Aquila Maintains 25% Growth Target, Comments on CA Situation

Aquila Inc. is maintaining its previously set 25% growth target for the year despite the downturn in energy stocks and the continuing regulatory and legislative tirade against western power generators and marketers. By remaining geographically diverse across the United States, Aquila executives said they effectively eliminate concentration risk.

"California is not much of our story," said Richard Green, CEO of Aquila parent UtiliCorp. Green spoke at a press briefing in Washington, DC, last Thursday. "The reason that it is not much of an issue for us is Aquila's risk control management back in April 2000 pointed to the fact that people in California were not going to be able to pay their bills, so [we decided to] start backing away from that. Because of that action, we don't have a lot to do with California today. We think that is a very positive thing for us."

Although the Federal Energy Regulatory Commission price mitigation order will have little direct impact on Aquila, Green said the company is "suffering from [it]" in other ways. "It sent all of our stock prices down by at least 20%. Basically, it is a very loud signal that the markets, the investors, the capital out there, don't want to deal with the uncertainty of government getting into business." Analysts have viewed FERC's action negatively because they say it limits the amount of money an energy company in California can make.

In April, Aquila Inc. made its initial public offering in grand style (see NGI, April 30), becoming one of the hottest traded IPOs in a lackluster market. The company came out of the gates at an opening price of $29.75 on the New York Stock Exchange --- almost 25% above its offering price of $24. The first-day offering raised about $430 million. However, the company said due in-part to FERC's recent action, its common share price has declined. The 80%-owned subsidiary of UtiliCorp said there has been no material change in its business strategy or earnings outlook (see NGI, June 25).

Richard Green said the market is "clearly overreacting" as usual to FERC's involvement. "People, especially for UtiliCorp and Aquila, will see that we don't have that kind of exposure and we expect investment to come back in to our stock."

UtiliCorp's business mix is continuing to change, as its merchant energy (Aquila) arm has grown from 20% of the company's bottom line in 1997 to an expected 40-50% in 2001. The company's international network segment also is leading the charge, growing from 19% to 28% from 1997 to 2000.

Jim Miller, UtiliCorp's senior vice president, also gave an outlook on natural gas prices. Although prices have fallen sharply, the days of $2.00-$2.50/Mcf gas are likely gone forever, he said. "We expect ample supplies to be available again fairly quickly. Storage is filling up, and [we] expect more stability in the market, but, the average price is going to come in at about $1-$2 greater than it was back in the 1990s," Miller said.

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