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UtiliCorp Shopping for Generator Partner for Aquila Energy

UtiliCorp Shopping for Generator Partner for Aquila Energy

Kansas City, MO's Utilicorp United Inc. is shopping around, and has already begun to narrow its options on which "high quality, low-cost fleet of generators" to pair with its wholesale merchant moneymaker Aquila Energy, management announced last week. A partnership deal is expected to be unveiled within a few months.

In its second-quarter earnings conference call with investors, UtiliCorp's CEO Richard C. Green Jr. said that subsidiary Aquila Energy, one of North America's largest electricity and natural gas wholesalers, helped the company to another record quarter, with most of its growth in the commodity business. Commodities alone helped to offset lower earnings from UtiliCorp's networks segment, and also allowed the company to surpass its results for the same period in 1999.

Based on Aquila's strong performance, the CEO said Utilicorp, which has international interests in electricity and natural gas services, is considering all proposals as it looks for a quality power generator to partner with its high achiever. Aquila earnings before taxes and interest were up 113%, standing at $49.5 million for the quarter.

"In terms of growth, on the merchant side of the business, Aquila continues to see strong interest in partnership opportunities and that continues to be a number one priority --- to partner Aquila with a attractive fleet of generators," said Robert Green, COO. "We expect to be announcing results in that regard over the next few months."

Overall, the growth was good across the board at Utilicorp in the second quarter, which saw its profit rise 18% in the period, beating analysts' estimates. Profit was keyed by a better-than-expected demand for its power, weather and generation services. Net income rose to $29.3 million, or 31 cents a share, compared with $24.8 million, or 27 cents in 1999's second quarter. Wall Street's First Call/Thomson Financial had predicted UtiliCorp to earn 30 cents.

UtiliCorp's expanding services segment contributed $7.7 million to second-quarter earnings, "This segment includes our broadband telecommunications business as well as our 36% ownership interest in Quanta Services Inc.," COO Robert Green said. "We are expanding our local broadband services in selected markets and expect this business to grow significantly over the next few years." Utilicorp entered into the strategic partnership with Houston's Quanta Services, an electric line company, last year.

CEO Richard Green said the company was "especially pleased" with the overall health of UtiliCorp, which he said is on a pace to grow at least 8% through the year. "Most of the company's improved performance came from Aquila's gas and power trading, with a "particularly pleasing performance out of our power trading business," said Peter Lowe, CFO. UtiliCorp's earnings before interest and taxes (EBIT) for the second quarter were $103.9 million, up 21% from $85.6 million a year ago.

Commodity services earned $34.2 million, up from $9 million for the same period a year ago, "reflecting a continuation of a record performance in 2000 across all major North American commodity markets," said Richard Green.

Aquila's natural gas liquids business also contributed this quarter, reflecting strong NGL pricing.

Not all of the news was good. UtiliCorp's U.S. energy networks' earnings plunged 38% to $17.1 million in the second quarter, down from $27.6 million a year ago. The spiral resulted from increased costs in purchased power, and Lowe said the company had miscalculated how high natural gas prices would go in the time period, a miscalculation that CEO Green said would not happen again. Increased operating costs and depreciation that relate to the company's continued investment in upgrading its technology infrastructure also brought earnings down in this segment, but Lowe said that the IT costs are part of upgrading the business, and won't be repeated.

Besides Aquila's continuing ascent, Utilicorp expects to see its broadband telecommunications business grow in the next few years, with local service expanded in "selected markets."

Robert Green said that the $450 million purchase of TransAlta Corp.'s electricity distribution and retail assets in Alberta has been approved by the Alberta Utility Commission, and that deal is expected to close this month. When complete, it will add 350,000 customers to UtiliCorp's Canadian networks operation, and will add to 2001 earnings.

Completed mergers in the United States also will help the bottom line next year, said the COO. On Thursday, one of its mergers, that with St. Joseph Light & Power Co., is nearing completion, and the utility announced that it has passed federal anti-trust reviews. The merger has already received approval from the Federal Energy Regulatory Commission, and the state regulatory agencies in Iowa, Minnesota, West Virginia and Colorado, and is expected to be completed before the end of the year.

Carolyn Davis, Houston

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