the film
forum
library
tutorial
contact
Economic and dam related articles

With No Backup, It's a Bumpy Ride for Avista

by Bill Virgin
Seattle Post-Intelligencer, September 18, 2000

When Spokane-based Avista Corp. announced in June that its second-quarter earnings would be roughed up because of millions of dollars in energy trading losses, its explanation of how much of that money was lost was more dramatic than the news of the loss itself.

Avista's story was that a trader, operating against company policy, had left the utility exposed to uncovered forward sales of electricity -- in other words, he had committed the utility to selling power without actually having the electricity in hand to back those sales up.

That became a problem when spot-market prices unexpectedly rocketed, in some cases increasing by a factor of 20. Avista had to buy power at far more than it had anticipated to fulfill those commitments, creating the losses.

In its news release and in a conference call with analysts, Avista management blamed the trader for a significant portion of the losses. Even more stunning, the company disclosed that the trader was now dead. News reports indicated that the trader had committed suicide.

It was a story both sad and amazing. The phrase "rogue trader" (which management did not coin) made its way into news accounts and analysts' reports.

And there's just one little problem with the account -- Avista is no longer sticking to that story.

Avista spokesman Steve Becker said last week, "We sincerely regret the association of any individual employee with our trading losses. They are solely the responsibility of management." The company declines to elaborate further.

Avista's tale of the trader, which was mentioned in its initial news release but which had been dropped by the time the 10-Q was filed, wasn't bought by everyone when it first came out. Mark Golden, writing in a column for Dow Jones Energy Service headlined, "Avista dead-guy excuse doesn't add up," questioned the chronology of events and Avista's account.

The trader blamed for the losses died in April, Golden's column noted. Spot-market power prices didn't start spiking upward until May. Golden challenged the company to back up its allegations, and suggested that in a string of excuses for the company's poor financial performance, blaming losses on a dead employee "hit a new low."

One analyst who has followed the company said last week there's an alternate theory in investment circles, that management discovered the trader's uncovered position, and rather than reversing the trades (as management initially said it tried to do) let them ride, only to see the problem balloon when spot prices went up.

That would jibe with another management decision for which it did take the blame: when Avista sold its interest in the Centralia generating plant, it left itself uncovered for two months for electricity to replace what it had been receiving from that plant.

That two-month gap coincided with the jolt in power prices.

Companies make mistakes, misread markets, make errors of timing -- it happens. A company's credibility suffers when it builds a record of such missteps. It also erodes its credibility if it misleads the public about how those mistakes occurred.

And Avista has a credibility problem.

Certainly this episode is a cautionary tale for us media types who have been reminded again not to take at face value what corporate management says.

Of course, this may not be a big issue for Avista; lots of companies get along fine not caring whether the media likes them.

It certainly hasn't helped Avista's position in Spokane, where civic feathers have already been ruffled by the perception that CEO Tom Matthews wants to move the corporate headquarters out of Spokane.

But again, not being viewed favorably in your home town may not be much cause for fretting.

The third area in which Avista's credibility is in trouble, and one that actually counts, is with the investment community.

Avista's problem is that its credibility was already shaky, what with Matthews' transformation of the company from a utility company to a technology company with ventures in fuel cells, telecommunications, energy trading and management (not to mention replacing the parent company name Washington Water Power with Avista).

"Their credibility suffered when they cut the dividend and changed their approach to the world," says James Bellessa, an analyst with D.A. Davidson & Co. Those moves "disenfranchised our customers" who thought they were buying a utility stock and instead got a speculative tech stock (there's still some thought Avista might get out of the utility business altogether, selling the electricity and gas operations to someone like neighboring Idaho Power).

Such a transformation would generate fewer objections among investors if they had something to show for it. Avista has certainly been a volatile stock in the two years since Matthews took over, but over that period it's up just 10 percent, and it wouldn't have looked that good if it weren't for a run-up last week on renewed fervor about companies with a stake in fuel-cell technology.

Furthermore, what with its failure to be a player in energy trading, with investors waiting for those technology ventures to generate value through spinoffs and with second-quarter losses larger than expected, the well of patience may be tapped out.

Becker says Matthews offered in June to resign, but the board did not accept. The company has brought in outside consultants to restructure its entire trading group, he adds; Avista is no longer trading other than for its own needs, and its power positions are covered for the rest of this year.

At this point, though, assurances aren't going to carry much weight with an audience that has heard plenty of them from Avista. If credibility can be rescued at all, assurances won't do it; results, and a lot of them soon, will.

"The problem is (Matthews) came in with a lot of hype," one analyst says. "That's okay as long as you carry through. . . . He needs a few wins."


P-I columnist Bill Virgin. His column appears Mondays and Wednesdays.
With No Backup, It's a Bumpy Ride for Avista
Seattle Post-Intelligencer, September 18, 2000

See what you can learn

learn more on topics covered in the film
see the video
read the script
learn the songs
discussion forum
salmon animation