Aquila Reports First Quarter Net Loss, Reflecting Continued Wind-Down of Energy Trading and Sale of Non-Core Assets; Conference Call and Webcast Are Tomorrow at 9:30 a.m. Eastern

Business Wire, May 5, 2004

Energy Editors/Business Editors

KANSAS CITY, Mo.--(BUSINESS WIRE)--May 5, 2004

Aquila, Inc. (NYSE: ILA) today reported a fully diluted loss of $.26 per share for the first quarter of 2004, or a net loss of $51.8 million. Sales totaled $553.2 million for the quarter. The quarterly results primarily reflect losses associated with the continued wind-down of the company's wholesale energy trading portfolio, the sale of non-core assets and interest costs.

In the first quarter of 2003, Aquila had a loss of $.27 per fully diluted share, or a net loss of $51.9 million, and sales of $522.8 million. Since 2002, Aquila has been executing its plan to refocus on core utility operations by winding down its merchant trading portfolio and selling non-core assets, including all its international investments.

"We continue to make progress toward restoring Aquila's financial stability," said Richard C. Green, Aquila chairman and chief executive officer. "Since launching our restructuring plan, we've sold more than $2.2 billion in assets, and we expect to complete the sale of our Canadian utility business in the second quarter.

"Going forward, we will continue to take steps toward our financial recovery," Green said, "including restructuring or settling remaining tolling agreements; continuing to wind down our energy trading portfolio and recovering related collateral; and paying down debt and improving liquidity to strengthen the balance sheet."

Revised Business Segments

In the first quarter of 2004, Aquila modified its financial reporting segments to reflect the significant changes that took place over the past two years. It now manages its business in two operating segments: Domestic Utilities and Merchant Services.

Domestic Utilities consists of regulated electricity and natural gas utility operations in seven states. Merchant Services includes remaining investments in non-regulated merchant power plants, commitments under merchant capacity tolling obligations and long-term gas contracts, and remaining contracts from wholesale energy trading operations. All of Aquila's other operations are in Corporate and Other, including its investment in Everest Connections, its former investment in Quanta Services, Inc., its former utility investments in Australia and the United Kingdom, and the company's costs not allocated to the operating businesses. Aquila is continuing to wind down its wholesale energy trading operations and has sold its merchant loan portfolio, natural gas pipeline, gathering and storage assets, investments in international utility networks and investment in Quanta Services.

The results of operations of Aquila's Canadian networks, which are in the process of being sold, were moved to discontinued operations in 2003, as were the results from two consolidated independent power plants sold in March 2004.

Net Loss on Sale of Assets

Aquila recorded a net loss on sale of assets of $32.1 million in the first quarter of 2004, compared to a net gain on sale of assets of $2.2 million a year earlier. The net loss (gain) on sale of assets is detailed below:

                                                   Three Months Ended
                                                        March 31,
                                                   ------------------
In millions                                             2004    2003
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Domestic Utilities:
 Appliance services business                             $--   $(2.2)
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 Total Domestic Utilities                                 --    (2.2)
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Merchant Services:
 Aries power project and tolling agreement              47.0      --
 Independent power plants                               (6.1)     --
 Marchwood development project                          (5.0)     --
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 Total Merchant Services                                35.9      --
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Corporate and Other:
 Midlands Electricity                                   (3.3)     --
 Other                                                   (.5)     --
---------------------------------------------------------------------
 Total Corporate and Other                              (3.8)     --
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Total net loss (gain) on sale of assets                $32.1   $(2.2)
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In March 2004, Aquila transferred to Calpine Corp., its joint venture partner in the Aries power project, its 50 percent ownership interest in the project, $5.0 million cash and certain transmission and ancillary contract rights. In exchange, Aquila's remaining aggregate undiscounted payment obligation of approximately $397.3 million under a 20-year tolling agreement with the Aries facility was terminated. At the same time, Calpine returned approximately $12.5 million of collateral Aquila had posted in support of ongoing energy trading contracts. Aquila recorded a pretax loss of $47.0 million, or $35.6 million after tax, in connection with this transaction.