Missouri PSC Staff Warns Aquila Sale Could Raise Bills for Customers

    The Missouri Public Service Commission's staff, consumer advocates and large utility customers are urging the commission to reject the sale of Aquila Inc.'s Missouri electric operations to Great Plains Energy Inc. In documents filed with the commission this week, opponents warn that the sale could lead to higher bills for Aquila's 300,000 electric customers in Missouri, as well as 498,000 of Great Plains' own customers in Missouri and parts of Kansas. Commission staff members estimate those customers could pay up to $72 million a year over the next five years, with about $60 million borne by Missouri customers alone. The group said Great Plains, through its Kansas City Power & Light, will have to pass on to customers the costs of the $1.6 billion acquisition to keep from hurting its credit rating, which could cause the company to pay more to borrow money. ``Great Plains Energy does not have the financial strength to acquire Aquila and absorb Aquila's financial difficulties without seriously weakening (its) financial condition,'' the PSC staff said in its report. ``I just don't see how you can resolve it,'' said Lewis Mills, head of the Missouri Public Counsel office, which represents customers before the commission. Mike Deggendorf, Great Plains' vice president of public affairs, said the Aquila purchase will actually save consumers money as the two companies streamline operations. He said Great Plains expects the deal to save $30 million over the first five years and then continue to grow. ``I think you really have to look at it as a long-term solution for Aquila and its customers,'' Deggendorf said. But the $30 million figure doesn't include a number of costs Great Plains wants to charge to Aquila's customers to cover expenses left over from Aquila's past forays in non-utility businesses, such as energy trading. For example, the company wants customers to cover an estimated $24.4 million in higher interest payments caused by Aquila's junk credit rating. Aquila received the rating after investing in a number of unregulated businesses, building up debt and having financial problems, especially after Enron Corp.'s collapse took much of the energy trading sector with it. Great Plains also is asking that Aquila customers pay for the steps needed to raise Aquila's debt rating back to investment grade. It hasn't provided an estimate for how much that would cost or how long those steps would take. The Kansas City-based utility plans to buy Aquila's electric operations in Missouri for $1.7 billion. The company's remaining electric and natural gas operations in Iowa, Kansas, Colorado and Nebraska would be sold to Black Hills of Rapid City, SD, for $940 million. The big question facing the PSC is whether customers should have to pay costs previously laid on shareholders and whether the promised savings from the deal are real or illusory. Aquila customers could face paying $95 million in transaction costs, including severance payments for Aquila's departing officers. Also, charging the customers for the effects of its unregulated businesses would be a change in how Aquila dealt with those costs in the past. For years, customers paid interest costs calculated as if the company's debt was at investment grade and shareholders would cover the rest. PSC staff criticized Aquila for agreeing to change that formula to rely on customers only. ``Ratepayers should not have to pay higher rates to make Aquila's situation sufficiently attractive for (Great Plains) to acquire Aquila,'' the staff wrote. Jon Empson, an Aquila senior vice president, said those costs are offset by the savings the company will realize from the sale - savings the company wouldn't have been able to achieve otherwise. ``I feel if there is a net benefit to the customer, why wouldn't you try to do that?'' Empson said. But critics say those savings are difficult to measure and may be exaggerated. For instance, some of the savings would have been possible even if the company wasn't sold.