The Missouri Public Service Commission has approved Aquila’s sale of a small eastern Missouri gas distribution system to Union Electric Co., a subsidiary of AmerenUE, Missouri’s largest power company and third largest gas distributor. The distribution system provide service to 4,200 customers in the Rolla, Salem and Owensville areas.

The PSC determined that the sale would not be detrimental to the public interest because it would not result in a reduced level of service or reliability. AmerenUE plans to integrate the system with its natural gas operations in Missouri. Ameren serves 500,000 natural gas customers in a 49,000-square-mile area of Missouri and Illinois.

Natural gas delivery rates will remain the same as the existing Aquila rates and will be subject to a rate freeze that extends until 2006. In addition, as the PSC announced March 29, a proposed Aquila rate increase will not affect those customers transferred to AmerenUE.

However, customers’ total bills will continue to fluctuate because of seasonal changes in usage and changes in the purchased gas adjustment (PGA), which reflects changes in the wholesale cost of gas from the company’s suppliers.

The transfer of the assets will not become effective until the two companies formally close on the transaction, currently expected by May 3. In addition to the transfer of customers, the transaction also involves about 164 miles of natural gas distribution mains, plus local assets needed to operate the system, such as trucks and other equipment.

While Aquila built the distribution system, company officials said they were never able to “realize the efficiencies and synergies that were originally projected.” It represents less than two tenths of 1% of Aquila’s domestic utility assets. It’s also geographically remote from Aquila’s other Missouri utility properties.

However, Aquila has been actively selling off assets in an effort to reduce liabilities and strengthen its balance sheet. Last month, it completed the sale of its interests in 12 power plants to an affiliate of ArcLight Capital Partners LLC for $257 million. Once the $990 million sale of its Canadian networks to is completed, Aquila will have completed its major asset sales. Since it began restructuring in 2002, Aquila has generated more than $2 billion in asset sales.

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