, is a diversified energy services
company, operating as a regional utility in the Pacific
Northwest, and was previously a national entity, albeit
for a relatively short period of time, providing both ener-
gy and non-energy sen7jces. Since November 1999, the
company has been redirecting its focus from national to
, regional, save for Avista Ad\rantage and Avist3 Labs.
2000 Electric Operating Revenues'
,THE UTILITY DIVISION REMAINS REGULATED
Residential (12%)
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, Avista Utilities (Utilities), once ~Tashington V\Tater
Power Company s utility business, operates as a division
of A,7jsta Corporation. Although creating a holding company sn-uctUre would better insulate fixed income
investors from the risks associated 'with the non-regulated businesses, management does not currently
intend to pursue such a sn-ucture. Clearly, under that type of corporate struCtUre, fixed income investOrs
would be better proteCted, especially if state regulatOrs placed a limit on the amount of dividends a utility
subsidiary can pay to the parent company, and/or set a minimum common equity ratio that the utility sub-
sidiary must maintain.
Moody's Analysis
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Avista Utilities is comprised of the energy delivery business and the generation and resources business.
The energy delivery business delivers electricity in eastern WashingtOn and northern Idaho to about
313,000 custOmers, and provides natural gas services to approximately 279 000 customers in Washington
Idaho, northeast and southwest Oregon, and the South Lake Tahoe region of California.
The generation and resources business generates and purchases electric energy used to meet customer
demand. In addition, Avista Utilities is also involved in electric wholesale sales and marketing and, in, the
past, significant commodity trading with
other utilities and power brokers. However
the utility division eliminated the wholesale
commodity trading operations in the sec-
ond quarter of 2000, except to the extent
necessary to maximize the value of its
resources for meeting customer demands.
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AVISTA CAPITAl- THE NONREGULATED GROWTH ENTITY
Avista Capital (Capital), a subsidiary of Avista Corporation, is the inside holding company that houses the
nonregulated energy- and non-energy-affiliates. Capital's subsidiaries.-include Avista Energy, Avista
Power, Avista-STEAG, Avista Advantage, Avista Labs, Avista Communications, -Avista Development, and
Avista VentUres. Avista Energy is the energy commodity marketing and trading operation. Avista Power
and Avista-STEAG are involved in developing and/or purchasing generation asset$. Avista Advantage
processes bills from over 4 000 utilities, and serves more than 66 000 contracted customer sites in all 50
states, Canada, and Puerto llico. Avista Labs is researching and developing innovative fuel cell technology,
having traditionally focused on innovations for the residential markets. Its goal is to be the first to market
a viable fuel cell product. Avista Communications invests in and operates telecommunications businesses
including fiber optics installation. Avista Development is a combination of relatively small businesses
holding real estate investments and low-income housing ta.."( credit projects. Avista Ventures was fonned
the first quarter of 2000 to focus on aligning the investment and acquisition activity of Avista Corp. in the
areas of energy, information and technology. It is also responsible for developing a pipeline of future
opportunities for groWth and innovation. Avista Ventures includes Pentzer Corp., which in the past was
the company s p~ivate investment finn that invests in non-energy businesses, providing supplemental
earnings and cash flow for the consolidated entity. Avista Ventures ' and Pentzer s businesses are expected
to be liquidated over the next 18-24 months. Listed below is the company s organizational chart.
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Moody's Analysis
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NEW LEADERSHIP AT AVISTA
" "
In July 1998, Avista s board of directors went outside the organization when it chose Tom Matthews to be
the new chairman of the board and chief executive officer to replace the retiring Paul Redmond. Avista
Corporation quickly embarked on a more aggressive, growth-oriented strategy. However, by year-end
1999, it was clear the chosen strategic focus was not the most advantageous, specifically the direction for
Avista Energy.
In October 2000, Tom Nlatthews resigned and was replaced by Gary Ely, who has been with the com-
pany since 1967 and was an Execurive Vice President at the time of Jvir. Matthews' resignation. Under the
leadersrup of Mr. Ely, the company has adopted a more conservarive business approach. Specifically, his
approach can be briefly outlined as follows: )) Simplify the company, which speaks to his view that the
company has been involved in too many ventures at the same time; 2) Focus on core competencies (read
the energy and energy-related businesses) and, 3) Execute a clearly defined strategy to deliver results com-
, mensurate with the risks taken by making the tough decisions as necessary.
UTILITY HIT WITH SOARING PURCHASED POWER COSTS
In May 2000, the company sold its Centralia Generating Station to TransAlta Company as part of man-
agement s strategy to maximize the value of that asset. Associated with the sale, Avist3 entered intO a pur-
chase power contract beginning in July of 2000. This left Avista Utiliries exposed to the open market dur-
ing the months of May and June 2000. The company had eA-pecred nonnal trends to take place where
prices for power tend to be low in l\1ay and June, due to stream runoff. Instead, there were unprecedented
, sustained peaks in electric energy prices during those months and the company reported a $90 million loss
for the ,second quarter, primarily caused by higher purchased power costs. Also contributing to the loss
were wholesale short positions, which exceeded management guidelines. By July, those losses had grownto $126 million.
Consistent with existing management s more conservarive business strategy, the company has elimi-
nated all short-tenn -wholesale trading actiVity at the utility except to the e)..1:ent necessary to meet retail
custOmer load demand and long-tenn wholesale obligations. Going forward, l\100dy s e"'-pects the utility
to completely cover its electric load demands, primarily through its owned generating capacity and firm
power purchase contracts. Most notable as relates to company Q'wned capacity is the Coyote Springs-
project a 2S0-megawatt combined cycle natural gas turbine power plant, which is expected to come on
line in mid-2002. Under nonnal water condirions, this project, in combinarion with 'some long-term
wholesale sales contracts expiring in the near term, should give the company excess generarion capacity in
the range of 200-300 megawatts for the next couple of years. Indeed, from Moody s perspective, being a
little long on supply is J:lot an unreasonable posicion to be in tbday, particularly in light of the eA'Pectations
for continued extreme market price volatility. The Coyote Springs-2 project is srill Q'wned by Avista
Power. However, subject to fmal pennit and contract modifications and transfers it will become part of
the utility rate base. Management is negotiating project financing to fund approximately $120 million of
the $190 million consttuction cost relaring to this plant.
Other steps being or already taken by Avista to address the near-term need for capacity include: I)
securing additional fixed-pric;:e contracts, 2) acceptance of demand-side management proposals, 3) higher
invesrment to increase C3p,acity and generation at various owned units, 4) obtaining regulatory approvals
to increase the hours of operarion for certain unitS that would otherwise have been limited due to pollu-
tion control limits, 5) securing regulatory approval for energy buy-back programs with retail customers in
Washington and Idaho, and 6) adding 50-MW of pealcing capacity.
FORMATION OF REGIONAL TRANSMISSION ORGANIZATION
Avista is in the midst of considering fonnarion of TransConnect, a for-profit independent transmission
company, as part of its strategy to adhere to the requirements of FERC Order No. 2000. This strategy is
in conjunction with five other western region utilities including, J\10ntana Power Company, Pug~t Sound
Energy Corp., Portland General Electric Co., Nevada Power Company, and Sierra Pacific Power
Company. TransConnect, in rum, would become part of a planned regional transmission organization
RTO '~Test. The ~ompanies' plans were filed in OctOber 2000 and remain subject to various federal and
state regulatory approvals. The ulrimate decision will depend on what conditions may be attached to regu-
latOry approvals and the ilnpact they might have on the overall economics of the strategy.
IVIDody's Analysis
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AVISTA ENERGY PROFITS FROM VOLATILITY IN POWER MARKETS
, .,
At the same time that Avista Utilities was incurring losses, Avista Energy was profiting from the price
volatility in the energy markets. Avista Energy earned $162 million in the year 2000, after losing $61 mil-
lion in 1999.
After aggressively positioning Avista Energy to become a national player in the energy marketing and
trading business, Avista Corporation altered its strategy to better fit management s ability and the compa-
s financial position. The shift in focus also reflects the rapidly changing energy marketing and trading
business environment where a few large players have begun to dominate the business, as well as the typi-
cally thin margins realized for what is a high-risk business. Avista Energy now employs a Western-region
strategy and has exited the national arena.
In the first and second quarter of 2000, Avista Energy sold its Eastern book of business for a $1 million
after-tax loss, and closed its Houston and Boston offices, resulting in a $4.9 million charge. The last activi-
ties for the Eastern book, which related to natural gas contracts (primarily for transportation and storage),
were managed out of the Spokane office and expired at the end of 2000.
Avista Energy s exposure to the California siroation as of year-end 2000 was indicated to be about, $47
million, taking into account a charge in the fourth quarter related to the exposure. Payments received
since year-end have reduced the exposure to $35 million.
Moody s expects that Avista !.nergy wjll continue to manage its business down to a size that is more
commensurate with its invested capital. In addition to these changes, Avista Energy continues to maintain
its strict, risk management policies and trading around physical assets. Management has stated that, longer
tenn, the volatility associated with trading and marketing does not fit 'With the company s overall strategy.
Although still not risk free, we view this change in direction as positive for Avista s consolidated credit risk
profile since it will lower the company s overall business risk as well as the risks to fixed income investOrs.
, ' 0
ADVANTAGE, LABS, AND COMMUNICATIONS REMAIN ON COURSE
Despite the altered strategy at Avista Energy, the company s focus for tWo of its other non-regulated busi-
ness units remains national. 'While groWth began at the regional level for Avista Advantage and Avista Labs
it rapidly expanded to the national level. For 2000, these businesses generated losses, but continued to be
active, as evidenced by the hiring of a chief financial officer at Avista Labs and the good progress in adding
customers at Avista Advantage. Consistent 'With its regional focus, Avista Commurucarions increased the
number of markets it served to lOin total. Avista Communications also generated losses for 2000.
Avista Advantage has been focusing on developing other products and services for its custOmers. In
May 2000, the business unit received patents for tWo of its critical business systems covering a wide range
of computer-based technology and business methods. Earlier in the year, the company hired Goldman
Sachs as an adviser to explore strategic options for the business unit, which included the prospects for pri-
" vate equity funding, an initial public offering and a spin-pff. In November 2000, Avista Advantage held a
private equity offering for an undisclosed amount. This process resulted in strategic investments from
EnerTech, as well as other venture capital firms. For 2000, Avista Advantage tripled the value of bills
processed to $1.1 billion and the number of custOmer business sites it processes bills for and monitOrs to
, 66 000. Avista Corp. has less than $25 million invested in Avisra Advantage to-date.
Avista Labs began manufacturiIJ.g of its introductOry proton exchange membrane (PEM) fuel cell tech-
nology for distributed power markets. In March 2000, the business unit received a patent for its modular
cartridge-based fuel cell power system. The patent provides broad protection for its modular fuel cell sys-
tem design, which would replace fragile graphite plates at a much lower cost. These graphite plates are
used by fuel cells for the conversion of hydrogen to electricity. Avista s approach provides reliable primary
or backup power for industrial, commercial, and residential markets at a more affordable price. In 1999
Avista Labs had fonned 3 parmersrup with UOP LLC to work on technology to increase the energy den-
sity of its fuel cell design. UOP's fuel processor was considered integral to the relationship. Under the
tenns of the Joint Development Agreement, Avista Labs' exercised its right to tenninate the exclusivity
obligations with UOP, effective December 1 2000. Avista Labs currently plans to transfer its ongoing fuel
processor development work to H2fuel, LLC, 3 new company it fonned in January 2001 to develop and
commercialize 3 new Technology for manufacturing hydrogen for fuel cells. Avista Labs owns a 70%
interest in H2fuel, with the remainder owned by United Fuel Technologies, LLC. Although Avista had
been working on plans for an initial public offering for Avista Labs, management has decided not to pro-
ceed wjth this part of its strategy at this time, primarily due to market conditions.
Moody s Analysis
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Avista Communications continues to enjoy rapid grO'wth within smaller western U.S. communities 'with
populations under 500 000. The business unit is a competirive local exchange carrier providing local dial
tone, data transport, internet services, voice messaging and other telecommunications services. In April
2000 Avist3 Communicarions and Avista Fiber, Inc. merged operations. Avista Communicarions is now
responsible for designing, building and managing metropolitan-area fiber optic netWorks. Going forward
management has indicated that Avista Communications is not a company targeted to remain part of the
long-term groWth Strategy. Indeed, it is likely that this business will be sold 'Within the neXt tWo years.
PARENT RE-ASSESSES OTHER BUSINESS UNITS
Avista Corp. has revisited the joint venrure betWeen Avista Power and STEAG AG, Germany s largest
independent power producer, and recently sold out of most of its projects not situated in the Western
System Coordinating Council region. It still has one aCtive site remaining in western Washington. There
is also a site in southwest Arizona, which the company may decide to sell. Suffice it to say that Avista
Power is scaling back on the number of projects and the regions in which it does business. The business
unit sold its Houston office to STEAG AG and its interest in the Bogalusa, Louisiana project to Calpine.
Avista Power entered into an agreement 'With Cogentrix Energy, Inc. to jointly build and possibly buy
interests in natural gas-fired eleCtric generation plants in '\Vashington , Oregon, and Idaho. The first inde-
pendent power project (the Lancaster Project) is a $160 million, 270-megawatt facility in Rathdrum
Idaho, which will produce electricity at a guaranteed conversion rate. Avista Energy will deliver natural
gas to the plant and, in turn, purchase the electrical output under a long-term purchase contract. Under
current market conditions, Avista Energy should have ample opportunity to sell this power in the whole-
sale market, which should help it to achieve its net income targets for the year. Despite a third-parry
appeal, the company was able to begin consmJcrion of the Lancaster Project during the first quarter 2000
with an in service date expected sometime during August 2001 at the latest. The total cost of the project is
about $160 million and Avista Power s equity in the project is about $16 million.
In April 2000, Avista Corporation formed a new affiliate, Avist3 Ventures, to streamline invesnnent
and acquisition activity in the targeted groWth areas of energy, information and technology. The initial
focus of the new affiliate was to identify minority O'wnership investtnent opportunities .in the start-up,
development and rapid expansion stages, primarily in Silicon Valley finns. However, under the new lead-
ership this strategy has been halted and no additional commitments are being made. Similar to Avista
Communicarions, AVista Ventures is not considered integral to the 'future success of Avista Corporation
and is likely to liquidate its investments 'Within the next tWo years.
In the meantime, Moody s expects management at Avista Corporation to continually review and moni-
tor the performance of all its unregulated business units to evaluate their strategic importance and to
detennine the best method for maximizing value.
AVISTA UTILITIES - REMAINS COMPETITIVE
Avista s utility business continues to be among the nation s lowest cost energy providers due to its ability
to manage and operate its own generating resources. As of December 31 2000, Avista s owned generating
resources were split bet:\veen hydro and thermal facilities - 65% and 35%, respeCtively. In addition, the
company continues to be successful in securing cost-effective supply through the use of firm purchase
contracts. A!:. illustrated in the chart below, Avista Utilities is competitively positioned for deregulation on
both a regional and national scale.
