Kansas City, MO’s Utilicorp United Inc. is shopping around, andhas already begun to narrow its options on which “high quality,low-cost fleet of generators” to pair with its wholesale merchantmoneymaker Aquila Energy, management announced last week. Apartnership deal is expected to be unveiled within a few months.

In its second-quarter earnings conference call with investors,UtiliCorp’s CEO Richard C. Green Jr. said that subsidiary AquilaEnergy, one of North America’s largest electricity and natural gaswholesalers, helped the company to another record quarter, withmost of its growth in the commodity business. Commodities alonehelped to offset lower earnings from UtiliCorp’s networks segment,and also allowed the company to surpass its results for the sameperiod in 1999.

Based on Aquila’s strong performance, the CEO said Utilicorp,which has international interests in electricity and natural gasservices, is considering all proposals as it looks for a qualitypower generator to partner with its high achiever. Aquila earningsbefore taxes and interest were up 113%, standing at $49.5 millionfor the quarter.

“In terms of growth, on the merchant side of the business,Aquila continues to see strong interest in partnershipopportunities and that continues to be a number one priority — topartner Aquila with a attractive fleet of generators,” said RobertGreen, COO. “We expect to be announcing results in that regard overthe next few months.”

Overall, the growth was good across the board at Utilicorp inthe second quarter, which saw its profit rise 18% in the period,beating analysts’ estimates. Profit was keyed by abetter-than-expected demand for its power, weather and generationservices. Net income rose to $29.3 million, or 31 cents a share,compared with $24.8 million, or 27 cents in 1999’s second quarter.Wall Street’s First Call/Thomson Financial had predicted UtiliCorpto earn 30 cents.

UtiliCorp’s expanding services segment contributed $7.7 millionto second-quarter earnings, “This segment includes our broadbandtelecommunications business as well as our 36% ownership interestin Quanta Services Inc.,” COO Robert Green said. “We are expandingour local broadband services in selected markets and expect thisbusiness to grow significantly over the next few years.” Utilicorpentered into the strategic partnership with Houston’s QuantaServices, an electric line company, last year.

CEO Richard Green said the company was “especially pleased” withthe overall health of UtiliCorp, which he said is on a pace to growat least 8% through the year. “Most of the company’s improvedperformance came from Aquila’s gas and power trading, with a”particularly pleasing performance out of our power tradingbusiness,” said Peter Lowe, CFO. UtiliCorp’s earnings beforeinterest and taxes (EBIT) for the second quarter were $103.9million, up 21% from $85.6 million a year ago.

Commodity services earned $34.2 million, up from $9 million forthe same period a year ago, “reflecting a continuation of a recordperformance in 2000 across all major North American commoditymarkets,” said Richard Green.

Aquila’s natural gas liquids business also contributed thisquarter, reflecting strong NGL pricing.

Not all of the news was good. UtiliCorp’s U.S. energy networks’earnings plunged 38% to $17.1 million in the second quarter, downfrom $27.6 million a year ago. The spiral resulted from increasedcosts in purchased power, and Lowe said the company hadmiscalculated how high natural gas prices would go in the timeperiod, a miscalculation that CEO Green said would not happenagain. Increased operating costs and depreciation that relate tothe company’s continued investment in upgrading its technologyinfrastructure also brought earnings down in this segment, but Lowesaid that the IT costs are part of upgrading the business, andwon’t be repeated.

Besides Aquila’s continuing ascent, Utilicorp expects to see itsbroadband telecommunications business grow in the next few years,with local service expanded in “selected markets.”

Robert Green said that the $450 million purchase of TransAltaCorp.’s electricity distribution and retail assets in Alberta hasbeen approved by the Alberta Utility Commission, and that deal isexpected to close this month. When complete, it will add 350,000customers to UtiliCorp’s Canadian networks operation, and will addto 2001 earnings.

Completed mergers in the United States also will help the bottomline next year, said the COO. On Thursday, one of its mergers, thatwith St. Joseph Light & Power Co., is nearing completion, andthe utility announced that it has passed federal anti-trustreviews. The merger has already received approval from the FederalEnergy Regulatory Commission, and the state regulatory agencies inIowa, Minnesota, West Virginia and Colorado, and is expected to becompleted before the end of the year.

Carolyn Davis, Houston

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