7 August 2002 – Kansas City-based utility Aquila Inc. said yesterday it would close its wholesale energy marketing and trading business operated by its Aquila Merchant Services subsidiary by the end of the third quarter.

The move is the latest setback for the already beleaguered energy trading market, which has seen a collapse in trades following allegations of sham trades and questionable accounting practices.

Aquila has worked with The Blackstone Group during the past several weeks to explore its strategic exit options and to restructure its trading activities. It announced on June 17 its intention to reduce its risk exposure and restructure the business. Since then Aquila has eliminated all market-making activity and speculative trading, commonly referred to as “proprietary trading.” The elimination of this activity has resulted in an approximately 90 per cent reduction in physical throughput.

“While we had explored the idea of securing a partner, we believe it is in the best interest of our shareholders to completely exit the wholesale energy marketing and trading business,” said Robert K. Green, president and chief executive officer of Aquila. “Our focus now is to ensure a co-ordinated and seamless exit.”

As a result of today’s announcement, Aquila Merchant Services’ North American and European workforce of approximately 500 will be significantly reduced. Since May, about 550 positions have been eliminated across all merchant operations.

In conjunction with its exit strategy, Aquila has reached an agreement with Chicago-based Citadel Investment Group to provide potential career opportunities with the investment firm for those Aquila employees directly impacted.

“Our wholesale energy marketing and trading business is operated by some of the best talent in the industry, and they have created considerable value for Aquila in the past decade,” said Green. “Their skills and experience have played a major role in our growth.

“The process of taking this business from a top-five energy marketer to a complete exit of trading has required tremendous effort and that reflects well of the professionalism and commitment of Aquila’s people.”

Following the late-September shutdown of the energy trading business, Capacity Services, which manages Aquila’s non-utility assets, will only market energy from the assets the company owns or controls.

Aquila has been under investigation by the regulators but has denied “round trip” trading. Aquila joins a growing list of big merchant energy trading houses pounded in the aftermath of the demise of Enron Corp., which filed for bankruptcy in December.

Aquila will still market power produced by the assets the company owns or controls through its capacity services unit after the shutdown of its wholesale trading business.

Shares of Aquila, which runs power and natural gas distribution networks serving more than 6 million customers, were up 23 cents at $5.97 on the NYSE yesterday.