The company s electric customer mix for 2000 was well balanced mainly between residential and com-
mercial customers, accounting for 39.8% and 35.0%, respeCtively, of total retail sales, while industrial cus-
tomers were responsible for the balance of tOtal retail sales. The smaller concentration of induStrial cus-
tomers will benefit the company in a -deregulated market, as they are usual1y the first to choose alternate
power suppliers. Avista Utiliries' gas sales are- mainly to residential customers, representing about 58% of
the total retail sales in 2000, but similarly, with limited exposure to the industrial customer class. As of
December 31, 2000, the company s owned-generation portfolio consisted of 956 megawatts of hydro and
an additional 515 megawatts of thennal. Because of the hydro generacing assets, the company s produc-
cion costs are eA1:remely competirive, both in the states of ,\~Tashington ' and Idaho and on a national basis.
In fact, due to these extremely low costs, Moody s believes Avista could be quite competitive in a deregu-
lated market. In order to eliminate multiple ownership problems and the risk associated 'with reclamation
the company divested its 15% ownership interest in the Centralia plant to TransAlra Corporation. Avista
believes that through this transaCtion, the company was able to maximize the '\7alue from this invesnnent.
The sale was completed in the second quarter of 2000.
Moody s Analysis
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The bulk of Avista Corporation s regulated revenues fall under the jurisdiction of the Washington Utilities
and Transportation Commission (WUTC), which has usually been fairly supportive of the company in its
rate making. The company is also regulated by the Idaho Public Utilities Commission, the Public Utility
Commission of Oregon, and the California Public Utilities Commission. Unlike typical experiences in the
past, relations with these entities over the last twO years became somewhat strained, mostly due to the com-
pany s rapid and aggressive expansion plans and a perceived decline in the level of communications. The
company, at the encouragement of its new CEO, has been diligent in its effortS to strengthen relations with
staff members and the various commissions, and to work toward reasonable resolutions.
Ayista Corporation is also subject to the jurisdiction of the Federal Energy Regulatory Commission
(FERC) with respect to electric wholesale transmission rates, and to gas rates charged for the release of
capacity from the Jackson Prairie Storage ProjeCt.
, I
ELECTRIC & GAS PRICE ADJUSTMENTS IN WASHINGTON
. ,
, After reconsidering certain aspects of the initial order, on November 9, 2000, the \VOTC issued its final
order in a 1999 rate filing that ultimately provided for a $2.9 million ~lectric rate reduction and a $1.8
million gas rate increase in Avista s Washington jurisdiction. This decision was. less harsh tl:1an the staff
recommendation made in May 2000, which called for a $16.5 million' decrease in electric rates and a $0.
million gas rate increase. However, the base rate changes fell far shorr of even the company s modified
request for a $18.2 million electric rate increase and a $4.9 million gas rate increase. This was a parricular-
ly disappointing outcome in this case, especially considering the fact that it was Avista 's first request for a
base rate increase in Washington since 1990.
As part of the November 9, 2000 order, the \VUTC also chose not to address Avista s request for
implementing a power cost adjustment (PCA) mechanism in Washington. Instead, the 'WUTC indicated
that Avista is required to make regulatory filings before the end of 2001, to address the issues of appropri-
ate rates, the recovery of energy cost deferrals, and the PeA, among other issues. Indeed, in late March
Avista filed a plan to address issues surrounding energy cost deferrals. (See additional details of that filing
further below under PO~R COST DEFERRALS).
By way of background, Moody s placed Avista s A3 nior secured debt rating on review for down-
grade immediately following the adverse 'WUTC Staff recommendation in May 2000, which also coincid-
ed with disclosure of losses associated with utility trading activity. The review resulted in a July 2000
downgrade of Avista s senior secured debt to Baal. The action took into account that, even with a satisfac-
tOry resolution to the rate ca~es, prospective debt protection measurements would not be commensurate
with the higher rating. The ratings remained on review for possible furth~r downgrade until March 22
2001 , when Moody s confinned Avista s ratings with a negative outlook. (See Financial Analysis Section
for additional details relating to the March 22 , 2001 rating action).
. .
POWER COST DEFERRALS
The VvUTC issued a supportive order on August 9 2000, when it approved the company s request to defer
certain power costs related to the e)..1:reme price volatility that had developed and persisted in the wholesale
markets. The deferral mechanism has been effective for a period covering July 1 , 2000 untilJune 30, 2001
unless extended through the end of 2002 as requested under a regulatory filing at the 'WUTC on March
2001. It is also worth noting that the 'WUTC has approved modifications to the original deferral mech-
anism, pennitting deferral of changes in costs due to other factors such as weather, thennal plant outages,
and load growth , thereby providing more comprehensive protection than when first implemented.
Importantly, histOrical precedent at the 'WUTC suggests that these costs 'will eventUally be recovered.
However, Avista still must prove these costS were prudently incurred and the final disposition of the
costs is still subject to the outcome of Avista s March 22 , 2001 regulatory filing. As part of that filing,
Avista requested that the \iVUTC issue an' order by July 1, 2001 declaring the deferred power costs
incurred through March 31 , 2001 to be prudent and extending the current deferral mechanism through
the end of 2002. In addition, Avista asked the 'VUTC' to approve the company s strategy to use margins
from the sale of excess capacity from Coyote Springs-2 to facilitate recovery of the deferrals without
requiring a rate increase. Nevertheless, if more extreme conditions develop such as hydroelectric con-
ditions deteriorating beyond current expect3tions and/or existing generating units unexpectedly tripping
off line for an extended period of time then Avista may need to seek approval for a rate increase to
address recovery of the energy cost deferrals. Avista is hopeful for approval of its power ,cost deferral
recovery plan by September 1, 2001.
Moody's Analysis
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Meanwhile, although Avista s bottom line is protected, there is a cash ,flow drain and pressure on Avista
credit quality due to under recovery of power supply costs. The actual amount of under recovered power
supply costs as of March 31, 2001 was $60 million. Under current estimated price and supply conditions and
assuming the VlUTC agrees to extend the deferral mechanism beyond June 30, 2001, the amount of defer-
rals are expected to approach $90-$100 million by the end of 2001..A5 noted above, under the pending filing
the expectation is that the earnings from the sale of excess generation would begin. to allow for substantial
recovery of the deferred costs over the course of2002 assuming normal water conditions.
To be clear, Avista has been deferring certain power supply costs in its Idaho jurisdiction for several
years now under a power cost adjusnnent mechanism (PCA) in place in that state. Under that mechanism
the company has been able to recover those costs on a regular and reasonably timely basis. As an example
the company recently had a 4.8% rate increase approved under this mechanism. Since Idaho represents a
much smaller part of Avista s utility service territory, the amounts have been correspondingly less than
those relating to the ,\~Tashington jurisdiction probably representing somewhere between 10%-15% of
the utilities total power cost deferrals to date. Nevertheless, Avista filed a request with the Idaho Public
Utility Commission (IPUC) in January 2001 to modify the PCA, similar to the approach taken in
, '\Vashington for the deferral mechanism. A final decision by the IPUC is still pending.
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PURCHASED GAS COST ADJUSTMENT MECHANISMS WORKING AS INTENDED
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The significant run up in natural gas prices since mid-2000 have resulted in a need for Avista to request
gas supply-related rate increases in Vvashington, Idaho, and Oregon. Indeed, the company has obtained
regulatory approvals to increase gas rates ranging from 54% to 61 with the first increases
approved back in the late summer or early fall of 2000 and the additional approvals coming in the first
quarter of 2001. Norv.rithstanding these increases, Avista is still under recovering on its gas supply costs
and is continuing to defer these costs, as permitted under regulation in each of the jurisdictions. .A5 of
J\1arch 31 , 2001 , gas cost deferrals amounted to about $70 million. Since Avista is not alone in facing this
situation, we do not expect any questions of imprudence to be raised and, therefore, expect that full cost
recovery will eventually occur. Absent the regulatory protections relative to these cost issues, Avista s utili-
ty business would be experiencing even greater cash flow pressures than those it is already facing due to'
the aforementioJ,'led power supply cost situation.
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, INDUSTRY RESTRUCTURING IN WASHINGTON; IDAHO CONTINUE TO BE ON HOLD
, Given' that electric prices in the Pacific Northwest are among the lowest in the nation, ~Tashington and
Idaho State legislators have been slow to address the issue of competition. .A5 the turmoil in California
continues, state legislators and regulators have been even less inclined to bring to the forefront the subject
of deregulation and want to see the California situation resolved before proceeding.
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In 2000 Avista Energy had a turnaround year and conn-ibuted sn-ong financial perfonnance, resulting in
better than expected consolidated results for Avista Corporation. The company s consolidated results suf-
fered in 1999 due to its aggressive expansion in the non-regulated energy marketing and trading business-
es and restructuring charges taken as the company scaled back its operations to a regional focus from
national in scope. The positive results at Avis!a Energy during 2000 particularly during the second half of
the year, played a big part in helping offset the poor performance at the utility operations. The utility
operations were hard hit during 2000 by the dramatic increase in purchased power ,costs and losses related
to trading activity that exceeded management s guidelines. To reduce the utility s eA-posure to the volatile
spot market, the company win be adding a significant amount of thennal generating capabilities and using
contracts to fill in any gaps in supply.
Since reporting its year 2000 financial results, Avista announced that it eA-pects its first quarter 2001
financial results to be better than expected. The results are once again attributable to the strong earnings
generated by Avista Energy, which is helping to offset the difficulties encountered at the utility operations
because of wen below normal hydroelectric generation. J\1anagement further emphasized that Avista
Energy would again be a positive contributor to consolidated results for 2001, although the amount of
earnings from that business will be reduced considerably when compared to last year.
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STRONG PERFORMANCE AT ENERGY OFFSET BY LOSSES AT UTILITY \~:t:
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The company s consolidated earnings available for common stock for the fiscal year ended December 31
2000, were $67.9 million, far ahead of earlier expectations and up significantly from $4.6 million earned in
fiscal year 1999. The increase was primarily due to the dramatic tUrnaround for Avista Energy, which con-
tributed $161.8 million to the total earnings available for common stock thanks to the favorable positions
taken under extreme price volatility in the western region. Avista Energy s 2000 results lie in stark conn-ast
to the negative $60.7 million produced in 1999. The improvement at Avista Energy was timely in light of
higher purchased power costs and the short position related to wholesale trading activity at the utility,
which resulted in a net loss of $62.5 million for the utility operations during 2000 compared to $38.2 mil-
lion in profit during 1999. The significantly lower earnings and large deferrals related to purchased power
and gas supply costs are having a depressing effect on funds from operations, resulting in very thin cover-
age ratios for Avista s rating category. In light of the depressed cash flow, Avista has taken various steps to
add to its liquidity as outlined below.
STEPS TAKEN TO ADD TO LIQUIDITY TO COPE WITH CURRENT CHALLENGES
Avista recently issued $400 million of senior unsecured notes and will utilize a portion of the proceeds to
repay the $152 million, which was owed under its bank credit facilities at December 31 , 2000. Moody
expects that the balance of.the proceeds will be available to help Avista fund furore cost deferrals and meet
, other cash requirements intO at least the early part of 2002.
At this juncture, Avista has $230 million available in aggregate under tWo committed lines of credit
that expire on June 26, 2001. The common stock of Avista Capital is pledged as security for these agree-
ments. Part of the committed facilities serve as back up for Avista s $50 million regional commercial paper
program. AI; of March 31 , 2001 , Avista had no commercial paper outstanding. It is important to note that
the company is actively engaged in discussions with its banks to renew and add to the size of the tWo facili-
ties in light of market conditions. Current expectations are that the renewed agreements can be in place
well in advance of the June 26, 2001 expiration date for the current facilities.
Avista also has a program in place that pennitS the sale of up to $105 million of its accounts receivable
which can provide additional funds to meet capital requirements. The size of this program was recently
increased from $80 million, as part of management s strategy to add to the company s liquidity. As
March 31 , 2001 , $104 million in receivables had been sold pursuant to the agreement.
In addition, Avista Energy and ~ts subsidiary Avista Energy Canada, Ltd., have available aggregate bor-
rowing capability with tWo banks up to $110 million, decreasing periodically to $70 million before the
agreement expires April 30, 2001. Avista Energy is also making good progress in negotiating renewal of
this arrangement at or above the $110 million level.
...... '.. )'" \.
RECONS CONVERTED TO COMMON EQUITY AND ADDITIONAL DEBT ISSUED
" '
In conjunction with the dividend restructuring plan in 1998, an exchange offer was implemented to con-
vert up to 20 million common shares, or approximately 35% of the company s outstanding common stock,
to new securities called Return Enhanced Convertible Securities, or RECONS, at an exchange ratio of
one-for-one. The exchange offer provided a steady annual dividend payment of $1.24 for up to three
years, effective December 15 , 1998, and was implemented to placate income-oriented investors who
would be concerned about the impact that the dividend restructUring might have on their invesnnent
the coD:1pany s common stock. Although all outstanding RECONS would automatically' convert back to
common shares on November 1 , 2001 , Avista Corporation had the option to convert before that date. On
February 16, 2000, the company converted all the remaining outstanding shares of its Series L Preferred
StOck and the RECONS into common stock.
Although the actual common equity balance at year-end 2000 increased compared to 1999 thanks to the
conversion of the RECONs and earnings contributed by Avista Energy, this was more than offset by the
higher amount of tOtal debt outstanding. The higher debt balance, which was necessary to help fund under-
collection of purchased power and gas supply costs and to meet other capital requirementS, resulted in
modest weakening of Avista 's balance sheet. Specifically, as of December 31 , 2000, the company s total cap-
italization was comprised of 52.0% total debt, 7.5% preferred stock, and 40.5% common equity. This com-
pared to 47.1 % total debt, 9.6% preferred stock, and 43 % common equity (including RECONS) in 1999.
Moody s Analysis
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After adjuSting for the $400 million of senior unsecured notes issued by Avista Corporation on March
, 2001 and the use of proceeds as outlined earlier, the consolidated capital structUre of the company at
. the end of the first quarter of 2001 shifts to roughly 57.6% toral debt, 6.7% preferred stock, and 35.
common equity. On an adjusted basis, to include the effects of Avista s accounts receivable financing
arrangement, the balance sheet is even slightly more leveraged than the book-basis calculations reflect.
Although Avista Corporation has added a significant amount of debt to its capital struCtUre, we expect
that the company 'will periodically issue common equity including new issue shares of common stock to
, fund its employee investment plans and its divjdend reinvestment plan as well as refrain from repur-
chasing any further shares of common stock under the share repurchase program in place. If Avista can
successfully follow through with this part of its financing strategy and receives supportive regulatory deci-
sions relating to the recent regulatory filing, then the company should be able to rebuild its balance sheet
strength over the intennediate tenn through improvement in earnings and cash flow.
AVISTA STill RELYING ON EXTERNAL CASH SOURCES
Although Avista Corporation reduced its common dividend in 1998 and benefited from gains on the sale
of some of its businesses, the company needed to supplement its weak internally generated cash flow dur-
ing 2000 to meet its capital requirements, as evidenced by increased. debt outstanding at December 31
2000. This trend has continued into 2001 as evidenced by the recent issuance of $400 million of senior
unsecured notes, which 'will be used in part to support the company s capital o."pendimre program.
Specifically, the company s capital experidimres are expeCted to include $478 million for the utility
operations over the 2001-2003 time period, while such 'spending for Avisra Capital will be about $88 mil-
lion. The utility related spending is somewhat front end loaded with slightly more than half targeted for
this year, and then trailing off O\Ter the ne).'! tWo years. N; earnings and cash flow begin to improve, we
would expect that Avista ~rill begin to cover substantially all of its utility related capital spending with
internally generated cash flow. In particular, utility cash flows are expected to improve significantly when
the Coyote Springs 2 plant comes on line.
