<PAGE>


                               OPERATIONS AND FINANCE



CONSOLIDATED OPERATIONS


Except where noted, the following discussion refers to the consolidated 
entity, UtiliCorp United Inc., including the following businesses: UtiliCorp 
Energy Delivery (UED), consisting primarily of domestic transmission and 
distribution utility operations, on-system appliance repair servicing 
operations, and gas marketing operations; Aquila Energy Corporation (Aquila), 
consisting primarily of wholesale gas and electricity marketing, gas 
gathering and processing and gas pipelines; and Generation, consisting of 
domestic electric generation and independent power projects. The company also 
has various operations that include generation, gas marketing, electric 
distribution and several investments that are discussed in the International 
section of this report.
 UtiliCorp Energy Solutions (UES), consisting of retail gas marketing, 
appliance repair and service contracts, was realigned during the second 
quarter of 1997 into the operations of UED and Aquila. The realignment
better leverages existing support facilities, processes and expertise.
 Significant events and trends are presented which have had an effect on the 
operations of the company during the three-year period ended December 31, 
1997. Also presented are factors that may affect future operating results, 
financial position and liquidity. This discussion should be read in 
conjunction with the company's consolidated financial statements and 
accompanying notes.
 The results of operations for the three years ended December 31, 1997 have 
been affected by several items that, in management's opinion, do not have a 
continuing impact on the company's financial position or results from 
operations.

The table below summarizes the effect of the non-recurring items on earnings
before interest and taxes (EBIT).


<TABLE>
<CAPTION>
                                                            Year Ended December 31,
In millions                                            1997         1996        1995
--------------------------------------------------------------------------------------
<S>                                                  <C>          <C>         <C>
EBIT, as reported                                    $359.1       $326.2      $253.6
NON-RECURRING ITEMS:
  Merger termination fee (a)                          (53.0)          --          --
  Write-off of deferred merger costs, net (a)            --         11.0          --
  Gain on sales lease of a power project (b)             --        (20.9)         --
  Provision for asset impairments (c)                  26.5           --        34.6
  Change to mark-to-market method of accounting (d)      --           --       (29.8)
  Reserve for United Kingdom gas contracts and other
   reserves (e)                                         6.5           --        11.0
  EBIT from oil and gas production business (f)          --           --        (5.0)
--------------------------------------------------------------------------------------
NORMALIZED EBIT                                      $339.1       $316.3      $264.4
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>


(a)  IN 1997, THE COMPANY RECEIVED A $53.0 MILLION TERMINATION FEE FROM KANSAS
     CITY POWER & LIGHT COMPANY RELATED TO THE TERMINATED MERGER. IN 1996, THE
     COMPANY EXPENSED DEFERRED MERGER COSTS, NET OF A TERMINATION FEE RECEIVED,
     RESULTING IN AN $11.0 MILLION CHARGE AGAINST EARNINGS.
(b)  IN 1996, THE COMPANY RECORDED A GAIN FROM A SALES LEASE ON A POWER PROJECT,
     WHICH WAS PARTIALLY OFFSET BY CERTAIN RESTRUCTURING RESERVES IN CONNECTION
     WITH CHANGES IN POWER PROJECT AGREEMENTS. THE RESULT OF THESE ITEMS
     INCREASED EBIT $20.9 MILLION.
(c)  IN 1997, THE COMPANY RECORDED A PROVISION FOR IMPAIRED ASSETS OF $26.5
     MILLION RELATED TO CERTAIN TECHNOLOGY AND ROYALTY ASSETS. IN 1995, THE
     COMPANY RECORDED A PROVISION FOR IMPAIRED ASSETS OF $34.6 MILLION.
(d)  IN 1995, THE COMPANY CHANGED ITS METHOD OF ACCOUNTING FOR DOMESTIC NATURAL
     GAS TRADING OPERATIONS TO THE MARK-TO-MARKET METHOD. THIS INCREASED EBIT BY
     $29.8 MILLION.
(e)  IN 1997 AND 1995, THE COMPANY RECORDED A $5.0 MILLION AND AN $11.0 MILLION
     RESERVE AGAINST EARNINGS, RESPECTIVELY, FOR UNFAVORABLE GAS SUPPLY
     CONTRACTS IN THE UNITED KINGDOM.
(f)  IN 1995, THE COMPANY SOLD SUBSTANTIALLY ALL OF ITS OIL AND GAS PRODUCTION
     ASSETS AT BOOK VALUE FOR $204.5 MILLION. THIS NORMALIZING ADJUSTMENT
     REPRESENTS THE EBIT FROM THIS BUSINESS IN 1995.


 Normalized EBIT is a term used by management to describe the recurring EBIT of
the company. These terms are not meant to replace actual EBIT or other measures
under generally accepted accounting principles.

<PAGE>

ENERGY DELIVERY

                                      [PICTURE]

"WHAT OUR ENERGY DELIVERY FOLKS DO EVERY DAY IS PROVIDE SUPERIOR NETWORK
SERVICES, HOUR BY HOUR THROUGHOUT THE YEAR."

                                     JIM MILLER
                               SENIOR VICE PRESIDENT
                                  ENERGY DELIVERY


The following table summarizes the operations of UtiliCorp Energy Delivery for
the three years ended December 31, 1997. Energy Delivery obtains all of its
electricity requirements from Generation except for its West Virginia
operations. The cost of electricity from Generation is reflected as "Purchases
from Generation" in the sales section of the three-year table below.

Three Year Review--Energy Delivery

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
Dollars in millions                                     1997           1996           1995
-------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>
SALES:
  Electric                                          $  557.4       $  519.3       $  490.1
  Gas                                                  767.4          727.9          616.6
  Non-regulated                                        258.7          124.8           88.1
  Purchases from Generation                           (313.6)        (285.2)        (263.2)
-------------------------------------------------------------------------------------------
Total net sales                                      1,269.9        1,086.8          931.6
-------------------------------------------------------------------------------------------
COST OF SALES:
  Electric                                              14.2           14.9           14.1
  Gas                                                  493.2          455.2          352.7
  Non-regulated                                        223.0           84.5           55.0
-------------------------------------------------------------------------------------------
Total cost of sales                                    730.4          554.6          421.8
-------------------------------------------------------------------------------------------
Gross profit                                           539.5          532.2          509.8
-------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Other operating                                      237.3          228.8          225.4
  Maintenance                                           30.6           26.0           22.7
  Taxes, other than income taxes                        54.7           50.9           48.0
  Depreciation and amortization                         68.7           66.8           66.9
-------------------------------------------------------------------------------------------
Total operating expenses                               391.3          372.5          363.0
-------------------------------------------------------------------------------------------
Income from operations                                 148.2          159.7          146.8
Other income                                             5.3           10.3            6.8
-------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)           $  153.5       $  170.0       $  153.6
-------------------------------------------------------------------------------------------
Identifiable assets                                 $1,806.7       $1,814.7       $1,674.8
Electric sales and transportation (MWH 000's)         11,201          9,607          8,351
Gas sales and transportation (MCF 000's)             287,396        301,513        306,585
-------------------------------------------------------------------------------------------
Electric customers                                   829,000        813,000        797,000
Gas customers                                        365,000        359,000        354,000
-------------------------------------------------------------------------------------------
Total customers                                    1,194,000      1,172,000      1,151,000
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

GROSS PROFIT

Energy Delivery's gross profit in 1997 increased $7.3 million over 1996. Gross
profit from utility operations increased $11.9 million from 1996 levels, which
was offset by a decrease of $4.6 million in non-regulated profits. Utility
profit increased from customer growth of 2%, new gas rates in Michigan, and the
full-year impact of rate increases in Kansas and Nebraska. Utility profit
decreased $9.7 million from the very favorable weather in 1996 compared to
near-normal weather in 1997. Profit from non-regulated operations decreased as a
result of lower margins on non-regulated energy sales and the effects of certain
businesses that were sold in 1996. The non-regulated profit decrease was
partially offset by appliance service margin growth from customer growth and
price increases.
 Gross profit in 1996 increased $22.4 million compared to 1995 primarily due to
colder temperatures affecting gas utility operations ($11.9 million), increased
margins from non-regulated operations ($7.2 million) and increased gas rates in
Nebraska and Kansas ($4.4 million).
 Early 1998 winter temperatures in the company's primary service territories
have been unseasonably mild compared to 30-year average temperatures as a result
of global weather patterns related to the El Nino phenomenon. The initial
unfavorable impact may be mitigated by Energy Delivery's summer-peaking
operations.

OPERATING EXPENSES
Operating expenses increased $18.8 million in 1997 compared to 1996. Energy
Delivery was allocated approximately $6.0 million of additional expenses from
Corporate. These charges primarily related to information system reengineering
efforts and other technology capital projects placed in service to help position
Energy Delivery for the more competitive future environment. Approximately $5.7
million of the remaining increase relates to additional depreciation on utility
plant expenditures and property taxes.
 Operating expenses for Energy Delivery's regulated businesses in 1996 were
essentially flat with 1995. Savings in 1996 resulted from a series of efficiency
initiatives that began in 1995, but were offset by increased uncollectible
customer accounts triggered by escalating gas prices and higher property taxes.
Operating expenses in 1996 for non-regulated businesses increased by $8.8
million over 1995 due to support costs for non-regulated energy sales and
positioning expenses to improve the appliance repair business.

<TABLE>
<CAPTION>
SALES:  ELECTRIC ENERGY DELIVERY
DOLLARS IN MILLIONS
-----------------------------------
<S>       <C>
97        557.4
96        519.3
95        490.1
</TABLE>

<TABLE>
<CAPTION>

SALES:  GAS ENERGY DELIVERY
DOLLARS IN MILLIONS
-----------------------------------
<S>       <C>
97        767.4
96        727.9
95        616.6
</TABLE>


<TABLE>
<CAPTION>
EBIT:  ENERGY DELIVERY
DOLLARS IN MILLIONS
-----------------------------------
<S>       <C>
97        153.5
96        170.0
95        153.6
</TABLE>

<TABLE>
<CAPTION>
CAPITAL EXPENDITURES:  ENERGY DELIVERY
DOLLARS IN MILLIONS
-----------------------------------
<S>       <C>
97        109.0
96         96.2
95         79.0
</TABLE>

<PAGE>

GENERATION


Generation provides firm wholesale electricity to Energy Delivery based on an
internal transfer pricing model which represents a full requirements capacity
and energy contract. This segment also sells non-firm energy to other utilities
and municipalities in the wholesale market and retains an interest in
independent power projects. The following table summarizes the operations of
Generation for the three years ended December 31, 1997.


Three-Year Review--Generation

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
Dollars in millions                                    1997           1996           1995
--------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>
Sales to affiliate and other                          $313.6         $285.2         $263.2
Cost of sales--fuel used for generation and
  purchased power                                      184.8          164.3          151.6
--------------------------------------------------------------------------------------------
Gross profit                                           128.8          120.9          111.6
--------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Other operating                                       47.1           52.3           42.2
  Maintenance                                           17.1           14.6           12.9
  Taxes, other than income taxes                         6.5            6.6            6.8
  Depreciation and amortization                         16.2           16.4           18.1
  Provision for asset impairment                          --             --           15.4
--------------------------------------------------------------------------------------------
Total operating expenses                                86.9           89.9           95.4
--------------------------------------------------------------------------------------------
Income from operations                                  41.9           31.0           16.2
Equity in earnings of investments and partnerships      29.6           48.5           19.6
Other income (expense), net                               .3            (.2)           (.5)
--------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)               71.8           79.3           35.3
--------------------------------------------------------------------------------------------
NON-RECURRING ITEMS:
  Provision for asset impairments                         --             --           15.4
  Gain on sales lease of power project                    --          (20.9)            --
--------------------------------------------------------------------------------------------
NORMALIZED EBIT                                       $ 71.8        $  58.4        $  50.7
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
EBIT by business subunit:
  Regulated power                                      $44.0          $36.3          $36.1
  UtilCo Group                                          27.8           22.1           14.6
--------------------------------------------------------------------------------------------
TOTAL                                                  $71.8          $58.4          $50.7
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Identifiable assets                                   $503.0         $482.1         $460.8
Affiliate sales (MWH 000's)                            7,767          7,411          6,998
Non-affiliate sales (MWH 000's)                        1,546            998            589
--------------------------------------------------------------------------------------------

</TABLE>


GROSS PROFIT
In 1997 energy sales to non-affiliates increased more than 50% due to a variety
of market conditions which included regional nuclear outages, coal shortages and
extremely hot midwest temperatures during late July. Overall margins for this
unit increased by $7.9 million compared to 1996 due to higher margins on
off-system sales, load growth, and reduced purchased power costs due to
available hydroelectric power in the Missouri Basin.
 Gross profit in 1996 increased $9.3 million over 1995 due to system load
growth, an increase in off-system sales of 409,000 MWH, reduced fuel cost
resulting from a new coal supply and transportation contract, and aggressive
fuel blending at the Sibley generating station.

