Avista Energy

1
Avista Energy Energy Marketing and Resource
Management
Chelan
Adding customer value through our experience and
knowledge of the integrated gas and electric
systems.
Cominco
2
Business Organizational Structure
Regulated
Non-regulated

• Avista Corp. is the parent company for all
  corporate businesses.
• Avista Utilities, an operating division of Avista
  Corp., includes the regulated businesses serving
  customers in Washington, Idaho, and Oregon.
• Avista Capital is the parent company of all
  non-regulated subsidiaries. Avista Capital is a
  wholly owned subsidiary of Avista Corp.
• AdvantageIQ is a business process outsourcer that
  provides facilities resource management.
• Avista Energy provides electricity, natural gas
  and hydroelectric portfolio optimization and
  management, as well as risk management services.
• Avista holds a minority interest in ReliOn, a
  fuel cell development company.

3
Avista Energy

• An energy marketing and resource management
  company created to serve customers within the
  Western electric and natural gas markets.
• Offices located in
• Spokane, Washington (52 employees)
• Vancouver, British Columbia (4 employees)
• Great Falls, Montana (2 employees)
• Active in electricity and natural gas markets
  with WECC ?Pacific Northwest/Western Canada
  focus

4
Avista Energy Organization
Information Systems
5
Avista Energy Business Model

• Secure long-term partnerships to optimize energy
  assets in the West
• To establish a predictable platform for earnings
• To enable greater versatility for meeting market
  needs
• Retain the best talent to work the markets
• To keep abreast of market dynamics
• To build continuity into performance and sustain
  competitive advantage
• Adhere to disciplined risk management protocols
• To keep risk within established tolerances
• To assure liquidity, avoid over-extension, and
  reduce vulnerability to market volatility
• To assure compliance with legal, regulatory,
  audit, and management requirements

6
Avista Energy Business Model
What Makes Avista Energys Strategy Work

• Relationships
• We work as a partner, sharing in the value we
  help create
• Focus
• We manage a variety of real assets within the
  geographic market we know well
• Insight
• We get real-time information that enables
  informed point-of-view trading
• Assets
• We have a platform for reliable income plus
  options to serve varying markets
• Low fixed costs and overhead
• Because we dont own assets, we minimize our
  fixed costs and tightly control our overhead
  costs
• Control
• Our risk management discipline assures liquidity
  and keeps us from swinging a big bat

7
Key Contractual Assets Strategic Agreements

• Power Generation and Transmission
• Lancaster 270 MW CCCT power project
• 250 MW of NW point-to-point transmission (BPA)
• 200 MW of firm AC intertie transmission capacity
• Chelan PUD real-time management of 2000 MW hydro
  system
• Teck-Cominco 450 MW hydro optimization
• Clark PUD 280 MW CCCT optimization
• Barrick Goldstrike Mines 115 MW thermal
  optimization
• Natural Gas
• Jackson Prairie Natural Gas Storage
• (2.7 million MMBtus working capacity
  100,000 MMBtus per day)
• Montana Natural Gas Storage
• (.74 million MMBtus working capacity
  10,000 MMBtus per day)
• Nova/ANG/GTN long-term natural gas transport
• 300 plus end-user customers and growing (AE
  Canada, PNW/Montana)
• Clark County PUD fuel manager (48,000 m/day)
• City of Ellensburg utility operations (storage,
  transportation, commodity, scheduling)

8
Clark PUD

• Fuel Manager since 1998 for River Road CCCT
• Optimization manager effective December 2006
• Clark makes hedging decisions in future markets
• AE makes operating/economic decisions in cash
  market
• Current contract expires October 2011

9
Chelan PUD

• AE acts as Chelan PUD real time marketer
• Optimize 2000 mw of hydro generation
• Positions not combined until real time
• Current contract in effect until July 2009

10
Lancaster CCCT

• AE has PPA for 100 of capacity and energy (270
  mw) until 2026
• Actively optimize the Heat Rate from forwards to
  next hour
• Optimization for Lancaster supported by 250 mw of
  long term BPA PTP transmission

11
Firm Electric and Natural Gas Resources
SASKATCHEWAN
BRITISH COLUMBIA
ALBERTA
AECO
Teck Cominco
Sumas
Kingsgate

Mid-Columbia Chelan
COBB Storage
Spokane
(.74 BCF)
Lancaster (270mw)
MONTANA
Jackson Prairie Storage
(2.7 BCF)
(250 mw)
Electricity
Gas
Clark PUD(280 mw)
Stanfield

• Pipeline transport
• GTNC
• WGPW

Transmission BPA PGE
Location Spread
JohnDay
Natural gas storage - COBB Storage - Jackson
Prairie
Hydro facilities - Chelan PUD - Teck Cominco
Time Spread

(200 mw)
To Rockies
Medford
Inter-commodity Spread
IDAHO
OREGON
Malin
Natural gas-fired generation - Lancaster Project
- Clark County PUD - Barrick Goldstrike Mines
Barrick (Nevada)(115 mw)
12
A Broad Range of Services Integrated Throughout
Your Partnership with Avista Energy
13
Risk Management
Multi-Layered Risk Management SystemMarket and
Operational Risk
Market risk
Operational risk

• Price volatility
• Liquidity
• Regulatory shifts

• Unit-contingent
• Physical constraints
• Internal controls

VaR limits
Position limits
Stress testing
Restrict portfolio risk by limiting volatility
due to market shocks
Restrict volumetric over-exposure
Simulates worst-case portfolio movement
Stop-loss limits
14
Risk Management

• Credit Risk Management
• Counterparty Credit Analysis
• Exposure Management and Analysis
• Collateral Management

• Contract Management
• Negotiation of master contract terms and
  conditions
• Maintaining best practices in contractual risk
  mitigation

15
Risk Management

• Top-Notch Integrated Risk System (Nucleus)
• Components
• Deal Capture
• Position Management and Reporting
• Daily Profit and Loss
• Risk Analytics including Value at Risk
• Integrated Credit and Contracts Module
• Collateral Exposure including stress testing
  capability
• Physical Scheduling
• Billing/Invoicing
• Portfolio Valuation

16
Avista Energy Summary

• Avista Energy has evolved into a strong regional
  player in the Pacific Northwest
• Conservative business model built to maximize
  asset value
• Small team with deep operating experience in the
  Northwest
• Our strategy is to focus on increasing our base
  of recurring earnings streams
• Increased marketing and opportunistically add
  physical assets