Aquila Meets with Community and State Leaders on Rate Filing Planned for Missouri Electric Customers.

KANSAS CITY, 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 an electric rate increase to recover costs associated with service to customers in its former Missouri Public Service (MPS) 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 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. However, there are pressures on our business, most of them outside of 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 Blue Springs, Mo., Green will outline the company's plans to formally file with the Missouri Public Service Commission in late May for a 14.3 percent rate increase equating to $53 million for Aquila's 240,000 electric customers in the MPS service area.

Aquila has justified another $14.3 million in costs that could be included in the rate recovery request, but instead has decided to absorb them. Green said, "We are well aware that consumers are seeing all kinds of increases in their energy expenses. We know this increase will add to that burden, and we want to minimize it as much as possible."

The proposed rate increase would raise monthly bills approximately $11.48 for the average residential customer using 1,000 kilowatt-hours of electricity. An estimated 91 cents of every dollar collected from customers would be used to support the ongoing operation of the Missouri electric utility. The remaining nine cents would be for stockholders and others who provide the necessary capital dollars to operate the business.

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 ultimately 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 service to 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.

--Construction of electric generation and transmission projects to meet growing power demand.

--Cost of operating capital specifically for the Missouri electric utility.

Rising Fuel Costs

Higher fuel costs could account for $11.7 million of the requested rate increase. This includes the costs of fuel associated with power Aquila purchases from other power providers. 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 per 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 Cost of Growth

The costs of capital for new facilities could account for another $30 million of the recovery. The need for new facilities is caused by both community and business growth and the increasing use of power in homes and business. In the last nine years alone, the average homeowner's use of electricity has risen 11.4 percent, mostly because of the increasing use of home computers and other electronic equipment, which also mirrors a national trend.

In past years Aquila has purchased more power on the open market since it was more economical for customers than the cost of building new generation facilities. However, rising purchased power costs make building new generation a more economical option. As a result, the company is building a 315-megawatt gas-fired peaking plant near Peculiar to meet customer demand during hot summer periods. The plant is scheduled to be in operation sometime this summer. Aquila will spend about $155 million in capital expenditures related to the facility.

Aquila's last investment in power generation for the MPS service area was in 1983. Since that time, electric demand in the service area has increased 104 percent due to economic growth and higher customer usage.

Accounting Change

Another rate recovery factor is the cost of capital required to operate the Missouri electric utility. This includes depreciation of utility facilities such as power plants and electric infrastructure. This request could account for $18.9 million of the increase. 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.

Aquila has controlled its operations and maintenance costs at the same time its Missouri customer base has grown. Since 1983, the company's Missouri electric customer base has increased 67 percent.

After the proposed increase, Aquila's electric rates would be comparable to other Missouri utilities. Metropolitan area utilities rates often are among the lowest because their customers are concentrated in densely populated cities. Aquila's service area is much different. More than 80 percent of the communities Aquila serves have fewer than 2,000 residents. The company's service area is spread over 23 counties, from the Iowa border to south of the city of Nevada and from the Kansas border east to the city of Sedalia. Even so, Aquila has been able to control the growth of its rates. From 1985 to 2004, the Consumer Price Index has increased over 81 percent, while rates for MPS electric area customers increased about 1.6 percent.

Helping Customers, Helping Communities

"In addition," Green said, "we know there are customers who can ill afford any type of increase in their daily costs, so we are participating in a number of programs that provide them with some financial support."

Among these programs is the company's Aquila Cares initiative. The company matches 50 cents for every dollar contributed by its utility customers for low-income energy assistance in its Missouri service area. In 2004, this program provided more than $37,000 in donations to help low-income Missouri utility customers. Aquila also has provided $93,500 of non-ratepayer funds for a low-income weatherization program that is administered by the Missouri Department of Natural Resources. Also, the company offers free mail-in energy audits to assist residential customers in holding down their electric costs. In addition, Aquila offers a program that makes available high-efficiency light bulbs priced below market value for its Missouri electric customers.

Besides making tangible contributions to financially assist customers, Aquila is actively involved in providing electricity using environmentally clean, renewable sources. Aquila is the only Missouri utility that provides wind power to its customers. The company purchases all the output from a wind farm in southwest Kansas. Nearly 90 percent of all electricity from this wind farm is earmarked for Aquila customers in Missouri and Kansas. In 2004, Aquila provided $75,000 of non-ratepayer money for a tall tower wind assessment study by the Missouri Department of Natural Resources to further potential wind power development in the state.

The company's previous rate increase in its MPS service area was 4.67 percent in April 2004. In addition, the IEC portion of the last rate increase was 5.19 percent.

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