Aquila announces $.32 first Quarter EPS; Conference Call And Webcast Set for 1:00 P.M. Eastern Time Today

Business Wire, May 1, 2002

Business Editors

KANSAS CITY, Mo.--(BUSINESS WIRE)--May 1, 2002

Aquila, Inc. (NYSE:ILA) announced today first quarter diluted earnings per share of $.32, down 54 percent from $.69 per share in the 2001 period.

Key factors affecting lower first quarter 2002 results were an extremely mild winter, general economic decline, and lower commodity prices and volatility.

By contrast, a normal winter and robust commodity environment favorably impacted Aquila's first quarter results in 2001. Also affecting quarter-to-quarter comparability was a change in accounting for gas storage inventory in 2002 that if applied to 2001 would have reduced first quarter 2001 earnings per share by $.16. The company's diluted earnings per share also were impacted by an additional 31.4 million diluted average shares outstanding in 2002, resulting primarily from the exchange offer for shares of the Aquila Merchant Services subsidiary and the Aquila, Inc. equity offering completed earlier in the year.

On April 19, Aquila lowered its full-year guidance for 2002 operating earnings per share to a range of $2.20 to $2.30 per share. Its earlier guidance was $2.83 per share.

"We are disappointed by our first quarter results," said Robert K. Green, Aquila's president and chief executive officer. "However, we did have a number of bright spots in the quarter including the performance of our International Networks, Client Services and our European Wholesale Services businesses."

Merchant Services

Merchant Services' first quarter earnings before interest and taxes (EBIT) were down $57.9 million from the first quarter of 2001, which was one of Aquila's best quarters. Approximately $28.7 million of this variance was attributable to a change in accounting method relating to the carrying value of gas storage inventory in the Merchant Services business. The change in accounting had little impact on 2002 results. However, if applied in first quarter 2001, EBIT would have been significantly reduced. Additionally, results were impacted by one of the mildest winters ever recorded, which significantly reduced opportunities, as well as by lower commodity prices and volatility. Volumes, however, continued to grow, both in terms of commodities and capacity, again placing Aquila in the industry's top five competitors.

Wholesale Services

Wholesale Services reported $28.4 million in EBIT for the first quarter 2002 compared to $62.4 million in first quarter 2001. As stated above, approximately $28.7 million of this variance results from a change in inventory accounting. The remaining $5.3 million variance is from lower price volatility in 2002.

Merchant Services' newly focused European operation significantly surpassed its prior year results. New leadership and talent and a sharper strategic focus are all contributing to performance. The new business strategy in Europe focuses on providing merchant services to wholesale clients while extracting arbitrage value from the management of capacity and movement of commodity across the entire European energy grid.

Client Services reported its best quarter yet with EBIT of $19.2 million compared to $16.8 million in first quarter 2001, a 14 percent increase. A number of significant structured transactions were closed during the quarter including a significant full-requirements contract with a Northeast utility, a number of GuaranteedGeneration(SM) transactions, and the first large GuaranteedBill(SM) transaction with a Midwest utility.

Capacity Services

Capacity Services EBIT was $3.2 million compared to $27.1 million in first quarter 2001. The main factors impacting the year-over-year change were a return to an expected spark spread (conversion of natural gas to electricity) environment, lower prices and volumes in the gas gathering and processing business, and new capacity payments.

Generation plants, including the Acadia (LA), Crossroads (MS) and Raccoon Creek (IL) projects, are all on or slightly ahead of schedule and on or below budget, and will reach full operation by this summer. Construction on the Goose Creek (IL) facility began in February.

The Katy Gas Storage expansion project in Texas was completed. Operating performance objectives were accomplished, raising the annual inventory turn rate from 2.2 to 4.3 times.

Global Networks Group

The first quarter for Global Networks brought mixed results. First quarter 2002 EBIT was $23.1 million less than first quarter 2001. While the domestic network business was down $30.9 million from the prior year's first quarter, the international portfolio provided a $7.8 million increase in EBIT.

International Networks

International Networks provided EBIT of $33.0 million compared to $25.2 million in 2001. Stronger results were driven mainly by rate increases in Canadian operations. Overall, international distribution companies in Canada, New Zealand and Australia are performing well with the economies and operating environments in the various countries remaining strong. However, the retail businesses have seen pressure in Australia. Late last year the government in Victoria increased retail rates only 4 percent, well below retail companies' expectations. As a result, consistent with the network strategy, Aquila is evaluating strategic options for the retail business in Australia.