Aquila to withdraw from energy marketing, trading business

Kansas City-based energy marketer and trader Aquila Inc. reported that it plans to exit the wholesale energy marketing and trading business, operated by its Aquila Merchant Services subsidiary.

By OGJ editors

HOUSTON, Aug. 16 -- Kansas City-based energy marketer and trader Aquila Inc. reported that it plans to exit the wholesale energy marketing and trading business, operated by its Aquila Merchant Services subsidiary, by the end of the third quarter.

Aquila joins the handful of US energy merchants in recent months—a list that includes El Paso Corp., Houston, and Tulsa-based Williams Cos. Inc.—that have taken steps to reduce their investment and exposure to energy trading operations (OGJ Online, Aug. 13, 2002). So far, however, Aquila has been the only company to withdraw completely from the business of trading energy commodities. Both El Paso and Williams, meanwhile, have reported reductions to their trading staffs.

As a result of its intended restructuring plan, Aquila reported that the staff of its merchant services unit—about 500 in North America and Europe—would be "significantly reduced." Aquila noted that across all of its merchant operations about 550 jobs have been cut since May.

Following the shutdown of its energy trading business, Aquila said that Capacity Services, which manages the company's non-utility assets, "will only market energy from the assets the company owns or controls."

Also, Aquila said that, since June 17 it has "eliminated all market-making activity and speculative trading, commonly referred to as 'proprietary trading,'" which has resulted in a 90% reduction in physical throughput.

Aquila sought the services of New York City-based investment firm The Blackstone Group to assist in considering its exit options. "While we had explored the idea of securing a partner, we believe it is in the best interest of our shareholders to completely exit the wholesale energy marketing and trading business," said Robert K. Green, Aquila president and CEO. "Our focus now is to ensure a coordinated and seamless exit," he added.

As part of its exit plan, Aquila inked an agreement with Citadel Investment Group of Chicago "to provide potential career opportunities. . .for those Aquila employees directly impacted."

Green said, "The process of taking this business from a top-five energy marketer to a complete exit of trading has required tremendous effort and that reflects well of the professionalism and commitment of Aquila's people."

Liquidity position
Aquila Friday confirmed that its current liquidity position of $754 million has not changed. "Our liquidity position as of today (Aug. 16) is comprised of $492 million in domestic cash, $80 million in highly liquid commodity inventory, and $182 million of availability on a $650 million revolving line of credit (50% of which expires in April 2003 and the other 50%, in 2005), the company said.

On Wednesday the company converted $400 million of its revolving credit facility to cash, Aquila stated. "We routinely draw and replenish our working capital facility in the normal course of managing the cash needs of our company. The use of proceeds for the draw is to replenish our cash balance from $92 million. . .to a normalized level of $250 million, to repay scheduled debt maturities coming due later in the year and for general corporate purposes," it said.

The company added that it expects that a portion of the draw will be repaid following the closure of the sale of certain assets in its $1 billion asset sale program, previously announced.

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