Business Update and Progress Report West Coast Seminar Las Vegas - - PowerPoint PPT Presentation

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Business Update and Progress Report

West Coast Seminar Las Vegas

• Feb. 19, 2004

www.avistacorp.com NYSE: AVA

All statements in this presentation other than historical facts are forward-looking statements which involve risks and uncertainties and which are subject to change at any time. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors set forth in the company's latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, among others, and available on the company’s website at www.avistacorp.com, could cause actual results to differ materially from those contemplated.

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Corporate Overview Avista Utilities Unregulated Subsidiaries Financial Outlook

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Profile: Avista Corp.

Headquarters:

Spokane, Wash.

Regulated utility:

Primarily Washington and Idaho plus Oregon, California and Montana

Unregulated subsidiaries:

Avista Energy Avista Advantage

Employees:

1,900

FY 2003 revenue:

$1.1 billion

Market capitalization:

$870 million

Dividend:

50¢ share/year (2.8% yield)

2003 Payout Ratio:

55%

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Corporate Structure

Parent company for unregulated business units Regulated, vertically integrated electric and natural gas utility (Not a holding company)

Avista Energy Avista Advantage

Avista Capital

Energy Marketing and Resource Management Business Process Outsourcer

Avista Corp. Avista Utilities

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Regulatory support

− 90/10 cost-sharing mechanisms in Washington and Idaho − Recoverability of and earnings on electric deferrals − 100% PGA tracker in all gas jurisdictions

Balanced electric resource profile Efficient, low-cost asset base Disciplined, regional resource management strategy at Avista Energy

− $110 million committed line of credit

Positive trend in longer-term financial health

− August 2003, Avista Corp.’s board of directors declared a 4.2% increase in the common stock dividend reflecting progress toward the company’s financial targets

Key Strengths

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Business Strategy

Add company-owned generation to be “long”

production capacity

Continue strengthening regulatory relationships Resolve FERC overhang Maintain efficient, low-cost asset base and balanced

electric resource profile

Continue improving cash flow position Sustain positive trend in longer-term financial health Uphold disciplined, regional resource management

strategy at Avista Energy

Increase focus on leadership and management

development

• On Track

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AVISTA UTILITIES

Cabinet Gorge - 246 MW

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Coal 13% Nuclear 0% Natural Gas 25% Hydro 59%

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Biomass 3%

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Utility Resource Mix

Current Capability

Natural gas includes: Boulder Park, Kettle Falls combustion turbine (CT), Northeast CT, Rathdrum CT and Coyote Springs 2. Biomass represents Avista’s Kettle Falls wood-waste generating station.

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Avista Utilities Customers

Projected Customer Growth

New Gas Customers: 3% New Electric Customers: 2%

298,000 Natural Gas Customers 325,000 Electric Customers

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Electric Rates Comparison

Residential Use for 1,000 kWh

$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00

Douglas Co. PUD Chelan Co. PUD Pacificorp - WA Grant Co. PUD Avista WA Vera Water & Power Inland Power & Light Idaho Power Company Puget Sound Energy Kootenai Electric Coop Avista ID Tacoma Power City of Cheney Light Dept PacifiCorp OR Seattle City Light Pacificorp ID Snohomish PUD Portland General Northern Lights

Source information from published tariffs compared as of July 1, 2003

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$57.12 $57.68 $60.85 $61.94 $64.37 $66.02 $66.28 $67.15 $70.55

$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00

I n t e r m

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n t a i n G a s

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D A v i s t a

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D A v i s t a

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A P u g e t S

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n d E n e r g y

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A N W N a t u r a l

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A C a s c a d e

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A C a s c a d e

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R A v i s t a

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R N W N a t u r a l

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Natural Gas Rates Comparison

Residential Use for 70 Therms

Source information from published tariffs compared as of October 2003

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Regulatory Activities

Completed

Resolved Oregon general rate case

Order: ROR 8.88%; ROE 10.25%; Resulted in an annual revenue increase of

$6.3 million effective Oct. 1, 2003

Received purchased gas rate adjustments in all jurisdictions, effective in

October 2003

WUTC approved and adopted Washington ERM settlement agreement on

• Feb. 3, 2004

WUTC Natural Gas Benchmark Mechanism

Pending

Filed an Idaho electric and natural gas general rate case on Feb. 6, 2004 Final approval by Federal Energy Regulatory Commission of settlement in

connection with section 206 proceeding

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Filed an Idaho electric and natural gas general rate case on Feb. 6, 2004

More than $200 million invested in electric/gas system since last general rate increases Request: ROR 9.82%; ROE 11.5%; Equity ratio 44.3%; Designed to increase electric

revenues by $18.9 million annually and natural gas revenues by $4.8 million annually

