Aquila will pay $26.5 million in natural gas prices investigation

Associated Press - January 29, 2004

KANSAS CITY, Mo. - Aquila Inc. has agreed to pay a $26.5 million fine to settle charges that it sought to manipulate natural gas prices for more than three years, federal officials said.

The Commodity Futures Trading Commission announced the fine Wednesday. It said that from at least January 1999 to June 2002, Aquila's energy-trading employees gave false information to companies that calculate natural gas price indexes. Those indexes are used by gas utilities and others to set prices.

Under the settlement, the Kansas City-based utility company does not admit or deny any wrongdoing.

Al Butkus, a spokesman for Aquila, said the company agreed to pay the fine so it could focus on its plan to return to being solely a utility company. It closed most of its trading arm in 2002. The $26.5 million fine is the second-largest of 13 settlements the government has attained so far in an investigation of energy companies trying to manipulate gas prices. Federal officials that the penalties generally were set to reflect the seriousness of the violations.

"They're set at a level to reflect the scope, gravity and nature of the violations we have uncovered," said Gretchen Lowe, an associate of enforcement for the federal agency.

The Commodity Futures Trading Commission also announced Wednesday that four other energy companies had agreed to pay a total of $23.5 million to settle similar charges.

The other companies that settled Wednesday include Oneok Inc., the parent company of Kansas Gas Service. Oneok agreed to pay $3 million to settle charges that it had sought to manipulate natural-gas prices from February 2001 through October 2002.

Trading commission officials said Wednesday that the commission was ending its investigation into the manipulation of natural-gas markets, although it could be reopened. The largest fine was paid by Duke Energy Corp.

The charges against Aquila involved its energy-trading subsidiary, Aquila Merchant Services, while it was based at Aquila offices in downtown Kansas City. The trading commission said Aquila Merchant traders provided false gas trade prices and volumes to trade publications that calculated the price indexes. In some cases, nonexistent trades were reported to the indexes, the commission said.

The trade publications used the information to calculate wholesale gas prices for various parts of the United States. Aquila Merchant Services could benefit, for example, by reporting higher prices than it actually sold or purchased gas for, which would raise the index price. Aquila Merchant Services could then sell gas it had at the higher price.

The trading commission concluded that Aquila continued its attempt to manipulate gas prices until June 2002, the month Aquila announced that it was leaving the energy-trading business.

Information from: The Kansas City Star