AE, for the non-tility capital expendimres
, ,
we note that they are more evenly spread throughout the
three-year period. FiXed income investors can take some comfort in .the fact that management continues
to state that funding for grov.rth initiatives, which would occur at the Avista Capital level, would not be
solely through issuance of debt. Indeed, management has stated its intentions to pursue initial public
offerings (IPO) and other funding alternatives, including the possibility of bringing in additional equity
parmers. N; previously mentioned, the earlier plan for an IPO at Avista Labs has been postponed for now
because of market condirions.
KEY ISSUES GOING FORWARD
noted in our March 22, 2001 rating action, Moody s takes some comfort from the change in leadership
at Avista and the shift to a more conservative business strategy. However, Ivloody s believes that Avista
ability to reestablish more acceptable financial results and stabilize its earnings, cash flow, and overall
credit profile hinge importantly on a favorable prudency decision by the regulatOrs with respect to energy
cost deferrals, as well 35 a clear establishment of a mechanism that provides for recovery of those costs.
Also integral to achieving this improvement will be success in bringing the Coyote Springs-2 plant on line
as scheduled.
In the unlikely event that regulators impose extremely harsh treatment on Avista with respect to recov-
ery of the cost deferrals and/or delays occur in bringing the Coyote Springs-2 plant on line, then it would
be difficult for Avista to rebuild its balance sheet strength through improvement in its earnings and cash
flow. Under this scenario, additional negative pressure would be brought to bear on Avisra s ratings.
Moody s Analysis
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2000
INCOME STATEMENT ($ millions)
Revenue
Operating ExIJense
Earnings Before Interest, Taxes, Depr. & Amort.
Depreciation and Amortization
Earnings Before Interest & Taxes
911
708
279
203
Other Income
Gross Interest Expense
Pretax Income 165
Income Taxes
Preferred Dividends
Net Income Available for Common Stock
Coverage Analysis
EB ITDA Interest Coverage
EBITDA Interest Coverage(lncl. Other Income)
EBIT Interest Coverage
EBIT Interest Coverage(lnd. Other Income)
Pretax Interest Coverage
FFO Interest Coverage
(FFO-Gross Capital Expenditures) Intere
Coverage
Fixed Charge Coverage
3.4
3.4
1.1
0.4
Earnings Analysis
Operating Margin
Return on Equity
Return on Asset
Return on Capital
AFUDC % Net Income
12.2
8.3
BALANCE SHEET ($ millions)
Cash and Equivalents
Net Plant and ,EquipmentTotal Assets
195
518
12,564
163
680
932
Current Portion of L T Debt, Leases & Pref.
Short-Term Debt
Long-Term Debt
Total Debt
Preferred Equity
Common Equity
Total Capitalizat~on
Tangible Capitalization (net worth)
, Market Capitalization (ending period)
135
724
791
791
968
Capital Structure
Retained Earnings'
Total Debt - Casn and Equivalents
Deferred Charges % Common Equity
133
737
41.2
STD + Curro Portion of LTD, Leases & Pref. % Capitalization 14.
Total Debt % Capitalization 52.
Asset Composition
Net Plant and Equipment % Total Assets
Investments % Total Assets
Current Assets % Total Assets
Deferred Charges % Total Assets
12.
13.
72.4
2.4
1999
905
874
108
1.7
1.7
1.7
1.4
0.4
1. 1
4.4
501
713
718
718
408
393
520
520
550
671
72.
47.
40.4
19.
32.
1998
684
511
243
173
18,
1'21
1997
302
113
259
189
176
109
14.
15.
10.
433
412 '
762
762
155
749
1 ,666
666
361
709
40.
45.
59.4
12.3
15.6 '
12.
1996
18.
10.
398
177
765
765
115
711
590
590
042 '
737
42.
48.
64.
11.4
10.
13.
Moody s Analysis
11.3
8.4
471
254
730
730
414 '
488
632
632
779
651
57.
44.
45.
37.
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945
774
243
171
133
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CASH FLOW STATEMENT ($ millions)
Funds From Operations
Preferred Dividends
Common Dividends
Retained Cash Flow
Gross Capital Expenditures
Free Cash Flow
Issuance of long-Term Debt
Reti rement of Long-Term Debt
Net Change in long-Term Debt
Issuance of Preferred Equity
Retirement of Preferred Equity
Net Change in Preferred Equity
Change in Working Capital
Cash Flow Analysis
FFO % Gross Capital Expenditures
FFO % Total Debt
Total Debt! FFO
Total Debt (FFO- Gross Capital Expenditures)
RCF % Gross Capital Expenditures
RCF % Total Debt
Construction Analysis
Gross Capital Expenditures % Capitalization
CWIP % Common Equity
OPERATING STATISTICS
Market Analysis
Electric % Total Revenue
Gas % Total Revenue
Other % Total Revenue
Residential % Electric Revenue
Commercial % Electric Revenue
Industrial % Electric Revenue
Wholesale % Electric Revenue
Residential % Kwh Sales
Commercial % Kwh Sales
Industrial % Kwh Sales
Wholesale % Kwh Sales
Residential Price per Kwh
Commercial Price per Kwh
Industrial Price per Kwh
Wholesale Price per Kwh
Total Price per Kwh
Competitive Position
Fuel Per Mwhr
, Non-Fuel Per Mwhr
Investment Per Mwhr
Total Cost Per Mwhr
2000
-49
- 147
224
224
0.4
264.
-49.
16.3
80.
12.3
11.6
6.4
, 67.
13.
12.
65.
5.4
1999
117
212
75.
10;9
34.
30.
100.
1.9
11.6
10.
7.3
70.
5.3
3.4
28.3
16.
1998
274
209
117
- 14
294.
37.
225.4
28.
100.
1.8
12.4
11.8
10.
70.
3.4
2.4
13.
17.
1997
195
120
110
219.
25.
134.
15.
5.3
100.
12.
11.1
25.3
13.
11.2
67.
5.4
15.
Moody s Analysis
191.2
22.
4.4
1 06.
12.
100.
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Business US Market By" In du sID! IPO S&P International PRNews BizWire CCN
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Company Press Release
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. Friday August 13, 10: 59 am Eastern Time
SOURCE.' Duff Phelps Credit Rating Co.
vi~taRatings Downgraded by DCR
CHICAGO, Aug. 13 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has lowered its ratings of
A vista Corp. (AVA) d~bt .and prefelTed stock by one notch. A V A's first mortgage bonds and secured
medium-term notes are now rated' A-' (Single-Minus), down from the earlier A' (Single-A). Debentures
. and unsecured medium-term notes are now rated 'BBB+' (Triple-Plus) down from the earlier ' A-
(Single-Minus). The company s prefelTed stock, TOPrS and capital securities are lowered to 'BBB'
(Trip~e-B) .from 'BBB+' (Triple-B- Plus). Approximately $633 million of existing debt and $414 million of
pre felTed securities are affected. The company s $400 million shelf registration to issue medium-term notes
is also rated 'BBB+' (Triple-Plus). Debt to be issued under the shelf registration is pari passu with other
unsecured debt.
The downgrade is based on increasing business risk through investments in unregulated subsidiaries,
. lacking improved financial coverage ratios to support higher potential cash flow volatility. As a percentage
of consolidated EBITDA, the utility contribution is decreasing. A V A is devoting capital to electricity and
natural gas trading, with infant investments in greenfield merchant generation, fuel cell development, an
Internet'energy billing service and a competitive local exchange carrier.
The regulated utility owns desirable, low-cost hydro assets, operating in a territory that is closed to
competition. It has, however, little gr.owth in its retail jurisdictiQn, and its higher-margin wholesalecontracts continue to roll off.
Significant cash flow volatility is derived from Avista s energy trading subsidiary, The trading group has
been challenged to integrate its personnel and information systems among three cities since the purchase. of
VitolEnergy and Trading on February 1, 1999.
While the energy trading subsidiary has achieved strides in structuring the organization to desired
parameters, its business scope remains characterized by risk. Its trades are primarily of physical electricity
on a national basis, while owning little underlying generation. Pricing of these positions, some of which
have 10 years ' duration , can be illiquid and highly volatile.
The trading subsidiary lost more than $19 million for thesix months ended June 30, 1999, of.which $11
8/13/99 8:53 Al\
1 of 2
~lJion was lost in the second quarter. These losses occuITed in three of the firm s traded markets.
AVA is also monetizing certain non-core assets which are unrelated to the trading business. Since
November 1998, approximately $218 million in cash has been raised, with the potential to receive an
, additional $65-100 million by the end of 2000. On a net basi , AVA does not plan to reduce debt near
tenD.
Bondholders should note two events that are weakening their position. First, A V A is repurchasing equity.
The company has a 5.6 million share repurchase program, which shouJd be completed within two years. At
a $17 average share price , capital outflow is estimated to be $95 million. As of June 30, 1999, 1.6 million
shares had been repurchased under the program. Second, some proceeds from new bond issuances at the
parent are downstreamed to the subsidiaries to fund growth. Subsidiary assets are pledged to lenders
independent of the parent, and t~e subsidiaries do not pay a regular dividend.
A vista Corp is a diversified energy company with its headquarters in Spokane, Wash. The electric utility
. serves a 26;000 square-mile area in eastern Washington and northern Idaho with a population
approximately 825,000. Additional natural gas service is provided to a 000 square-mile area in northea~t
and southwest Oregon and'.in the South Lake Tahoe region of California. Through its unregulated
subsidiaries , AvA owns an investment portfolio of small companies, trades in electricity 'and natural gas,
owns an Internet-based bill payment subsidiary, a competitive local exchange carrier and a fuel cell
development business.
DCR is a leading global rating agency with 33 local market offices providing ratings and research on debt
issues and insurance claims paying ability in more than 50 countries. For additional research on AVA, visit
DCR's Web site at http://www.dcrco.com (Quick Search: Avista). DCR's res~arch isalso available on
Bloomberg at DCR~GO~ and First-Call' s BondCall DirectlResearch Direct at http://www/firstcall.com, as
well as through other third-party providers.
SOURCE: Duff Phelps Credit Rating Co.
More Quotes . A vista Corp (NYSE:A V A news
and News: .' Duff and Phelps Credit Rating Co (NYSE:DCR news)
Related News Categories: oil/energy utilities
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~ of 2 8/13/998:53 AM
1 of 2
DCR Avista Ratings Downgraded by Fitch
Jun 23 2 00 0 9 : 2 9
Avista Ratings Downgraded By _Fi tch
...
Fitch-NY-June 23, 2000: Fitch has lowered the credit ratings of
" Avista Corp by one notch reflecting weakening financial ratios and
increasing business risk at the regulated utili ty. Securities
affected by the action are: first mortg~ge bonds and secured medium-
term notes (MTNs) to 'BBB+' from ' A- \ ; . debentures and unsecured MTNs
to 'BBB \ from 'BBB+'; preferred stock, trust originated preferred
securi ties and capital securities from \ BBB' to 'BBB-. The short-
term commercial paper rating was affirmed at 'F2'. The Rating Outlookis Stable.
Due to losses related to energy purchases and sales over the past two
years, significant reductions in consolidated financial performance
have occurred. In 2000, Avista is forecasting breakeven results for
the full year 2000, before preferred dividends. In 1999, Avista
recorded a $98 million pretax loss from energy trading at its
unregulated energy marketing subsidiary. EBITDA/Interest expense has
steadily declined since 1997, as higher margin wholesale contracts
have rolled off, and loss~s have occurred at trading-related
businesses.
In August 1999, Avista' s ratings were lowered one notch due to the
higher business risk associated wi th increasing investments in
unregulated businesses. Since then, weakening financia1' ratios are
combined with now higher risk at the ~egulated utility. The regulated
~tility is suffering from a short power position in an environment
significantly higher regional power prices. What has previously been
a stable source of cash flow, the regulated utility, now has
potential cash flow volatili ty. The utility is spending approximately
25 percent more for purchased power this year, and if current pricing
levels are sustained through year end, an additional $50 million
gross loss could .occur. The difficul ty managing power procurement at
the regulated utili ty is' exacerbated by the recent sale of. the
Centralia plant and regulatory obstacles.
In May 2000, the staff of the Washington Utili ties and Transportation
Commission recommended a net $15 million electric and gas rate
reduction, against Avista' s $31 million requested increase. The
utility also lacks a power cost adjustment clause to recoup the
impact of higher power costs for the retail load. While a contract
exists to purchase power from Centralia beginning in July 2000,
Avista remains exposed to some purchased power requirements at market
prices.
Avista Corp. (the regulated utility)" has been infusing funds into it~
unregulated subsidiaries. While these monies are booked as loans,
Copyright (C) 2001
...
2 of 2
DCR Avista Ratings Downgraded by Fitch
Jun 23 2000 9: 29
they are significant amounts that decrease Avista Corp. 's financial
flexibili ty. Last year's sale of the Pentzer businesses has removed a
notable source of subsid~ary income.
A May 22, 2000 'report :on Avista is available at www.dcrco.com. Avista
is a regulate~ ,~t~~~~!~~4~~~~~~utili t~ ~perati~g princ~pallY i
Wash~ngton and::Iaa::h&;t~)1rpllgh' ~'ts subs~d~ary Av~sta Cap~ tal, Av~sta
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11 Dee 2001.11:59 AM
Fitch-NY -December 11 , 20'0'1: Fitch has assigned a 'BBB-' rating to Avista Corp s (AVA) issuance of $150
million of new first mortgage bonds and lowered the ratings on AVA's existing senior secured debt to 'B88-
from 'B88'. Fitch has also lowered the company s senior unsecured debt to '8B+' from '88B-' and preferred
stock to 'BB' from BB+. The commercial paper rating is withdrawn (the company has not been in the
commercial paper market for several years). Ratings on the trust preferred securities issued by Avista
Capital I and II is lowered to 'B8' from '8B+. The Rating Outlook has been changed to Stable from
Negative.
The rating action reflects the .company s weak financial position and Fitch's assessment that even with.
constructive rate treatment in A VA's pending rate case, financial ratios will remain weak for the rating
category through 20'0'3. In addition, bank covenants within Avista Energy s bank facility currently limits
AVA's ability to receive dividends from subsidiary Avista Energy. While the temporary cash recovery
authorized by the Washington Utilities and Transportation Commission (WUTC) in September 20'0'1 was
clearly positive for A VA and reversed the deterioration in the company s financial condition, further
regulatory support is crucial if the company is to maintain an investment grade rating. The change in AVA'
Rating Outlook to Stable from Negative assumes the WUTC will act in a timely and supportive manner
regarding the company s prudence and general rate case (GRC) filings.
In September 20'01 , the WUTC granted a temporary surcharge that permits cash recovery of $71 million of
excess power cost deferrals over 15 months, equivalent to $59 million on an annual basis. The surcharge
became effective Oct. 1 , 2001. The absence of cash recovery of excess power costs through retail rates
prior to the WUTC's- September 20'0'1 order has significantly eroded AVA's financials. As a result, EBIT
EBITDA and operating cash flow coverage ratios are estimated to fall well below investment grade norms,
in 200'1. The company filed its GRC with the WUTC on Dec. 3, 200'1 , seeking the inclusion of the temporary
surcharge in base rates and an incremental rate increase of $29 million (10'%). The rate filing includes a
request for a temporary rate increase effective March 15,20'0'2 , a temporary deferral accounting
mechanism from Jan. 1 , 20'0'2 through the end of the rate case, recovery of costs associated with Coyote
Springs 2 and the adoption of a power cost adjustment mechanism. WUTC approval of the company
requested rate increase would result in a sharp rebound in operating cash f~ows in 20'0'2 and 20'03
compared to depressed 20'0'1 levels and operating cash flow coverage ratios would improve significantly.
