Looking to calm investor and credit rating agency jitters about energy trading operations, Aquila, Inc. on Friday said that it estimates that 70% of its 2002 operating earnings and 75% of its 2003 operating earnings will come from the more traditional side of its business mix. The company also said it intends to maintain its dividend at $1.20 per share.

“More recently we’ve become known for our trading expertise in the merchant energy sector,” said Robert K. Green, Aquila’s CEO, “but our roots run deep in the regulated utility networks business, where this company has 85 years of experience. During this period of turmoil in the merchant sector, investors need to keep in mind that we expect about 70% of our operating earnings before interest and taxes this year to come from our asset-based businesses like domestic and international utility operations and contracted generation sales.”

Green added that the there were no developments within Aquila in recent days to explain away the company’s declining stock price.

“The misguided actions of some of our peers is affecting the entire sector,” he said. “We’ve repeatedly confirmed that Aquila has operated in accordance with FERC and other guidelines. We are also well into our plan, called ‘Project BBB+/Baa1,’ and have reduced expenses by $100 million and expect to sell between $500 million and $1 billion of assets, both of which strengthen our credit metrics to ensure that we retain and ultimately improve our investment grade credit ratings.”

Last Thursday, a research note by Salomon Smith Barney analyst Ray Niles cited a need to “revisit its earnings estimates, growth rates and price targets” for El Paso Corp., Aquila Inc., Mirant and Williams Cos. The analyst said the main issues facing the companies were customer concerns because of the increased problems for the merchant sector, continued scrutiny of the entire industry by credit ratings agencies, a darker outlook for spark spreads, and additional legal and regulatory risks. Niles downgraded Aquila to “under perform/speculative risk” from “outperform/high risk” (see related story).

PacifiCorp has turned over to the Federal Energy Regulatory Commission a “sampling” of audio tapes of transactions that reveal it may have been an unknowing “intermediary” in a number of “ricochet” trades with third-party energy companies during the latter half of 2000. The tapes identified Aquila as one of the counterparties in the questionable transactions (see related story).

Aquila said earnings from its recently-acquired electric network in the United Kingdom and the independent power projects of Cogentrix, which Aquila expects to purchase in the third quarter of this year, will be included in its 2002 results.

The United Kingdom network operation serves 2.3 million customers and Aquila receives 80% of its earnings. The company said the Cogentrix acquisition will about double Aquila’s non-regulated generation capacity in operation and under construction, and nearly all the power output of the Cogentrix plants will continue to be sold under long-term contracts, providing Aquila with more stable cash flow.

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