Aquila Inc. last week filed applications with five state regulatory commissions seeking approval to use state utility assets as collateral for the working capital requirements of its utility operations.

The company is requesting permission to add these assets initially to an existing pool of regulated and non-regulated assets currently securing a $430 million three-year term loan, the majority of which is supporting Aquila’s utility working capital requirements. However, Aquila has stated in its application that regulated assets only will be used to secure debt necessary to support the regulated utility operations.

Formal regulatory approval for Aquila’s request is required in Colorado, Iowa, Minnesota, Kansas and Missouri. Prior to the filings, Aquila officials conducted meetings in all of the company’s jurisdictions to ensure state officials were fully informed of the plans and gain an understanding of potential concerns that Aquila could address in the applications, Aquila said.

“We have moved cautiously to ensure that we could respond to the questions raised by the Commissions,” said Jon Empson, Aquila’s senior vice president of regulatory, legislative and gas supply services. “Our objective is to provide the states with a full explanation of our plans to restore financial stability.”

He said that Aquila is “committed to maintaining our focus on excellent service to our utility customers and ensuring that steps to restore Aquila’s financial stability will not have any adverse impact on the utility business or its customers.”

Aquila noted that securing debt with utility assets was a common practice in the late 1980s and early 1990s. During the economic boom of the mid to late 1990s the practice faded when the cost differential between secured and non-secured debt was insignificant.

Aquila said in its applications that both investment and non-investment grade utilities have issued and continue to issue secured debt. Until the latter part of the 1980s, Aquila primarily issued secured debt to support its utility operations.

The debt secured by Aquila’s utility assets will be used to meet traditional working capital needs of a utility, including the purchase of natural gas and electricity supplies, upgrade of its distribution systems and maintenance of power plants and other activities that “enhance Aquila’s ability to provide safe, reliable energy service.”

Aquila’s CEO last month warned that the losses will continue through this year and into 2004 as the rebuilding utility repairs its damaged balance sheet (see NGI, April 21). Fourth quarter losses were $5.22 per share, with a net loss of $977.9 million on sales of $411.3 million. In the 2002 fourth quarter, Aquila lost 5 cents a share, or $6.2 million.

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