Frantic efforts to extricate itself from the unprofitable energy trading business led to another steep loss at Aquila (ILA) in the second quarter.
The Kansas City energy company, which has been trying to transform itself into a pure-play utility for about a year, lost $80.6 million, or 41 cents a share, in the second quarter, compared with $810 million, or $5.69 a share, last year. The latest quarter included a $103 million impairment cost, mainly reflecting the termination of a contract, plus $20.8 million in restructuring charges, which included $17.8 million for getting out of an interest-rate swap.
The company said the loss was "anticipated" and noted it continued to sell off assets in the quarter, including an Australian venture, while strengthening its domestic networks business. "We will continue our restructuring through this year and next," Aquila said, "especially our work to address our remaining long-term natural gas contracts and fixed capacity payments for merchant power plants."
Reflecting the asset sales, sales fell 32% to $403.2 million.Aquila's problematic involvement with energy trading shows up in its capacity services segment, which lost $115.6 million before interest and taxes in the second quarter. The loss reflected a terminated contract, "higher gas prices which made it uneconomical to operate merchant plants," and a $28.6 million decrease in mark-to-market gains reflecting lower liquidity and electricity prices in the futures market. "Aquila does not expect capacity services to be profitable during the next two to three years because of the industry's excess generation capacity that became operational in 2002, the continued construction of additional power plants and the decreasing liquidity in the marketplace," Aquila said. "The resulting downward pressure on power prices has reduced the value of unsold merchant generation capacity."