Aquila Looking for Generation Partner
Break out a top gas and power marketer, like for instance,
Aquila Energy, from its regulated brethren at UtiliCorp United, and
partner it with an aggressive, hard-charging independent power
producer (IPP), like for instance, Calpine, and you could create a
dynamic front-runner in the energy market.
Add some broadband assets and an extra measure of bandwidth
trading, and you would have a triple crown contender in the
reassembled, competitive utilities business.
So far UtiliCorp executives aren't saying who their partner
might be --- "we're talking with a number of companies" --- but
they have acknowledged they are getting close to a deal with a
company holding generating assets.
"We see Aquila right now as very marketing rich and a bit asset
light," Edward Mills, president and COO of Aquila Energy, told NGI.
"We see generation fleets coming on, and they are basically asset
rich and marketing light. Put those two types of organizations
together and it becomes more of a pure-play in terms of Wall
Street's perception, and I think it's valued differently than the
way a conglomerate utility is valued today. We think a lot of value
is trapped in UtiliCorp right now, and for whatever reason, the
market is not recognizing the value of Aquila."
The disaggregation of the electric utility industry is providing potential
partners, Mills said, following up on remarks made by UtiliCorp COO Robert
Green, who revealed the plan to add generation assets during the company's
second quarter earnings conference call. (see NGI, Aug.
7) The idea would be for UtiliCorp to put Aquila Energy into the new company
and hold a "cornerstone" of the joint venture, with the generator holding
another cornerstone. Eventually, shares could be sold to the public.
Mills said UtiliCorp is looking for a company with between 4,000
and 10,000 MW for a "first combination. We would look to grow after
that through other combinations. We are looking for a non-regulated
generation fleet, or at least a fleet that is being pulled away
from regulation so that we have the opportunity to take the excess
energy from those units and sell into markets where energy is most
"The other thing we would look for is a fleet that is
strategically located so we could get access to a number of
different markets," Mills added.
One rumor picked up in Kansas City last week shown the spotlight
on Calpine Corp., an IPP, that currently has interests in 44 power
plants with an aggregate 4,273 MW of capacity. The San Jose,
CA-based IPP has projects underway to add 5,935 MW and plans for
additional facilities. When current projects are completed Calpine
will have interests in 54 power plants in 17 states.
The possibility makes sense, according to Ed Tirello, analyst
with Deutsche Banc Alex. Brown, who noted that Calpine is looking
to beef up its marketing. "It would be a good, natural fit."
Aquila recently completed the process of moving its 400
employees into new downtown Kansas City office space and held a
grand opening ceremony, which included Kansas City Mayor Kay Barnes
cutting the ribbon for a new trading floor. The 15-year old energy
marketing arm led the company's earnings last quarter at $49.5
million, gaining 113% from the same period a year ago. For the
first half of 2000 Aquila has increased sales 39% and profits by
141% over last year.
The number of employees is due to be expanded as Aquila adds
bandwidth trading to its gas and power marketing. Aquila ranked
third last year in natural gas trading and second in power trading.
It is now aggressively building a bandwidth trading unit under the
direction of Sushil Nelson, general manager of Aquila Broadband
Nelson believes the bandwidth market will grow to be twice the
size of electricity in four years. By the end of the year he
expects it to be traded along 10 to 14 city-pairs. "We are
preparing for this increase and are looking to increase our
bandwidth trading staff tenfold by the end of the year," Nelson
told NGI. Aquila currently is working with the Bandwidth Trading
Organization on a standard contract.
In other action, Aquila Energy last week announced it will make
an initial investment of $50 million to develop its e-business
portfolio, including an interactive web site for its
GuaranteedWeather products. Aimed at providing risk managers with
the best available weather-related tools as well as wholesale
weather trading, the website features a contest for the best
long-term weather forecasting. A $100,000 per year prize for the
next three years will be awarded to the weather forecasting firm
for the forecaster that most accurately forecasts weather variables
during summer and winter periods. "This is directed at getting
better weather data oriented to business," said Al Butkis, vice
president corporate communications. Even a 10% difference in
accuracy can mean a big difference to businesses.
Ravi Nathan, portfolio manager for Aquila's weather desk pointed
out, "Today there is no objective way for businesses to measure the
relative accuracy of the different forecast products available."
Dexter Steis, Kansas City; Ellen Beswick, Washington