<PAGE>

OPERATING EXPENSES
Operating expenses decreased by $3.0 million in 1997 compared to 1996 primarily
due to a change in the strategic direction of the independent power generation
segment. The company is no longer seeking additional investments in independent
power projects and therefore is not making acquisition related expenditures.
 Operating expenses increased $9.9 million in 1996 compared to 1995 after
adjusting for the provision for asset impairment recorded in 1995 relating to a
power project. The 1996 normalized increase is due to additional support costs,
such as information technology, human resources, legal and other activities.
Additional increases primarily related to the establishment of an energy trading
group to sell available generation capacity during off-peak periods.

EQUITY IN EARNINGS
Equity in earnings increased $2.0 million in 1997 compared to 1996 after
normalizing for the gain on sales lease of $20.9 million. The increase is
primarily due to innovative gas tolling and dispatch arrangements at one of the
independent power projects combined with increased production from another
project.
 Equity earnings in 1996 increased $8.0 million compared to 1995 after adjusting
for the net gain on a sales lease transaction and other restructuring charges.
The equity earnings increase is due to higher steam output, new rates at two
projects and a full year of performance at another.

<TABLE>
<CAPTION>
SALES:  GENERATION
DOLLARS IN MILLIONS
-------------------------
<S>       <C>
97        313.6
96        285.2
95        263.2
</TABLE>

<TABLE>
<CAPTION>
EBIT (NORMALIZED):  GENERATION
DOLLARS IN MILLIONS
-------------------------
<S>       <C>
97        71.8
96        58.4
95        50.7
</TABLE>

<TABLE>
<CAPTION>
CAPITAL EXPENDITURES:  GENERATION
DOLLARS IN MILLIONS
-------------------------
<S>       <C>
97         7.6
96        16.6
95        11.2
</TABLE>

                                      [PICTURE]

IN 1897 WE CLIMBED OUR FIRST MOUNTAIN
     100 YEARS LATER,
     WE'RE STILL REACHING NEW HEIGHTS

  In 1897 it had never been done. No one had ever built a high voltage
transmission line thru the mountains. But to the enterprising people who
founded West Kootenay Power, reaching new heights was a pre-requisite to meeting
customers' needs.
  That 50 kilometre transmission line has grown to a 1,500 kilometre
transmission system serving 129,000 customers in the West Kootenay, Okanagan
and Similkameen Valleys.
  Today we provide some of the lowest cost, most reliable electricity in the
country.
  In 1897 we climbed our first mountain. A hundred years later we are Canada's
oldest integrated electric utility and we're still reaching new heights for our
customers.

[LOGO]
INCORPORATED
MAY 8, 1897

<PAGE>

AQUILA ENERGY

                                      [PICTURE]

"THE KEYS TO AQUILA'S RAPID GROWTH HAVE BEEN INITIATIVE, AMBITION AND
IMAGINATION. THOSE THREE WORDS DESCRIBE WHAT WE'RE ALL ABOUT."

                                   HARVEY PADEWER
                               SENIOR VICE PRESIDENT
                                    ENERGY GROUP


The following table summarizes the operations of Aquila Energy for the three
years ended December 31, 1997.

Three-Year Review--Aquila Energy

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
Dollars in millions                                     1997           1996           1995
-------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>
SALES:
  Energy marketing                                  $6,017.1       $1,882.4       $  773.8
  Aquila Gas Pipeline                                1,013.9          790.3          485.2
  Oil and gas production                                  --             --           50.6
-------------------------------------------------------------------------------------------
TOTAL SALES                                          7,031.0        2,672.7        1,309.6
-------------------------------------------------------------------------------------------
COST OF SALES:
  Cost of energy marketing                           5,909.0        1,822.6          714.0
  Aquila Gas Pipeline                                  894.6          664.1          387.1
-------------------------------------------------------------------------------------------
Total cost of sales                                  6,803.6        2,486.7        1,101.1
-------------------------------------------------------------------------------------------
Gross profit                                           227.4          186.0          208.5
-------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Operating and maintenance                            119.0          100.2           78.7
  Depreciation, depletion and amortization              27.6           28.6           49.6
  Provision for asset impairments                       15.5             --           13.2
-------------------------------------------------------------------------------------------
Total operating expenses                               162.1          128.8          141.5
-------------------------------------------------------------------------------------------
Income from operations                                  65.3           57.2           67.0
Minority interest expense and other                     10.6           10.0            2.1
-------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)               54.7           47.2           64.9
-------------------------------------------------------------------------------------------
NON-RECURRING ITEMS:
  Change to mark-to-market method of accounting           --             --          (29.8)
  Provision for asset impairments                       15.5             --           10.8
  Oil and gas operating income and other                  --             --           (5.0)
-------------------------------------------------------------------------------------------
NORMALIZED EBIT                                     $   70.2        $  47.2       $   40.9
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
EBIT by business subunit:
  Energy marketing                                  $   18.4        $  (4.2)      $    3.3
  Aquila Gas Pipeline                                   51.8           51.4           37.6
-------------------------------------------------------------------------------------------
TOTAL                                               $   70.2        $  47.2       $   40.9
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Identifiable assets                                 $2,067.7       $1,698.9       $1,100.4
Physical gas volumes marketed (BILLION
  CUBIC FEET PER DAY) (a)                                5.5            2.1            1.4
Gas throughput volumes (BILLION CUBIC FEET
  PER DAY)                                                .5             .5             .5
Electricity marketing volumes (MWH 000's)             65,258          6,495            129
Natural gas liquids produced (THOUSAND BARRELS
  PER DAY)                                                37             41             32
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>

(a) INCLUDES VOLUMES MARKETED BY AQUILA GAS PIPELINE.

<PAGE>

GROSS PROFIT
Gross profit in 1997 increased $41.4 million or 22% compared to 1996. This
increase is due to a 189% and 905%  increase in gas and electricity volumes
marketed which resulted in $26.2 million and $9.0 million, respectively, in
additional margin. These volumetric increases reflect the impact of an
aggressive expansion program that led to Aquila's gas and electricity marketing
businesses being ranked fifth and sixth nationally, respectively.
 Gross profit from Aquila Gas Pipeline (AGP) decreased $6.9 million in 1997
compared to 1996 due to reduced natural gas liquids (NGL) production volumes
resulting from leaner gas streams, lower NGL prices and reduced gas marketing
results. In 1997, NGL production volumes and prices were off 10% and 3%,
respectively, compared to 1996. The leaner gas streams are due to deep well
drilling in the Austin Chalk area of Texas making up a higher percentage of the
area's total activity. It is expected that the drilling profile for 1998 may
contain more volumes from deep wells and less volumes from oil wells than in
1997, resulting in lower NGL production. In addition, the NGL prices in 1998 so
far are considerably lower than in 1997 and may remain below the 1997 average
price of $.33 per gallon. The continuation of these trends may reduce gross
profit from AGP in 1998 compared to 1997.
 Gross profit from retail gas marketing increased $13.1 million over 1996 as
these businesses were assimilated into Aquila from UtiliCorp Energy Solutions.
The increase is due to the expansion of sales to industrial and commercial
customers. In 1996, the retail business had fixed price sales contracts against
variable purchase contracts when the price of natural gas escalated. Although
the retail business improved in 1997, it still had a net EBIT loss in 1997 of
$5.1 million compared to $13.1 million in 1996.
 Gross profits in 1996 increased $59.5 million compared to 1995 after
normalizing for the sale of the oil and gas business and the change to the
mark-to-market method of accounting. This increase is primarily due to 54%
growth in gas marketing volumes that increased gross profit by $28.8 million.
Gross profit from AGP increased $28.1 million due to a 28% increase in NGL
production and a 20% increase in NGL prices.

OPERATING EXPENSES
Operating expenses increased $17.8 million in 1997 after normalizing for the
provision for asset impairment compared to 1996. This increase reflects higher
staffing and salary cost in support of Aquila's aggressive growth strategy and
its rapid increase in marketed volumes.
 Operating expenses for 1996 were $47.8 million higher than in 1995 after
normalizing for the asset impairment charge and the sale of oil and gas
properties. In addition to higher cost to support business growth, this increase
includes $21.7 million from the retail segment. In 1995, the retail business was
in the start-up phase.



<TABLE>
<CAPTION>

SALES:  AQUILA ENERGY
DOLLARS IN MILLIONS
------------------------------------
<S>       <C>
97        7,031.0
96        2,672.7
95        1,309.6

</TABLE>

<TABLE>
<CAPTION>
EBIT (NORMALIZED):  AQUILA ENERGY
DOLLARS IN MILLIONS
------------------------------------
<S>       <C>
97        70.2
96        47.2
95        40.9
</TABLE>

<TABLE>
<CAPTION>
CAPITAL EXPENDITURES:  AQUILA ENERGY
DOLLARS IN MILLIONS
------------------------------------
<S>       <C>
97        28.4
96        26.4
95        144.0

</TABLE>

[PICTURE]

AHHHHH. THE PEACE OF MIND THAT COMES FROM HAVING AN APPLIANCE REPAIR PLAN...

[LOGO]

<PAGE>


INTERNATIONAL


The following table summarizes the company's International operations for the
three years ended December 31, 1997.

Three-Year Review--International

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
Dollars in millions                                    1997           1996           1995
-------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>
SALES:
  Electric (Canada)                                   $ 89.8         $ 92.9         $ 87.6
  Gas marketing (United Kingdom)                       215.4          191.5          199.9
-------------------------------------------------------------------------------------------
Total sales                                            305.2          284.4          287.5
-------------------------------------------------------------------------------------------
COST OF SALES:
  Cost of fuel and purchased power (Canada)             28.8           29.8           27.4
  Cost of gas marketing (United Kingdom)               217.3          179.9          184.2
-------------------------------------------------------------------------------------------
Total cost of sales                                    246.1          209.7          211.6
-------------------------------------------------------------------------------------------
Gross profit                                            59.1           74.7           75.9
-------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Other operating                                       21.6           24.8           28.4
  Maintenance                                           10.0            9.0            8.9
  Taxes, other than income taxes                        11.3           12.2           13.0
  Depreciation and amortization                         11.0           12.5            7.1
-------------------------------------------------------------------------------------------
Total expense                                           53.9           58.5           57.4
-------------------------------------------------------------------------------------------
Income from operations                                   5.2           16.2           18.5
Equity earnings in subsidiaries and partnerships        42.3           60.1            9.8
Other income, net                                        5.0            3.4            3.4
-------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)               52.5           79.7           31.7
-------------------------------------------------------------------------------------------
NON-RECURRING ITEM:
  Reserve for United Kingdom gas contracts               5.0             --           11.0
-------------------------------------------------------------------------------------------
NORMALIZED EBIT                                       $ 57.5         $ 79.7         $ 42.7
-------------------------------------------------------------------------------------------
Identifiable assets                                   $789.0         $848.3         $728.2
-------------------------------------------------------------------------------------------
</TABLE>




SUMMARY
International normalized EBIT consists of operations and equity investments in
the following countries for the three years ended December 31, 1997.

<TABLE>
<CAPTION>
In millions               1997      1996      1995
---------------------------------------------------
<S>                      <C>       <C>       <C>
Australia                $27.0     $38.3     $10.3
Canada                    26.2      27.7      23.1
New Zealand                9.9      11.6       1.7
United Kingdom            (5.6)      2.1       7.6
---------------------------------------------------
TOTAL                    $57.5     $79.7     $42.7
---------------------------------------------------
---------------------------------------------------
</TABLE>

The normalized EBIT by country is discussed below.


AUSTRALIA
EBIT in 1997 decreased $11.3 million or 30% compared to 1996. This decrease is
due to a $3.8 million reduction in margins at United Energy Limited (UEL)
reflecting lower margins on its contestable customers. In addition, the
management fees that the company receives for managing UEL decreased $2.0
million, primarily due to the financial performance in 1997 relative to
financial targets established following the strong performance in 1996.
 EBIT was further reduced as the depreciating Australian dollar decreased
dramatically relative to the U.S. dollar in the fourth quarter of 1997 when the
collateral effects of the Asian stock market decline affected the Australian
markets. The remaining decrease relates to the tax deductibility of certain
expenses at UEL.
  The 1996 EBIT increased $28.0 million or 272% compared to 1995. The 1996 EBIT
reflects UEL's first full year of operations compared to 1995. The company's
interest in UEL was acquired in the fourth quarter of 1995. The 1996 EBIT also
reflects a successful reengineering effort that replaced many core business
support systems, complementing the productivity improvements across UEL.
 In July 1998, customers in Victoria, Australia with volumes greater than 160 
MWH per year will become contestable and will be able to choose their 
electricity supplier. UEL plans to compete aggressively in this customer 
segment. As of December 31, 1997, UEL had approximately 865 customers that 
were already contestable.

