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Regulators OK Empire's Purchase of Aquila's MO Gas Utility Operation

Empire District Electric Co., a Joplin, MO-based electric utility, won final regulatory approval last Tuesday of its planned purchase of Aquila Inc.'s Missouri natural gas distribution operation, a move that puts it into the gas utility business for the first time. The Missouri regulators' nod puts the transaction on track to be completed by June 1 of this year, Empire District said.

The company has created the Empire District Gas Co. (EDG), a wholly owned subsidiary, to acquire and operate the Missouri gas utility operations, which serve approximately 48,500 residential, commercial, industrial and transportation customers in the Midwest state.

The Missouri Public Service Commission's (PSC) approval of the sale bars EDG from filing a rate increase request for nongas costs for three years following the closing date of the acquisition. Nongas costs include costs, other than the actual cost of the natural gas commodity, incurred by the company to provide service to its customers (such as pipes, service lines, meters and a return on investment), the PSC said.

In addition, the Missouri PSC order requires Aquila to transfer for the benefit of Missouri customers all physical hedges (i.e., fixed-price gas supply contracts) still in place for its Missouri gas operations to EDG at closing.

With the approval of the Missouri PSC "in place and transition teams working to ensure a smooth transition, we expect to meet our June 1 closing-date target," said Ron Gatz, vice president of strategic development for Empire District. Fifty-three employees involved in field operations of the Aquila gas utility are expected to be transferred to Empire and retained to operate the system. Empire said it plans to add 25 to 30 employees, some at system locations and some in Joplin.

Earlier this month, Aquila completed the sale of its gas utility operation in Michigan to Michigan Gas Utilities Corp., a subsidiary of WPS Resources Corp., for an estimated $269.5 million, plus an adjustment for working capital and other items. Michigan Gas Utilities now serves more than 160,000 former Aquila customers in the state.

Aquila also is awaiting regulatory approval to sell its gas utility operations in Minnesota to WPS. Aquila spokesman Al Butkus said it expects to close on this deal and others by the end of the year. Aquila has 190,000 gas utility customers in Minnesota.

Kansas City, MO-based Aquila is not exiting the gas utility business completely. It will retain its gas operations in Iowa, Nebraska, Kansas and Colorado, according to Butkus.

In addition, Aquila is awaiting regulatory approval of the proposed sale of its electric utility system in southwestern Kansas to Mid-Kansas Electric Co., a coalition of six consumer-owned cooperatives, for $255.2 million, he said.

The series of asset sales, which Aquila first announced in September 2005, is intended to reduce the company's debt incurred in its venture into wholesale marketing and the market crash of 2001.

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