Fitch expects management will use available cash flow to reduce debt and related financing costs, which
would facilitate a gradual strengthening of AVA's balance sheet and earnings coverage ratios
The September 20'01 surcharge permitted by the .WUTC was in response to the company s July 20'0'1 filing,
requesting an $87 million (37%) temporary annual rate increase to recover a total of roughly $195 million of
deterred power costs over a 27-month period. AVA's power cost deferrals result from extraordinarily high
regional wholesale energy prices caused by the California energy shortage, extraordinarily poor hydro
conditions in the Pacific-Northwest, and the absence of a power cost adjustment mechanism to pass such
costs through to customers. AVA deferred roughly $200 million of Washington jurisdiction energy costs
through Sept. 30, 20'01. The WUTC order authorized a $125 million reduction in the deferred balance over
a 15-month period, which equates to a temporary electric rate surcharge of $59 million (25%) per annum.
Over the 15-month period, the surcharge would allow recovery of $71 million of excess power costs through
revenues. The remaining $54 million reduction to the $125 million deferred balance was accomplished
through a non cash credit booked on Oct. 1 20'01; the deferred credit was related to monetization of a
power contract with Portland General, which was being amortized over an eight-year period.
In November 2001 , AVA filed a request with the WUTC for an expedited procedural schedule to determine
the prudence of deferred power costs incurred through September 20'01. This procedure will ultimately
determine the definitive amount of deferred power costs that will ultimately be recovered from retail
customers. The Commission has tentatively established a target date of mid-March 20'02 to issue an order
f2.?1 ?-OOl c):?'?' AM
"..
in this proceeding.
In Idaho, a power cost adjustment (PCA) mechanism has been adopted that enables the pass through of a
portion of the company s power procurement costs to customers. In July 2001 , AVA filed for a $17.9 million
(14.7%) PCA rate increase to be effective September 15,2001 through December 2003 and that its
existing 4.7% PCA increase remain in place through December 2003. The Idaho Public Utilities
Commission (IPUC) Staff recommended that AVA's filing be accepted by the IPUC with only modest
modifications. In October 2001 , the Idaho Public Utility Commission (IPUC) issued an order approving 15%
price cost adjustment (PCA) surcharge and extending an existing 5% PCA surcharge for all classes of
Idaho customers for 12 months.
Contact: Philip Smyth, CFA 1-212-908-0531 or Robert Hornick 1-212-908-0523, New York.
Copyright C 2001 by FItch, Inc., One State Street Plaza, New York, New York 10004. All rights reserved.
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2 of2 12-12-2001 9:22 AM
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Latest Headlines Majoket Overview News AleJ1s
Tuesday March 27, 11:38 an1 Eastern Time
Fitch Lowers A vista Ratings
" ,, ," "
"Related Quotes
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Press Release
Rates New Senior Notes
NEW YORK--(BUSlNESS WIRE)--March 27 , 200 I--Fitch has assigned a 'BBB-' rating to A vista Corp.
..
proposed new $300 mil1ion issue of senior unsecured notes due 2008 and lowered the ratings of A vista
Corp.' s outstanding securities one notch to these levels:
" .
From
--Senior secured debt 'BBB+'
Senior unsecured debt 'BBB'
Preferred stock 'BBB-
, BBB' ;
, BBB- ' ;
BB+' ;
Commercial paper is affirmed at 'F2'
The Rating Outlook is Negative.
, The rating action reflects A vista Corp.' s rising defeITed fuel and purchased power balances resulting from
electricity and natural gas costs that exceed the amounts cuITently included in retail rates. The Negative
Outlook reflects the p~tential for hydro conditions to worsen beyond expectations, and create a greater
amount of defelTed costs than anticipated.
The utility is not currently planning to request a rate increase to reduce the electric defeITals, based on
expectations that after peaking later this year the deferrals will gradually reduce as some wholesale
contracts roll off. and additional generation is added by the end of 2002.
However, if hydro conditions worsen, or thermal outages occur, the company has nOli fied the Vlashinglon
Utilities and Transportation Commission (WUTC) in a filing made March 20 that addresses the recovery
method for the electric defen-al balance that it would need to file for a price increase. Avista will need
WUTC approval to continue the deferral mechanism through the end of 2002. Ultimate recovery of these
costs is uncertain and the defeITed amounts are a notable percentage of utility equity.
Funding the defenoals is pressuring liquidity. Further liquidity stress comes from A vista Corp. providing
support to unregulated subsidiaries in the telecommunications, internet-based energy management and
of 2 03-27-20019:51 AM
" :\.."
alternative generation businesses. These businesses remain in a start-up mode, and are not yet profitable.
Consolidated financial results benefited in 2000 from trading gains at the unregulated energy trading
subsidiary, A vista Energy. However, A vista has not received upstream cash distributions from its
subsidiary since substantially an of A vista Energy s assets are pledged as security under the terms of its
. bank credit agreement. A vista has drastically reduced the scope of its trading book, yet retains several
healthy in-the-money positions in the ~estern United States. Some unpaid recei vables net of reserves exist
however, from the CaJifomia Independent Systems Operator and Power Exchange.
Financial ratios at the utility have weakened over the past year. While some improvement is expected
during 2001-2002, EBITDA/Debt is expected to remain at or below 20%, with EBITDAIInterest expensein the low 2 times (x) range.
Fitch views A vista s business risk profile as improving relative to recent years. Senior management
changes have resulted in a return to a more conservative strategy. A V A is now focused on managing its
retail load, and only selling power from owned generation in the Pacific Northwest to the extent excess is
available.
A vista Corp. is a vertically integrated utility headquartered in Spokane, Wash.
Contact:
Fitch
In Chicago
Lori R. Woodland, 312/606-2309
In New York
Robert Hornick, 212/908-0523
. .
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Ouestjons or Comments?
of2 03-27-2001 9:51 AM
"--",,,""""--"- , -'
Duff & Phelps Credit Ratin~Co......,.
PRE S RE ASE
Duff & Phelps UE9rades
The Washington Water Power Company
Chicago (April 19, 1993) -- Duff & Phelps Credit Rating Co. hasraised the ratings of The Washington Water Power Company (WWP)outstanding fixed income securities as follows: first mortgagebonds 'A' (Single-A) from '' (Single-A-Minus); debentures andmedium-term notes to '(Single-A-Minus) from 'BBB+'(Triple-B-Plus); and preferred stock to 'BBB+' (Triple-B-Plus)from 'BBB' (Triple-B)Approximately $ 685 million of securitiesare affected. A rating of 'A' (Single-A) also applies to WWP'
shelf registration for $200 million of first mortgage bonds and
the $50 million balance of first mortgage bonds from a previousshelf registration.
WWP is a low-cost electric producer, with hydroelectric
facilities providing most of the company s energy requirements.
WWP also is one of the nations ' lowest cost distributors ofnatural gas. The strong growth experienced in WWP' s gasbusiness, which has nearly doubled since 1990, should continue.The company is ~~trategically located to obtain economic suppli~sof natural gas both in the u. S. and Canada. The stable s erviceterritory economy. and positive growth in electric customers addstrength to the company s underlying credit fundamentals. Otherpositives include a significQ.nt improvement in earnings quality
and growth in wholesale electric sales which have enhancedfinancial performance" With its low rates, location, and growthpotential, WWP. is well positioned for an increasinglycompetitive environment.
Hydro unit upgrades, demand side management programs, andextension of purchased power contracts will be used to meetelectricq.emand growth for at lea'3t the next decade, Capitalexpenditures will increase, with some external financingrequired. However, expected new equity should stabilize thecapital structure.
WWP supplies electric service to 260 000 customers. ineastern Washington and northern Idaho. The company s naturalgas operations serve 178, 000 customers in four states. WWP' sprincipal non-utility .subsidiary,Pentzer, limits the size ofits investments in companies with strong management teams,positive cash flows, and potential for growth,
Contact:John C, DellDu~f & Phelps Credit Rating Co.
[phone]
( "
17 State Street
New Yark, NY 10004
[phone] rfP
55 East Monroe Street
Chicago, 11 60603
[phone]
.. --- --..--
Washington Water Power Co.
April, 1993
Faith N. Klaus [phone]
Long-Term Equity Recommendation: HOLD
Company Analysis
Public Utility
Electrics
Credit Trends: STABLE
1st Mtg Bonds
MTNs
Debentures
Pref. Stock
D&P
Ratings
BBB+
Mdyl
S&P
Ratings
A3/ A-
Baal/BBB+
Baal/BBB+
baal/BBB+
Recent Price $39.125 Div. Yield 6.
Pretax
Cov Capitalization
$ Per Share PIE ROE TOT DBT PFD
Earn Div (X)(%) AFC ($MM)
(%) (%)
2.47 2.15.10.319
13.12.399
85 2.13.11.8 463
00 2.13.11.5 629
Quality Rating: III D&P Ra ting Watch:
Actual 12131192 ($MM) Cap294 295
135 1992A
1993E
1994E
1997E
Equity Valuation
( "
Despite Washington Water Power s above average yield, total return is below average,
as dividend growth is limited by the high payout ratio. However, given wwp's strong
fundamentals (stable service territory and low cost electrical production), we believe
the above average yield offers modest attraction in a low interest rate environment. We
look for earnings recovery this year consistent with normal weather and improved
hydro conditions. Modest earnings improvement long-term resulting from regulatory
support, increased nonutility contributions to earnings and cost controls could support
limited dividend increases. However, we do not expect dividend increases within the
scope of the forecast period (1993-1997). Our long-term equity recommendation is a
HOLD.
Fundamentals WWP, headquartered in Spokane, Washington, is a combination utility which
provides electric and natural gas service to the Inland Northwest region including
eastern Washington and northern Idaho. WWP served 257 000 electric and 106,000
natural gas customers in 1992. In addition, WP Natural Gas (WPNG), acquired in
September 1991, provides retail distribution to 67 500 customers in central and
southwest Oregon and the South Lake Tahoe region in California. WWP's service
territory spans 26,000 square miles and has a population of over 700,000. Nonutility
operations include real estate development, energy services, the sale and production
of electronic data gathering equipment for the utility industry, telecommunications,
and financial services. In 1992, revenues and operating income by division were utility
76% and 89%, natural gas 18% and -8%, and nonutility 6% and 3%, respectively.
Reason for Rating Duff & Phelps Credit Rating Company s ratings of WWP's fixed income securities
reflects the Company s stable service territory, low cost electricity production,
successful off-system electric sales strategy, and growth in the natural gas business.
WWP's reliance on hydro generation for one-third of its energy requirements subjects
the Company to variable streamflow conditions and expensive replacement power
during periods of drought due to a lack of a purchased power and fuel adjustment
clause. Increased spending related to the implementation of a new comprehensive'
demand side management program (DSM), and hydro system improvements will
require external financing and WUTC support.
((, "
Ma j or Risks WWP is subject to variable streamflow conditions, as the Company lacks a purchased
power and fuel adjustment clause in Washington, where the majority of WWP'
electric revenues are derived. Regulatory risk is increasing as WWP builds up balance
sheet deferrals related to natural gas DSM expenditures for future recovery.
. Corporate Profile
Washington Water Power (WWP, the Company) is a
combination utility which serves over 250 000 electric
and 173,500 natural gas customers in eastern
Washington, northern Idaho, southwest Oregon, and
south Lake Tahoe, California.
The Company s nonutility businesses include three
wholly-owned subsidiaries: 1) Pentzer Corporation
which accounted for 93% of WWP's 1992 nonutility
assets, and participates in such diverse businesses as
real estate, energy services, electric utility data
collection, and financial trucking services (freight
billing); 2) WP Finance Company, which provides
financing to WWP customers to purchase energy
related products; and 3) Washington Irrigation &
Development Corporation which is currently
nonoperating. Total investment in the three nonutility
subsidiaries at year-end 1992 was $79.2MM ot 5.2% of
total assets.
Service Territory
WWP's retail utility businesses operate within a 26,000
square mile service territory that includes the region
known as the Inland Northwest. This area includes
eastern Washington and northern Idaho with an
. estimated population of 700,000. WWP
. headquartered in Spokane, th~.Jegion s (population
365,000) hub for business, health care, education, and
transportation.
Major industries within the Inland Northwest region
include mining and smelting, lumber /wood products,
agriculture, and paper manufacturing. Potlatch
Corporation (Potlatch), a major paper and forest
products company is WWP's largest electric customer
having accounted for 38% of 1992 industrial revenues
(5% of total electric revenues). February 1993
unemployment rates in Spokane (8%), Washington
(8.7%) and Idaho (8.4%) are all above the national
average of 7.7%. Overall, WWP operates within
average service territory for a combination utility.
Regulation
WWP's utility (electric and natural gas) operating
revenues (1992) were subject to the following
regulatory authorities: the Washington Utilities and
Transportation Commission (WUTC, 64%); the Idaho
Public Utilities Commission (IPUC, 26%); the
California Public Utilities Commission (CPUC, 2%); the
Public Utilities Commission of Oregon (OPUC, 5'
%);
and the FERC (3%).
There is no authorized purchased power and fuel
adjustment clause in Washington, where the majority
of WWP'electric and. natural gas revenues are
derived. WWP has indicated that it antiCipates filing for
a purchased power and fuel adjustment clause in its
next rate case. Puget Sound Fewer and Light (PSD),
Washington s other major electric utility, has been
authorized the recovery of resource related costs (fuel,
purchased power, production expenses, and DSM
exp-enditures) through a three year test of a new
comprehensive Periodic Rate Adjustment Mechanism
(PRAM). PSD is required to file each year for recovery
of disparities between what was actually collected, and
what was authorized for collection (using resource cost
estimates at the beginning of the PRAM period). The
WUTC is currently reviewing the success of this pilot
program and will decide whether the PRAM will
continue. WWP will continue to watch with interest as
a decision is made regarding the future viability of the
PRAM.
The IPUC has authorized a limited power cost clause
tied to stream flow conditions which expires in June,
1993. The Company has requested that this be
extended. Electric and natural gas regulations common
to the WUTC and IPUC are: 1) use of a historical test
period; 2) construction work In process is prohibit~d
from rate base; 3) interim rates are rarely permitted; 4)
limited or no purchased power or fuel adjustment
(both electric and gas) clause 5) and authorized allowed
returns on common equity (ROE) and rate base that
historically"have been below average. On our five point
grading scale of electric commissions, with I being the
highest, we currently rank the WUTC IV, the IPUC IV,
the OPUC IV, the CPUC II, and the FERC II. Duff &
Phelps does not currently rank commissions based on
natural gas regulation.
~. .
A comprehensive Demand Side Management (DSM)
program was approved by both the WUTC and the
IPUC in 1992. The program includes new and revised
electric and natural gas tariffs together with a cost
recovery mechanism designed to promote the use of
natural gas. The Company is currently deferring the
costs of the program until its next general rate case. The
cost of implementing the program will be recovered
through both electric and natural gas rate relief.
