Aquila ( ILA) continues to pay a high price for its ambitious ventures outside its stable utility business.

The Kansas City-based company posted a massive second-quarter loss of $810 million, or $5.69 a share, after taking one-time hits for a bad investment in a contracting company and costs associated with its exit from the energy trading business.

Excluding those one-time losses, as well as a mark-to-market accounting gain, Aquila hit earnings expectations of 18 cents a share.

But the market punished Aquila, pushing the stock down 12.5% to $5.25, following news of the catastrophic quarter and a dismal outlook for the full year. The same stock fetched more than $30 during the 2001 heyday that preceded Enron's bankruptcy and an industrywide meltdown.

Aquila Chief Executive Robert Green described the recent quarter as a "very difficult one" for the industry and his company in particular.

"The actions we have taken recently -- such as exiting the wholesale trading business, reducing the dividend and writing down certain assets -- were painful but necessary steps as we transition back to our roots as an operator of network and generation assets," Green said.

Aquila was forced to slash $693 million from the value of its stock in Quanta, a Houston energy services firm whose share price has hemorrhaged more than 90% since last summer. Aquila also took roughly $250 million worth of charges related to a wholesale energy trading business that, it announced Tuesday, it will abandon.

The company sharply reduced its 2002 outlook, shaving full-year guidance by 26% to $1 a share. It blamed the downturn on lower power prices, a glut of electric generation capacity and rampant turmoil within the merchant energy sector.

Aquila is now attempting to reduce itself back into a simple utility, shedding energy trading and selling off noncore assets to protect its future viability. The company expects to end the year with $774 million in cash and available credit, providing it escapes the junk credit ratings that have pushed some of its peers to the brink of bankruptcy.

In the event of a single downgrade to junk, Aquila must tap $238 million of that amount to meet additional collateral requirements. A second downgrade would increase the requirement by nearly $100 million.

To further bolster liquidity and ward off a cash crunch, Aquila is hoping to sell $1 billion worth of assets into an already flooded market.

Jay Dobson, an analyst at Deutsche Bank, questioned whether Aquila would be forced to sell assets to "vultures" at a loss in an environment where that's already happening.

"We expect some attractive value," Green reassured, but he stopped short of saying Aquila might realize any gains on the transactions.

On Wednesday, Aquila announced it will sell its 80% stake in a British utility it paid $264 million for just three months ago. At least three other companies -- CMS Energy ( CMS), Dynegy ( DYN) and Williams ( WMB) -- have recently sacrificed some of their most valuable assets in a desperate rush for cash.

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