<PAGE>

CANADA
The company's Canadian operations consist primarily of its wholly-owned Canadian
electric distribution company, West Kootenay Power (WKP). This utility has four
hydroelectric generation facilities with a capacity of 205 megawatts and 962
miles of transmission lines that serve approximately 84,000 customers in the
south-central interior of British Columbia. In 1996, the company became the
first electric utility in Canada to be granted performance-based regulation. It
is now in the third year of a three-year incentive-based rate-setting mechanism.
This calls for equal sharing of savings between the customer and WKP in
situations where WKP performs over and above negotiated performance
expectations.
 Increased earnings in 1996 compared to 1995 resulted from the sale of one of
WKP's investments and favorable negotiations of purchased power arrangements.
The 1997 EBITis comparable to 1996.

NEW ZEALAND
The company's New Zealand investments (Power New Zealand and WEL Energy Group)
together contributed $9.9 million, $11.6 million and $1.7 million to EBIT in
1997, 1996 and 1995, respectively. In 1997 EBIT decreased compared to 1996 due
to the timing of earnings at WEL Energy Group and a depreciating currency
relative to the U.S. dollar. The New Zealand currency was affected similarly to
the Australian currency discussed above.
 EBIT improved in 1996 compared to 1995 as a result of having a full year of
equity earnings from Power New Zealand shares purchased late in 1995, the
additional earnings attached to shares purchased throughout 1996 from both
investments, and improved operations at the underlying electric distribution
companies.

UNITED KINGDOM
The company has several business ventures in the United Kingdom (U.K.) that
market natural gas and transportation services to wholesale, industrial, and
residential customers. United Gas Limited (UGL), the company's primary U.K.
subsidiary, markets gas directly and indirectly to approximately 96,000
customers. It had sales volumes of 68 BCF in 1997, an increase of 12 BCF from
1996.
 The U.K. residential gas markets first became contestable in 1996 and will be
fully contestable by the summer of 1998. In preparation for competition, new
suppliers have entered the market. These competitors include companies with a
strong name recognition such as electric companies, water companies and grocery
chains that intend to add natural gas to their existing products.
 Since a large number of new suppliers came from outside the natural gas
industry, UGL developed natural gas transportation and load balancing services
for them. These products allow UGL to leverage its existing expertise and
information technology systems to generate revenue while managing operational
risks for these new suppliers.
 At December 31, 1997, the company's portfolio of fixed price contracts was in a
net long position, as it included supply commitments of 66 BCF through 2005 and
sales commitments of 50 BCF through 1999. Depending on the long-term price of
natural gas, estimated losses on the above portfolio range between $19 and $26
million due to two long-term supply contracts. Since the U.K. natural gas market
does not have liquid long-term pricing, it is difficult to estimate the future
profitability of the portfolio. Based on management's estimates and available
market data at December 31, 1997, the company is carrying a $19 million pretax
reserve relating to future losses that may exist within the portfolio of
contracts. Management believes that this reserve is adequate and that any
additional losses would not be material.
 Normalized EBIT from the U.K. businesses for the three years ended December 31,
1997, 1996 and 1995 were $(5.6) million, $2.1 million and $7.6 million,
respectively. The $7.7 million decrease in 1997 EBIT from 1996 is due to the
full-year impact of high-cost gas contracts in 1997 compared to one quarter in
1996 and certain profitable gas sales contracts which expired in 1997. EBIT in
1996 compared to 1995 decreased $5.5 million due to unfavorable long-term gas
supply contracts.


<TABLE>
<CAPTION>
SALES:  INTERNATIONAL
DOLLARS IN MILLIONS
------------------------------------
<S>       <C>
97        305.2
96        284.4
95        287.5
</TABLE>

<TABLE>
<CAPTION>
EBIT (NORMALIZED):  INTERNATIONAL
DOLLARS IN MILLIONS
------------------------------------
<S>       <C>
97        57.5
96        79.7
95        42.7
</TABLE>

<TABLE>
<CAPTION>
CAPITAL EXPENDITURES:  INTERNATIONAL
DOLLARS IN MILLIONS
------------------------------------
<S>       <C>
97        19.4
96        21.5
95        19.2
</TABLE>

<PAGE>

CORPORATE MATTERS


CORPORATE AND OTHER
The table below summarizes the corporate and other EBIT for the three years
ended December 31, 1997. Corporate primarily contains the retained costs of the
company that are not allocated to the business units and the net losses from the
company's investment in EnergyOne, L.L.C.

<TABLE>
<CAPTION>
In millions                        1997       1996      1995
-------------------------------------------------------------
<S>                               <C>       <C>       <C>
EBIT, as reported                 $ 26.6    $(50.0)   $(31.9)
Merger termination                 (53.0)     11.0        --
Asset impairment provision          11.0        --       6.0
Other                                1.6        --        --
-------------------------------------------------------------
EBIT, NORMALIZED                  $(13.8)   $(39.0)   $(25.9)
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>

 Corporate and other normalized EBIT improved by $25.2 million in 1997 compared
to 1996 due to the elimination of certain corporate activities and transfer of
capital costs associated with new information systems recorded at corporate, but
allocated to business units.

PENDING RATE PROCEEDING

In the first quarter of 1997, the Staff of the Missouri Public Service
Commission (the Staff) filed a complaint against the company seeking to reduce
annual Missouri electric revenues by $23 million. In September 1997, the Staff
increased its recommendation for a rate reduction to $28.5 million. In a
separate filing with the Staff, the company requested to increase electric rates
by $24.6 million. The Staff is reviewing the company's position and the final
order is expected to be issued in March 1998. The primary differences between
these two dockets center on rate of return, capital structure, transition costs,
depreciation methods and corporate allocations.
 The company's filing is designed to recover inflationary and other cost
increases which include the investment of approximately $20 million in plant and
facility improvements. The rate increase also reflects the request for a
temporary surcharge of $.0028 per kilowatt-hour to cover costs related to
transitioning to the competitive customer-choice marketplace. In addition, the
filing includes a mechanism to lessen the impact of the surcharge on consumers,
and requests that the Commission approve the establishment of a $1 million fund
to assist low-income customers.
 The Commission is expected to issue an order by March 7, 1998, with new rates
effective March 17, 1998.  Although this matter is still pending, the public
scenarios under consideration by the Commission range from a $12 million to a
$23 million rate reduction.

COMPETITION

UTILITY OPERATIONS
The electric industry has increasingly become more competitive as federal and
state regulators move to a more deregulated environment. At the federal level,
the passage of the Energy Policy Act of 1992 (Energy Act) allowed the Federal
Energy Regulatory Commission (FERC) to order electric utilities to grant access
to transmission systems by third-party power producers. The Energy Act
specifically prohibits federally mandated wheeling of power for retail
customers. In April 1996, the FERC issued its Order No. 888, and subsequently
Orders No. 888-A and No. 888-B, which opened wholesale power sales to
competition and required public utilities owning, controlling or operating
transmission lines to file non-discriminatory open access tariffs that offer
others the same transmission service they provide themselves. The company has
open access tariffs in each of its electric jurisdictions.
 On the federal legislative front, several bills in Congress have been proposed
on electric restructuring  matters, but no bill currently has wide support or is
ready for passage. Without federal restructuring guidelines, electric
restructuring is taking place on a state-by-state basis without consistency
between states.
 In each of the company's domestic electric jurisdictions, various restructuring
proposals are being introduced in the state legislature. The pace of electric
restructuring is unpredictable and subject to change.
 The competitive forces affecting the company's electric operations are also 
affecting the company's gas operations. As competing electric utilities 
reduce costs, it becomes more difficult to obtain new customers through fuel 
switching opportunities and in certain cases the result may be a loss of 
customers. Federal Energy Regulatory Commission (FERC) Order 636 shifted gas 
supply responsibilities from traditional pipeline company sources to 
distribution utilities, and allows customers to bypass the company's system 
by directly connecting to a transportation pipeline. In addition, the mix of 
gas sales has changed between industrial, transportation and large commercial 
customers. The company has addressed increased competition and industry 
changes in several ways. First, its natural gas is priced competitively in 
its respective service territories compared to alternate energy sources. 
Second, the company established in 1993 a central gas procurement function 
designed to take advantage of opportunities created by FERC Order 636. 
Besides offering low cost natural gas, the company offers its customers a 
wide range of energy solutions to meet their needs.
 The company currently accounts for the economic effects of regulation in
accordance with the provisions of Statement of Financial Accounting Standards
No. 71 (SFAS No. 71), "Accounting for the Effects of Certain Types of
Regulation," and accordingly has recorded certain costs as regulatory assets in
the financial statements. The company expects that its utility rates will
continue to be based on historical costs for the foreseeable future. If the
company discontinued applying SFAS No. 71, it would be required to make
adjustments to the carrying value of certain assets.

ENERGY MARKETING
The company has adopted a plan to provide both natural gas and electric power
commodity services to its wholesale customers from an integrated wholesale
marketing staff. This allows the company to fully meet the needs of customers
that continue to have an ever-increasing port-

<PAGE>

folio of energy options from which to choose. A number of recent mergers and
consolidations of entities in the energy marketing industry have increased the
focus on controlling market share on a volumetric basis. The company expects the
energy marketing industry to consolidate into a few megamarketing companies.
Electric power marketing will be affected by the regulatory environment of the
industry. It is currently unclear as to when the various regulatory agencies
will open access to all power customers, including retail users. These
regulatory decisions may have a significant impact on the future economics of
the power marketing sector.

MERGER TERMINATION
On September 17, 1996, KCPL terminated the Amended and Restated Agreement and
Plan of Merger (the Agreement) among KCPL, KC Merger Sub, Inc., the company, and
KC United Corp. Pursuant to the termination provision in the Agreement, KCPL
paid the company $5.0 million in 1996 and upon KCPL's definitive agreement to
merge with another company KCPL paid the company a $53.0 million breakup fee in
the first quarter of 1997. The company used the $53.0 million to reduce
short-term debt. In 1996 the company expensed $11.0 million of its deferred
merger cost, net of the $5.0 million termination fee received in 1996, against
income.

ENVIRONMENTAL MATTERS
The company has been named as a potentially responsible party (PRP) at three PCB
disposal facilities. The company's combined clean-up expenditures have been less
than $1 million to date and it anticipates that future expenditures on these
sites will not be significant.
 The company also owns or once operated 29 former manufactured gas plants which
may or may not require some form of environmental remediation. These are
discussed in Note 14 to the Consolidated Financial Statements.
 In December 1996, the EPA promulgated its final rule for nitrous oxide (NOx)
emissions pursuant to the requirements of the Clean Air Act Amendments of 1990.
The new NOx regulations will impact one of the company's power plants by
necessitating the installation of additional emissions control equipment by
January 1, 2000, as more fully discussed in Note 14.

YEAR 2000 ISSUES
The company established a cross-functional team of employees to study and
address potential year 2000 issues that may impact the company, including
potential year 2000 issues with key customers and vendors.
 The company is addressing several mission-critical systems as part of its
ongoing new system development project. The company has implemented a new
financial reporting system which is year 2000 ready and it is implementing a new
customer information system (CIS) that will be year 2000 ready. The new CIS
system is expected to be completed in early 1999.
 For complete system changeouts, the company capitalizes its cost under
guidelines described in Emerging Issues Task Force (EITF) 97-13, "Accounting for
Costs Incurred in Connection with a Consulting Contract or an Internal Project
that Combines Business Process Reengineering and Information Technology
Transformation." For programming fixes on existing systems, the company records
these costs as maintenance expense.
 The company does not expect the amount spent on year 2000 issues to be
material.

MARKET PRICE RISKS
The company is exposed to market risk, including changes in commodity prices,
interest rates and currency exchange rates. To manage the volatility relating to
these exposures, the company enters into various derivative transactions in
accordance with the company's policies related to its trading operations and
certain hedged positions. Derivative positions are monitored using a
value-at-risk (VAR) model for commodity and interest rate financial instruments
within the overall trading portfolio that includes physical contracts. For the
company's trading operation the company uses the mark-to-market method of
accounting, reflecting all changes in fair value in the income statement. The
company also uses hedge accounting for treasury related instruments and
commodity related instruments pertaining to owned system volumes at Aquila Gas
Pipeline.

COMMODITY PRICE EXPOSURE
The company manages and measures its exposure to commodity price changes using a
VAR model as a percentage of net income based on a 95% confidence level using
three day holding periods. The company's Board of Directors sets the VAR limit.
 The company also uses stress testing, daily loss limits and commodity position
limits to manage risk. A simultaneous price movement of $.10 per MMBtu and $1.00
per megawatt hour along the entire forward price curve for natural gas and
electricity positions held at December 31, 1997 would have impacted EBIT by $1.7
million and $.5 million, respectively.
 The company is also exposed to commodity price changes outside of price risk
management activities. The following table summarizes these exposures on an EBIT
basis.