WWP filed its last electric rate case with the WUTC and
IPUC in 1986. Since that time, the Company s electric
business has been operating under a 12.9% authorized
ROE. WWP filed its last general gas rate case with the
VVUTC in March 1990, and with the IPUC in October,
1989. The Company s gas utility currently operates under
a 12.9% ROE in Washington, and a 12.75% ROE in Idaho.
( .
, ,
, In September 1991 , the Company purchased retail
natural gas distribution properties in California and
Oregon. The acquisitions were consolidated into a
separate WWP division named WP National Gas
(WPNG). General rate freezes are in effect for these
properties until December 31, 1995 in Oregon and
January 1, 1995 in California (agreed to as a purchase
stipulation).
Recovery of expenditures related to hydro
improvements, electrical transmission and distribution
system upgrades, the construction of two new
combustion turbines, extensive DSM expenditures, and
the potential construction of a transmission line to
British Columbia Hydro are expected to increase
, WWP's regulatory dependence going forward. We
look for the Company to delay filing a electric and gas
rate case until absolutely necessary to avoid a reduction
in the authorized ROEs. However,' our forecast,
indica tes a rate increase will be needed in the 1996-1997
time-frame.
Business
Electric
'- ... ,
Revenues in 1992 totaled $424.4MM, up 3% ($12.6MM)
over 1991. The increased revenues were due to higher
total Kwh sales (up 5%) and customer growth
(residential and commer~ial), which served to offset
lower residential usage. .~ue to mild weather
conditions. Industrial revenues were up $11.5MM'
(29%) primarily due to a new power exchange contract
with Potlatch which went into effect in January 1992.
Retail revenue derivation in 1992 were 45% residential,
38% commercial, 16% industrial, and 1% other. The
average electric utility mix in 1992 was 39% residential,
33% commercial, 25% industrial, and 3% other. '
Retail Kwh sales in 1992 were derived 44% residential
33% commercial, 22% industrial, and 1% other. The"
average electric utility mix for the period was 32%
residential, 30% commercial, 35% industrial, and 3%
other. Retail and off-system Kwh sales have grown at
an average annual rate of 2.9% and 2.4% respectively
over the past five years. Our forecast incorporates
WWP's estimates of retail Kwh sales growth (1.6%
annually), which assumes normal weather, continued
conversion of electric customers to natural gas through
the DSM program, and 2.1 % growth in wholesale sales.
Customer growth averaged 1.2% over the past five
years, with similar growth projected by WWP over the
" 1993-1997 period.
. .)"
In recent years, WWP's wholesale business has become
a more intricate part of the Company s overall business
strategy. In 1992 31% of total Kwh sales were to
who'lesale customers, 72% of which were under long-
term contracts. \A,TWP competes with other western
utilities and with the Bonneville Power. Administration
(BPA) for the sale of its surplus power. PSD, PacifiCorp
(PPW), Portland General (PGN), and the Northern
California Power Agency all have long-term firm sales
contracts with WWP. TI1e C9mpany expects to
continue to aggressively pursue off-system Kwh sales,
opportunities as they become available.
The 1992 average residential unit realization for the
Company was 4.83 cents/Kwh, 56% of the industry
average of 8.6 cents/Kwh. Realizations for other
investor-owned utilities in the region during 1992 were:
Montana Power Company (MTP) 5.75 cents; PPW 5.
cents; PGN 4.87 cents, and PSD 5.34 cents. WWP'
residential realizations have grown 1 cent since 1988
(due to recovery of limited purchased power and fuel
costs in Idaho), as the Company did not have a retail
electric base rate increase over the period. Due to the
large hydro component making up the C~mpany
energy mix, its Kwh rates are among the lowest in the
region for investor-owned ,utilities. Because of this
factor, we expect the Company will continue to be
competitive in both the retail and wholesale markets.
Gas
Revenues in ' 1992 totaled $100.6MM, up 37%
($27.3MM) over 1991. The additional revenues
associated with the WPNG acquisition (which
increased WWP's gas customers by 67 500) accounted
for 90% of the year-to-year growth. Retail revenues
(88% of total gas revenues) were derived 56%
residential, 36% commercial, and 8% industrial.
Therm sales to reta il customers increased 20% over
1991 due to the WPNG acquisition. However, mild
weather served as an offset to the customer growth
(7%). Total gas deliveries in 1992 by customer class
were 49% residential, 40% commercial, and 11%
industrial. WWP served 178,200 gas customers at year-
end 1992 (67 500 from WPNG and 110,700 WWP).
Residential realization per customer for the period was
37.05 cents/therm, up 5.6% over 1991, reflecting the
addition of higher WPNG rates to WWP's overall
natural gas rate structure. WV\Tp forecasts therm sales
growth of 4.2% from the WPNG properties (reflecting
normal weather and customer growth) and 6.
annually (reflecting customer growth from
conversions / new home construction and normal
weather) over the forecast period (1993-1997).
Nonutility
Consolidated nonutility businesses contributed $32.8MJ\1
(6%) to total revenues in 1992, down 60% ($48.9:MM) from
1991. The 1992 revenue figure excludes !TRON, which is
no longer accounted for using the consolidated method.
In February 1992, Pen:tzer s equity ownership of ITRON
was reduced due to a stock exchange to purchase EnScan.
Subsidiary income of $5.1MM excludes pretax gains of
$6.7M1'v1 due to ITRON's issuance of common stock to
acquire EnScan and a $1.71\.1M gain from the sale of
Pentzer s 25% interest in North American Energy Services
to MTP. Nonutility ventures (adjusted for nonrecurririg
items) earned a 5.2% ROE last year. Pentzer recently
revised its strategy of acquiring essentially energy related
businesses, and as a result, it is difficult to predict what
non utility ventures will contribute to WWP's revenues
and earnings in the future. For forecast purposes, we
assume revenues from consolidated nonutility ventures
. grow at the rate of inflation.
Power and Energy Mix
. .
WWP's energy nux in 1992 consisted of 41 % purchased
power (12% hydro and 29% other purchases), 31 % coal
and 28% hydro. WWP's peak demand of 1,955Mw
occurred on December 4, 1992. Capability at that time
was 2,280Mw, comprised of 1,485Mw of owned
, generating capability (955Mw hydro, 412Mw coal, and.
118Mw of wood waste and other) and 795Mw of net
purchases, which provided a 17% reserve margin.
Company-owned resources consist of nine hydro
electric projects with a totaYcapability of 953Mw, a 15%
ownership interest in the Centralia 1&2 (197M w, operated
by PPW) and the Colstrip 3&4 (216Mw, operated by MTP)
coal-fired plants, a woodwaste-fired facility (46.5Mw),
and a combustion turbine. (68Mw) used primarily for
peaking purposes. Coal is supplied to the Colstrip units
from the Rosebud coal rrrine (adjacent to the plants) under
a long-term contract (expires in 2019) with Western
Energy, a MTP subsidiary. Fuel is supplied to Centralia
from Pac~c Power and Light (a PPW subsidiary) under a
long-term contract that expires in 2020.
Centralia is classified as a "Phase II" plant under the
provisions of the Clean Air Act. Sulfur dioxide
emissions will have to be reduced 40% by the year 2000
in order to comply. The Colstrip plant is also a "Phase
II" plant. However, only reductions in NOX emissions
will be required to comply with the regulatory
standards. The operators of both plants have not
decided the method in which compliance will be
achieved. The costs of compliance are not expected
have a material financial impact upon WWP.
The majority of WWP's hydro facilities are located on
the Spokane, Colville, and Clark Fork Rivers in
vVashington, Montana and Idaho. The hydro facilities
are scheduled for relicensing over the 1993-1997 time
period. WWP has begun the relicensing procedure for
the Meyers Falls facility license, which expires in
December 1993.
(:::~'
WWP has various power exchange. contracts with
Columbia River Storage (40Mw), MTP (75Mw), Pacific
Gas and Electric (150Mw seasonal exchange), the BPA
(WPPSS 1&3 settlement, 162Mw) and qualifying
facilities. In January 1992, the Company contracted
with Potlatch to purchase 50Mw-55Mw of capacity
over the next ten years. In exchange, WWP will make
available up to 95Mw (average) of firm energy to
Potlatch. The exchange contract also calls for WWP and
Potlatch to make available (to each other) 25Mw
(average) of interruptible energy. The Company has
take-or-pay contracts for 225Mw (1992) of capacity
from five Mid-Columbia river Public Utility District
(PUD) hydro projects. The contracts expire at various
dates over.the 1995-2018 time period.
WWP'future purchased power outlook will
incorporate c;ost risk as these low-cost contracts expire
and are renegotiated. In addition, the cost of alternative
power supply will increase, as the PUDs comply with
National Marine Fisheries Service (NMFS) regulations
regarding endangered salmon species on the Columbia
River. With less hydro power available from the dams,
WWP will have to. purchase additional power or
increase utilization at it non-hydro facilities.
-..;
The National Marine Fisheries Service (NMFS) is
working to develop a recovery plan which preserves
the anadromous fishruns - particularly Salmon - on the
Columbia and Snake Rivers. Although WWP's hydro
facilities are not located in the approximate vicinity of
the effected areas, the Company will be impacted
indirectly by the reduction in power generated by the
Columbia River hydro projects that WWP buys from
resulting in increased purchased power costs during
times when tre water levels are reduced to allow the
fish to return to the ocean. Further, because the hydro
systems in the Pacific Northwest are operated on a
coordinated basis, any reduction in hydro production
from the Columbia River projects will affect power
availability for the entire region. However, until a
recovery plan has been subn1itted by the NMFS
(probably late 1993), it is very difficult to predict just
how significant the impact will be.
WWP's firm natural gas supply is delivered by
Northwest Pipeline under contracts which expire in
October 2004. WPNG contracts with Paiute Pipeline
and IGI Resources for firm transportation and.liquefied
gas storage for delivery of gas to its California and
Oregon service territory. The recent FERC order 636 (
that deb undIes natural gas service is not expected to
have a material financial impact on WWP. The
Company s low natural gas rates should allow 'W"!"lP
. remain competitive and prevent the majority of large.
'\
. industrial gas customers from bypassing natural gas
service and distribution in the future.
Financial Outlook
WWP'construction expenditures (excluding AFC)
over the past five years 1988-1992 were $321MM, with
internal cash funding 113% of the total. The Company
1993-1997 forecast reflects construction expenditures of
$659MM. Forecasted electric utility capital
expenditures include the construction of a 126 mile
long transmission line to the BC Hydro electric system
in Canada, and upgrades to the Company s hydro
facilities on the Spokane and Clark Fork Rivers.
Additional up-grades are being reviewed at the
Company s Nine Mile and Cabinet Gorge hydro
facilities. Natural gas utility outlays for WWP'
extensive DSM program is projected to exceed $30MM
per year. Other capital requirements' over the forecast
period include long-term debt maturities and
refinancings totaling $295MM and preferred stock
redemptions of $20MM.
Total capitalization at year-end 1992 was $1,319MM
comprised of 45% debt, 10% preferred, and 45% equity. '
Debt as a percentage of capitalization adjusted for
purchased power was approximately 52% in 1992
(purchased power capacity obligations are considered
a fixed obligation). We expect this will remain flat
throug:h .1997. Over the past fi~e years, WWP's capital
structure has improved dramatically because of
comn10n stock issuance through employee plans,
, periodic offerings, dividend reinvestment
, '
and a
, reduction in total outstanding debt. The Company
forecast of external financing needed to make up the
internal cash deficiency and debt refinancings over the
forecast period will include the issuance of $416MM in
long-term debt and $115MM in common equity
through WWP'dividend reinvestment program. By
1997, we expect the capital structure to consist of 46%
debt, 7% preferred, and 47% common equity.
The Company has maintained a dividend of $2.481
share since February 1983. Over the past five years, the
payout ratio has exceeded 90% in every year with the
exception of 1990. Last year the payout ratio was over
100% due to poor utility earnings. Earnings volatility
due to the lack of a purchased power and fuel adjustment
clause, minirnal contributions from nonutility ventures,
, and a high payout ratio limits 'A!WP's dividend growth
prospects going forward. Taking these factors into
consideration, we aSSUlne WVVP will not increase the
dividend during the forecast period.
We expect coverages to improve froln1992's 2.8X (2.
adjusted for purchased power obligations) to 3.1X this
year and remain flat thereafter. Poor hydro conditions
resulted in increased purchased power and fuel
expenses in 1992, which when combined with lower
weather related Kwh sales, resulted in lower earnings
and coverages. We look for improvement in earnings
with better hydro conditions and more normal weather
going forward. However, VvWP's projected financing
requirements over the 1993-1997 forecast period will
temper improvements in coverages.
Year-end 1992 EPS adjusted for nonrecurring items
were $2.47/share, down $.14/share from 1991 results.
Revenues and net income by division were utility 76%
and 89%, natural gas 18% and 8%, and nonutility
and 3% respectively. Utility operations experienced the
impacts of unseasonably mild weather conditions and
below normal hydro conditions. As a result, purchased
power and fuel costs were up $27.6MM over levelsincurred in 1991.
We look for modest earnings growth of 2% annually
through 1997, which reflects normal weather and
hydro conditions and inflation-based rate relief in the
1996-1997 time-period. Regulatory support will be
needed for cost recovery of WWP's extensive DSM
program and forecasted construction expenditures. It is
difficult to predict what contribution to earnings the
nonutility ventures will provide going forward given
WVVP's revised acquisition strategy.
Pentzer s strategy for future nonutility acquisitions is to
acquire a substantial equity position in middle-n1arket
con1panies with positive cash-flows, growth potential,
and strong management that is willing to stay in place.
Pentzer does not have a long range investment horizon
in mind -and will have an exit strategy in place when
they invest in a company. This strategy is a change of
focus from Pentzer s previous strategy of investing in
primarily energy related subsidiaries. Pentzer expects0 to continue to divest nonutility businesses that provide
an unsatisfactory return. Internal cash from WVvP'
1990 sale of coal mining properties is being used to
fund Pentzer s acquisitions ($22.4MM relnains from the
$40.8MM sale). We will continue to monitor WWP'nonutility strategy going forward.
Forecast assumptions include: WWP'forecast of
electric and natural gas retail sales growth of 1.6% and
2% respectively; rate relief in 1996/1997 for both the
electric and natural gas utilities in. line with the rate of
inflation; operating and maintenance expenses
growing at the rate of inflation (3.5%); Company load
growth estimates, capital requirements, financing, and
construction expenditures; the earnings contribution
from the consolidated nonutility businesses grows with
the rate of inflation.
~:'
Washington Water Power Co.
Cash Flow and Capitalization
($ in Millions)
1992A 1993E 1994E 1995E 1996E 1997E 1993-1997
Construction (Inc APC)138 140 150 139 147 714
AFC 1.0
Cash Outlay 134 132 140 125 128 659
Internal Cash
Exc AFC 374
% Construction
, Exc AFC 61 '
. '
Maturities and SF Ret.130 105 315
Cash Requirement 163 168 107 111 104 110 600
New Financing .oJ
::"
Total Debt.71 '145 452
Preferred
' "
Equity 115
Total Financing 156 176 104 102 567
.. ~. .
