Aquila Meets with Community and State Leaders on Rate Filing Planned for St. Joseph Area Electric Customers

Business Wire, May 19, 2005

ST. JOSEPH, Mo. -- Richard C. Green, chairman and chief executive officer of Aquila, Inc. (NYSE:ILA), will meet today with community and legislative leaders to discuss the company's plans to request a rate increase to recover costs associated with service for its electric customers in its former St. Joseph Light & Power service area.

"We understand no one likes to see increases in the costs of daily essentials like electricity, and we don't like to ask for them either," Green said. "We believe it's important to meet with leaders in the service area before our rate request filing to explain why we are requesting an increase.

"Our employees have done a great job in holding down our ongoing operating costs since our last rate increase," Green added. "However, there are pressures on our business, most of them outside our control, which now put us in a position of having to seek an increase. Recovering these costs helps ensure that our customers will benefit from our continued operational improvements."

At the meeting in St. Joseph, Green will outline the company's plans to formally file with the Missouri Public Service Commission in late May for a 6.2 percent increase, equating to $7 million, for Aquila's 60,000 electric customers in the former St. Joseph Light & Power service area.

The proposed rate increase would result in approximately $4.54 monthly for the average residential customer in the St. Joseph area using 1,000 kilowatt-hours of electricity a month. If the rate request is approved, an estimated 91 cents of every dollar collected from customers will be used to support the ongoing operation of the St. Joseph electric utility. This includes such expenses as fuel costs, operational improvements and maintenance. In addition, Aquila was able to reduce the amount of its rate request nearly $7 million by selling excess power to off-system customers.

Normally it takes approximately 11 months to receive approval from the Commission before customers are affected by new rates. In the regulatory process for Missouri utilities, it typically takes more than two years from the time a utility incurs costs before those costs are recovered in customers' rates.

The key reasons for the rate increase are:

--Rising cost of fuel to generate electricity, mainly natural gas and coal.

--The need to expand electric service into new community developments, as well as new and expanding businesses.

--Increasing usage of electricity as more homes and businesses expand their use of computers and other electronic equipment.

--Cost of operating capital specifically for the St. Joseph area electric utility.

Green explained that although Aquila previously announced that it might sell the St. Joseph Light & Power properties, it was necessary to file for a rate case. "The properties may or may not be sold, and it's important to begin the regulatory process to recover costs in providing reliable electric service," he stated.

Rising Fuel Costs

The utility is currently seeking to recover $6.3 million in higher fuel costs above current rates. U.S. natural gas prices have been significantly higher in the past two years. In addition, the costs of coal used to generate power also have increased. If a pending fuel adjustment clause is enacted in Missouri, Aquila may be able to mitigate the base fuel cost and pass through both rising and falling costs to customers in a more timely manner.

Under its current Interim Energy Charge (IEC) structure, approved by the Commission, the company is able to recover gas costs up to $5.14 per Mcf (one thousand cubic feet). Aquila's IEC is scheduled to end on April 22, 2006. At that time the fuel charge would drop to $3.50 Mcf from $5.14 per Mcf, without approval of new base rates or the enactment of the pending fuel adjustment clause.

"Currently, we are seeing increased demand for natural gas on a global basis, and this is causing much higher prices on commodity markets," Green said. "Although our employees work to keep our costs lower, higher energy prices are affecting all segments of the U.S. economy."

The utility has spent $9.7 million related to expanding its St. Joseph region network and other facilities to support community growth. However, community and business growth is fueling only part of this increasing need for more electricity. In the last nine years, the average homeowner's use of electricity has risen 9 percent, mostly because of the increasing use of home computers and other electronic equipment, which also mirrors a national trend.

In addition to improvements and expansion for electric transmission and distribution, the company recently completed its Alabama Street substation project in St. Joseph.

Accounting Change

Another rate increase factor is the cost of capital required to operate Aquila's St. Joseph electric utility. This includes depreciation of utility facilities such as power plants and electric infrastructure. Traditionally, the cost of removing utility assets has been included in the rates of customers currently benefiting from their operation. In recent years, however, this cost has been deferred for payment in customer rates until the asset ceases operation. The company is requesting to return to the more traditional approach of recovering these salvage costs from current customers.