<TABLE>
<CAPTION>
                                     Commodity         EBIT
                                   Price Change     Impact (a)
---------------------------------------------------------------
<S>                                <C>            <C>
NGL price per gallon                  +$.01       $1.9 million
Oasis price spread                    +$.01        1.4 million
United Kingdom natural
  gas prices                          +$.01        1.9 million
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>

(a)  ASSUMES THE $.01 PRICE CHANGE OCCURS FOR AN ENTIRE YEAR. FOR THE U.K., THE
     PRICE CHANGE ASSUMES THAT IT OCCURS OVER THE ENTIRE FORWARD CONTRACT
     PERIOD.

<PAGE>

CURRENCY RATE EXPOSURE

The company does not currently hedge its net investment in foreign operations.
As a result, the foreign denominated assets and liabilities fluctuate in value.
Historically, the company's net exposure to changes in foreign currency has been
limited as the company's foreign investments were financed through foreign debt.
 The recent downturn in the Asian market has had a collateral impact on the
Australian and New Zealand currencies which each decreased in value by 18%during
the year. The net decrease in net income in 1997 due to depreciating foreign
currencies was approximately $1.3 million. A 10% movement in all foreign
currencies occurring uniformly over the entire year relative to the U.S. dollar
would impact earnings by approximately $2.5 million.

INTEREST RATE EXPOSURE
The company has approximately $240.0 million of long-term variable rate debt,
including current maturities, as of December 31, 1997. A 100 basis point change
in each debt's benchmark rate would impact net income by approximately $1.0
million. The company has approximately $65 million of its variable debt hedged
with a fixed rate financial instrument. Changes in value of this hedge
instrument are reflected as an adjustment to interest expense.


LIQUIDITY AND CAPITAL RESOURCES


The company's cash requirements arise primarily from its continued growth,
electric and gas utility construction programs, non-regulated investment
opportunities and information technology investments. The company's ability to
attract the necessary financial capital at reasonable terms is critical to its
overall plan. Historically, acquisitions and investments have been financed
initially  with short-term debt and subsequently funded with an appropriate mix
of common equity and long-term debt securities, depending on prevailing market
conditions.
 A primary source of short-term cash has been bank borrowings from uncommitted
bank lines which aggregated $100.0 million, $185.0 million and $152.0 million at
December 31, 1997, 1996 and 1995, respectively. The company can also issue up to
$150 million of commercial paper which is supported by a $250 million committed
revolving credit agreement. The credit agreement expires in December 2000 and
allows for the issuance of notes at interest rates based on various money market
rates. Commercial paper borrowings at December 31,  1996 and 1995 were $50.0
million and $135.5 million, respectively. The company had no commercial paper
borrowings at December 31, 1997.
 To maintain flexibility in its capital structure and to take advantage of
favorable short-term rates, the company also uses proceeds from its two accounts
receivable sale programs to fund a portion of its short-term cash requirements.
The level of funding available from these programs varies depending on the level
of eligible accounts receivable, which fluctuates seasonally. These programs
were fully utilized at December 31, 1997.
 At December 31, 1997, the company had approximately $74.5 million in cash in
its international businesses. The company does not provide for U.S. tax on its
international operations.
 Total capitalization at December 31, 1997, was $2.9 billion. Common equity as a
percentage of total capitalization was 40% at December 31, 1997, up from 38% at
December 31, 1996. The increase primarily relates to the paydown of short-term
debt and depreciation of foreign currencies relative to the U.S. dollar and its
impact on foreign debt.

--------------------------------------------------------------------------------

CASH REQUIREMENTS
Future cash requirements include utility plant additions, required redemptions
of long-term securities and acquisition opportunities. The company's estimated
expenditures over the next three years for these activities, excluding
acquisitions, are as follows:

<TABLE>
<CAPTION>
                         Actual               Future Cash Requirements
                        --------        ----------------------------------
In millions               1997             1998        1999         2000
--------------------------------------------------------------------------
<S>                     <C>             <C>         <C>           <C>
Energy Delivery         $109.0          $  95.0     $  91.0       $ 93.0
Generation                 7.6             14.0        14.0         15.0
Aquila Energy             28.4             25.0        28.0         26.0
International             19.4             36.0        39.0         37.0
Maturing long-term debt  108.7            149.6       165.6        224.8
Other                     38.2             55.0        73.0         66.0
--------------------------------------------------------------------------
TOTAL                   $311.3           $374.6      $410.6       $461.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>


<PAGE>

 Amounts included in Other primarily relate to the company's continuing
information system efforts and other technology capital expenditures to enable
the company to implement its operating strategy.
 In 1997, the company redeemed all one million outstanding shares of its $2.05
Series preference stock at $25.00 a share. Also in 1997, the company retired
approximately $69 million of its 10.5% senior note issue which resulted in a
$7.2 million extraordinary loss. The early retirement was effectively refinanced
with new senior notes with an interest rate of 6.875%. In December 1997, the
company received approximately $117.1 million in cash as a customer's prepayment
for a 10-year gas supply contract. The company used the proceeds to reduce
short-term debt.
 The company is considering refinancing certain higher coupon debt in 1998 if
market conditions warrant.
 The company believes that its available cash resources from both operating cash
flows and borrowing capacity will be adequate to meet its anticipated future
cash requirements.

SIGNIFICANT BALANCE SHEET MOVEMENTS
Total assets increased $373.7 million in 1997 compared to 1996. This increase is
primarily due to increases in current assets reflecting the expansion of
Aquila's wholesale energy marketing business in 1997 which mainly increased
accounts receivable, net by $353.5 million and price risk management assets by
$66.3 million. The increase in current assets is partially offset by a $69.8
million decline in investments in subsidiaries and partnerships due to
depreciating foreign currencies relative to the U.S. dollar.
 Total liabilities increased $393.1 million due to a $355.4 million increase in
current liabilities stemming from additional accounts payable related to the
wholesale energy marketing business. Partially offsetting the increase in
accounts payable is a decrease in other current liabilities related to purchased
gas adjustments. The remaining increase in liabilities relates to an increase in
price risk management liabilities which reflects a $117.1 million contract that
closed in December 1997.

NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. "Comprehensive Income" is the total of net income
and all other non-owner changes in equity. This statement will be adopted by the
company in 1998. The company does not expect the adoption of this statement to
have a material impact.
 In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement introduces a new model for
segment reporting based on the way senior management organizes segments within a
company for making operating decisions and assessing performance. This statement
will be adopted by the company in 1998. The company does not expect the adoption
of this statement to have a material impact.

EFFECTS OF INFLATION
In the next few years, the company anticipates that the level of inflation, if
moderate, will not have a significant effect on operations or acquisition
activity.

FORWARD-LOOKING INFORMATION
This report contains forward-looking information. Such statements involve risks
and uncertainties and there are certain important factors that could cause
actual results to differ materially from those anticipated. Some of the
important factors which could cause actual results to differ materially from
those anticipated include, but are not limited to, future national and regional
economic and competitive conditions, inflation rates, regulatory changes,
weather conditions, financial market conditions, interest rates, future business
decisions and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the company. Particular consideration
should be given to the NGL prices and production trends noted on page 32 and
related EBIT sensitivities on page 36. In addition, the pending rate proceeding
is expected to decrease gross profit and EBIT in 1998 and beyond, although the
exact amount is not known.

<TABLE>
<CAPTION>
UTILITY PLANT ADDITIONS
DOLLARS IN MILLIONS
--------------------------------------
<S>       <C>
97        133.2
96        134.3
95        109.4
</TABLE>

<TABLE>
<CAPTION>
CASH FROM OPERATIONS
DOLLARS IN MILLIONS
--------------------------------------
<S>       <C>
97        349.0
96        262.8
95        261.2
</TABLE>
<PAGE>

  CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                         YEAR ENDED DECEMBER 31,
In millions except per share          1997         1996        1995
---------------------------------------------------------------------
<S>                                <C>         <C>         <C>
SALES                             $8,926.3     $4,332.3    $2,792.6
Cost of sales                      7,972.0      3,420.3     1,886.1
---------------------------------------------------------------------
GROSS PROFIT                         954.3        912.0       906.5
---------------------------------------------------------------------
Operating, administrative
 and maintenance expense             554.9        549.8       485.2
Depreciation, depletion,
 and amortization                    129.6        125.4       159.6
Provision for asset impairments       26.5           --        34.6
Write-off of deferred merger
 costs, net of termination
 fee received                           --         11.0          --
---------------------------------------------------------------------
INCOME FROM OPERATIONS               243.3        225.8       227.1
---------------------------------------------------------------------
OTHER INCOME (EXPENSE):
  Equity in earnings of
   investments and partnerships       68.8        108.7        29.5
  Minority interests                  (6.5)        (8.0)       (3.7)
  Merger termination fee              53.0           --          --
  Other income (expense)                .5          (.3)         .7
---------------------------------------------------------------------
TOTAL OTHER INCOME                   115.8        100.4        26.5
---------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES   359.1        326.2       253.6
---------------------------------------------------------------------
INTEREST EXPENSE:
  Interest expense--long-term debt   115.5        118.0       110.2
  Interest expense--short-term debt   10.9         12.8         6.9
  Minority interest in income
   of partnership                      8.9          8.9         4.7
---------------------------------------------------------------------
TOTAL INTEREST EXPENSE               135.3        139.7       121.8
---------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES         223.8        186.5       131.8
Income taxes                          89.7         80.7        52.0
---------------------------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY
 ITEM AND CUMULATIVE EFFECT OF
 SOFTWARE ACCOUNTING CHANGE          134.1        105.8        79.8
Loss on retirement of debt
 (net of income tax of $4.5)           7.2           --          --
Cumulative effect of software
 accounting change
 (net of income tax of $3.2)           4.8           --          --
---------------------------------------------------------------------
Net income                           122.1        105.8        79.8
Preference dividends                    .3          2.1         2.1
---------------------------------------------------------------------
EARNINGS AVAILABLE FOR
COMMON SHARES                      $ 121.8      $ 103.7     $  77.7
---------------------------------------------------------------------
---------------------------------------------------------------------
WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING:
  Basic                              53.62        47.21       45.08
  Diluted                            54.00        47.53       45.48
---------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
  Basic                              $2.27        $2.20       $1.72
  Diluted                             2.26         2.19        1.71
---------------------------------------------------------------------
---------------------------------------------------------------------

 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

  CONSOLIDATED BALANCE SHEETS


                                              YEAR ENDED DECEMBER 31,
 Dollars in millions                               1997         1996
---------------------------------------------------------------------
<S>                                              <C>        <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                     $  89.5     $ 137.1
  Funds on deposit                                 31.5        56.8
  Accounts receivable, net                      1,165.1       811.6
  Inventories and supplies                        111.6       110.9
  Price risk management assets                    121.5        55.2
  Prepayments and other                            95.2        67.8
---------------------------------------------------------------------
TOTAL CURRENT ASSETS                            1,614.4     1,239.4
---------------------------------------------------------------------
Property, plant and equipment, net              2,480.3     2,406.7
Investments in subsidiaries
 and partnerships                                 691.2       761.0
Price risk management assets                      161.5       154.1
Deferred charges                                  166.1       178.6
---------------------------------------------------------------------
TOTAL ASSETS                                   $5,113.5    $4,739.8
---------------------------------------------------------------------
---------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt          $ 149.6     $  25.7
  Short-term debt                                 113.8       252.0
  Accounts payable                              1,356.3       947.8
  Accrued liabilities                              13.8        50.0
  Price risk management liabilities               123.7        71.7
  Other                                            52.7       107.3
---------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                       1,809.9     1,454.5
---------------------------------------------------------------------
LONG-TERM LIABILITIES:
  Long-term debt, net                           1,358.6     1,470.7
  Deferred income taxes and credits               362.7       313.7
  Price risk management liabilities               170.5        64.5
  Minority interests                               59.0        56.9
  Other deferred credits                           89.2        96.5
---------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES                     2,040.0     2,002.3
---------------------------------------------------------------------
Company-obligated mandatorily redeemable
  preferred securities of partnership             100.0       100.0
Preferred and preference stock                       --        25.0
Common shareowners' equity                      1,163.6     1,158.0
Commitments and contingencies
---------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY                            $5,113.5    $4,739.8
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

     CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
Dollars in millions except per share                                       1997         1996        1995
----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>         <C>         <C>
COMMON STOCK: authorized 100,000,000 shares, par value $1 per
  share, 53,753,800 shares outstanding (53,293,645 at December 31,
  1996 and 45,965,952 at December 31, 1995); authorized 20,000,000
  shares of Class A common stock par value $1 per share, none issued
  Balance beginning of year                                               $ 53.3      $ 46.0       $ 44.8
  Issuance of common stock                                                    .5        7.3           1.2
----------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR                                                         53.8        53.3         46.0
----------------------------------------------------------------------------------------------------------
PREMIUM ON CAPITAL STOCK:
  Balance beginning of year                                                991.7       800.6        774.2
  Issuance of common stock                                                   7.4       191.1         26.4
----------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR                                                        999.1       991.7        800.6
----------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
  Balance beginning of year                                                125.3       106.2        106.4
  Net income                                                               122.1       105.8         79.8
  Dividends on preference stock                                              (.3)       (2.1)        (2.1)
  Dividends on common stock,
   $1.76 per share in 1997,
   $1.76 in 1996, and $1.72 in 1995                                        (94.3)      (84.6)       (77.9)
----------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR                                                        152.8       125.3        106.2
----------------------------------------------------------------------------------------------------------
Treasury stock, at cost (235,075 shares at December 31, 1997 and
  228,807  shares at December 31, 1996)                                    (10.8)       (6.4)          --
Currency translation adjustment                                            (31.3)       (5.9)        (6.5)
----------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREOWNERS' EQUITY                                        $1,163.6    $1,158.0       $946.3
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

<PAGE>

     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
Dollars in millions                                                        1997         1996        1995
----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                              $122.1      $105.8      $  79.8
  Adjustments to reconcile net income to net cash provided:
  Depreciation, depletion and amortization                                 129.6       125.4        159.6
  Provision for asset impairments                                           26.5          --         34.6
  Net changes in price risk management assets and liabilities               84.3       (33.7)       (39.4)
  Deferred taxes and investment tax credits                                 49.0        34.5        (21.2)
  Equity in earnings from investments and partnerships                     (68.8)     (108.7)       (29.5)
  Dividends from investments and partnerships                               36.0        42.7         18.6
  Minority interests                                                         6.5         8.0          3.7
  Write-off of deferred merger costs, net of termination fee received         --        11.0           --
  Loss on retirement of debt, net                                            7.2          --           --
  Cumulative effect of software accounting change, net                       4.8          --           --
  Changes in certain assets and liabilities, net of effects of
     acquisitions and restructuring
     Accounts receivable, net                                             (385.6)     (506.2)      (167.4)
     Accounts receivable sold                                               50.0        61.6         50.8
     Inventories and supplies                                                (.7)        1.6         21.8
     Prepayments and other                                                 (27.4)      (14.8)        (1.1)
     Accounts payable                                                      408.5       513.5         94.0
     Accrued liabilities, net                                              (28.5)       15.2         (8.3)
     Other                                                                 (64.5)        6.9         65.2
----------------------------------------------------------------------------------------------------------
CASH PROVIDED FROM OPERATING ACTIVITIES                                    349.0       262.8        261.2
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to utility plant                                              (133.2)     (134.3)      (109.4)
  Purchase of utility and other business                                      --      (138.1)      (100.9)
  Investments in international businesses                                   (2.8)      (42.3)      (379.3)
  Investments in independent power projects                                   --          --        (59.0)
  Proceeds on sale of oil and gas properties                                  --          --        204.5
  Investments in energy related properties                                 (28.4)      (26.4)      (144.0)
  Other                                                                    (38.2)      (70.5)       (46.8)
----------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES                                        (202.6)     (411.6)      (634.9)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock                                                   7.9       198.4         29.5
  Issuance of company-obligated mandatorily
     redeemable preferred securities of partnership                           --          --        100.0
  Retirement of preference stock                                           (25.0)         --            
  Treasury stock sold (acquired)                                            (4.4)       (6.4)         6.6
  Issuance of long-term debt                                               169.0       129.7        415.2
  Retirement of long-term debt                                            (108.7)      (22.2)      (160.3)
  Short-term borrowings (repayments), net                                 (138.2)      (37.6)       106.2
  Cash dividends paid                                                      (94.6)      (86.7)       (80.0)
----------------------------------------------------------------------------------------------------------
CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES                        (194.0)      175.2        417.2
----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                           (47.6)       26.4         43.5
Cash and cash equivalents at beginning of year                             137.1       110.7         67.2
----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                  $ 89.5      $137.1       $110.7
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


NATURE OF OPERATIONS
UtiliCorp United Inc. (the company) is an international energy and energy
services company. The company's principal lines of business are in the following
segments: UtiliCorp Energy Delivery (UED), Generation and Aquila Energy
(Aquila). The company's international operations are managed as stand-alone
companies or investments through locally based management. UED's businesses
consist of the domestic utility distribution and transmission businesses,
on-system appliance repair and servicing businesses, and gas marketing
businesses. Generation's businesses are domestic electricity generation and
independent power projects. Aquila's businesses are wholesale energy marketing,
natural gas processing and gas gathering. Aquila Energy Corporation is a
wholly-owned subsidiary of the company. Aquila's gas processing and gathering
businesses, operated by 82%-owned Aquila Gas Pipeline Corporation (AGP), are in
Texas and Oklahoma. The utility businesses operate in eight states and one
province of Canada. Natural gas is marketed throughout the U.S. and in parts of
Canada and the United Kingdom (U.K.). In addition to U.S., Canadian and U.K.
businesses, the company has various investments in Australia, New Zealand and
Jamaica.
 UtiliCorp Energy Solutions (UES), consisting of retail gas marketing, appliance
repair and service contracts, was realigned during the second quarter of 1997
into the operations of UED and Aquila. The realignment is expected to better
leverage existing support facilities, processes and expertise.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The company's accounting
policies conform to generally accepted accounting principles which, in the case
of the company's utility operations, consider the impact of rate regulation.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the company include all operating
divisions and all majority-owned subsidiaries. Investments in which the company
has an ownership interest between 20% and 50% or otherwise exercises significant
influence are accounted for using the equity method. All significant
inter-company accounts and transactions have been eliminated.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost. Repair and
maintenance costs are expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated lives for utility plant by applying
composite average annual rates, ranging from 3.1% to 4.6%, as approved by
regulatory authorities. When property is replaced, removed or abandoned, its
cost, together with the costs of removal less salvage, is charged to accumulated
depreciation. Gathering, processing and other energy related property is
depreciated using a composite average annual rate of 5.0%. Remaining
non-regulated property, plant and equipment are depreciated on a straight-line
basis over their estimated lives ranging from three to 50 years.

SALES RECOGNITION
Sales are generally recognized as products and services are delivered, except
for price risk management activities as discussed below.
 The company engages in price risk management activities for its domestic
natural gas and electricity trading activities, principally conducted by Aquila
Energy. Effective January 1, 1995, these activities have been accounted for
using the mark-to-market method of accounting.
 Under mark-to-market accounting, the company's domestic natural gas and
electricity trading contracts, including both physical transactions and
financial instruments, are recorded at fair value, net of future servicing costs
and reserves, and recognized as an adjustment to sales upon contract execution.
Changes in the market value of the portfolio (resulting primarily from newly
originated transactions and the impact of price movements) are recognized as
gains or losses in the period of change. The resulting unrealized gains and
losses are recorded as price risk management assets and liabilities.

FINANCIAL INSTRUMENTS
As indicated above, the company accounts for financial instruments associated
with its natural gas and electricity trading activities using the mark-to-market
method. Activities for non-trading purposes consist of transactions entered into
by the company's other businesses to hedge the impact of market fluctuations on
assets, liabilities, or other contractual commitments. Changes in the market
value of these transactions are deferred until the gain or loss on the hedged
item is recognized.

INCOME TAXES
The company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined by applying tax
regulations existing at the end of a reporting period to the cumulative
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Deferred income tax expense or
benefit is based on the changes in the assets and liabilities from period to
period. Deferred investment tax credits are amortized over the lives of the
related properties.

<PAGE>

CASH EQUIVALENTS AND CASH FLOW INFORMATION
Cash equivalents are defined as temporary cash investments with an original
maturity of three months or less. As of December 31, 1997, 1996 and 1995, the
company had cash held in foreign countries of $74.5 million, $86.7 million and
$77.5 million, respectively.
 Cash payments for interest, taxes and supplemental disclosures relating to
acquisition activities are presented at right:

<TABLE>
<CAPTION>
In millions                            1997       1996         1995
--------------------------------------------------------------------
<S>                                    <C>          <C>         <C>
CASH PAID DURING THE YEAR FOR:
  Interest, net of
     amount capitalized             $131.4       $132.1      $135.4
  Income taxes                        61.9         49.1        46.9
--------------------------------------------------------------------
LIABILITIES ASSUMED IN
  ACQUISITIONS:
Fair value of assets acquired       $   --      $   7.0      $114.0
Cash paid for acquisitions              --           --       100.9
Liabilities assumed                     --          7.0        13.1
--------------------------------------------------------------------
--------------------------------------------------------------------

</TABLE>
EARNINGS PER COMMON SHARE
The following table shows the amounts used in computing earnings per share and
the effect on income and weighted average number of shares of dilutive potential
common stock.


<TABLE>
<CAPTION>
In millions except per share                       1997        1996         1995
---------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>
Earnings available for common shares             $121.8      $103.7        $77.7
Convertible bonds                                    .3          .3           .2
---------------------------------------------------------------------------------
Earnings available for common shares after
 assumed conversion of dilutive securities       $122.1      $104.0        $77.9
---------------------------------------------------------------------------------
EARNINGS PER SHARE:
  BASIC--
     Earnings before extraordinary item and
       cumulative effect of software
       accounting change                          $2.49       $2.20        $1.72
  Loss on retirement of debt                       (.13)         --           --
  Cumulative effect of software
     accounting change                             (.09)         --           --
---------------------------------------------------------------------------------
  EARNINGS AVAILABLE FOR COMMON SHARES            $2.27       $2.20        $1.72
---------------------------------------------------------------------------------
  DILUTED--
  Earnings before extraordinary item and
     cumulative effect of software
     accounting change                            $2.48       $2.19        $1.71
  Loss on retirement of debt                       (.13)         --           --
  Cumulative effect of software
     accounting change                             (.09)         --           --
---------------------------------------------------------------------------------
  EARNINGS AVAILABLE FOR COMMON SHARES            $2.26       $2.19        $1.71
---------------------------------------------------------------------------------
Weighted average number of common shares used
  in basic EPS                                    53.62       47.21        45.08
Per share effect of dilutive securities:
  Stock options                                     .12          --          .01
  Convertible bonds                                 .26         .32          .39
---------------------------------------------------------------------------------
Weighted number of common shares and dilutive
  potential common stock used in diluted EPS      54.00       47.53        45.48
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

</TABLE>


CURRENCY TRANSLATION ADJUSTMENTS
The financial statements of foreign operations have been translated into U.S.
dollars using the average monthly exchange rate during the period for income
statement items and the year-end exchange rate for balance sheet items. Related
translation adjustments are reported as a separate component of common
shareowners' equity, whereas gains or losses resulting from foreign currency
transactions are included in the consolidated statements of income.

SOFTWARE DEVELOPMENT COSTS
The company capitalizes certain internally-developed software costs that relate
to costs of coding and testing. All material costs that relate to reengineering
activities, software feasibility analysis and data conversion activities are
expensed as incurred.

STOCK-BASED COMPENSATION
The company currently provides stock options to certain employees and has an
employee stock purchase program whereby employees may purchase company common
stock at a 15% discount. Under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-based Compensation (SFAS 123), the company is
required to either record additional compensation expense or disclose the impact
on net income and earnings per share as if the company elected to record
compensation expense. The company has elected to disclose pro forma information
required by SFAS 123 rather than record compensation expense. For the years
ended December 31, 1997, 1996, and 1995, compensation expense under SFAS 123
relating to stock-based compensation plans would be $4.9 million, $1.5 million
and $3.6 million, respectively. If the company had recorded compensation expense
pursuant to the requirements of SFAS 123, earnings per share would have been
reduced by $.05, $.02, and $.05 for the years ended December 31, 1997, 1996 and
1995, respectively.

<PAGE>


RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements have been
reclassified where necessary to conform to the 1997 presentation.


NOTE 2:  PRICE RISK MANAGEMENT


A. TRADING ACTIVITIES:
PRICE RISK MANAGEMENT ACTIVITIES
The company offers price risk management services in connection with its energy
trading activities. These services are provided through a variety of financial
instruments, including forward contracts which commit the company to purchase or
sell energy in the future; swap agreements, which require payments to (or
receipt of payments from) counterparties based on the differential between
specified prices for the related commodity; futures and options contracts traded
on the New York Mercantile Exchange (NYMEX); and other contractual arrangements.
 The availability and use of these types of contracts allow the company to
manage and hedge its contractual commitments, reduce its exposure relative to
the volatility of cash market prices, take advantage of selected arbitrage
opportunities via open positions, protect its investment in natural gas storage
inventories and provide price risk management services to its customers. The
company is also able to secure additional sources of energy or create additional
markets for existing supply through the use of exchange for physical
transactions allowed by NYMEX. The management of these types of transactions is
referred to herein as price risk management activities.

