Aquila Signs Agreement to Exit Batesville Merchant Power Agreements, Terminates Fourth Long-Term Gas Contract; Company Continues Repositioning Program

Business Wire, Dec 21, 2004

KANSAS CITY, Mo. -- Aquila, Inc. (NYSE:ILA) announced today that as part of the company's ongoing repositioning program aimed at exiting the energy merchant business, it has agreed to exit a power purchase and sale arrangement in Batesville, Miss., and, in a separate transaction, terminated a fourth long-term prepaid natural gas supply contract.

Power Purchase and Sale Arrangement

The exit from the Batesville power purchase and sale arrangement involves two agreements. Under the first, Aquila will assign its obligation to purchase power under a long-term contract from LSP Energy Partnership, owner of the Batesville facility, to South Mississippi Electric Power Association (SMEPA). Under the second, Aquila and SMEPA will terminate a contract under which Aquila sold to SMEPA the power it purchased from LSP Energy. Essentially, these agreements will remove Aquila from the middle of an arrangement pursuant to which LSP Energy sold power to SMEPA.

In consideration of this restructuring, SMEPA will pay Aquila $16.25 million, subject to certain adjustments. The agreements must receive approval from the Federal Energy Regulatory Commission (FERC), the Kansas Corporation Commission and the U.S. Department of Agriculture's Rural Utilities Service.

Termination of Long-Term Gas Contract

Aquila also completed the termination of a long-term prepaid natural gas supply contract with the American Public Energy Agency (APEA), a supplier of natural gas principally in Nebraska. Aquila has previously referred to this terminated contract as "APEA II." In connection with the termination, Aquila paid a termination fee of approximately $139 million. This amount was previously placed on deposit by Aquila for the benefit of the surety on the contract. Termination of the APEA II contract completes Aquila's previously announced plan to terminate four long-term prepaid natural gas supply contracts.

Based in Kansas City, Mo., Aquila operates electricity and natural gas distribution utilities serving customers in Colorado, Iowa, Kansas, Michigan, Minnesota, Missouri and Nebraska. The company also owns and operates power generation assets. More information is available at www.aquila.com.