Following on recent business activities of Aquila Inc. (formerly UtiliCorp United Inc.), including a credit rating downgrade by Fitch Ratings, the Kansas Corporation Commission (KCC) has instituted an investigation to determine the impact of the company’s unregulated businesses on the ability of its jurisdictional utilities to serve the public.

The commission on March 11 asked Aquila to report by June 14 on its standards and practices for affiliate transactions and to show why actions by the affiliate or holding company will not adversely impact the ability of the electric utilities to provide service. The KCC also directed its staff to prepare a report by Sept. 13 on whether “current accounting guidelines can effectively evaluate, measure and monitor the impact of the financial condition of the holding company on the electric utility’s operations.”

The staff also will address whether accounting procedures and practices correctly and adequately disclose and record affiliate transactions, the separation of assets owned and liabilities of the electric utility. The KCC wants to determine if there is subsidization of the unregulated businesses by the regulated business. It also wants to determine whether “any guidelines or criteria need to be imposed” on a company’s interest in or affiliations with unregulated parts of the business.

Aquila’s regulated businesses includes WestPlains Energy Kansas, Kansas Public Service and Peoples Natural Gas, serving 165,000 customers in the state. The case follows a similar one involving Western Gas Resources Inc.

In its investigation order (02-UTCG-701-GIG), the KCC referred to UtiliCorp’s spinoff and subsequent recombination of its Aquila subsidiary, which markets natural gas, power and other commodities and conducts risk management activities, and which holds natural gas gathering, transportation, processing and storage assets, along with power generation assets. It noted that although the Federal Energy Regulatory Commission had passed on certain aspects of Aquila transactions, the company had not notified Kansas regulators of UtiliCorp’s pledge of credit to Aquila when it was spun off, nor agreements made with Aquila.

It also noted the Fitch action of Feb. 27 downgrading the company’s credit rating from BBB to BBB-, the lowest investment grade. In addition, Kansas regulators mentioned UtiliCorp’s capital spending budget of $600 million and the purchase of the UK’s Avon Energy, which, they noted, would entail additional debt. Aquila already has submitted Securities and Exchange Commission documents requested by the KCC.

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