Other Sources (D ses)2 (8)
, j
Capitalization 319 399 463 531 576 629
Growth (%)
Ratios
Debt (Inc. SID)
Preferred
Equity,
Debt Adjusted PP
Other Sources (Uses) includes changes in working capital.
Washington Water Power Co.
Income Statement
"" . '
($ in Millions, Except Per Share Items)
1992A 1993E 1994"1995E 1996E 1997E
Operating mc Aft Tax 112 127 126 129 130 130
In terest Expense
SubTotal
...
AFC
Other Income
Net Income
Preferred Dividends
Balance for Common
EPS 2.47
I')
DPS 2.48 48"
Payout Ratio (%)100
ROE (%)10.12.11.8 11.11.5 11.5
Coverages (X)
Pretax Excl tiding AFC
Pretax Including APC
After Tax" and Pfd..2.
" Coverages Adjusted PP
Avg. Int. Cost
(%)
Peak Load and Resources
1992A:1993E .l994E 1995E 1996E 1997E
Total Capability (Mw)280 512 336 503 503 503
Purchased: (MW)795 795 795 795 795 795
Peak (Mw)955 . 1,986 2;079 145 110 087
Reserve Margin (%)
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SUITE 3600 . 55 EAST MONROE STREET ' CHICAGO, ILLINOIS 60603 . [phone] . FAX [phone]
lnlormalion in this publication has been obtained Irom sources believed to be accurate and reliable; however. we do n01 guarantee the accuracy, adequacy or corTIpletenessof any intormalion and are not responsible tor any errors or omissions or lor the results obtained .hom the use 01 such intormalion, Duff & Phelps and Its affiliaies mayprovide produCIS and services to Ihe companies reporled on herein and receive tees Iheretor. Such producls and services may involve investment research, credit rallngs,
financial c~nsul\ing or investment management. Most issuers 01 debt securities and preterred stock raled by Du11 Eo Phelps have paid a lee 10 Dulf & Phelpsto~ liS creditrallng serVice, The tee is based on the amount and type of securities issued, Du11 & Phelps CredH Raling Co, (DPCR). which operates independently. may In ns regularoperalions obtain inlormation 01 a confidential nalure. Du11 & Phelps' other opera lions have no access 10 such information obtained by DPCR.
Copyright C) 1993 Du11 & Phelps Corporation
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S&P Raises Washington Wtr Pwr Afrms Sierra PacRtgs
Publication date:
Credit Analyst:
Print ready.
01-Jul-1996
Cheryl E Richer (1) 212-208-1877
NY -- Standard & Poor's CreditWire 7/1/96 -- Standard
Poor's today has raised its senior secured rating on Washington
Power Co. (WWP) to single-A' from single--minus. The
company's senior unsecured and preferred stock ratings have beeJraised to single- '-minus from triple- 'B' - plus. The outlook
remains stable. The upgrades reflect the termination of the pen!
with Sierra Pacific Power Co. (SRP).
Standard & Poor's single-' A' -minus senior secureddebt, triple-plus preferred stock, and '2' commercial
paper ratings of SRP have been affirmed. The outlook remains st.
reflecting stand-alone creditworthiness.
The two utili ties announced their plans to merge on June
On June 28, 1996, WWP wi thdrew from the proc es s as permi t ted
companies' merger agreement. WWP cited the growing uncertainty
obtaining approval of the proposed merger from all the regulato:
commissions on terms consistent with the principals adopted by
companies, as well as expectations. of ~iminishing merger saving:
large concern appeared to be the posi ti'ons of the Federal Energ:
Regulatory Commission staff, which advocated single system tran:
rates, and the Washington Utilities and Trade Commission staff,
insisted upon separate jurisdictional rates. WWP's financials
been strengthening over the past several years. Significant imp:
has been driven by firm, wholesales contracts and significant ~
demonstrated reductions in construction expenditures.At SRP, capital expenditures will be roughly halved in 19:
completion of several large electric and water utility projects
utility earnings should improve as a result of rate relief, low.
spending beyond 1996, and resolution of political issues, Stand.
Poor's said. -- Credi tWire
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Avista Corpo s Ratings Downgraded; Outlook NowStable Print ready.
Publication date:
Credit Analyst:
24-Aug-1999
Raymond M Leung, New York (1) 212-438-7671
NEW YORK (Standard & Poor's CreditWire) Aug. 23, 1999--Standard
and Poor's today lowered its ratings of Avista Corp. as follows
-- Corporate credit and senior secured debt ratings totriple-plus from single-
-- Senior unsecured debt and bank loan ratings totriple-' B' from single-' A' ~minus; and
-- Preferred stock (including Avista Capital I and Avista rating to triple--minus from triple-plus.
Also, .Standard & Poor's today assigned itstriple-B' rating to Avista's $400 million unsecured debt
securi ties Rule 415 shelf filing. The outlook was revised to st,
negative.
The lower ratings reflect Avista' s aggressive growth strat,
that emphasizes the inherently riskier nonregulated business,
Avista Energy Inc., the company s energy trading unit, and nota:
weaker financial measures. Avista Energy acquired vi tol Gas and
Trading LLC in February 1999 and has incurred losses of $19.2 m
to weak national energy prices and the iack of volatility withiJ
all commodities through the first six months of 1999. Standard
Poor'is concerned about the challenges of integrating the
operations of three trading locations (Boston, Spokane, and Hou:
which may have contributed to the recent poor perfo~ance toget:
the trading company's lack of physical assets. Management has
implemented several changes that include new systems, risk-mana~
controls, and financial and trading personnel. However, manageml-
ability to stabilize financial performance and effectively inte!
operations will be critical to supporting the current ratings.
Consolidated financial measures will remain under pressure beca1
changing business risk profile and a share repurchase program.
capi tal spending is expected to remain manageable and largely
funded, financial measures remain somewhat weak given the incre.
business risk profile, with adjusted cash flow interest coverag.
to stay around 3. 75x and adjusted cash flow to average total de:
25% .
Avista's ratings are based on the company s consolidated
average business and financial profiles. The business profile utility's low-risk hydroelectric operations, very competitiveelectric rates, and moderate rate needs. These strengths are
lack of a fuel clause in Washington and management's aggressive
growth strategy in the inherently risky nonregulated energy trar
business.
OUTLOOK: STABLE
The stable outlook reflects the company's strong utili ty operat
and adequate consolidated financial measures for the current ra'
Continued aggressive growth of its nonregulated businesses and
to improve financial performance at the energy trading unit wil:
essential for ratings stability, Standard & Poor's said.
--Credi tWire
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vista Corp.s Corporate Credit Rating Lowered
Off CreditWatch Negative
Publication date: 31-Jul.2000
Credit Analyst: Dimitri Nikas, New York (1) 212-438-7807
Print ready.
, "
NEW YORK (Standard & Poor s CreditWire) July 31, 2000--Standard
& Poor's today lowered its corporate credit rating on Avista
Corp. to triple-B' from triple-plus. At the same
time, Standard & Poor's affirmed its triple-' B' -plus
senior secured debt rating and its triple- 'B' senior unsecured
debt rating (see list below). In addition, Standard & Poor'
lowered its preferred stock rating to double- 'B' -plus fromtriple--minus (see list). The ratings were removed from
CreditWatch with negative implications where they were placed
2000.
The outlook is negative.
The rating for the senior secured debt is one notch above
corporate credit ra~ing because the debt is collateralized by u'
property whose value is projected to substantially exceed the
amount of mortgage bonds that could be outstanding under the te:
indenture. The rating for the senior unsecured debt is the same
corpora te credi t rating because Standard & Poor's does not
consider the existence of secured debt as materially disadvanta!
unsecured debt holders.
The rating actions reflect a weakened financial profile re:
from substantial power trading losses, accompanied by increased
risk by the company's regulated utility operations. In addition
continued funding needs related to Avista' s nonregulated ventur,
a change in the company's nonregulated nationwide trading stratI
during 1999 have contributed to increased risk in the companybusiness profile.
The substantial power losses in May, and June 2000 were rel.
mul tiple events and resulted in a reduction of gross margin of
million for second quarter 2000. Avista expects that gross marg
reduced by a total of $160 million for the full year. Subsequen'
sale .of the Centralia plant in May 2000, Avista' s system capaci'
reduced by 175 MW. Management did not seek to cover these commi'
anticipating sustained market prices for power that would remaiJ
typical for the time of year. In doing so, the company exposed
unexpected volatility in market prices and significant increase:
purchased power expenses during May and June.
In order to avoid addi tional purchased power exposure, Avi:
contracted to receive 175 MW of power from Centralia starting
2000. In addition, the company is pursuing two generation proje,
Northwest; however, such generation is not expected to corne on-
at least the latter part of 2001, forcing Avista to rely on alt.
sources of energy to meet a portion of its retail load needs un'
In addition, the company s financial performance was adver:
impacted by a wholesale short trading position that significant:
management s guidelines, indicating questionable risk managemen'
practices procedures, and decision making. Avista has now elim
short-term wholesale cornmodi ty acti vi ties at the utility s trad
operations and has hired williams Energy Trading & Marketing to
the company in the areas of risk management, analysis, and reso'
optimization.
In order to reduce the strain of funding the nonregulated
, ,
http://www.ratingsdirectcomlApps/RD/controller/ Article?id= 160003 03-25-2003
' .
Avista is pursuing various alternative financing arrangements,
of which is uncertain. Avista is also relying on favorable regu:
action to help stabilize its financial profile by filing for an
order to recover, . on a deferred basis, excess purchased power
starting with July 2000. A ruling is expected in early August.
As part of the company's rate filing in Washington, Avista
seeking to institute a power cost adjustment mechanism that wou:
it to pass through a portion of cost increases or decreases to
without having to file a full rate case. In its rate filing, Av
requested increases for electric and natural gas rates of 10.
respectively. In response, however, the commission staff has reI
reduction of 6.5% in electric rates and an increase of 1.0% in
Standard & Poor's is concerned that in light of Avista
recent power supply decisions, the commission may be less respO1
the company's filing.
OUTLOOK: NEGATIVE
The negative outlook reflects concerns that transcend subs'
trading losses that might have been avoided with appropriate ri:
oversight of power marketing operations. Concerns are also tied
forecast of continuing weak financial margins reflective
management's pursuit of investments in unregulated ventures in
effort to enhance shareholder value. To preserve Avista ' s ratin~
management needs to demonstrate the implementation of a long-te:
for sound financial performance that is consistent with bondboll
interests, Standard & Poor's said. -- CreditWire
RATINGS LOWERED AND REMOVED FROM CREDITWATCH NEGATIVE
FROM
Avista Corp.
Corporate credit rating
Preferred stockShelf preferred stock (prelim.
BBB
BB+
BB+
EBB+
EBB-
BBB-
Avista Capital I
Preferred stock*
*Guaranteed by Avista Corp.
BB+BBB-
Avista Capital II
Preferred stock*
*Guaranteed by Avista Corp.
EE+BBB-
RATINGS AFFIRMED AND REMOVED FROM CREDITWATCH NEGATIVE
RATING
Avista Corp.
Senior secured debt
Senior unsecured debt
Shelf senior secured/unsecured (prelim.
BBB+
BBB
BBB+ /BEB
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Avista Corp.s Ratings Lowered , Off CreditWatch
Publication date: 10-0ct-2001
Credit Analyst: Dimitri Nikas, New York (1) 212-438-7807
Print ready
NEW YORK (Standard & Poor's) Oct. 10, 2001--Standard &
Poor's today lowered its corporate credi t rating on Avis ta Corp
double-' B' -plus from triple-' B' -minus and removed the
ratings from CreditWatch, where they were placed with negative
implications on Aug. 2, 2001. The outlook is negative. (See lis'
all rating actions.
The downgrade reflects Avista' s substantially weakened fin.
profile, which is not expected to recover to levels commensuratl
those o~ investment-grade companies over the near te~, cons ide:
uncertainty surrounding the regulatory environment in WashingtoJ
the recen tly approved 25% rate surcharge, and managemen t 's ongo
challenges to ensure adequate liquidity until a final regulator:
approved.
The financial profile for Avista has weakened significantl:
past 12 months mainly as 'a result of increasing power cost def.
which have been internally funded and will continue to be so.
deferrals accrued because Avista paid substantially more for el,
than what it collected in rates. Therefore, Avista's cash-gener.
ability has been compromised, leading t'o. credit-protection meas'
are inadequate for the rating category.
The recently approved 25% rate surcharge in Washington sta'
expected to provide some relief to Avista in the foDm of much
liquidi ty. However, the rate surcharge is much less than that
the company and will expire in 15 months (Dec. 31, 2002), a muc:period than the 27 months requested by Avista. As a result, Avi:
unable to recover all accumulated deferrals. As part of the reci
Washington Utilities and Transportation Commission (WUTC) decis
Avista's ability to defer additional power costs in excess of r.
will terminate . on Dec. 31, 2001, creating further uncertainty
recovery of additional power cos t deferrals. Avista plans to ad.
unrecovered deferred balances, the ability to defer additional costs ! and the ability to share power costs with ratepayers in
upcoming general rate case filing, which is to be submitted by
2001. However, the WUTC may take up to 11 months to respond, tho
creating considerable uncertainty as to the final outcome. The
company s precarious position is further emphasized by the fact
as part of the rate filing the WUTC will examine the prudence
deferred power costs and retain the authority to order a refund
amounts recovered, if necessary.
At the same time, Avista management is pursuing various aI'
to ensure adequate liquidity until the WUTC responds to the co~
general rate filing. These plans include alternative financing
Coyote Springs 2 combined-cycle plant, which is expected to com.
in early summer 2002 a planned equity offering that the compan:
challenged to complete due ~o adverse market conditions, reduct
operating costs and planned capi tal expendi tures, and the dispo:
certain noncore assets. Al though these measures may provide the
relief during a transition period, clearly Avista needs a stron!
regulatory support in the foDm of a rate order that addresses t:
cost under-recovery and provides a supportive regulatory framewl
addresses the evolving and volatile nature of the electric uti
industry. Without such a show of support, Standard & Poor's is
concerned that Avista' s financial profile may deteriorate furth.
http://www .ratingsdirecLCOm/ Apps/RD/ controller/ Article ?id=212634 03-25-2003
leading to even weaker credit-protection measures.
OUTLOOK: NEGATIVE
The negative outlook reflects the challenges facing Avista in i'
to maintain adequate liquidity while ensuring the integrity of
electric utility. operations and the regulatory uncertainty conc.
company's upcoming general rate filing. Without the necessary
liquidity or a favo~able rate order, the company's financial pro
may deteriorate further, leading to even weaker credit-protecti,
and lower ratings.
RATINGS LOWERED AND REMOVED FROM CREDITWATCH
FROM
Avis ta Corp.
Corporate credit rating
Senior secured debt
Senior unsecured debt
Preferred stockShelf debt preferred stock (prelim)Shelf senior unsecured (prelim)
BB+
BBB-
BB+
BB-
BB-
BB+
BBB-
BBB
BBB-
BBB-
Avista Capital I
Preferred stock*BB-
Avista Capital II
Preferred stock*
*Guaranteed by Avista Corp.
BB-
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Avista ' Corp.s Outlook Revised to Stable on
Greater Regulatory Support
Publication date: 18-Dec-2002
Credit Analyst: Swami Venkataraman, San Francisco (1) 415-371-50'
Print ready.
