Aquila Energy Wins Weather Contract With Sacramento Municipal Utility.

Business Editors

KANSAS CITY, Mo.--(BUSINESS WIRE)--Sept. 21, 2000

Aquila Energy, a wholly owned subsidiary of UtiliCorp United (NYSE:UCU), has been awarded a five-year weather hedge contract by the Sacramento Municipal Utility District (SMUD).

The contract is designed to protect SMUD from the combined effects of low precipitation and the wide swings in the price of electricity now being faced by other communities in California.

SMUD provides power to 511,000 customers in the Sacramento area from a system with around 700 MW of hydroelectric generating capacity. Accordingly, SMUD's annual power purchases are highly sensitive to annual precipitation. Under the terms of the contract in dry years, when less water flows through SMUD's hydro plants, Aquila will pay SMUD up to $20 million. The lower the precipitation, the larger the payment. The payment also increases as the prevailing market prices for electricity rise. Such payments can then be used to offset power purchase costs. In wet years, when SMUD produces more power, it could pay Aquila up to $20 million under a similar formula. Over the life of the contract payments are capped at $50 million.

Precipitation is measured on the watershed of the upper American River, the watershed that ultimately drains into the reservoirs feeding SMUD's hydroelectric plants. Electricity prices are based upon the California Power Exchange prices in Northern California, which have been extremely volatile this summer.

"This is a hybrid product, containing elements of power and weather," said Jon Cassity, director of power marketing for Aquila Energy.

"We've found that many of our customers can manage the risks of high power prices or adverse weather. However, the combination of the two can devastate earnings. Our goal is to design products like this which help utilities better manage these risks and make a successful transition to the competitive marketplace."

Aquila has been a pioneer in developing weather derivative products, having issued the industry's first weather derivative hedge in August 1996. Weather derivatives are financial tools that offset the adverse effects of weather. Companies use weather derivatives to protect their earnings from adverse weather.

Currently, an estimated $2 to $3 billion worth of weather hedges are sold around the globe to companies in a wide variety of industries, including energy companies, agricultural firms and state and city governments that deal regularly with such things as snow removal budgets. Aquila markets more than 30 different products under its GuaranteedWeather(R) brand.

Aquila also provides its customers with an interactive web site, GuaranteedWeather.com, where they can calculate the financial benefits of hedging their own business. GuaranteedWeather.com differs from other weather-related sites in that it offers businesses one-stop access to all the tools and information needed to understand and manage weather risk. Other sites are more narrowly focused. These sites typically offer wholesale weather trading, forecast data or historical weather data for only a few cities. By contrast, GuaranteedWeather.com offers the same services for 200-plus cities and is continually adding more cities.

"GuaranteedWeather.com offers custom-made contracts for hundreds of cities around the world and provides access to the latest forecasts and historical weather data. There is no such thing as `one size fits all' at GuaranteedWeather.com," said Ravi Nathan, portfolio manager for Aquila's weather desk.

Aquila is also promoting better weather forecasting techniques through the Aquila Prize for Long-Term Weather Forecasting. Associated with the Aquila Prize is a cash prize of $100,000 per year for the next three years to be awarded to the weather forecasting firm or forecaster that most accurately forecasts weather variables during summer and winter periods.

The goal of the contest is to focus scientific efforts on improving long-term weather forecasting skills and tools, while facilitating the growth of the weather risk management field.

Initially, the contest will focus on cumulative heating degree-days and cooling degree-days for 13 cities, including: Atlanta, Chicago, Cincinnati, New York City, Dallas, Philadelphia, Portland (Oregon), Tucson, Des Moines, Las Vegas, Nashville, Minneapolis and Sacramento. Contest participants will be required to post their forecasts on Aquila's newly launched web site, GuaranteedWeather.com.

A cash prize of $50,000 will be awarded for each summer and winter season at the conclusion of the 2000-2001 winter season. The contest will continue through the 2003 summer season. Rules for the contest were developed in collaboration with the National Oceanic and Atmospheric Administration. A team including Aquila's Weather Risk Management group and personnel from the American Meterological Society will select winners. Complete contest rules and results will be posted on www.GuaranteedWeather.com.

Based in Kansas City, Aquila Energy is a provider of risk management services and one of the largest wholesalers of electricity and natural gas in North America. It also provides wholesale energy services in the U.K. and in 1999 established a presence in Scandinavia, Germany and Spain. Aquila is a wholly owned subsidiary of UtiliCorp United, an international energy company with about 4.5 million customers across the U.S. and in Canada, Great Britain, New Zealand and Australia. At June 30, 2000, UtiliCorp had $8.8 billion in assets and 12-month sales of $21.4 billion.