Aquila Files Rate Case for Industrial Steam Customers in St. Joseph, Mo.; Rate Case Reflects Increase in Fuel Costs and Removal of Subsidies

Business Wire, May 26, 2005

KANSAS CITY, Mo. -- Aquila, Inc. (NYSE: ILA) will be filing a request Friday with the Missouri Public Service Commission (MPSC) for a steam rate increase to recover higher generation fuel costs necessary to meet the growing customer demand for steam, a company official said today. Aquila currently serves five industrial steam customers in St. Joseph, Mo., and will extend service to an additional customer this summer.

The total proposed rate increase is $5 million, or a 44.3 percent increase. The request is driven primarily by an increase in the cost of fuel, coal and natural gas, as well as the removal of previous subsidies that were originally borne by electric customers. Even with the sizable increase, the steam rates in St. Joseph will remain among the lowest in the Midwest.

"We realize this is a very large increase that will have a major impact on our customers' operations, so we're willing to work with them and with the MPSC on ways to mitigate the impact," said Denny Williams, Regulatory Affairs Vice President for Aquila.

"One option to reduce the immediate impact of the increase is through a phased-in approach that would spread the increase over time, perhaps a three-year period, for example," said Williams. Aquila's last steam rate increase was $1.3 million, or 18.77 percent in April 2004.

An Interim Energy Charge similar to the charge that is currently in effect for all Missouri electric customers is another potential option to help protect steam customers from fluctuating fuel prices.

A comparison of steam rates by We Energies, a subsidiary of Wisconsin Energy Corporation, indicates that Aquila's current steam rates are the lowest of 12 Midwest cities. Aquila's steam rate would remain the second lowest after this increase.

"Customer growth and increasing demand for steam are the primary reasons for the request," said Williams. "In the past, we were able to produce a significant amount of the steam with coal, but demand for the product has exceeded our capacity to generate steam from our coal-fired unit. As a result, Aquila is producing a greater percentage of steam with natural gas to meet customer demand."

Both natural gas and coal prices have been on the rise, impacting not only steam customers, but natural gas and electric customers as well.

According to Williams, past steam rates had been subsidized by electric rates, but that subsidy was not approved in Aquila's last rate case. The full cost of service is included in this rate request.

Customers will not be affected by the increase until approval is received from the MPSC, which normally takes approximately 11 months.

Aquila serves 346,000 electric and natural gas customers in Missouri. Based in Kansas City, Mo., Aquila provides electricity and natural gas service to 1.3 million customers in Missouri, Kansas, Colorado, Michigan, Minnesota, Iowa and Nebraska.

Note to Editor: A table and graph comparing Aquila's St. Joseph steam rates to 11 other cities is available at www.aquila.com/investors/ratehistory/mo2005ratecases.shtml#steam.

The We Energies 11-city comparison is available at http://webapps6.we-energies.com/ratecalc/bus/com_steam_national.cfm #self. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) Click "11 cities" for cost comparison.