SAN FRANCISCO (Standard & Poor's) Dec. 18, 2002--Standard & Poo:
Services said today that it revised its outlook to stable from
Avis ta Corp. based on improvement in the State of Washington'environmen t .
In addition, Standard & Poor' s affirrn~d the company's 'BB+credit rating and the 'BBB-' rating on the company's first mort!
which reflects overcollateralization of these bonds by the pled!
The outlook revision reflects the substantial improvement
regulatory environment in the state of Washington" and Avista'conclusion of a favorable general rate case in the state," said
analyst Swami Venkataraman. "Avista will now be able to recover
deferred power costs from the Western U. S. power crisis. The, ra'
also implemented an energy recovery mechanism, designed to avoilbuild-up of deferred energy costs in the future," he added.
The 'BB+' rating on Avista Corp. reflects the company's avo
position, characterized by low-cost, hydroelectric generation;
rates; operating and regulatory divers~ty in Washington, Idaho,
and Oregon; and a much-improved regulatory environment, offset
financial profile that is weak for the rating. During 2000 and
energy trading and marketing provided significant support to tho
consolidated financial profile. The size of these operations ha:
off over ' the last year as its strategy shifts toward marketing
focused on the physical assets it manages. Nonetheless, continuo
involvement in riskier energy trading and marketing activities
addi tion to other unprofitable non-regulated businesses continuo
contribute to a weaker consolidated business risk profile than
stand-alone utility.
Spo~ane-based Avista Corp. serves about 600,000 electric
, cus tomers in Washington, Idaho, Montana,.. Oregon and the Lake Ta:
of California. The company has $1.08 billion in debt outstandin!Sept. 30, 2002.
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03-25-2003
I RAT I
N G S D I RE CT
I STAND
ARD
&POOJrS
Research:
A vista Corp.
Publication date: 20-Feb-2003
Credit Analyst: Swami Venkataraman , San Francisco (1) 415-371 -5071
Return to Regular Format
Corporate Credit Rating
BB+/Stable/--
Business Profile
1234~678910
Financial policy:
Moderate
Debt maturities:
2003 71.
2004 30.
200529.
200638.
200726.
Thereafter 823.
Collateralization:
Avista s first mortgage bonds are secured by utility property and are rated one notch above the corporate
credit rating. Standard & Poor s Ratings Services ultimate recovery analysis has determined that these
bonds are collateralized by utility property, the value of which is projected to exceed substantially the
maximum amount of mortgage bonds that could be outstanding under the terms of the indenture.
Therefore, Standard & Po6r~~ has a high degree of confidence that first mortgage bondholders would
recover, albeit perhaps delayed, their principal in a bankruptcy scenario.Bank lines:
Avista Corp. has a $225 million credit line for Avista Utilities, expiring May 2003 ($181 million was
as of Dec. 31 , 2002) and a $110 million bank line for Avista Energy ($17.4 million in LOCs outstanding as
of Dec. 31,2002). The bank can terminate the line at any time, and any balances outstanding become due
and payable immediately.
Outstanding Rating(s)
A vista Corp,
Sr unsecd debt
Local currency
Sr secd debt
Local currency
Pfd stk
Local currency
BB+
BBB-
BB-
Corporate Credit Rating History
Aug. 24, 1999
Aug. 1 , 2000
Aug. 2, 2001
Oct. 10, 2001
BBB+
BBB
BBB-
BB+
Company Contact
Major Rating Factors
http://www .ratingsdirectcom/ Apps/RD/controller/ Article?id=299518&type=&outputType= 03-25-2003
Strengths:
. A favorable regulatory environment in all states in which Avista operates, particularly since
the general rate case concluded in Washington;
Efficient, low-cost hydro and coal generation facilities; and
Diversity of operations and markets provided by electric and gas franchises in multiple states.
Weaknesses:
. A financial profile that is weak for the rating;
. Exposure to hydro risk since hydro capacity constitutes nearly 65% of owned generation, not
including long-term contracts with Columbia River public utility districts (PUDs); and
. Energy trading and other unprofitable non-regulated businesses that contribute to a weaker
consolidated business risk profile than that of the stand-alone utility.
Rationale
The '88+' rating on Avista Corp. reflects the company s average business position of ", characterized
by low-cost hydroelectric generation; competitive rates; operating and regulatory diversity in
Washington, Idaho, Montana and Oregon; and a much-improved regulatory environment offset by a
financial profile that is weak for the rating. During 2000 and 2001, energy trading and marketing
provided significant support to the company s consolidated financial profile. The size of these
operations has tapered off over the last year as the strategy shifts toward marketing activities focused,
, on the physical assets it manages. Nonetheless, continued involvement in riskier energy trading and
marketing activities in addition to involvement in other unprofitable non-regulated businesses continue
to contribute to a weaker consolidated business risk profile than that of the stand-alone utility.
Avista Utilities serves 313,000 electric customers in eastern Washington and northern Idaho and
279,000 natural gas customers in Washington, Idaho, Oregon, and California. The company enjoys a
measure of operating and regulatory diversification , with Washington accounting for 66% of electric
revenues and 50% of gas revenues. Industrial revenues constitute" less than 11 % of retail utility
revenues, which provides some stability to revenues and cash flow.
Avista has significantly improved its relationship with regulators in Washington over the past year.
June 2002, the Washington Utilities and Transportation Commission (WUTC) concluded a general rate
case that will allow Avista to recover substantial power cost deferrals incurred during 2000 and 2001. At
their peak as of Sept. 30, 2001 , the power cost deferrals exceeded $270 million, $199 million of which
were incurred in Washington. The WUTC also approved an energy recovery mechanism (ERM)
de~igned to allow Avista to pass excess power costs through to customers and avoid significant
deferred costs in the future. This mechanism, similar to the power cost adjustment (PCA) mechanism
already in place in'ldaho, is a significant boost to Avista s credit profile.
The company s base-load generation resources are generally efficient and have low generation costs.
However, 65% of Avista s owned generation and the long-term hydro contracts are exposed to
variations in precipitation. which contributes to its operating risk profile. In 2001 , a poor hydro year
owned resources and long-term Columbia River hydro contracts provided only 77% of the company
retail electric needs. This exposure highlights the importance of the ERM introduced in Washington as
part of the latest general rate case.
Avista is currently building Coyote Springs 2, a combined-cycle project with a capacity of 280 MW for
estimated $190 million. Upon completion of this project in mid-2003, half of which will be owned by
Mirant Corp. Avista expects to be self-sufficient in generation through 2007 under average water
conditions. The sale of 50% of the plant to Mirant also helped Avista bolster its financial profile during a
time when Avista s finances had eroded significantly as a result of deferred power costs. Avista has
also considerably pruned its cash requirements in Avista Labs and Avista Advantage, both of which
continue to be unprofitable. Avista Advantage hopes to break even on EBITDA basis in 2003 while
Avista is looking to dilute its ownership in Avista Labs in 2003.
Avista s financial position is weak for the rating, with adjusted debt-to-capitalization expected to be at
over 55% and cash flow coverage of interest at under 2.5x for the next two to three years. Standard &
http://www .ratingsdirectcoml Apps/RD/controller/ Artic1e?id=299518&type=&outputTyp(... 03-25-2003
Poor s expects that management will continue to pay down debt aggressively and manage losses from
, the smaller non-regulated businesses so as to improve Avista s financial ratios over the intermediate
term to levels commensurate with the rating.
Outlook
. The stable outlook reflects Standard & Poor s expectation that Avista will continue to aggressively pay
down debt and minimize further capital investments in unregulated businesses. Ratios are currently
weak for the rating and any slippage in anticipated ratios is likely to have an adverse impact on the
ratings.
~ Rating Methodology
. The ratings on Avista reflect the consolidated creditworthiness of its regulated and non regulated
activities. The first mortgage bonds are rated 'BBB-, one notch above the CCR. Standard & Poor's
ultimate recovery analysis has determined that these bonds are collateralized by utility property, the
value of which is projected to exceed substantially the maximum amount of mortgage bonds that could
be outstanding under the terms of the indenture. Therefore, Standard & Poor s has a high degree of
confidence that first mortgage bondholders would recover, albeit perhaps delayed, their principal in a
bankruptcy scenario.
The senior unsecured debt is rated the same as the CCR , because the amount 'of first mortgage bonds
outstanding and anticipated to be outstanding is sufficiently small to not materially disadvantage
unsecured bondholders. In Avista s case, first mortgage bonds and other priority obligations encumberless than 20% of total assets.
The company s preferred stock is rated two notches below the CCR based on the subordinated
characteristics of the preferred securities.
Business Description
Avista is a diversified holding company with regulated and nonregulated operations. There is no holding
company; Avista Utilities is an operating division of Avista Qorp. Avista Capital, a subsidiary of Avista
Corp., is the parent of a:H'non-regulated operations, which include Avista Energy, Avista Power, Avista
Advantage, and Avista Labs.
Avista Utilities provides electricity and natural gas distribution in a 26,000 square-mile area in
eastern Washington and northern Idaho. The population is approximately 835,000. The company,
also provides natural gas distribution service in a 4 000 square-mile area in northeast and
southwest Oregon and in the South Lake Tahoe region in California, with a total population of
about 500,000.
Avista Energy pursues non regulated energy trading and marketing operations.
. Other operations include Internet-based specialty billing and information services (Avista
Advantage) and fuel cell technology (Avista Labs).
The regulated utility and nonregulated trading and marketing operations have alternated as the major
source of cash flow over the past three years. The utility was challenged by the western U.S. power
crisis during which the fortunes of the trading business temporarily soared, but which have recently
ebbed. The utility will provide the largest component of earnings in the future, with Avista Energy being
a much smaller part of the business. Avista is in discussion with potential partners for Avista Labs and
expects to own less than 20% of this business by the spring of 2003. Avista Advantage is expected to
breakeven on an EBITDA basis in 2003.
Regulation
Electric regulation.
Regulated electric utility operations fall under the jurisdiction of the WUTC (66% of electric
revenues), the Idaho Public Utilities Commission (IPUC; 19% of electric revenues), and The
Montana Public Service Commission (12% of electric revenues).
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Washington.
Avista, which is substantially dependent upon hydro power for its energy needs,incurred huge
deferred costs during the western U.S. power crisis, since it lacked a mechanism to pass wholesale
power costs through to its customers. This, coupled with regulatory uncertainty over deferred cost
recovery, was an important contributor to the degradation in Avista s ratings over the last two years.
. The general rate and deferred cost recovery case that concluded in June 2002 laid the foundation
for financial recovery at Avista Utilities and reflects a significantly improved regulatory climate in thestate over the past year.
. The utility won a total rate increase of 31.2% (since October 2001), with 19.3% representing a
permanent base rate increase and 11.9% dedicated to deferred cost recovery.
Ninety percent, or $196 million, of all deferred costs through Dec. 2001 , were deemed
prudent and will be recovered through 2007 , with about $124 million outstanding as of Dec
2002. The recovery period could be extended should lower water and customer usage
levels continue.
. The WUTC allowed a 11.16% return on equity for A vista based upon a capital structure of
49% debt, 9% preferred stock, and 420/0 equity. The total return on the rate base is 9.72%.
Avista was allowed to establish an ERM that allows Avista to adjust rates up or down to
reflect variations in purchased-power and fuel costs. Avista will absorb or retain the first $9
million of the annual energy cost differences from base rates as well as 10% of the excess
over $9 million. 90% of the excess will be deferred for a later rebate or surcharge to
customers.
The introduction of an ERM is a key positive development, given Avista s exposure to often-volatile
hydroelectric generation , wholesale power purchases, and gas prices for its gas-fired generation.
Idaho.
Regulation in Idaho has historically been more favorable, and a PCA mechanism has always
existed, which has allowed Avista to defer 90% of all energy costs in excess of base rates. A 19.4%
PCA surcharge has been in place since October 2001 and will last through October 2003. Avista had
about $32 million in d~ferred costs as of Dec 31 2002, which will be recovered through 2005.
Gas regulation.
Regulated gas distribution operations fall under the jurisdiction of the WUTC (500/0 of gas revenues),
the IPUC (19% of gas revenues), the Oregon Public Utilities Commission (OPUC; 25% of gas
revenues), and the California Public Utilities Commission (CPUC; 5% of gas revenues).
In all four jurisdictions, Avista has Purchased Gas Adjustment (PGA) mechanisms designed to pass
through changes in purchased gas costs. Deferred gas costs from the gas price spikes of 2000-2001
totaled $22 million as of Sept. 30, 2002 and were $11.5 million as of Dec. 31,2002.
Avista Energy procures all of Avista Utilities' gas requirements and manages gas storage and
. pipeline assets to gain operational and risk management synergies. Procurement is done under a
performance-based "natural gas benchmark mechanism" that benefits retail c.ustomers while
providing Avista the opportunity to enhance earnings.
The introduction of electric industry restructuring is not expected in Washington or Idaho, given the
extraordinary problems that have occurred in those jurisdictions where restructuring was introduced
and the relatively favorable rates enjoyed by customers in these states.
Markets.
Electric.
Avista serves about 317 000 electric customers in Washington and Idaho. Residential sales has
been flat over the past five years, while sales to industrial customers have grown at 2%, spurred by
a 6% growth in the industrial customer base. The utility projects 3.1 % electric sales growth between
2003 and 2007.
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Residential and commerc1al customers account for 40% and 360/0 of retail electric sales,
respectively. Although the 24% industrial exposure is not excessive, there is concentration in sales
to cyclical industries such as paper, lumber, food processing,.and metal mining. Partly offsetting this
concern is the lack of customer concentration, with the top 10 customers accounting for only $28.
million, or 7.2%, of retail electric revenues, in 2001.
Gas.
Avista serves about 284 000 gas customers in Washington, Idaho, Oregon, and California. Gas
customer growth has been stronger, at 4% and 3%, respectively, among residential and commercial
customers, mainly on account of conversion from electric to gas heating. The utility expects gas
sales to grow at between 3% and 40/0 over the next five years.
Gas revenues are stable, with over 92% derived from residential and commercial customers.
Although transportation contracts account for over 30% of gas throughput, they contribute just 2.
of total revenues. Industrial customers account for another 3.60/0 of revenues. This profile providesfor a very stable revenue stream.
The service-area economy has been hit hard by the economic .downturn. Washington currently has
the highest unemployment rate, 7.1 % (rolling twelve-mon~hs ended August 2002), among all 50
states, while Idaho is at 5./0. Avista s service areas exhibit unemployment levels that are sometime
in the double digits, although household income levels are more in line with state averages.
Table 1 Market Segments
2001 2000 1999 1998 1997
Sales (GWh)
Total retail 018 236 142 944 763
Residential (%)40.39.39.40.42.
Commercial (%)35.35.35.35.34.
Industrial (%)23.24.25.23.22.
Other (%)
Wholesale 262 15,607 778 19,215 16,410
Total sales 260 045 920 159 193
Revenue (Mil
Total retail 441.422.402.376.366.
Residential (%)40.40.39.41.43.
Commercial (%)39.38.37.39.39.
Industrial (%)20.4 21.17.17.15.
Other (%)
Wholesale 480.664.523.457.330.
Total revenue 922.267.925.833.698.
GWh-Gigawatt hours.
