The Missouri Court of Appeals for the Western District last week sent Aquila’s two-year-old purchase of St. Joseph Light & Power Co. back to the Missouri Public Service Commission. After an appeal by St. Joseph’s customer AG Processing, the court found that the PSC failed to decide whether the $92 million premium paid for the utility should be recovered from its customers as approved.

Aquila paid a total of $270 million for St. Joseph’s but the PSC allowed the company to pass through to ratepayers the market premium that was paid.

Aquila spokesman Al Butkus said the company still is digesting the appellate court ruling. “It’s a little confusing to be honest and we’re having to take some time to examine it to see what it really means. They sent it back to the PSC to have them reevaluate whether they had considered all the conditions that were necessary in the acquisition. It does put into question just where it really stands right now and nobody really has a clear feel on just what it really means.”

Butkus said it may result in the merger being overturned, the price premium recovery being rejected or possibly a new rate case to consider the price premium.

Standard & Poor’s said in a credit rating note that the development “adds some uncertainty to Aquila’s ability to pledge its Missouri utility assets in the future as collateral for its new financing arrangements.” S&P said it would continue to monitor the effect on Aquila’s restructuring plan if a reversal of the merger is decided.

Butkus said the ruling doesn’t limit Aquila’s financial ability. “We have other assets in Missouri and in fact some of the assets of St. Joes already are securitizing other debt. It’s all speculation right now as to what financial impact it could have.”

The company has been actively trying to strengthen its balance sheet and break many of its former ties with the merchant energy sector. Aquila also announced last week that it would exit its once promising gas and power business in Australia, where it had been an active participant since 1995, after agreeing to sell its assets for nearly $589 million to a consortium representing Australian-based AlintaGas, AMP Henderson and their affiliates.

The net cash proceeds, expected to bring Aquila nearly $445 million, will be applied toward prepayment obligations under its new 364-day secured loan and toward its restructuring plan. The transaction is targeted to close in the third quarter after a series of agreed regulatory, shareholder and related approvals are completed. Citigroup acted as Aquila’s adviser.

“The ultimate sale of our Australian properties will be another significant step in our plan to enhance our balance sheet and return our focus to operating highly efficient electric and natural gas utilities in North America,” said Keith Stamm, Aquila’s COO.

Aquila had been an active participant in Australia’s energy business after acquiring a 34.5% indirect interest in United Energy Ltd. in 1995, the first electric distribution utility to be privatized by the state of Victoria. United Energy serves 583,000 customers. In 1999 Aquila also acquired a 25.5% equity interest (48% economic interest) in Multinet Gas, a gas distribution business serving 630,000 customers in Victoria.

Just three years ago, Aquila acquired a 30% indirect ownership in AlintaGas. AlintaGas is a gas distributor and operates a retail gas business serving 463,000 customers in the state of Western Australia.

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