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Energy traders are closing the books on another gloomy quarter.


( ILA) declared the third quarter -- and in fact the entire year -- an outright disaster on Thursday.


(WMB) - Get Williams Companies, Inc. Report

, more apt to search for a silver lining, tried to divert attention to its new "core" divisions in light of a $388 million trading loss. Even


(CMS) - Get CMS Energy Corporation Report

, which delivered surprisingly strong third-quarter results, saw any market celebration tempered by warnings of an ugly quarter to come.

The news from Aquila was easily the day's worst. The Kansas City-based power company suspended its 17.5-cent quarterly dividend for "an undetermined period," following a third quarter that saw sales drop by 28% and the bottom line swing to a loss. All told, the company lost $332 million, or $1.85 a share, compared to last year's third-quarter profit of $68.9 million, or 58 cents a share.

Excluding special charges, Aquila posted a net loss from continuing operations of $156 million, or 14 cents a share. Analysts were expecting the company to earn, rather than lose, that amount.

Grass Is Green

The devastating news whacked more than a third from Aquila's share price. The stock, which plunged to $2.21 on Thursday, is now skating near a 52-week low of $2.02 set during a massive selloff this summer.

Even so, Aquila CEO Richard Green insisted that his company is on the road to recovery.

"We plan to do more than survive," Green said Thursday. "Aquila's liquidity is sufficient to ensure that Aquila can continue to operate safe and reliable utility networks and maintain quality customer service.

"This remains a healthy core business."

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Like many of its utility-based peers, Aquila has weathered a backlash from its aggressive expansion into the once-hot energy trading business. The company blamed much of its poor third-quarter performance on costs associated with trading, a business it's winding down, and warned of "significant" fourth-quarter charges. In addition, the company said that it will face difficulty regaining compliance with interest coverage requirements before the end of next year, although it has established a short-term fix for now.

Splendid Splinter

Williams, hammered by similar trading losses, was more upbeat. The Tulsa-based energy concern chose to celebrate "100% increases" in third-quarter profits at divisions outside energy trading. But those profits merely softened a company-wide loss of $294 million, or 58 cents a share, that contrasted sharply with the $221 million profit Williams enjoyed in the final quarter before Enron declared bankruptcy last year.

The company's 40-cent loss from continuing operations fell well short of analysts' expectations of a 3-cent profit and paled in comparison with last year's third-quarter income of 59 cents a share.

The market, after waiting weeks for a delayed earnings report, had clearly expected worse. Investors pushed shares of Williams up 8.6% to $2.64 in midday trading Thursday.

But the threat of bad news still looms. Williams cautioned Thursday that major trading-related charges could be coming in the next quarter. The company dodged requests for details, even after one analyst questioned whether such charges could hit $1 billion.

"It might be useful to get everything out on the table now

to eliminate headlines down the road," a UBS Warburg analyst insisted during Thursday's conference call.

CEO Steve Malcolm declined that offer. Malcolm was similarly evasive about the terms of a financing package this summer that, when made public through obligatory regulatory filings, revealed a staggering 30% interest rate.


CMS, at least, managed to post solid third-quarter earnings fueled by strong returns from its utility. The Michigan-based power company reported net income from ongoing operations of 42 cents a share, sailing past analysts' estimates of 31 cents and last year's profits of 26 cents.

But like Aquila and Williams, CMS expects massive trading charges next quarter. In total, the company plans to record nonrecurring items that will result in a net quarterly loss of $3 a share.

In the meantime, some CMS critics continue to fret about CMS's stunning -- and ever-growing -- debt ratio. Even after paying down significant debt in the third quarter, the company expects its debt-to-capital ratio to hit 77% by year's end. Counting preferred securities, one short-seller pointed out, that ratio would be a "ridiculous" 87%.

The company itself admitted that its higher debt ratio will put it in violation of at least one covenant. But it downplayed the consequences, saying that it can still finance its operations as planned.

In the meantime, CMS assured investors that it will protect the company's dividend and try to seek cash elsewhere.

"CMS is the kind of company that has to pay a dividend," said CEO Ken Whipple. "It's an important part of our total return to shareholders."

Still, nagging liquidity concerns appeared to weigh down on the stock. Despite the third-quarter upside surprise, CMS managed to tack on only 18 cents to hit $8.28 in early afternoon trading. The same stock fetched three times that amount at the beginning of the year.