Kansas-based Western Resources is exploring “several strategicalternatives” for its electric utility operations, which includefinding a merger partner as it attempts to separate its regulatedand unregulated assets and strengthen its market position. If amerger partner can’t be found, Western plans to look at otheroptions for its two electric utilities, KPL and KGE. It may form astrategic alliance with other companies, partner with anotherelectric or gas utility or possibly even sell them outright.

“This is the next logical step in our strategy to separate theregulated and unregulated assets of Western Resources, which wasannounced in March,” said David C. Wittig, Western Resourceschairman and CEO.

In late March, Western made a decision to separate its regulatedassets under a different corporate umbrella from its unregulatedassets (see Daily GPI, March 30). Thecompanies are becoming public entities with the separation, a changeexpected to occur through a voluntary exchange offer by the end ofthis year.

The new electric utility entity will be called Westar Energy,and will consist of KPL and KGE, which will provide electricservice to about 628,000 customers in Kansas. The non-electriccompany will be called Westar Capital and will consist of thecompany’s 85% interest in Protection One, a monitored securitycompany; 45% ownership interest in Tulsa-based Oneok Inc.; 100%ownership interest in Protection One Europe; 40% ownership inParadigm Direct LLC, a direct marketing company; and various otherinvestments.

This week the problem of separating the electric utilityoperations and finding a way to make them financially successfulfor the company took center stage.

“We understand that growth is essential to be successful in aderegulated electric environment,” Wittig said. “That has been ourview for some time — and remains our view today. Our electricoperations, while solid, are becoming comparatively smaller as theindustry consolidates. We look forward to partnering with anotherenergy company that offers compatibility, growth and opportunityfor our shareholders, customers and employees.”

Wittig said that “ultimately, this decision is based upon ourlong-held view that the electric business must be significantlylarger in order to prosper in a deregulated environment. We need toprepare for coming deregulation and the competition that willinevitably come to Kansas, and with it, rate equalization. While wehave extremely valuable assets, particularly on the generationside, these assets needs to be a part of a larger business.”

Wittig said that Western also would enhance its options to serveits “employees, customers and the communities in which we operate”as it begins to initiate the process of separation. Through anexchange offer, Western shareholders will be able to trade some orall of their Western common stock for shares in Westar Capital. Theexchange is expected to be a one-for-one exchange, with between 29million and 37 million shares exchanged. Western announced earlierthis month that it was decreasing the discount on shares soldthrough its direct stock purchase plan to 3% from 2% beginning June1. When the exchange is completed, Westar Energy will raise $300million in equity to retire debts.

Topeka-based Western also holds a 45% interest in ONEOK Inc.,the ninth largest natural gas distribution company in the U.S.,which serves more than 1.4 million customers.

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