Aquila Reaffirms Liquidity Position and Credit Standing in Response to Yesterday's Market Activity

Business Wire, August 16, 2002

Business Editors

KANSAS CITY, Mo.--(BUSINESS WIRE)--Aug. 16, 2002

In response to yesterday afternoon's stock price and related inquiries, Aquila, Inc. (NYSE: ILA) today is releasing answers to a number of questions asked by investors.

-- Liquidity Position - We would like to reiterate that our current liquidity position of $754 million, as disclosed in our second-quarter Form10-Q, has not changed. Our liquidity position as of today is comprised of $492 million in domestic cash, $80 million in highly liquid commodity inventory, and $182 million of availability on a $650 million revolving line of credit (50 percent of which expires April of 2003 and the other 50 percent in 2005). On Wednesday, August 14, we converted $400 million of our revolving credit facility to cash. We routinely draw and replenish our working capital facility in the normal course of managing the cash needs of our company. The use of proceeds for the draw is to replenish our cash balance from $92 million (as disclosed in our August 14 Form 10-Q filing) to a normalized level of $250 million, to repay scheduled debt maturities coming due later in the year and for general corporate purposes. We expect that a portion of the draw will be repaid upon consummation of the recently announced and future asset sales.

-- Collateral Requirements - In response to questions raised during our August 8 earnings conference call, we indicated that there were certain impacts related to a credit downgrade that were difficult to specifically quantify due to variables such as the credit status of our counterparties, the amount of collateral requested and the ultimate outcome of negotiations with counterparties. However, in response to a number of questions following the August 8 call, our management provided its best estimate of those additional amounts in our second-quarter 10-Q, which amounted to approximately $135 million. We believe that our liquidity position should be sufficient to meet short-term demands in the event of a downgrade by one or all three agencies as stated in the August 14 Form 10-Q.

-- Credit Standing - We believe that recent actions taken by the company improve our credit standing and demonstrate considerable progress toward achieving our goal of maintaining a strong investment grade credit rating profile for the company. We are in the process of completely exiting the wholesale energy trading business and are currently liquidating most of our remaining trading positions. In early July, we completed equity and debt offerings totaling $764 million in net proceeds. We have executed contracts for asset sales totaling $218 million to date, and we are making progress with the remainder of our $1 billion asset sale program. We are currently in the process of completing several additional bid processes, including the publicly announced sale for our New Zealand and United Kingdom investments. We reduced our dividend by 42 percent to provide additional financial flexibility and to more appropriately match earnings and fixed charges. We have made considerable progress in our cost-savings initiatives, identifying and implementing $100 million in cost reductions on an annualized basis already this year.

-- Cash Flow Reclassification - On August 14 the company filed an amended Form 10-K to reclassify $110.8 million cash flows from operations for the year ended December 31, 2001, into cash flow from investing activities. In April 2001, our Aquila Merchant Services operating unit completed an initial public offering. Simultaneously, we sold 5,750,000 shares directly to the public that resulted in a gain of $110.8 million. The $110.8 million cash gain was fully and completely disclosed in our 2001 Form 10-K filings. In discussion with our new auditors in preparing our second quarter Form 10-Q, it was decided that even though the gain was from the IPO of one of our operating units, we should classify the resultant cash as "cash flow from investing activities" instead of "cash flows from operations." The result is that cash flows from operations for the year ended December 31, 2001, decreased by $110.8 million and cash flow from investing activities increased by $110.8 million, however, total cash flow for the year has not changed.

Based in Kansas City, Missouri, Aquila operates electricity and natural gas distribution networks serving more than six million customers in seven states and in Canada, the United Kingdom, New Zealand and Australia. The company also owns and operates power generation and mid-stream natural gas assets. At June 30, 2002, Aquila had total assets of $11.9 billion. More information is available at www.aquila.com.

Forward-looking Information

The word "believes" and similar expressions identify forward- looking statements. Important factors that could cause actual results to differ materially from those identified in the forward- looking statements include calls for collateral substantially in excess of management's estimates and the use by the credit rating agencies of metrics different than those addressed by our management to evaluate our credit rating.