Avista Corporation

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Avista Corporation

1411 East Mission Avenue
Spokane, Washington 99220
U.S.A.
Telephone: (509) 495-4817
Fax: (509) 495-8725
Web site: http://www.avistacorp.com

Public Company
Incorporated: 1889 as The Washington Water Power Company
Employees: 1,450
Sales: $1.12 billion (2003)
Stock Exchanges: New York
Ticker Symbol: AVA
NAIC: 221122 Electric Power Distribution; 517212 Cellular and Other Wireless Communications; 541512 Computer Systems Design Services; 551112 Offices of Other Holding Companies

Avista Corporation operates as a generator, transmitter, and distributor of energy, providing electricity and natural gas to customers in eastern Washington and northern Idaho, a region known as the Inland Northwest. Avista provides electricity to 325,000 customers and natural gas to 300,000 customers. The company owns and operates eight hydroelectric facilities, a wood-waste fueled generating station, and a two-unit natural gas-fired combustion turbine generation facility. The investor-owned utility operations are conducted through a subsidiary named Avista Utilities, one of four business segments composing the company's operations. The other facets of the company's business are operated through Energy Marketing and Resource Management, Avista Advantage, and Avista Capital, which governs the company's interests in nonutility businesses. Energy Marketing and Resource Management markets and trades electricity and natural gas in a territory encompassing 11 western states and the Canadian provinces of British Columbia and Alberta. Avista Advantage provides utility bill processing and payment and information services throughout North America.

Origins

For more than a century, Avista operated under the name The Washington Water Power Company (WWP), a utility whose growth mirrored the growth of the region it served. During the years immediately preceding WWP's formation, the young city of Spokane (then known as Spokane Falls) was beginning its development into what it later became: the commercial center of eastern Washington and northern Idaho, a hub for the agricultural, horticultural, cattle-raising, and lumber activities that gave the region its economic might. Spokane, situated at the foot of an eponymous valley located midway between the beginning and the end of the Spokane River, was incorporated in 1881, the same year the Northern Pacific Railway reached the region, a confluence of events that were directly related.

The arrival of the railroad brought people and goods, invigorated trade, and ignited the growth of a city. As more people moved to Spokane and the city's business activity bustled, the need for electricity increased commensurately, stretching the limits of capacity. The trustees of the local power company, the Edison Electric Illuminating Company, foresaw the need for electricity and its supply moving in opposite directions, quickly heading toward a point when the capacity of Edison Electric could not meet the demands of Spokane's residents and businesses. In 1889, they voiced their concerns to Edison Electric's financial backers, a consortium of businessmen based in New York. The trustees proposed building a power station on the Spokane River, offering hydro-generated electricity as a solution to the impending energy crisis and as a new means to fuel Edison Electric's financial growth. The response from the East Coast dashed plans for a hydroelectric power station. Water power, the trustees were informed by the New York financiers, held little or no value.

The idea of a power station on the Spokane River did not die when the Spokane businessmen received their dismissive reply. Perhaps more out of necessity than rebellion, ten Edison Electric shareholders pooled their money and formed WWP, incorporating the company in 1889. More electricity was needed, and needed quickly, a need impressed upon Henry Herrick, one of WWP's first engineers. Herrick oversaw the construction of WWP's first power station, dubbed the Monroe Street power station, overcoming calamity to get the project completed. A fire destroyed more than 30 city blocks in August 1889, razing much of Spokane, but Herrick pressed ahead, completing Monroe Street and bringing the hydroelectric project on line on November 12, 1890, the day WWP became operational.