Operations
Avista owns 1,480 MW of generation capacity comprising 965 MW of hydro, 240 MW of gas, and 275
MW of coal-fired generation. In addition to owned resources, Avista has long-term contracts for 197
of hydropower from the Columbia River system dams. Avista also has rights to 200 MW of power
through 2003 from Transalta Corp., pursuant to the sale of its 15% stake in the Centralia power project
to Transalta in 2000. The company s plants are generally efficient, low-cost generation resources. For
instance , the company s base-load resources, the Colstrip plant and the mid-Columbia hydro plants,
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have total production costs of $20 per megawatt-hour (MWh), $25/MWh, and $11/MWh, respectively.
In February 2000, Avista Utilities received new 45-year licenses on its two largest generation plants
Cabinet Gorge (222 MW) and Noxon Rapids (467 MW), which provide 1)10re than half of the utility's
hydroelectric capacity. The company is also recovering a part of the relicensing costs in rates.
The company s base-load generation resources are generally efficient and have low generation costs.
However, 65% of Avista s owned generation and the long-term hydro contracts are exposed to
variations in precipitation, which contributes to the company s operating risk profile. In 2001, a poor
hydro year, owned resources and long-term Columbia River hydro contracts provided only 77% of the
company s retail electric needs. This exposure highlights the importance of the ERM , introduced in
Washington as part of the latest general rate case, the cash flow stability.
Avista is currently building Coyote Springs 2, a combined-cycle plant with a capacity of 280 MW, for an
estimated $190 million. Upon completion of this project in mid.2003, half of which is owned by Mirant
Avista expects to be self-sufficient in generation through 2007 under average water conditions. The
of 50% of the plant to Mirant also helped Avista bolster its financial profile during a time when Avista
finances had eroded significantly as a result of deferred power costs.
Gas distribution operations.
Avista Utilities provides natural gas sales and transportation service to residential, commercial, and
industrial customers. The natural gas distribution operations account for approximately 25% of
operating margins and about 20% of total utility assets. Natural gas demand has grown significantly
over the past few years as a result of its cost advantage compared with electricity for space and
water heating. New customers and gas penetration into new construction continue to outpace
electric growth rates.
Large industrial customers purchase their own supplies. For these customers, Avista provides
. transportation from its pipeline interconnection to these customers' premises. The utility has entered
into special contracts with seven of its largest natural gas customers , because these cust6mers have
the ability to bypass the company s distribution system.
Since Sept. 1 , 1999, the management of gas supply was transferred to Avista Energy, the
unregulated trading entity, from the utility. Avista Energy procures gas for the utility under a
benchmark mechanism approved by the state regulatory commissions. Avista Utilities owns and
Avista Energy manages a one-third interest in the Jackson Prairie Natural Gas Storage Project, an
underground natural gas storage field located near Chehalis, Wash. This storage provides flexibility
in managing the natural gas operations.
Table 2 Avista s Gas Operating Statistics
Market segments. (2001)Sales (mdth)Customers Rates ($/dth)
Residential 19,841 249,650
Commercial 12,687 30,355
Industrial 552 328
Total retail 080 280,333
Transportation 18.092
Off-system/capacity release 483
All other 543
Total 198 280,421
dth-Decatherm. mdth-. Thousands of decatherms.
Competitive Position
There is no retail competition in Washington or Idaho. Still, Avista Utilities has rates that are among the
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lowest in the state and the nation, which positions Avista well to handle any potential introduction of
competition. Except for the three Columbia River PUDs (Douglas , Chelan, and Grant--which have the
lowest electric rates in the nation), Avista has among the lowest residential rates among all Northwest
utilities despite the recent rate hikes. Although still competitive, Avista s commercial rates are
comparatively higher, since many public power utilities tend to subsidize commercial customers in order
to promote economic development in their territory. Avista Utilities' gas operations complement the
electric retail operations should customers want to switch from using electricity to gas for space andwater heating.
Diversified Activities
All of Avista s non-regulated operations are managed under Avista Capital, a subsidiary of Avista Corp.
Energy trading and marketing.
Avista Energy is an electricity and natural gas trading and marketing business operating in the
western United States and Canada, mainly British Columbia. Avista Energy also manages Avista
Utilities' natural gas storage assets, transportation contracts, and natural gas purchasing operations
under an agency agreement. A benchmark incentive mechanism allows Avista Energy the
opportunity to retain a portion of the benefits associated with asset optimization and the efficiencies
g~ined in purchasing natural gas for Avista Utilities.
Avista Capital provides guarantees for Avista Energy s line of credit agreement and may provide
guarantees to other parties with whom Avista Energy transacts business. Avista Capital had $64.
million of such guarantees outstanding as of Dec. 31 2002.
Although Avista Energy engages in speculative trades, the bulk of its business comes from a few
asset-based contractual obligations, such as a 25-year tolling arrangement for the 270 MW CCCT
Lancaster generating station , 49% owned by affiliate Avista Power; real-time management of Chelan
County PUD's 2000 MW hydroelectric generation system; the gas supply needs of Avista Utilities;
and control over 21 % of gas storage in the Pacific Northwest.
Avista Energy has prudent risk management policies in place to manage business risk. Important.
practices include:
. Firm, well-defined limits on contract tenure and size at various levels of the hierarchy;
Notional open position limits by hub and in total;
. A $3 million , 95%, 1-day VaA limit;
. A portfolio stop-loss limit of $3 million/day and $5 million/month;
Limits on capital employed, including equity, debt, and guarantees;
. A well-defined internal credit tracking and measurement system; and
. A fairly short-term book, with 60% of its net assets (assets minus liabilities) maturing in less
than one year and another 340/0 between one and three years.
Avista Energy s financial resources include $203 million in equity capital, $148.9 million in cash, both
as of Dec. 31 , 2002, and $110 million in bank lines. The bank line may be terminated at any time
(with all outstanding borrowings due and payable immediately) at the banks' sole discretion. Avista
Energy has $17.4 million outstanding currently. Standard & Poor s believes that cash-on-hand is
sufficient to provide liquidity for the current level of operations. However, it is important, given the
uncertain nature of the bank lines, for Avista Energy to maintain cash that is sufficient for its liquidity
needs at all times. Based on its capital adequacy model, Standard & Poor s has imputed, as part of
its analytical assessment of Avista s creditworthiness, additional debt of $106 million on Avista
Corp.'s books.
Avista Advantage is a provider of Internet-based facility intelligence and cost management billing
and information services. Avista Advantage analyzes and presents consolidated bills on-line and
pays utility and other facility-related expenses for multi-site customers. Information gathered from
invoices, providers, and other customer-specific data allows Avista Advantage to provide its
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""""
customers with in-depth analytical support, real-time reporting, and consulting services with regard
to facility-related energy. waste. repair and maintenance. and telecom expenses.
Through its proprietary software, Avista Advantage is among the largest processors of utility
customer billings. As of Dec. 31 , 2001 , Avista Advantage serviced 203 customers, up from 135 a
year ago. Advantage lost $3.5 million in the nine-months ended September 2002 as against an $8
million loss in the same period in the prior year. Avista looks to break even on an EBITDA basis in
2003 and sell this operation within two years.
Avista Labs is in the process of developing proton exchange membrane fuel cells for power
generation at the site of the consumer. During 2001 , Avista Labs achieved commercial sales of its
hydrogen-only fuel cell systems for primarily back-up power for the commercial market. Avista Labs
completed commercial transactions for the sale or lease of 50 units during 2001. Avista Labs has
been losing money for several years, with no immediate prospect of breaking even. The company
lost $6.3 million in the nine months ended September 2002 versus $7.5 million in the same period
last year. Avista is in discussion with potential partners for Avista Labs and expects to own less than
20% of this business by the spring of 2003.
Financial Profile
Financial Policy: Moderate
. Aggressive debt reduction plans and the proposed disposal of loss-making businesses make
for a prudent financial policy given the current weak financial profile.
. The energy trading business is conservatively managed with $203 million in equity and
$148.9 million in cash, which compares favorably with Standard & Poor s calculated capital
adequacy requirement of $106 million.
Avista s conservative financial policies are necessitated by the need to strengthen its balance sheet
as well as prudently manage the risks of its energy trading business.
Profitability and cash 'flows.
Avista experienced negative cash flow from operations in 2000 (negative $10 million) and 2001
(negative $150 million), largely owing to deferred power costs arising from the western U.S. power
. crisis. Avista Energy has provided the bulk of Avista Corp.'s consolidated profits and cash flows for
the last two years. With the institution of interim surcharges and the general rate case that just
concluded, cash flows from operations have bounced back and are expected to exceed $150 million
in 2002. A vista expects to recover its deferred cost balance entirely by 2007, although that could be
delayed by the poor water levels and lower customer usage seen in recent months. Also, the ERM
should enable the company to avoid the recurrence..Qf.large deferred power costs in the future.
Over the next few years, Standard & Poor s expects that Avista will use cash from the recovery of
deferred power costs to pay down debt. This should allow the company to improve its cash flow
interest and debt coverage ratios that are currently strained for the rating.
Capital structure and financial flexibility.
Capital expenditures at the utility are expected to be about $100 million per year over the next few
years and will be largely internally funded. Further capital expenditures at Avista Advantage and
Avista Labs will be negligible.
Management plans to aggressively repurchase high-cost debt, as it collects deferred power costs
over the next few years. Avista repurchased about $203.6 million of high-cost debt in 2002. including
$133.8 million of 2003 maturities. mainly from higher cash flows from the implemented rate
increases and from dividends from Avista Energy. Avista will also look to refinance some of its
existing high-cost borrowings, should market conditions permit.
Liquidity and Financial Triggers
Liquidity.
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A $225 million committed line of credit for Avista Utilities, which expires in May 2003, and a $110
million uncommitted bank line for Avista Energy are the sources of external liquidity available to
Avista. Avista Utilities can also sell up to $100 million of receivables through a wholly owned,
bankruptcy-remote subsidiary. The Avista Energy bank line can be terminated by the banks at any
time. and any balances outstanding become payable immediately. Thus. the value of this facility
providing liquidity is marginal , although the uncertainty arising from its uncommitted nature is partly
mitigated by its security interest in the assets of Avista Energy. LOCs totaling $17.4 million were
outstanding under the uncommitted facility as of Dec. 31 , 2002.
Avista had $181 million available under the committed line of credit as of Dec. 31,2002. adequate
for its utility operations. Liquidity for the trading business is provided by cash-on-hand, totaling a
healthy $148.9 million as of Dec. 31,2002. Avista Energy also has $203 million in equity. This
compares well with Standard & Poor s computed capital adequacy requirement of $106 million for
Avista s energy trading business.
Avista has $70 million of long-term debt maturing in 2003. Avista will continue to use operating cash
flows to repurchase debt and strengthen its balance sheet. Maturities in the next few years are
small, averaging about $30 million per year, and can be easily met from operating cash flows. With
no major capital expenditures planned, the company foresees no need to access the capital markets
over the next 12-18 months.
A default on Avista Utilities' bank line could cross-default to trading agreements and could require
the company to post collateral. The bank line has standard covenants such as a maximum debt to
capitalization ratio of 650/0 and an EBITDA to interest coverage ratio of 1.6 to 1. Avista is comfortably
in compliance with the covenants currently.
Table 3 Avista Corp.s Financial Statistics
2001 2000 1999 1998 1997
Income statement (mil.
Gross revenues 009.911.905.684.302.
Operating expenses (excl. DD&A)768.632.626.440.042.
Depreciation and amortization 72.75.76.70.69.
Pretax operating income 190.234.151.183.196.
Gross interest expense 96.68.56.60.59.
AFUDC and delerrals 1.0
Pretax income 94.166.53.124.185.
Income taxes 34.73.16.43.61.
Net income from cont. operations 59.92.36.80.124.
Earnings protection
Pretax interest coverage (x)3.4
Adjusted pretax interest coverage (x)
Preferred dividend coverage (x)13.
EBITDA interest coverage (x)
Return on common equity (nominal) (%)12.10.15.
Common dividend payout (%)39.274.87.62.4
Annual O&M growth (%)(4.65.(95.240.55.
Annual expense growth (excl. DD&A) (%)(24.121.229.52.
O&M/revenues (%)91.76.
Total operating expenses (excl. DD&A)/revenues (%)96.96.96.93.4 80.
Balance sheet (mil.
Cash and equivalents 173.195.4 47.78.53.
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Gross plant 332.260.215.140.068.
Net plant 565.540.500.470.433.
Total assets 037.12,563.713.253.411.8
Short-term debt 76.252.522.48.108.
Long-term debt 175.679.71B.730.653.
Preferred stock 135.135.408.414.155.
Common equity 720.724.393.488.748.
. Total off-balance-sheet obligations 146.91.29.52.46.
Total capitalization 07.791.042.680.666.
Balance sheet ratios
(%)
Short-term debVtotal capital 14.25.
Long-term debVtotal capital 55.38.35.43.39.
Preferred stock/total capital 6.4 20.24.
Common equity/total capital 34.40.4 19.29.44.
Adjusted total debVtotal capital 62.54.61.47.47.
Cash flow (mil.
Net income 59.92.36.80.124.
Depreciation 72.76.70.69.
Deferred taxes and ITC 79.79.(1.10.37.
AFUDC and deferrals 10.1.6
Other funds from operations (FFO) adjustments (214.(175.(80.(9.(34.
Funds from operations (13.31.151.8 195.
Preferred dividends 2.4 23.30.16.12.
Common dividends 22.18.56.69.
Net cash flow (NCF)(39.(23.1 )(17.79.113.
Working capital changes (100.72.90.126.13.
Capital expenditures (capex)(271.(199.(87.(92.(87.
Discretionary cash flow (411.2)(150.(13.113.39.
Cash flow adequacy
NCF/capex ('Yo)(14.(11.(19.85.129.
FFO interest coverage (x)
Adjusted FFO interest coverage (x)1.0
FFO/avg. total debt ('Yo)(1.19.25.
Adjusted FFO/avg. total debt ('Yo)(0.19.24.
For 12 months ended Dec. 31. AFUDC-Allowance for funds used during construction. DD&A--Depreciation, depletion, and
amortization. EBITDA-Eamings before interest, taxes, depreciation, and amortization. O&M--Operations and maintenance. ITC-
Investment tax credits.
Copyright ~ 1994-2003 Standard & Poor's, a division of The McGraw-Hili Companies.
All Rights Reserved. Privacy Policy
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JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
REQUEST:
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
Idaho
A VU - O4-1 / A VU -O4-0 1
Potlatch
Data Request
DATE PREPARED:
WITNESS:
RESPOND ER:
D EP AR TMENT:
TELEPHONE:
06/01/2004
MaIm Malquist
Paul Kimball
Finance
[phone]
Provide the A vista Corporation chart of corporate organization indicating long-term
capitalization of each corporate entity.
RESPONSE:
A vista Corporation is the only entity with any long-term debt.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01 / A VU-O4-
Potlatch
Data Request
DATE PREPARED:
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
06/01/2004
Malyn Malquist
Paul Kimball
Finance
[phone]
REQUEST:
Provide the A vista Corporation unconsolidated capital structure and costs of long-term debt and
preferred stock as of December 31 , 2003. Provide the A vista Corporation consolidated capital
structure and costs of long-term debt and preferred stock as of December 31 2003. Please
provide any working papers on hardcopy and on CD-ROM
RESPONSE:
A vista Corporation unconsolidated cost of capital and capital structure are as provided in data
request 118 to the IPUC. Small levels of capital leases at the subsidiaries have no impact on theoverall calculations.