--------------------------------------------------------------------------------

MARKET RISK

The company's price risk management activities involve offering fixed price
commitments into the future. The contractual amounts and terms of these
financial instruments at December 31, 1997, are shown below:

<TABLE>
<CAPTION>

                                          Fixed Price Payor   Fixed Price Receiver    Maximum Term In Years
-------------------------------------------------------------------------------------------------------------
<S>                                       <C>                 <C>                     <C>
ENERGY COMMODITIES:
  Gas (TRILLION BTUS)                         2,012.3                1,790.4                 10
  Electricity (MEGAWATT-HOURS)              6,195,744              6,647,008                  2
-------------------------------------------------------------------------------------------------------------
FINANCIAL PRODUCTS:
  Interest rate instruments (IN MILLIONS)      $2,229                   $830                 10
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------

</TABLE>


 Although the company attempts to balance its physical and financial purchase
and sale contracts in terms of quantities and contract performance, net open
positions often exist or are established due to the origination of new
transactions and the company's assessment of, and response to, changing market
conditions. The company will at times create a net open position or allow a net
open position to continue when it believes, based upon competitive information
acquired from its energy marketing activities, that future price movements will
be consistent with its net open position. To the extent that the company has an
open position, it is exposed to the risk that fluctuating market prices may
adversely impact its financial position or results from operations.
 The company measures the risk in its trading portfolio using value-at-risk
methodologies, which simulate forward price curves in the energy markets to
estimate the size of future potential losses. The quantification of market risk
using value-at-risk methodologies provides a consistent measure of risk across
diverse energy markets and products. The use of this method requires a number of
key assumptions including the selection of a confidence level for losses, the
estimated holding period and the treatment of risks outside the value-at-risk
method.
 The company expresses value-at-risk as a percentage of earnings based on a 95%
confidence level using three-day holding periods. On a three-day basis as of
December 31, 1997, the company's value-at-risk (unaudited) for its price risk
management activities was not material to consolidated net income. The company
employs additional risk control mechanisms such as stress testing, daily loss
limits and commodity position limits as well as daily monitoring of the trading
function by an independent function.
 Based upon the policies and controls discussed above, management does not
anticipate a materially adverse effect on financial position or results of
operations as a result of market fluctuations.

MARKET VALUATION
The market prices used to value these transactions reflect management's best
estimate of market prices considering various factors including closing exchange
and over-the-counter quotations, time value of money and price volatility
factors underlying the commitments. These market prices are adjusted to reflect
the potential impact of liquidating the company's position in an orderly manner
over a reasonable period of time under present market conditions.
 The company has considered a number of risks and costs associated with the
future contractual commitments included in its energy portfolio, including
credit risks associated with the financial condition of counterparties, product
location (basis) differentials and other risks which management policy dictates.
A calculation of the time value of money is also applied to all contracts. The
company continuously monitors the valuation of identified risks and adjusts them
based on present

<PAGE>

market conditions. The following table displays the mark-to-market values of the
company's energy transactions at December 31, 1997 and 1996 and the average
value for the year ended December 31, 1997 and 1996:


<TABLE>
<CAPTION>
                                               Price Risk Management Assets        Price Risk Management Liabilities
                                             ---------------------------------     ----------------------------------
Dollars in millions                          Average Value   December 31, 1997     Average Value   December 31, 1997
---------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>                    <C>               <C>
Independent power producers                      $158.7         $162.2                   $--               $--
Financial institutions                             16.1           15.4                  28.7              36.6
Oil and gas producers                               9.0           13.1                  20.1              25.2
Gas transmission                                   14.6           31.7                  44.2             144.4
Energy marketers                                   25.4           52.2                  14.7              22.1
Other                                               5.6            8.4                   3.8               5.5
---------------------------------------------------------------------------------------------------------------------
Gross value                                       229.4          283.0                 111.5             233.8
Reserves                                             --             --                  57.9              60.4
---------------------------------------------------------------------------------------------------------------------
TOTAL                                            $229.4         $283.0                $169.4            $294.2
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

                                               Price Risk Management Assets        Price Risk Management Liabilities
                                             ---------------------------------     ----------------------------------
Dollars in millions                          Average Value   December 31, 1997     Average Value   December 31, 1997
---------------------------------------------------------------------------------------------------------------------
Independent power producers                      $172.2         $158.3               $    --              $_.1
Financial institutions                             17.4           18.3                  34.3              21.0
Oil and gas producers                               2.8            9.1                  24.4              19.9
Gas transmission                                    5.4           10.0                  23.5              25.1
Energy marketers                                    4.5            9.7                   2.7              10.5
Other                                               2.9            3.9                   2.6               2.4
---------------------------------------------------------------------------------------------------------------------
Gross value                                       205.2          209.3                  87.5              79.0
Reserves                                             --             --                  64.6              57.2
---------------------------------------------------------------------------------------------------------------------
TOTAL                                            $205.2         $209.3                $152.1            $136.2
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>


 The counterparties in the company's portfolio consist primarily of gas
transmission companies, energy marketers and independent power producers. The
creditworthiness of the company's counterparties could impact its overall
exposure to credit risk, either positively or negatively. However, the company
maintains credit policies with regard to its counterparties that in management's
view minimize overall credit risk.
 At December 31, 1997, the company had natural gas financial instruments with a
contractual volume of 3,816 BCF, expiring through 2007. As of December 31, 1997,
the future cash flow requirements, net of margin deposits, related to these
financial instruments were $13.5 million. Margin deposits are required on
certain financial instruments to address significant fluctuations in market
prices.
 Three independent power producers comprise the majority of the company's net
price risk management assets. This concentration of customers may impact the
company's overall exposure to credit risk, either positively or negatively, in
that the counterparties may be similarly affected by changes in economic,
regulatory or other conditions. The net value of the 1997 price risk management
portfolios reflects the $117.1 million prepayment of a long-term gas contract.

B. NON-TRADING ACTIVITIES--HEDGING INSTRUMENTS
The company enters into forwards, futures and other contracts related to its
commodity businesses. Financial instruments are used to manage price
fluctuations in the portfolio of natural gas transactions. The estimated fair
value and cash flow requirements for these financial instruments are based on
the market prices in effect at the financial statement date and do not
necessarily reflect the company's entire trading portfolio.


NOTE 3:  ACCOUNTS RECEIVABLE


The components of accounts receivable on the Consolidated Balance Sheets are as
follows:

<TABLE>
<CAPTION>
                                                       December 31,
In millions                                        1997           1996
-----------------------------------------------------------------------
<S>                                            <C>              <C>
Accounts receivable, net                       $1,328.3         $925.2
Unbilled revenue                                  116.8          116.4
Accounts receivable sale program                 (280.0)        (230.0)
-----------------------------------------------------------------------
Total                                          $1,165.1         $811.6
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>

 The company has agreements with financial institutions to sell, on a continuing
basis, up to $280 million of eligible accounts receivable on a limited recourse
basis. Fees associated with these sales were approximately (in millions) $15.2
in 1997, $12.2 in 1996 and $8.6 in 1995 and are included in the accompanying
consolidated statements of income.

<PAGE>

NOTE 4:  PROPERTY, PLANT AND EQUIPMENT


The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
                                                       December 31,
In millions                                        1997           1996
-----------------------------------------------------------------------
<S>                                            <C>            <C>
Electric utility                               $1,766.2       $1,703.8
Gas utility                                     1,128.7        1,102.2
Gas gathering and pipeline systems                555.8          569.2
Other non-regulated plant                         261.8          189.4
Construction in process                            88.2           93.3
-----------------------------------------------------------------------
                                                3,800.7        3,657.9
Less--depreciation, depletion
 and amortization                               1,320.4        1,251.2
-----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET             $2,480.3       $2,406.7
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>

CUMULATIVE EFFECT OF SOFTWARE
ACCOUNTING CHANGE
During 1997, the company changed its method of accounting for internally
developed software costs to conform with the new requirements of Emerging Issues
Task Force (EITF) 97-13, "Accounting for Costs Incurred in Connection with a
Consulting Contract or an Internal Project That Combines Business Process
Reengineering and Information Technology Transformation," that became effective
November 20, 1997. The effect of this change was to reduce net income in 1997 by
$4.8 million. This is described as a cumulative effect of software accounting
change in the consolidated statements of income. The 1996 financial statements
were not affected by EITF 97-13 as costs not allowed under the EITF had not been
capitalized prior to 1997.

SALE OF OIL AND GAS ASSETS
On September 27, 1995, the company sold assets of Aquila Energy Resources
Corporation, a wholly-owned subsidiary of Aquila, for approximately $205 million
in cash, their approximate carrying value. The assets sold consisted of
substantially all of the company's oil and gas properties.


NOTE 5:  ASSET IMPAIRMENTS


As part of the sale of the company's oil and gas production assets in September
1995, the company retained a net profits interest in the properties which was
contingent upon the future performance and activities of the oil and gas
properties sold and certain payout criteria related to the sale transaction. At
the time of the sale, the net profits interest was valued at $22.5 million.
Pursuant to the sales agreement, periodic drilling and reserve updates are
provided each year to the company. After receiving the 1997 study, the company
recorded a $15.5 million pretax charge against earnings primarily to reflect the
latest estimate of its net realizable value.
 Also in 1997, the company evaluated some of its technology related investments
and eliminated certain technology related positions. In light of recent
organizational changes at one of the company's strategic partners and the
results to date, the company expensed approximately $11.0 million pretax
consisting of certain contractual and software rights and severance costs.
 In 1995 the company reviewed its long-lived asset car-rying values and also
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121). In the fourth quarter of 1995, the company recorded a non-cash
charge of approximately $34.6 million for long-term asset impairments. The
assets related to this charge are summarized as follows:

<TABLE>
<CAPTION>
In millions                             Pretax Writedown
--------------------------------------------------------
<S>                                     <C>
Investment in an independent
 power project                               $15.4
Gas gathering systems                         13.2
Gas processing plants                          6.0
--------------------------------------------------------
TOTAL                                        $34.6
--------------------------------------------------------
--------------------------------------------------------
</TABLE>

 The impairment loss related to UtilCo Group's investment in an independent
power project was primarily caused by a change in the projected cash flows of
the project after considering updated projections of future energy prices. This
resulted in the write-off of the remaining investment balance.
 The impairment loss relating to AGP's gas gathering systems stems from a review
of cash flows on a system-by-system basis. Prior to adoption of SFAS 121, AGP
assessed asset realization on an aggregate cash flow level, which is higher than
what SFAS 121 allows. In preparing cash flow projections related to AGP's
assets, certain assumptions were used. The more significant assumptions included
constant throughput flow based on 1994 actual throughput for an estimated
remaining life of 20 years. Cash flows were discounted based on AGP's weighted
average cost of capital.
 The impairment loss relating to gas processing plants relates to a review
conducted after the sale of Aquila's oil and gas properties. These company-owned
plants were managed as part of Aquila's properties, but were not part of Aquila.
In assessing these plants separately under the principles of SFAS 121, the cash
flows from these assets were not sufficient to recover the carrying value of the
plants.

<PAGE>

NOTE 6:  INVESTMENTS IN SUBSIDIARIES AND PARTNERSHIPS


The consolidated financial statements include the company's investments in: an
electric distribution utility in Australia, via UtiliCorp Australia Holding
Limited (UAHL); two electric distribution utilities in New Zealand, via
UtiliCorp N.Z., Inc. (UNZ); and 17 power projects via UtilCo Group. These are
all accounted for under the equity method. For the company's international
businesses, adjustments for significant differences between U.S. generally
accepted accounting principles and local accounting standards have been made to
the amounts included in the company's consolidated financial statements. The
following table summarizes the company's equity investment balances at December
31, 1997 and 1996 and the related equity earnings for the three years ended
December 31, 1997.


<TABLE>
<CAPTION>
                                                                   Investment                  Equity Earnings
                                                                  at December 31,           Year Ended December 31,
                                    Ownership                    -----------------      ------------------------------
In millions                        at 12/31/97        Country      1997      1996       1997        1996         1995
----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>               <C>       <C>        <C>        <C>           <C>
UAHL investment (a) (e)                 49.9%   Australia         $237.9    $274.0    $ 28.6       $ 42.7       $_9.3
UNZ investment (b)
  WEL Energy Group Ltd. (WEL) (e)       39.6%   New Zealand         39.6      46.1       4.5          6.2         2.2
  Power New Zealand (PNZ) (e)           30.6%   New Zealand        115.2     134.2       9.2         11.2          --
UtilCo Group partnerships (c) (d)     22%-50%   U.S. & Jamaica     199.7     194.4      29.6         48.5        19.6
Oasis Pipe Line Company (Oasis)           35%   United States       96.3     110.8        .9           .1          --
Other                                     50%   United States        2.5       1.5      (4.0)          --        (1.6)
----------------------------------------------------------------------------------------------------------------------
TOTAL                                                             $691.2    $761.0    $ 68.8       $108.7       $29.5
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>


(a)  EQUITY EARNINGS INCLUDE INTEREST INCOME AND MANAGEMENT FEES BETWEEN THE
     EQUITY INVESTEE AND UAHL.