Idaho PCA – deferral of certain costs to be reviewed in the general rate case

Idaho Rate Case

2003 2004 2005 2006 0% 10% 20% 30% Fall 2004

Existing PCA Base Rates

11% Increase over current rates

New PCA

24%

$35 million (annualized) $11.5 million (annualized)

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Regional Transmission and Generation Solutions

Transmission Infrastructure Development

West of Hatwai Project – Avista and Bonneville Power Administration

RTO Development

RTO West

Generation Resource Development

Coyote Springs 2 – 140 MW - July 2003

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Adding generation to meet customer needs

Coyote Springs 2

280 MW near Boardman, Ore. Sold 50% interest to Mirant in

November 2001

Obtained approval to include in

rate base in Washington

Unit off line until summer of 2004

due to recent internal arching problem in transformer

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Industry Restructuring Northwest Perspective

Northwest power system is unique

Hydro-based resource Prevalence of public power entities not under FERC jurisdiction:

Co-ops, Public Utility Districts

Breadth of Bonneville Power Administration transmission system

Vertically integrated electric utility model

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Corporate Overview Avista Utilities Unregulated Subsidiaries Financial Outlook

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Avista Energy

Energy Marketing and Resource Management Adding value through innovative arrangements that meet customer needs using our experience and knowledge of the integrated gas and electric systems

• f the Pacific Northwest.

Cominco Chelan

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Avista Energy

Energy Marketing and Resource Management

2000 2001 2002

• Dec. 31, 2003

Total margin ( $ millions) $308 $134 $54 $60 Earnings per share $3.51 $1.33 $0.47 $0.49* Assist in managing 2,000 MW 2,750 MW 3,000 MW 3,000 MW Energy Marketing and Resource Management Business Segment 55 employees headquartered in Spokane, Wash.

− Extensive experience across natural gas and electric markets

Long-term contract rights to physical assets in the West

− Generation, transmission, pipelines and storage

20 * Excludes Avista Power asset impairment write-down of $<0.06> per share.

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Focused on resource management

Managing the assets of others: minimizes risk and facilitates sharing in profits

Contractual transmission and pipeline access Proven results in established niche

Strong track record of positive earnings contributions Renewals and extensions of existing resource management contracts

Multi-layered risk management

Internal controls (VAR, stress testing, position limits, stop loss, audits) Banks’ risk management parameters and audits Takes positions on future price movements under disciplined risk management approach

One-year committed line of credit $110 million Employees with substantial Pacific Northwest experience and knowledge

BPA; Northwest Power Pool; Regional utilities

Avista Energy Key Strengths

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Saskatchewan

Medford Mid-Columbia Malin COB Spokane AECO Sumas Stanfield Lancaster

(270mw)

British Columbia Alberta

(200 mw)

Jackson Prairie Storage John Day

( 1 5 m w )

Chelan (6.1 BCF) Kingsgate Teck Cominco Clark Co. PUD

To Rockies

Montana Idaho Oregon

Electricity

Transmission BPA PGE Hydro facilities Chelan Co PUD Teck Cominco

Location Spread Time Spread

Gas

Pipeline transport NEGT NW Pipeline Natural gas storage Jackson Prairie Inter-commodity Spread Natural gas-fired generation * Lancaster Project * Clark County PUD

Avista Energy - Firm Electric and Natural Gas Resources

Washington

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Note: Assumes heat rate of 7,000 Btu/KWh for plant Source: Bloomberg

Capturing Power and Gas Price Spreads

May 2003

Purchase June gas $30 Sell June power $40

June 2003

Buy power Sell gas $35 $30

Captured operating spread = $10 Incremental spread (un-fueling) = $5

June gas contract $30 June power contract $40

X

June delivery example

Jan- 02 Jul-02 Dec-02

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10 20 $30 Power - Gas spread ($/ MWh spot - $/ MWh produced)

Un-fuel unit Fuel unit

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Avista Energy Financials

2000 $0

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Equity

($ millions)

12/31/00 $265 12/31/01 $302 12/31/02 $203 12/31/03 $216

Dividends Paid to Avista Capital

($ millions)

2001 $30 2002 $116.4 2003 $12.1

A DIRECT APPROACH Avista Energy’s business model and risk management policies have consistently produced earnings under varying market conditions

* Earnings per share from the Energy Marketing and Resource Management business segment. ** Represents Avista Energy net earnings. Excludes Avista Power asset impairment write-down of $<0.06> per share. 25 $- $2 $4 $6 $8 $10 $12 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 $/MMBtu $- $20 $40 $60 $80 $100 $120 $/MWh

Sumas Daily Gas Price Mid C On Peak Daily Price

$0.10 3Q 03 $0.17 1Q 02 $0.18 2Q 02 $0.05 3Q 02 $0.06 4Q 02 $0.27 1Q 03 $0.07 2Q 03

EPS*

$0.05 ** 4Q 03 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

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Leading business process outsourcer for large organizations with multiple sites

