Aquila's First Quarter Results Show Improvement Compared to First Quarter of 2004; Earnings Conference Call and Webcast Are Tomorrow at 10:00 a.m. Eastern

Business Wire, May 4, 2005

KANSAS CITY, Mo. -- Aquila, Inc. (NYSE: ILA) today reported a slight profit of $.02 per fully diluted share for the three months ended March 31, 2005, or net income of $.7 million, compared to a loss of $.26 per fully diluted share, or net loss of $51.8 million, for the first quarter of 2004. The 2004 results included earnings of $.17 per share, or $32.8 million net of tax, from discontinued operations. Sales were $651.0 million in this year's first quarter, up from $553.2 million a year earlier.

Per-share results for the 2005 quarter reflect the issuance of 46.0 million common shares and 13.8 million mandatorily convertible securities in late August 2004.

"Our main focus this year is on continuing to improve our core utility businesses and customer service," said Richard C. Green, chairman and chief executive officer. "We are also intent on implementing the rest of our repositioning plan, including the divestiture of our remaining non-core businesses, so we can continue to strengthen our balance sheet. Our goal is to improve our credit profile so we can invest in utility system improvements more cost-effectively."

In March, Aquila announced plans to further reduce debt by selectively divesting some of the company's regulated utility assets and its non-core assets. Aquila has retained investment banking advisors to conduct a competitive sale process for certain regulated utility assets. The company is currently conducting a competitive auction process for six utility properties, and it expects to enter into definitive sale agreements for one or more of those utility properties after concluding the auction process. Confidential information memoranda have been circulated to a number of qualified bidders, and Aquila expects to announce more specific transaction details in this year's third quarter.

Utilities

Utilities reported earnings before interest and taxes, depreciation and amortization (EBITDA) of $103.7 million in the first quarter of 2005, compared to $96.3 million in 2004. Gross profit of $200.8 million was $7.8 million higher than gross profit of $193.0 million in the 2004 quarter. Electric Utilities EBITDA was $36.3 million, up from $26.6 million a year earlier, and Gas Utilities EBITDA was $67.4 million, slightly below the $69.7 million earned in the prior year's quarter.

Electric Utilities

Sales from electric operations were $174.2 million in this year's quarter, up from $160.2 million a year earlier. Gross profit was $88.1 million, up from $78.2 million. The improvement was primarily due to rate increases that took effect in Colorado in September 2004 and in Missouri in April 2004 and the recognition of $6.8 million of mark-to-market income on certain NYMEX natural gas contracts as a result of increases in forward natural gas prices. The company purchased these contracts primarily for the summer season to offset the risk of increased gas costs in Missouri electric operations.

Gross profit was reduced approximately $6.5 million by higher costs of fuel, purchased power and transmission, net of offsetting derivative positions, and $1.5 million of unfavorable weather-related volume and other variances.

Operating expense increased $2.9 million primarily due to higher labor and benefit costs.

In June 2004, the company filed for a rate increase totaling $19.2 million, later revised to $16.4 million, for its electric territories in Kansas in order to recover infrastructure improvements and increased maintenance and operating costs. In January 2005, the Kansas Corporation Commission ordered that the company's rates be increased $7.4 million. Aquila filed for reconsideration of certain issues included in the Commission's order, and a formal order was issued in March 2005 adjusting the approved rate increase to $8.0 million. The company has appealed to the Circuit Court of the State of Kansas on a number of issues included in the final rate order.

In April 2005, Aquila was notified by C.W. Mining Company, a Utah company that supplies 25 percent of the coal needs for the company's Sibley and Lake Road power plants in Missouri, that C.W. Mining has terminated the underlying contract due to workforce issues at its coal mine. Aquila has notified the supplier that it does not believe the termination was valid, and the company expects to pursue its rights and remedies under the contract. A cessation of deliveries from this supplier will not affect Aquila's ability to provide safe and reliable electric service, as the company has made arrangements to satisfy its power generation requirements by purchasing coal on the spot market and from other suppliers.

Gas Utilities

Sales from natural gas operations were $483.2 million in this year's quarter, up from $445.7 million a year earlier. Gross profit was $112.7 million, down from $114.8 million.

Sales and cost of sales increased approximately $44.3 million due to a 13 percent increase in natural gas prices. However, because gas purchase costs for these operations are passed through to customers, the change in gas prices did not have a corresponding impact on gross profit. Mild winter weather reduced gross profit by approximately $2.2 million in the 2005 quarter compared to a year earlier. Gross profit also declined approximately $.5 million due to the sale of a small gas operation in eastern Missouri in May 2004 and $1.3 million due to decreased gas transmission sales. These declines were partly offset by approximately $1.0 million from rate increases in Missouri that took effect in May and July 2004 and $1.2 million of additional margins from an increase in the number of customers.