Closing down what was once the crown jewel and future of the company, Aquila Inc. said Tuesday that it is officially exiting the wholesale energy marketing and trading business operated by its Aquila Merchant Services subsidiary by the end of the third quarter. The company targeted “late September” for a complete exit from the segment.

The move makes good on the company’s June promise to close its Merchant Services unit by the end of summer and fire nearly all of its 1,100-plus employees across the country and overseas. The segment laid off “hundreds” of employees earlier in the summer (see Daily GPI, June 19). Aquila also embarked on an asset shedding frenzy in July (see Power Market Today, July 3).

Over the last two months, Aquila had announced major cutbacks within its energy trading unit and lowered its 2002 earnings guidance by 30%. The company said its energy trading profits totaled $270 million in 2001 and were expected to drop to around $55 million for 2002.

Since announcing plans in mid-June to reduce its risk exposure and restructure the business, Aquila has eliminated all market-making activity and speculative trading, commonly referred to as “proprietary trading.” Aquila added that the elimination of this activity has resulted in an approximately 90% reduction in physical throughput.

As a part of the restructuring process, the company said it has worked with The Blackstone Group during the past several weeks to explore its strategic exit options.

“While we had explored the idea of securing a partner, we believe it is in the best interest of our shareholders to completely exit the wholesale energy marketing and trading business,” said Robert K. Green, CEO of Aquila. “Our focus now is to ensure a coordinated and seamless exit.”

Due to the shutdown, the company said Aquila Merchant Services’ North American and European workforce of approximately 500 will be significantly reduced. Since May, Aquila said about 550 positions have been eliminated across all merchant operations. However, as part of its exit strategy, Aquila said it has reached an agreement with Chicago-based Citadel Investment Group to provide potential career opportunities with the investment firm for those Aquila employees directly impacted.

A spokeswoman for the company said it is still unclear as to how many of the 500 remaining marketing and trading employees will be let go. “There will be an opportunity for some of those employees to come over” to Aquila’s Capacity Services segment, which manages Aquila’s non-utility assets, Aquila’s Mary Amundsen said. However, she added that “we do want to acknowledge that there will be significant reductions in that 500.”

Following the late September shutdown of the energy trading business, Aquila said Capacity Services will only market energy from the assets the company owns or controls.

“Our wholesale energy marketing and trading business is operated by some of the best talent in the industry, and they have created considerable value for Aquila in the past decade,” Green added. “Their skills and experience have played a major role in our growth. The process of taking this business from a top-five energy marketer to a complete exit of trading has required tremendous effort and that reflects well on the professionalism and commitment of Aquila’s people.”

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