Break out a top gas and power marketer, like for instance,Aquila Energy, from its regulated brethren at UtiliCorp United, andpartner it with an aggressive, hard-charging IPP, like forinstance, Calpine, and you could create a dynamic front-runner inthe energy market.

Add some broadband assets and an extra measure of bandwidthtrading, and you would have a triple crown contender in thereassembled, competitive utilities business.

So far UtiliCorp executives aren’t saying who their partnermight be — “we’re talking with a number of companies” — butthey have acknowledged they are getting close to a deal with acompany holding generating assets.

“We see Aquila right now as very marketing rich and a bit assetlight,” Edward Mills, president and COO of Aquila Energy, toldDaily GPI. “We see generation fleets coming on, and they arebasically asset rich and marketing light. Put those two types oforganizations together and it becomes more of a pure-play in termsof Wall Street’s perception, and I think it’s valued differentlythan the way a conglomerate utility is valued today. We think a lotof value is trapped in UtiliCorp right now, and for whateverreason, the market is not recognizing the value of Aquila.”

The disaggregation of the electric utility industry is providingpotential partners, Mills said, following up on remarks made byUtiliCorp COO Robert Green, who revealed the plan to add generationassets during the company’s second quarter earnings conferencecall. (see Daily GPI, Aug. 3) The ideawould be for UtiliCorp to put Aquila Energy into the new company andhold a “cornerstone” of the joint venture, with the generator holdinganother cornerstone. Eventually, shares could be sold to the public.

Mills said UtiliCorp is looking for a company with between 4,000and 10,000 MW for a “first combination. We would look to grow afterthat through other combinations. We are looking for a non-regulatedgeneration fleet, or at least a fleet that is being pulled awayfrom regulation so that we have the opportunity to take the excessenergy from those units and sell into markets where energy is mostneeded.”

“The other thing we would look for is a fleet that isstrategically located so that we could get access to a number ofdifferent markets,” Mills added.

One rumor picked up in Kansas City last week shown the spotlighton Calpine Corp., an independent power producer that currently hasinterests in 44 power plants with an aggregate 4,273 MW ofcapacity. The San Jose, CA-based IPP has projects underway to add5,935 MW and plans for additional facilities. When current projectsare completed Calpine will have interests in 54 power plants in 17states.

The possibility makes sense, according to Ed Tirello, analystwith Deutsche Banc Alex. Brown, who noted that Calpine is lookingto beef up its marketing. “It would be a good, natural fit.”

Aquila recently completed the process of moving its 400employees into new downtown Kansas City office space and held agrand opening ceremony last week, which included Kansas City MayorKay Barnes cutting the ribbon for a new trading floor. The 15-yearold energy marketing arm led the company’s earnings last quarter at$49.5 million, gaining 113% from the same period a year ago. Forthe first half of 2000 Aquila has increased sales 39% and profitsby 141% over last year.

The number of employees is due to be expanded as Aquila addsbandwidth trading to its gas and power marketing. Aquila rankedthird last year in natural gas trading and second in power trading.It is now aggressively building a bandwidth trading unit under thedirection of Sushil Nelson, general manager of Aquila BroadbandServices.

Nelson believes the bandwidth market will grow to be twice thesize of electricity in four years. By the end of the year heexpects it to be traded along 10 to 14 city-pairs. “We arepreparing for this increase and are looking to increase ourbandwidth trading staff tenfold by the end of the year,” Nelsontold Daily GPI. Aquila currently is working with the BandwidthTrading Organization on a standard contract.

In other action Aquila Energy last week announced it will makean initial investment of $50 million to develop its e-businessportfolio, including an interactive web site for itsGuaranteedWeather products. Aimed at providing risk managers withthe best available weather-related tools as well as wholesaleweather trading, the website features a contest for the bestlong-term weather forecasting. A $100,000 per year prize for thenext three years will be awarded to the weather forecasting firmfor forecaster that most accurately forecasts weather variablesduring summer and winter periods. “This is directed at gettingbetter weather data oriented to business,” said Al Butkis, vicepresident corporate communications. Even a 10% difference inaccuracy can mean a big difference to businesses.

Ravi Nathan, portfolio manager for Aquila’s weather desk pointedout “Today there is no objective way for businesses to measure therelative accuracy of the different forecast products available.”

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