The financial storm enveloping Aquila Corp. — cuts in its credit rating to below investment grade, forced asset sales, restructuring of its operations and widespread federal investigations into its trading — will have “possible negative impacts” on the company’s regulated natural gas distribution facilities and power utilities in Missouri, but an immediate rate hike doesn’t appear to be in the cards for customers, according to a Missouri Public Service Commission staff report.

“While Aquila’s financial problems are significant and these problems are expected to continue through the next year [2003], there is no immediate threat to Aquila’s Missouri ratepayers through an increase in rates,” the MoPSC staff said in a 60-plus page report released in December. It noted the state agency has “several ratemaking options” at its disposal to mitigate the effects of Aquila’s higher cost of capital and other credit problems on Missouri energy customers.

Nevertheless, “changes that have occurred at Aquila over the last year have created conditions that can be detrimental to the operation of Aquila’s Missouri regulated properties,” the report noted. Staff “has identified the need to monitor the situation and identify areas that may potentially be or currently are potential problems.”

Kansas City, MO-based Aquila, formerly UtiliCorp United, operates natural gas and electric utilities in seven states and Canada. In Missouri, subsidiary Aquila Networks serves about 300,000 electric and 55,000 natural gas customers.

In addition to the prospect of customer rate increases, MoPSC staff said it was concerned Aquila’s reduced access to funds would diminish the quality of service offered by the company’s utilities in the state, and that its work force reductions would lead to service and safety problems.

“Recent events involving Aquila have created an environment conducive to diminished or reduced levels of customer service,” the report said, adding that cost-cutting moves would cause “detrimental customer” staffing reductions, service order back-logs, delayed field work for service connections, slower call-center responsiveness, and poor billing practices.

Staff noted that customer complaints filed with the MoPSC against Aquila rose nearly 100% from 146 in 2000 to 287 in 2001. “This significant increase and rising trend in commission complaints is an indication of customer concern or dissatisfaction with Aquila,” the report said. Complaints against the company fell to approximately 224 in 2002, but staff noted this still represented a 54% increase over 2000.

Responding to the staff report, Aquila said “we are well aware of the increased outside scrutiny that exists as a result of our current financial situation, and have, in fact, increased our own focus on customer service.”

Along with the potential customer impacts, MoPSC staff warned the state commission that it may find itself in over its head in dealing with some of the fallout from Aquila’s financial troubles.

“The financial effects of Aquila’s operating performance, the winding down of its wholesale energy trading business and its asset sales program have caused Aquila to not be in compliance with certain debt agreements with its lenders. The impact of future developments from this condition could result in proceedings before the commission that are unprecedented and require expertise not readily available to the agency.”

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