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Aquila sell Texas gas storage assets to ScottishPower’s PacifiCorp Power Marketing for $180m

8 August 2002 – Aquila, Inc has signed an agreement to sell its Texas natural gas storage operations for $180m in cash to PacifiCorp Power Marketing, Inc., ScottishPower’s Oregon-based competitive U.S. energy business.

Aquila’s Texas natural gas storage operations include the Katy storage facility near Houston, one of the largest operating storage facilities in the Southwest, two storage development opportunities and two other storage facilities in North Texas. The Katy facility has a working capacity of 21 billion cubic feet (Bcf) and has connections with 13 different pipelines. Katy currently has 16 Bcf of the 21 Bcf of working gas capacity under firm contract.

The two storage development opportunities, one planned for 4.5 Bcf and the other 12 Bcf, are at the Waha natural gas hub in the Permian Basin and the gas marketing area between the Houston Ship Channel and Beaumont. The two other Texas storage facilities are near Wichita Falls, Texas and Hamilton City, Texas.

Credit Suisse First Boston acted as Aquila’s exclusive financial advisor in this transaction.

“This announcement is part of our goal to sell $1bn in non-strategic assets,” said Robert K. Green, Aquila president and chief executive officer. “While we are selling our Texas storage operations, we still remain committed to continuing the development of our western gas storage properties, which include Lodi in California and Red Lake in Arizona.”

Aquila is actively working toward the sale of a number of its merchant assets, including its natural gas gathering and processing assets, as well as other pipeline and processing facilities in Texas and Oklahoma. In addition, it has announced the sale of its 16.58 per cent interest in the Lockport Energy facility for $37.5m in cash and that a short list of bidders has been selected for the sale of New Zealand-based UnitedNetworks, 55.5 per cent-owned by Aquila. UnitedNetworks is the largest energy distribution company in New Zealand.

The transaction is subject to regulatory review under the Hart-Scott-Rodino Act, which is expected to be completed within 60 days and to other pre-conditions to closing. The purchase price is subject to adjustment upon the occurrence of certain events prior to closing, such as a material casualty loss to the asset.

Earlier in the day Aquila reported a fully diluted loss of $5.69 per share for the second quarter, compared to earnings per share of $1.21 in the second quarter of 2001.

Excluding non-recurring charges of $966.4m or $858.5m after tax, second quarter operating earnings were $.34 per fully diluted common share. For the first half of 2002, the company reported a fully diluted loss of $5.49 per share, compared to earnings per share of $1.93 for the first half of 2001.

“This year’s second quarter was a very difficult one,” said Robert K. Green, Aquila’s president and chief executive officer. “The actions we have taken recently — such as exiting the wholesale energy trading business, reducing the dividend and writing down certain asset values — were painful but necessary steps as we transition back to our roots as an operator of network and generation assets.”

Green said that based on lower than expected power prices, higher interest costs and lower Quanta Services earnings, Aquila is reducing its full-year earnings guidance to $1.00 per share, down from previous guidance of $1.30 – $1.40. He said the largest factor is the lower than expected power prices reflecting reduced demand during the economic downturn, reduced liquidity in the energy market as players have exited, and the current over-supply of electric generation capacity.

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