Aquila and NiSource have formed an alliance to leverage their capabilities to provide comprehensive energy solutions, better manage the risk associated with operating NiSource’s sprawling pipeline, storage and utility assets, and to capitalize on market opportunities presumably created in the void left by Enron Corp.

Patrick Mulchay, president of the NiSource merchant energy group, said the alliance allows NiSource to enter the broader energy market without having to build its own top-tier marketing operation. Aquila already is a recognized top-tier energy merchant with a well established trading operation and back office and mid office functions to go with it.

“They have a broad view of the market, experience and the resources available to impact and interact with multiple markets,” said Mulchay. “NiSource has a modest [marketing and trading] effort. We needed to jump start that, and this is a quick way of doing that, allowing us to participate in the marketplace through this alliance to a broader level and in a shorter period of time than we could have done ourselves.”

He said the initial term of the alliance is two years “but both parties are prepared to extend that as the opportunities would suggest that to be the right course of action.”

“I wouldn’t say that Enron was the specific trigger for this, but certainly the energy markets themselves, the dynamic that’s taking place there, certainly has been affected by Enron, and it makes this decision seem to be a good one at this point.”

Aquila CEO Robert K. Green said the alliance will enable both companies to “optimize NiSource’s assets and manage risk for the benefit of shareholders and customers alike.”

“To the extent that we identify new value from underutilized or unutilized assets, we will put a strategy together to extract that, to mine it, to monetize and to share the value,” said Mulchay. “Initially this will be focused on optimization. Assets devoted to utility operations have a load curve and there is a certain amount that is — perhaps underutilized is not the right word — available and can be utilized in a unique fashion over broader markets or in combination with other assets or market opportunities. All of our assets are being included.

“As we go forward, depending on market opportunities and what’s going on in the energy business in general, we’re certainly open to take on other areas that have potential value for the two parties.”

NiSource CEO Gary L. Neale said the deal will allow the two companies to “focus on their individual core businesses and combine their complementary expertise to leverage the value of NiSource’s uniquely positioned asset base and Aquila’s extensive merchant capabilities to create greater value, with less associated risk, than either company could achieve on its own.”

NiSource’s operations are focused in the high-demand energy corridor that stretches from the Gulf of Mexico to New England. Having bought out the Columbia Gas Group several years ago, it is the third-largest natural gas distributor in North America, the second-largest holder of gas storage and the largest gas producer in the Appalachian basin. The company also owns and operates 16,500 of interstate pipeline and electric generation assets in northern Indiana.

Kansas City-based Aquila is a leading wholesaler of natural gas and power in North America and a provider of risk management services.

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