Aquila Obtains Approval from Colorado Public Utilities Commission to Collateralize Utility Assets.

Energy Editors/Business Editors

KANSAS CITY, Mo.--(BUSINESS WIRE)--July 11, 2003

Aquila, Inc. (NYSE:ILA) today announced that it has received approval from the Colorado Public Utilities Commission to pledge its utility assets in the state as collateral for the working capital requirements of Aquila's utility operations.

The company requested permission on May 1 to add the assets of its Colorado operations to an existing pool of regulated and non-regulated assets currently securing a $430 million loan, the majority of which is supporting Aquila's utility operations.

Colorado's Commission Trial Staff and Aquila entered into a settlement agreement on June 6. An administrative law judge conducted a hearing on the settlement and issued a recommended order approving the settlement on June 20. The recommended decision became final today.

The decision allows Aquila to use debt secured by its assets to meet the traditional working capital needs of a utility, including the purchase of natural gas and electricity supplies, upgrade of its distribution systems, maintenance of power plants, and other activities that enhance Aquila's ability to provide safe, reliable energy service.

"We're pleased with the outcome and with the mutual agreement that we were able to reach with the Commission Trial Staff, which was approved by the Colorado Public Utilities Commission," said Jon Empson, Aquila's senior vice president of Regulatory, Legislative and Gas Supply Services. "The settlement is in the best interests of our customers and Aquila, and creates a win-win situation that helps us deliver on our ongoing commitment to provide safe, reliable and competitively priced service to our customers."

As required by its loan agreements, Aquila also has requested approval to use its utility assets in other states to provide additional collateral for its $430 million loan. Requests are pending in Iowa, Minnesota, Kansas and Missouri.

Securing debt with utility assets was a common practice in the 1980s and early 1990s. During the economic boom of the mid- to late-1990s, the practice faded when the cost differential between secured and non-secured debt was insignificant. Until the latter part of the 1980s, Aquila primarily issued secured debt to support its utility operations.

Stipulations in the final Commission order include Aquila's agreement to:

-- Use a predetermined hypothetical capital structure for future

electric or natural gas rate filings that rely on a test year

containing all or part of 2003, 2004 and 2005.

-- Apply proceeds from the actions described in Aquila's

financial plan to reduce debt and other financial obligations

for both its non-regulated and non-domestic utility

operations, subject to cash for working capital needs.

-- Not start any new non-regulated business ventures through

2005.

-- Defer its request to extend the pledge of Colorado utility

assets to secure future replacement of long-term debt until

after it finalizes similar applications in Iowa, Kansas,

Minnesota and Missouri.

-- Comply with various reporting requirements designed to

determine Aquila's progress in implementing its financial plan

and provide notice of material deviations from its plan.

-- Comply with various reporting requirements relating to quality

of service for the company's natural gas and electric

operations.

"Our objective was to provide the states with a full and detailed explanation of Aquila's plans to restore financial stability while ensuring that these steps would not have any adverse impact on our utility customers," said Empson. "The agreement we were able to reach with the Commission accomplishes that."

Based in Kansas City, Missouri, Aquila operates electricity and natural gas distribution networks serving customers in seven states and in Canada, the United Kingdom and Australia. The company also owns and operates power generation assets. More information is available at www.aquila.com.