Avista Advantage

2000 2001 2002 2003 Revenue $5 million $13 million $17 million $20 million Dollar value of bills processed $1 billion $4 billion $5 billion $6 billion Sites billed 46,000 80,000 98,000 110,000

Utility Telecommunications Waste Open/close services Electric Commodity Pools

Key offerings

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$(1,500,000) $(1,300,000) $(1,100,000) $(900,000) $(700,000) $(500,000) $(300,000) $(100,000) $100,000 $300,000

J an- 01 Feb- 01 Mar- 01 Apr- 01 May- 01 J un- 01 J ul- 01 Aug- 01 Sep- 01 Oct- 01 Nov- 01 Dec- 01 J an- 02 Feb- 02 Mar- 02 Apr- 02 May- 02 J un- 02 J ul- 02 Aug- 02 Sep- 02 Oct- 02 Nov- 02 Dec- 02 Jan- 03 Feb- 03 Mar- 03 Apr- 03 May- 03 J un- 03 J ul- 03 Aug- 03 Sep- 03 Oct- 03 Nov- 03 Dec- 03

EBITDA: January 2001 – December 2003

Avista Advantage

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Corporate Overview Avista Utilities Unregulated Subsidiaries Financial Outlook

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Avista Utilities Energy Marketing & Resource Management Avista Advantage & Other Coyote Springs 2

Capital Expenditures

($ millions)

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2000 $173 2001 $282 2002 $84 2004 $110 Target 2003 $106

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Capital Structure

($ billions)

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Common Equity Preferred Stock Total Debt

2001 $2.1 59% Debt 2000 $1.8 52% Debt $1.9 2002 54% Debt Target 50% Debt 2003 59% Debt * $1.9

* In accordance with revised accounting standards, the Company has recorded $55 million of long-term debt for the consolidation of WP Funding LP. Additionally, preferred stock and trust preferred securities have been reclassified to liabilities.

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Adjusted Capital Structure *

($ billions)

Target 50% Debt 59% Debt 61% Debt 59% Debt 2000 2001 2002 2003 $1.9 65% Debt $2.2 $1.9 $1.9

Common Equity Preferred Stock Total Debt

* For illustrative purposes, this chart represents capital structure adjusted for the years 2000, 2001 and 2002 to include $55 million of long-term debt for the consolidation of WP Funding LP as well as preferred stock and trust preferred securities reclassified to liabilities. 31

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Revenues

($ millions except per-share data)

FY 2003 Consolidated Revenues $1,123,385

Business Segment EPS

(earnings per diluted share)

Avista Utilities $0.72 Energy Marketing & Resource Management $0.43* Avista Advantage $<0.03> Other $<0.10> SUBTOTAL (continuing operations) $1.02 Avista Labs & Avista Communications ** (discontinued operations) $<0.10> SUBTOTAL (before cumulative effect of accounting change) $0.92 Cumulative effect of accounting change $<0.03>*** TOTAL (earnings per diluted share) $0.89

* Includes a net loss at Avista Power of $0.06 per diluted share due to an asset impairment. Excluding this $0.06 loss, the Energy Marketing & Resource Management business segment earned $0.49 per diluted share for full year 2003. ** Avista Communications is only included in 2002 amounts. *** Represents a charge of $1.2 million (net of tax) for Avista Energy’s adoption of SFAS No. 133. 32

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Consolidated Earnings/Targets

* For 2004, the company anticipates consolidated diluted earnings in the range of $1.00 to $1.20 per share with the outlook for Avista Utilities in the range of $0.75 to $0.90 per diluted share and for the Energy Marketing and Resource Management segment in a range of $0.25 to $0.35 per diluted share. It is anticipated that Avista Advantage will have break-even to slightly positive earnings for 2004 and that the “Other” segment will have a lower earnings drag than in 2003. 33

2002 Actual 2000 Actual 2001 Actual $1.47 $0.20 $0.60 2003 Actual $0.89 2004 Target $1.00 to $1.20*

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Positive trend in longer-term financial health

Debt repurchases in 2002 and 2003 total $256 million Reduced interest expense by $12 million in 2003 Avista Labs divestiture Avista Advantage moving toward breakeven Expiration of higher price gas contracts in late 2004

Rates and cost recovery

Resolved Oregon general rate case Filed an Idaho electric and natural gas general rate case on Feb. 6, 2004 Recovery through PGAs Pro forma studies WUTC approved Energy Recovery Mechanism settlement agreement in February 2004

Customer Growth in 2003:

Natural gas customer growth: 3% Electric service customer growth: 2%

Operating expense reductions and efficiency improvements

Closing the ROE Deficit

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