Avista gets a break from state regulators

Washington State utility regulators approved a deferral of some of Avista Corp.�s wholesale power costs for later review and recovery. Avista will be allowed to earn its state-approved rate of return on deferred costs it may incur from buying wholesale power between July 2000 and June 2001.The company reported a second quarter loss of $22.1 million, or 47�/share, on revenue of $1.4 billion.


Ann de Rouffignac
OGJ Online

Troubled Avista Corp. got a break from Washington state regulators who have approved a request to defer costs related to high wholesale electricity prices.

The Washington Utilities and Transportation Commission�s order allows Avista to defer for later review and recovery, purchased power costs needed to meet retail electric loads from July 1, 2000 to June 30, 2001.

The deferral allows the Spokane-based company to capitalize instead of expensing these costs, says Avista spokesman Steve Becker. Avista will be allowed to earn its state-approved rate of return on deferred costs it may incur from buying wholesale power between July 2000 and June 2001.

While the deferral may give the utility a financial break that will ease the pain of quarterly earnings statements for a while, it does nothing for the massive losses incurred by Avista during the second quarter of this year.

Avista did not lock in firm contracts for power to supply customers in May and June. Relying on spot market purchases went sour for the utility when hot weather, rising demand, and short supply sent wholesale spot market power prices as high as $750/Mw at times, Avista said. Power prices averaged $60/Mw in May and over $100/Mw in June. The company had forecast power prices to average about $19/Mw.

The results of the gamble on weather and power supply contributed to a recently announced second quarter loss of $22.1 million, or 47�/share, on revenue of $1.4 billion.

The company found itself short of electricity capacity after selling its 15% interest in the 1,340 Mw coal-fired Centralia plant. The company's gain on the sale was $50.7 million, of which $30.4 million was rebated to ratepayers. The plant was sold because the company said it did not want to pay its share of required environmental upgrades.

Meanwhile, the utility had to replace the 175 Mw of cheap power it had previously owned with high-priced spot market merchant power, contributing to the company's financial woes. Avista turned to regulators for help. Included in a pending case is a request to allow Avista Utilities to implement an energy cost adjustment mechanism. The mechanism would allow increases and decreases in energy costs to be passed through to customers as incurred without a general rate case.

Industry observers say that the rush by regulators to allow utilities to sell power plants and then rely on merchant energy to supply retail customers is a strategy going haywire.

�Those utilities that have the power are doing very well. Those that don�t are getting kicked in the backside,� says Fred Schultz, analyst with Raymond James & Associates in Houston.

Avista is now trying to find replacement power. The company received approval from regulators to issue a request for proposal (RFP) to obtain 300 Mw of additional power from a new plant, a firm fixed long-term contract, or any other solution that appears acceptable.

�We are open to anything, as long it gives us operational flexibility,� says Bob Lafferty, director of resource planning for Avista.

The utility's load peaks in the winter at about 1,600 Mw, he says. Company strategy is to move away from the volatile open market towards generation independence.

More in Companies