The most telling evidence of the prudence of hydroelectricity in Spokane Valley was provided shortly after WWP's Monroe Street station began producing power. In 1891, the not-to-bedissuaded Edison Electric stockholders, who decided to take their own destiny in their hands, purchased a controlling interest in Edison Electric, trumping the financial backers in New York who disregarded the value of the project that forced their retreat. The directors of WWP wasted little time on vindication, however, concentrating their energies instead on aggrandizing their new concern. To make WWP bigger, company officials needed to increase the demand for their product, a need that was fulfilled by promoting the growth of Spokane. Not long after acquiring control of Edison Electric, WWP acquired the Spokane Street Railway Company, seeing the asset as a way both to increase energy consumption and to promote the growth of Spokane. In 1895, shortly after purchasing the streetcar company, WWP created Natatorium Park, a streetcar-accessible destination that offered entertainment and recreational attractions. Both investments fulfilled the expectations of their worth: At its peak the streetcar system served nearly 25 million passengers annually; Natatorium Park remained a WWP property until 1968.

Extensive Expansion Beginning in 1900

WWP entered its most impressive period of expansion after the dawn of the 20th century, when Spokane recorded its own explosive growth. The population of Spokane rose dramatically during the century's first decade, swelling from 36,800 to nearly 105,000. In response, WWP officials directed the utility's efforts toward expansion to serve the rapidly growing city and the businesses and industries in outlying areas. In 1903, WWP constructed a 117-mile transmission line—the longest high-voltage line in the world at the time—to provide power to mining operations in northern Idaho. Other rural areas were connected to WWP service during this period, a period of perpetual expansion that continued into the 1930s. During these defining decades, the utility constructed more than 1,500 miles of transmission lines and also constructed the hydroelectric facilities that supported it in the 21st century. Hydroelectric projects completed during this period included Post Falls, Nine Mile, Post Street, Little Falls, Long Lake, and Upper Falls—all operated by Avista a century later. The scope of each of the projects was immense, requiring legions of workers and vast resources. The Long Lake facility, for instance, boasted 170-foot spillways, the tallest in the world when they were built, and the largest turbines in use at the time. The construction camp for the workers represented a town of its own, complete with a general store, post office, cement laboratory, steam laundry, hotel, barbershop, and 250-seat dining room near a clubhouse that showed movies and presented vaudeville acts.

WWP complemented its tremendous physical expansion during the first three decades of the century with a number of acquisitions that enabled it to convey the power it produced to customers. Between 1900 and 1936, the utility acquired 40 operating units or electrical systems operated by other power companies. WWP's acquisitive appetite put it into the position to link with the systems of the Puget Sound Power and Light Company in western Washington and the Montana Power Company in 1923, which enabled each of the three utilities to lend assistance to the others in case of an emergency. This relationship formed the basis for the Northwest Power Pool, established in 1941, that served as an electric interchange between five western states and the province of British Columbia.

The exhaustive work completed between 1900 and 1930 established WWP as the provider of power to one of the most important financial and transportation centers in the western United States. Its next significant period of development occurred after World War II, when the utility bolstered its energy interests and diversified into non-energy business areas.

The demand for power increased substantially following World War II, as the region served by WWP experienced an increase in population and in commercial and industrial activity. To meet the growing demand, WWP officials planned another major construction project, applying in 1950 for a license from the Federal Power Commission to build a dam at Cabinet Gorge on the Clark Fork River in Montana. Shifts of work crews worked 24 hours a day building the dam, a 208-foot-high, 600-foot-wide structure that was completed in 21 months. While construction of the Cabinet Gorge dam was underway, WWP work crews were laboring 22 miles upstream building the first of three hydroelectric projects on the Noxon Rapids. The first of these three projects, which ranked as the utility's largest power-producing facility in the 21st century, was brought on line in 1959.

WWP officials did not content themselves with the largescale construction activity on the Clark Fork River during the 1950s. Management wanted to add natural gas assets to the utility's portfolio, a source of energy first delivered to the Pacific Northwest in 1955. WWP took the most expedient way to add natural gas to its energy mix by acquiring another company, purchasing the Spokane Natural Gas Company in 1958. The company also expanded into other areas through acquisition, developing a portfolio of non-energy assets that provided a meaningful stream of revenue. WWP's acquisition of the Spokane Street Railway Co. and the development of Natatorium Park in the late 19th century marked the beginning of the utility's involvement in non-energy interests, but the modern version of a diversified WWP began shortly after it delved into natural gas. In 1960, the utility acquired the Spokane Industrial Park, becoming a landlord for a facility that housed dozens of businesses. In 1977, the company formed Itron, a company involved in developing technology used in meter-reading equipment.