(b)  THE COMPANY OWNS 79% OF UNZ WITH THE REMAINING 21% OWNED BY AN UNRELATED
     PARTY.

(c)  INVESTMENTS ARE AGGREGATED. INDIVIDUAL INVESTMENTS ARE NOT SIGNIFICANT.

(d)  INVESTMENT AND SHARE OF PRETAX EARNINGS INCLUDE THE JAMES RIVER PROJECT,
     49% OWNED BY THE COMPANY AND 1% OWNED BY UTILCO GROUP.

(e)  THE INVESTMENT VALUES DECLINED IN 1997 COMPARED TO 1996 DUE TO A DECLINE IN
     THOSE CURRENCIES RELATIVE TO THE U.S. DOLLAR. THE AUSTRALIAN AND NEW
     ZEALAND DOLLARS DECLINED AS THE ASIAN STOCK MARKET TOOK A SEVERE DOWNTURN
     IN LATE 1997.


 Summarized combined financial information of unconsolidated material equity
investments is presented below.
<TABLE>
<CAPTION>
                                        December 31,
In millions                         1997           1996
------------------------------------------------------------
<S>                             <C>            <C>
ASSETS:
 Current assets                 $  338.1       $  328.5
 Non-current assets              2,840.6        3,131.0
------------------------------------------------------------
TOTAL ASSETS                    $3,178.7       $3,459.5
------------------------------------------------------------
------------------------------------------------------------
LIABILITIES AND EQUITY:
  Current liabilities           $  449.8       $  325.2
  Non-current liabilities        1,718.1        2,163.7
  Equity                         1,010.8          970.6
------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY    $3,178.7       $3,459.5
------------------------------------------------------------
------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                          Year Ended December 31,
In millions                         1997           1996           1995
-----------------------------------------------------------------------
<S>                             <C>            <C>             <C>
OPERATING RESULTS:
  Revenues                      $1,294.7       $1,277.8         $729.6
  Costs and expenses             1,140.7        1,109.1          657.3
-----------------------------------------------------------------------
NET INCOME                       $ 154.0      $   168.7        $  72.3
-----------------------------------------------------------------------
-----------------------------------------------------------------------

</TABLE>

INTEREST IN AUSTRALIAN ELECTRIC UTILITY
In September 1995, Power Partnership Pty Limited (PPL), 49.9%-owned by the
company, acquired United Energy Limited (UE), an Australian electric
distribution utility, from the State of Victoria. The company paid approximately
$257.9 million for its 49.9% ownership interest in PPL. The company manages the
operations of UE on behalf of PPL and receives an annual management fee
consisting of a base amount indexed to the consumer price index and a variable
amount based on UE's financial performance. The management agreement extends for
10 years from date of acquisition.
 The company financed its ownership interest primarily through two five-year
Australian currency revolving credit facilities. See Note 9 for more information
regarding financing arrangements.
 The acquisition was recorded as a purchase and, accordingly, the assets and
liabilities were recorded at the estimated fair value at the date of
acquisition. The equity investment is included in investments in subsidiaries
and partnerships on the Consolidated Balance Sheets. Pro forma unaudited results
of operations for the company, assuming the acquisition occurred at the
beginning of 1995, are shown below.

<TABLE>
<CAPTION>
                          Year Ended December 31,
In millions, except per share               1995
------------------------------------------------
<S>                                     <C>
Sales                                   $2,798.5
Income from operations                     225.1
Net income                                  81.7
Earnings available for
  common shares                             79.6
------------------------------------------------
------------------------------------------------
Basic earnings per share                   $1.76
Diluted earnings per share                  1.75
------------------------------------------------
------------------------------------------------

</TABLE>

<PAGE>

The company's Australian investment has the following components:

<TABLE>
<CAPTION>

                                                                    Carrying Value                   Fair Value
                                                                   ----------------                 ------------
                                                                  1997           1996           1997           1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>            <C>
Investment in convertible notes (a) (b)                         $113.6         $138.1         $113.6         $138.1
Investment in floating subordinated debt (a) (b)                  61.0           74.2           61.0           74.2
Investment in PPL common stock (not traded)                       63.3           61.7
--------------------------------------------------------------------------------------------------------------------
Total                                                           $237.9         $274.0
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------

</TABLE>

(a)  THE COMPANY CLASSIFIES THESE SECURITIES AS HELD-TO-MATURITY.

(b)  THESE SECURITIES HAVE FLOATING INTEREST RATES AT .9% ABOVE THE AUSTRALIAN
     BANK BILL RATE MATURING IN SEPTEMBER 2015. THE INTEREST RATE AT DECEMBER
     31, 1997 WAS 7.28%.


INTEREST IN NEW ZEALAND ELECTRIC UTILITIES

In November 1995, UNZ acquired 20.0% of the common stock of Power New Zealand
Ltd. (PNZ), a New Zealand electric distribution utility, for $69.4 million. This
acquisition was financed through a New Zealand currency credit facility. UNZ
continued to acquire PNZ shares through May 1997 and at the end of 1997 held
30.6%. PNZ is New Zealand's second largest electric distribution utility,
serving approximately 216,000 customers.
 In February 1995, UNZ paid $16.1 million to WEL Energy Group Ltd. (WEL) to
satisfy its capital commitment. UNZ continued to acquire WEL shares throughout
1996 and 1997 and at the end of 1997 held 39.6%. WEL is an electric distribution
utility serving approximately 66,000 customers.

INTEREST IN INDEPENDENT POWER PROJECTS
The company participates in the ownership and operation of facilities in the
independent and wholesale power
generation market. It has investments in 17 projects located in seven states and
Jamaica.
 In April 1996, one of UtilCo Group's power projects entered into a long-term
lease arrangement with a third party. This transaction was accounted for as a
sale by the partnership and resulted in the recognition of a gain. UtilCo Group
recorded its share of the gain through equity earnings during the second
quarter. In addition, UtilCo Group recorded certain restructuring reserves
primarily in connection with changes in power project agreements. The net gain
from these items was $11.8 million after tax.

INVESTMENT IN PIPELINE SYSTEM
In July 1996 and November 1996, the company acquired, in aggregate, 40% of Oasis
Pipe Line Company for approximately $132.0 million. Oasis consists of a 600-mile
intrastate pipeline system in Texas near many of Aquila Energy's existing
gathering systems. As part of the purchase, another owner had the option to buy
20% of Oasis, including 5% held by Aquila. The option was exercised in 1997 and
Aquila sold the 5% at book value.


NOTE 7:  REGULATORY ASSETS


The company's utility operations are subject to regulation by various regulatory
authorities. The company currently applies accounting standards that recognize
the economic effects of rate regulation and, accordingly, has recorded
regulatory assets related to the company's energy generation, transmission and
distribution operations. If the company discontinued applying this accounting
standard, it would be required to make an adjustment to the carrying value of
certain assets.
 The following table presents the amount of regulatory assets recorded at
December 31,1997 and 1996. These are primarily reflected as deferred charges on
the consolidated balance sheets.

<TABLE>
<CAPTION>
Dollars in millions                       1997       1996
----------------------------------------------------------
<S>                                     <C>       <C>
Income taxes                            $ 55.2    $  53.6
Environmental liabilities                 11.2       11.3
Debt-related costs                        19.6       22.3
Regulatory accounting orders               8.4        9.1
Demand-side management programs           13.0       10.8
Post-retirement benefits                   7.4       10.5
Other (including FERC Order No. 636)       7.9       28.2
----------------------------------------------------------
Total                                   $122.7     $145.8
----------------------------------------------------------
----------------------------------------------------------

</TABLE>
<PAGE>

     NOTE 8:  SHORT-TERM DEBT

     Short-term debt includes the following components:
<TABLE>
<CAPTION>
                                                           December 31,
     In millions                                       1997           1996
     ----------------------------------------------------------------------
     <S>                                              <C>            <C>
     Bank borrowing and other                         $113.8         $202.0
     Commercial paper                                     --           50.0
     ----------------------------------------------------------------------
     TOTAL                                            $113.8         $252.0
     ----------------------------------------------------------------------
     Weighted average interest
       rate at year end                                6.21%          5.78%
     ----------------------------------------------------------------------
     ----------------------------------------------------------------------
</TABLE>

        The company has a commercial paper program of $150 million. To support
     it, the company has a revolving credit agreement with a consortium of banks
     aggregating $250 million. The agreement allows the issuance of notes which
     bear interest at rates based on the prime rate or various money market
     rates. The revolving credit agreement contains restrictive covenants and
     the company pays an annual commitment fee of .17% on the unused portion of
     the revolving credit facility.

     NOTE 9:  LONG-TERM DEBT

     The company's long-term debt is summarized below:
<TABLE>
<CAPTION>
                                                                                      December 31,
     In millions                                                                1997                1996
     -----------------------------------------------------------------------------------------------------
     <S>                                                                       <C>                 <C>
     FIRST MORTGAGE BONDS:
        Various, 9.94%*, due 1998-2008                                         $ 20.6              $ 23.0
     SENIOR NOTES:
        6.0% Series, due April 1, 1998                                           70.0                70.0
        9.21% Series, due October 11, 1999                                       50.0                50.0
        8.45% Series, due November 15, 1999                                     100.0               100.0
        Aquila Southwest Energy 8.29% Series,
           due September 15, 2002                                                62.5                75.0
        6.875% Series, due October 1, 2004                                      150.0                  --
        6.375% Series, due June 1, 2005                                         100.0               100.0
        6.7% Series, due October 15, 2006                                       100.0               100.0
        8.2% Series, due January 15, 2007                                       130.0               130.0
        10.5% Series, due December 1, 2020                                       55.9               125.0
        9.0% Series, due November 15, 2021                                      150.0               150.0
        8.0% Series, due March 1, 2023                                          125.0               125.0
     SECURED DEBENTURES OF WEST KOOTENAY POWER:
        9.15%*, due 2001-2023                                                    71.3                68.2
     CONVERTIBLE SUBORDINATED DEBENTURES:
        6.625%, due July 1, 2011                                                  5.8                 7.2
     New Zealand Denominated Credit Facility, due June 30, 1998                  64.7                78.9
     Australian Denominated Credit Facilities,
        due July 20, 2000                                                       195.1               237.3
     Other notes and obligations                                                 57.3                56.8
     -----------------------------------------------------------------------------------------------------
     TOTAL LONG-TERM DEBT                                                     1,508.2             1,496.4
     Less current maturities                                                    149.6                25.7
     -----------------------------------------------------------------------------------------------------
     Long-term debt, net                                                     $1,358.6            $1,470.7
     -----------------------------------------------------------------------------------------------------
     Fair value of long-term debt, including current maturities (a)          $1,581.1            $1,559.3
     Interest rate swap (a)                                                       (.1)               (1.8)
     -----------------------------------------------------------------------------------------------------
</TABLE>
     * WEIGHTED AVERAGE INTEREST RATE.
 
(a)  THE FAIR VALUE OF LONG-TERM DEBT IS BASED ON CURRENT RATES AT WHICH THE
     COMPANY COULD BORROW FUNDS WITH SIMILAR REMAINING MATURITIES. THE INTEREST
     RATE SWAP AGREEMENTS ARE USED TO REDUCE THE EFFECT OF CHANGING INTEREST
     RATES ON THE COMPANY'S AUSTRALIAN DENOMINATED CREDIT FACILITY.

<PAGE>

       Substantially all of the domestic utility plant owned by the company is
     subject to the lien of various mortgage indentures. The company cannot
     issue additional mortgage bonds under these indentures without directly
     securing the 6.0%, 8.45%, 8.2%, 9.0%, 8.0%, 6.375% and 6.70% Senior Notes
     equally as any mortgage bond issue. Currently the company has no plans to
     issue mortgage bonds.
       The amounts of long-term debt maturing in each of the next five years and
     thereafter are shown at right:

<TABLE>
<CAPTION>
     In millions                      Maturing Amounts
     -------------------------------------------------
     <S>                              <C>
     1998                                 $  149.6
     1999                                    165.6
     2000                                    224.8
     2001                                     15.7
     2002                                     15.7
     Thereafter                              936.8
     -------------------------------------------------
     Total                                $1,508.2
     -------------------------------------------------
     -------------------------------------------------
</TABLE>

     ---------------------------------------------------------------------------

     For the two years ended December 31, 1997, the company issued the following
     series of Senior Notes which were used to reduce short-term debt.

