Great Plains Energy Faces Regulatory Opposition to Aquila Acquisition

By Steve Everly, The Kansas City Star, Mo.

Dec. 4–Great Plains Energy’s top executive, after privately meeting with Missouri regulators in January about acquiring Aquila Inc., thought there would be few “significant” objections to shifting more costs to Aquila customers.

But after a regulatory hearing Monday in Jefferson City, he may be reconsidering that view.

Several parties — including the Missouri Public Service Commission’s staff, the Missouri Office of Public Counsel and several industrial users — oppose the deal. They argue that it would be bad for Missouri and could cost Aquila’s customers in the state up to $80 million each year in higher rates.

But the five members of the Public Service Commission will decide whether the state should allow the purchase to proceed, and it was disclosed Monday that those regulators were privately briefed before the deal was announced in January.

Michael Chesser, Great Plains’ chief executive officer, testified that no commitments were asked for from the regulators, and none were received. Instead, the meetings were held to determine whether there would be any objections to what would be filed with regulators.

“We didn’t hear anything significantly negative,” Chesser said.

In fact, Aquila’s chief executive, Richard Green, in an e-mail that was declassified late Monday, said that Jeff Davis, the commission’s chairman, wanted to quickly approve the sale.

Green, who sent the e-mail after his briefing with Davis in January, wrote: “He is aware of the aspects of the transaction which may consume some political capital.”

A spokesman for the Public Service Commission said that Davis would not comment because the case was before the regulators.

Lewis Mills, head of the Missouri Office of Public Counsel, disclosed the meetings Monday and said he became aware of them last week during legal depositions.

Such meetings by themselves are not unusual; companies often brief regulators about events such as planned acquisitions. And if the briefings occur before a case is filed with the commission — as was the case with the Aquila sale — the regulators are not required to disclose the meetings.

But Mills said the meetings were unusual in that they were not general briefings but were quite detailed, including plans to saddle Aquila’s customers with interest costs from the debt load caused by Aquila’s deregulated businesses. Shifting those costs was part of Great Plains’ plans as far back as 2006, when the company began seriously considering buying Aquila.

“We do know the CEOs came away with positive feelings,” Mills said.

Under the $1.7 billion deal, the assets of Aquila’s other utilities in Iowa, Nebraska, Kansas and Colorado are to go to a South Dakota energy company, Black Hills Corp., for $940 million. Great Plains will acquire Aquila’s electric utilities in Missouri, which are the company’s major assets.

Great Plains, the parent of Kansas City Power & Light Co., had expected to have an advantage by arguing that Aquila’s customers, shareholders and employees would be in a vastly better position after the purchase because Great Plains is in much better financial shape than Aquila.

But on Monday, the reception was different from what Chesser had expected.

Davis asked Chesser why, if the deal was so good, were all the parties representing consumers against it? At one point Davis even asked whether he was from Mars and Chesser was from Venus, because he was also having trouble understanding how the deal was a benefit to consumers.

“I think we don’t have a meeting of the minds,” Davis said.

To reach Steve Everly, call 816-234-4455 or send e-mail to severly@kcstar.com.

—–

To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.

Copyright (c) 2007, The Kansas City Star, Mo.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NYSE:GXP, NYSE:ILA, NYSE:BKH,