Avista's MTNs Rated `BBB' By Fitch.

Business Editors

CHICAGO--(BUSINESS WIRE)--Aug. 23, 2000

Fitch has assigned a `BBB' rating to Avista Corporation's (AVA) $175 million issue of medium-term notes (MTNs) due 2003.

The notes are pari passu with other senior unsecured debt of the company. Avista's securities are rated as follows: first mortgage bonds and secured MTNs 'BBB+'; debentures and unsecured MTNs 'BBB'; preferred stock, trust originated preferred securities and capital securities 'BBB-', and short- term commercial paper 'F2'. The Rating Outlook is Stable.

The regulated utility's historically stable cash flow now displays significantly higher levels of volatility. It suffered this summer from a short power position in an environment of notably higher regional power prices. The utility was short of power in May and June after the sale of its interest in the Centralia plant. Beginning July 1, its contract to purchase power from Centralia's new owner (TransAlta) began. Some exposure to purchased power, however, remains.

The utility is spending approximately 25% more for purchased power this year, and if current pricing levels remain through year-end, additional losses could occur. Recent regulatory support has been indicated by the Washington Public Utilities Commission's emergency approval permitting the deferral of purchased power costs for the retail load over the July 1, 2000-June 30, 2001 period. Though a smaller portion of its retail jurisdiction, the Idaho power cost adjustment clause already exists.

Fitch lowered AVA's credit ratings by one notch in June 2000 due to weakening financial ratios and increasing business risk at the regulated utility. Due to losses related to energy trading at an unregulated subsidiary and at the parent utility, consolidated financial performance has weakened over the past two years. Avista forecasts a loss exceeding $20 million for fiscal 2000. AVA's ratings were also lowered one notch in August 1999 due to the higher business risk associated with increasing investments in unregulated businesses. EBITDA/Interest expense has steadily declined since 1997, as higher margin wholesale contracts have rolled off, and trading losses have occurred.

In May 2000, the staff of the Washington Utilities and Transportation Commission recommended a net $15 million electric and gas rate reduction, against Avista's $31 million requested increase. The utility has also requested a power cost adjustment clause, with a commission decision expected by the end of September.

Avista Corp. (the regulated utility) has been infusing funds into its unregulated subsidiaries. While these monies are booked as loans, they are significant amounts that decrease Avista Corp.'s financial flexibility. Last year's sale of some of the Pentzer businesses has removed a notable source of subsidiary income. A May 22, 2000 Fitch report on Avista is available at www.dcrco.com. Avista is a regulated electric and gas utility operating principally in Washington and Idaho. Through its subsidiary Avista Capital, Avista owns an Internet electricity bill-paying service (Advantage), a fuel cell development business (Avista Labs) and a small competitive local exchange carrier.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.