Company Perspectives:

Avista's purpose is to improve life's quality by providing energy and energy-related services. We do this by safely and reliably delivering these services at a competitive price and by helping our customers get the most value from their energy dollar, while providing our investors a fair return.

Profound Change in the 1990s

Avista celebrated its 100th anniversary as a more than $500-million-in-sales company. The company's utility business provided electricity to 250,000 customers and natural gas to 85,000 customers. Its nonutility business was governed in large part through a subsidiary named Pentzer Corporation, which held interests in a variety of businesses, including energy services, telecommunications, real estate development, and electronics. In the decade following the centennial celebrations in Spokane, both segments of WWP's business underwent significant change, as the company abandoned the corporate title that had identified it since the late 19th century and reorganized its business to compete in the future, a future in which the Inland Northwest's utility company would operate under the name Avista Corporation.

WWP's decade of profound change saw growth on all fronts. The growth of the company's natural gas business stood as the highlight of the first half of the 1990s, as the number of natural gas customers increased from 85,000 to 230,000 between 1989 and 1995. Midway through the decade, however, the company's electricity business moved to the forefront, marking the beginning of a new era in WWP's existence. In 1996, the utility won federal regulatory approval to market wholesale electric power nationally. A new subsidiary was formed, WWP Resource Services, to spearhead the company's entry into the ranks of power marketers certified by the Federal Energy Regulatory Commission (FERC), a move that industry observers perceived as crucial to WWP's survival in an industry transitioning away from monopoly and toward competition. By the end of 1996, WWP planned to begin brokering electricity in the southeastern United States, the first step toward developing into a utility involved in markets throughout North America.

In the wake of the approval from the FERC, a new alignment of companies emerged that gave WWP a national profile. In 1997, the company formed Avista Energy, a nationally oriented energy trading and marketing subsidiary. One year later, Avista Advantage was formed, giving WWP a national energy services subsidiary. At the start of 1999, WWP adopted the name used by its new subsidiaries and changed its official corporate title to Avista Corporation.

As Avista entered the 21st century, a new leader took command. In 2000, Gary G. Ely was named president, chief executive officer, and chairman of Avista, earning the top three posts after spending 33 years working for the utility. Under Ely's leadership, Avista's objective was to secure a lasting and prominent role as a national power broker. The company's century-old utility business in the Inland Northwest provided a reliable and sturdy business foundation, but continued success for the company meant realizing its potential in markets far removed from eastern Washington and northern Idaho.

Principal Subsidiaries

Avista Capital, Inc.; Avista Advantage, Inc.; Avista Communications, Inc.; Avista Development, Inc.; Avista Energy, Inc.; Avista Energy Canada Ltd.; Copac Management, Inc. (Canada); Avista Power L.L.C.; Avista Services, Inc.; Avista Turbine Power, Inc.; Avista Rathdrum, L.L.C.; Coyote Springs 2, L.L.C.; Rathdrum Power, L.L.C.; Avista Ventures, Inc.; Pentzer Corporation; Pentzer Venture Holdings II, Inc.; Bay Area Manufacturing, Inc.; Advanced Manufacturing and Development, Inc.; Avista Receivables Corporation; WP Funding LP; Spokane Energy, L.L.C.

Principal Competitors

IDACORP, Inc.; PG&E Corporation; Puget Energy, Inc.

Key Dates:

1889:: The Washington Water Power Company is incorporated.
1900:: During the ensuing three decades most of the hydroelectric facilities operated by the utility are built.
1950:: Construction of the Cabinet Gorge dam begins.
1958:: The acquisition of the Spokane Natural Gas Company marks the utility's entry into the natural gas business.
1996:: The utility wins federal approval to market electricity nationally.
1999:: The utility changes its name to Avista Corporation.
2000:: Gary Ely is named president, chief executive officer, and chairman of Avista Corp.