<TABLE>
<CAPTION>
      In millions                     Date Issued    Maturity         Face Amount    Net Proceeds
     ---------------------------------------------------------------------------------------------
     <S>                           <C>               <C>              <C>            <C>
     6.875% series                 October 1997        2004           $150.0           $149.0
     6.7% series                   October 1996        2006*          $100.0           $ 99.5
     ---------------------------------------------------------------------------------------------
     ---------------------------------------------------------------------------------------------
</TABLE>

     *    THE HOLDER OF THE 6.7% SENIOR NOTE MAY ELECT TO REDEEM ANY PORTION IN
          MULTIPLES OF $1,000 ON OCTOBER 1, 2001 AT FACE VALUE PLUS ACCRUED
          INTEREST.


     RETIREMENT OF DEBT
     In March 1997, the company retired, at a premium, $69.1 million of its
     10.5% series senior notes that were to mature in 2020. The transaction
     resulted in an ex-traordinary loss of $7.2 million, net of an income tax
     benefit of $4.5 million.

     NEW ZEALAND DENOMINATED CREDIT FACILITY
     UtiliCorp South Pacific, Inc. (USP) has a $NZ135 million credit facility
     with a consortium of banks that was used to finance a portion of the
     investments made by UNZ. The interest rate fluctuates (7.93% at December
     31, 1997) with changes in the New Zealand bank bill rate. The credit
     facility matures on June 30, 1998. A commitment fee of .20% applies to the
     unused portion of the credit facility.

     AUSTRALIAN DENOMINATED CREDIT FACILITIES
     UAHL has two $A150 million credit facilities with a consortium of banks
     that mature on July 20, 2000. The interest rates for $A250 million of the
     above facilities fluctuates with changes in the Australian bank bill rate.
     The weighted average interest rate at December 31, 1997 was 5.51%. The
     interest rate on the remaining $A50 million is fixed at 7.48%. A commitment
     fee of .20% applies to the unused portion of the credit facility.
        On November 6, 1995, UAHL entered into an interest rate swap agreement
     with Deutsche Bank with a contractual amount of $A100 million whereby the
     company exchanges variable Australian debt interest for fixed rate
     interest. The fixed interest rate is 7.77% for a period extending to
     September 7, 1998.

     CONVERTIBLE SUBORDINATED DEBENTURES
     At December 31, 1997, 6.625% convertible subordinated debentures totaling
     $5.8 million remained outstanding. The debentures can be converted into
     approximately 245,000 shares of common stock, based on a conversion price
     of $23.68, subject to an annual maximum limitation. The debentures are
     subordinate to the prior payment, when due, of the principal and premium,
     if any, and interest on all the company's debt outstanding, except debt
     that by its terms is not senior in right of payment to the debentures.


     NOTE 10:  COMPANY-OBLIGATED PREFERRED SECURITIES

        In June 1995, UtiliCorp Capital L.P. (UC), a limited partnership of
     which the company is the general partner, issued 4 million shares of 8.875%
     Cumulative Monthly Income Preferred Securities, Series A, for $100 million.
     The limited partnership interests represented by the preferred securities
     are redeemable at the option of UC, after June 12, 2000, at $25 per
     preferred security plus accrued interest and unpaid dividends.

        Holders of the securities are entitled to receive dividends at an annual
     rate of 8.875% of the liquidation preference value of $25. Dividends are
     payable monthly and in substance are tax-deductible by the company. The
     securities are shown as company-obligated mandatorily redeemable preferred
     securities of partnership on the consolidated balance sheets. The dividends
     are shown as minority interest in income of partnership in the consolidated
     statements of income.

<PAGE>

     NOTE 11:  CAPITAL STOCK


     COMMON STOCK OFFERING

     In November 1996, the company issued 6 million shares of common stock at
     $27.625. The net proceeds of $160.8 were used to reduce short-term debt.

     DIVIDEND REINVESTMENT AND STOCK
     PURCHASE PLAN
     In February 1995, the company registered 3 million shares of common stock
     to initiate a new Dividend Reinvestment and Common Stock Purchase Plan (New
     Plan). In 1997, an additional 5 million shares were authorized. Under the
     provisions of this New Plan, current and potential shareholders can
     purchase up to $10,000 per month of the company's common stock at a
     five-day average market price and without sales commissions. The New Plan
     allows members to reinvest dividends into additional common stock at a 5%
     discount. The New Plan amends the previous plan and all members in the
     previous plan automatically became members in the New Plan. For the year
     ended December 31, 1997, 1,124,283 shares were issued under this plan. As
     of December 31, 1997, 4,887,761 shares were available to issue under this
     plan.

     EMPLOYEE STOCK PURCHASE PLAN
     Participants have the opportunity to buy shares of the company's common
     stock at a reduced price through regular payroll deductions and/or lump sum
     deposits of up to 20% of the employee's base salary. Contributions are
     credited to the participant's account throughout an option period. At the
     end of the option period, the participant's total account balance is
     applied to the purchase of common shares of the company. The shares are
     purchased at 85% of the lower of the market price on the first day or the
     last day of the option period. Participants must be enrolled in the Plan as
     of the first day of an option period in order to participate in that option
     period.

     RESTATED SAVINGS PLAN
     A defined contribution plan, the Restated Savings Plan (Savings Plan),
     covers all full-time and eligible part-time employees of the company.
     Participants may generally elect to contribute up to 12% (15% beginning
     January 1, 1998) of their annual pay on a before- or after-tax basis
     subject to certain limitations. The company generally matches contributions
     up to 6%. Participants may direct their contributions into five different
     investment options. All company matching contributions are in the company's
     common stock. In addition, the Savings Plan also includes a stock
     contribution fund whereby the company can contribute an additional amount
     of company common stock to participants.

     STOCK INCENTIVE PLAN
     The company's Stock Incentive Plan provides for the granting of common
     shares to certain employees as restricted stock awards and as stock
     options. Shares issued as restricted stock awards are held by the company
     until certain restrictions lapse, generally on the third award anniversary.
     The market value of the stock, when awarded, is amortized to compensation
     expense over the three-year period. Stock options granted under the Plan
     allow the purchase of common shares at a price not less than fair market
     value at the date of grant. Options are generally exercisable commencing
     with the first anniversary of the grant and expire after 10 years from the
     date of grant.

     EMPLOYEE STOCK OPTION PLAN
     The Board approved the establishment of an Employee Stock Option Plan in
     1991. This Plan provides for the granting of up to 1 million stock options
     to full-time employees other than those eligible to receive options under
     the Stock Incentive Plan. Stock options granted under the Employee Stock
     Option Plan carry the same provisions as those issued under the Stock
     Incentive Plan. During 1992, options for 742,900 shares were granted to
     employees. The exercise price of these options is $27.3125. No options have
     been issued under this Plan since 1992.
        Stock options as of December 31, 1997 and 1996 are summarized below:

<TABLE>
<CAPTION>
     Shares                                     1997              1996
     ------------------------------------------------------------------
     <S>                                   <C>               <C>
     BEGINNING BALANCE                     2,200,450         2,015,500
     Granted                               1,123,020           303,850
     Exercised                              (615,290)          (18,410)
     Cancelled                              (198,553)         (100,490)
     ------------------------------------------------------------------
     ENDING BALANCE                        2,509,627         2,200,450
     ------------------------------------------------------------------
     ------------------------------------------------------------------
     WEIGHTED AVERAGE PRICES:
     Beginning balance                        $27.94            $27.83
     Granted price                             27.79             28.55
     Exercised price                           27.60             23.96
     Cancelled price                           27.71             28.40
     Ending balance                            27.97             27.94
     ------------------------------------------------------------------
     ------------------------------------------------------------------
</TABLE>

        At December 31, 1997, restricted stock awards and stock options which
     were exercisable totaled 1,136,225 shares (at prices ranging between $21.88
     and $31.63).

<PAGE>

     NOTE 12:  INCOME TAXES


     Income tax expense consists of the following components:
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
     Dollars in millions                             1997      1996      1995
     -------------------------------------------------------------------------
     <S>                                            <C>       <C>       <C>
     CURRENTLY PAYABLE:
        Federal                                     $27.1     $35.0     $35.4
        Foreign                                       7.1      14.2      10.6
        State                                         6.5       5.5      11.3
     DEFERRED:
        Federal                                      42.1      23.0      (3.6)
        State                                         8.2       4.3       (.4)
     Investment tax credit
        amortization                                 (1.3)     (1.3)     (1.3)
     -------------------------------------------------------------------------
     TOTAL INCOME TAX EXPENSE                       $89.7     $80.7     $52.0
     -------------------------------------------------------------------------
     -------------------------------------------------------------------------
</TABLE>

        The principal components of the company's deferred income taxes consist
     of the following:
<TABLE>
<CAPTION>
                                                           December 31,
     Dollars in millions                               1997           1996
     -----------------------------------------------------------------------
     <S>                                              <C>            <C>
     DEFERRED TAX ASSETS:
        Alternative maximum carryforward              $ 98.3         $ 95.1
     -----------------------------------------------------------------------
     TOTAL DEFERRED TAX ASSETS                          98.3           95.1
     -----------------------------------------------------------------------
     DEFERRED TAX LIABILITIES:
        Accelerated depreciation and
          other plant differences:
          Regulated                                    167.5          146.4
          Non regulated                                168.9          158.3
     Regulatory asset--SFAS 109                         38.6           37.1
     Mark-to-market reserve                             25.8           11.3
     Other, net                                         60.2           55.7
     -----------------------------------------------------------------------
     TOTAL DEFERRED TAX LIABILITIES                    461.0          408.8
     -----------------------------------------------------------------------
     DEFERRED INCOME TAXES, NET                       $362.7         $313.7
     -----------------------------------------------------------------------
     -----------------------------------------------------------------------
</TABLE>

        The company's effective income tax rates differed from the statutory
     federal income tax rates primarily due to the following:

<TABLE>
<CAPTION>
                                                        December 31,
     Dollars in millions                          1997      1996      1995
     ----------------------------------------------------------------------
     <S>                                          <C>       <C>       <C>
     Statutory Federal Income Tax Rate             35.0%     35.0%     35.0%
     TAX EFFECT OF:
       Temporary difference passed
         through, primarily
         removal costs                               --        .2       (.5)
       Investment tax credit
         amortization                               (.6)      (.7)     (1.0)
       State income taxes, net of
         federal benefit                            5.8       5.8       4.3
       Difference in tax rate of
         foreign subsidiaries                      (1.9)      (.7)      1.0
       Other                                        1.8       3.7        .7
     ----------------------------------------------------------------------
     EFFECTIVE INCOME TAX RATE                     40.1%     43.3%     39.5%
     ----------------------------------------------------------------------
     ----------------------------------------------------------------------
</TABLE>

       The company has an alternative minimum tax credit carryforward of
     approximately $98.3 million at December 31, 1997. Alternative minimum tax
     credits can be carried forward indefinitely and the company has not
     recorded a valuation allowance against its tax credit carryforwards.
       No provision is made for U.S. income taxes on undistributed earnings of
     the company's international businesses ($96.5 million at December 31, 1997)
     because it is management's intention to reinvest such earnings in those
     international operations. In the event of a distri-bution of these earnings
     in the form of dividends, the company may be subject to both foreign
     withholding taxes and U.S. income taxes net of allowable foreign tax
     credits. Consolidated income before income taxes for the years ended
     December 31, 1997, 1996 and 1995 included $13.6, $39.2 and $16.6 million,
     respectively, from international operations.

                                  [PICTURE]

     You've Seen the Photos,
     Now View the Video!

     HOST WILLIAM SHATNER walks you through UtiliCorp's award-winning World 
     Headquarters Building and its colorful 110-year history in

     THE 2ND LIFE OF 20 WEST NINTH

     This 28-minute program aired on public television in 1997.
     To order a VHS tape, call KCPT Public Television 19 toll-free 
     at 1-800-459-9733.
     $24.95 plus $3.95 shipping/handling.

<PAGE>

     NOTE 13:  EMPLOYEE BENEFITS


     PENSIONS
     The following table represents the funded status of the pension plans and
     the amounts included in the consolidated balance sheets and statements of
     income:

<TABLE>
<CAPTION>
                                                                                                Year Ended December 31,
     Dollars in millions                                                                     1997        1996        1995
     -----------------------------------------------------------------------------------------------------------------------
     <S>                                                                                  <C>          <C>         <C>
     ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
        Vested benefit obligation                                                          $168.3       $153.9      $143.0
        Accumulated benefit obligation                                                      173.1        158.1       146.9
     -----------------------------------------------------------------------------------------------------------------------
     Projected benefit obligation                                                          $205.4       $185.9      $183.9
     Plan assets at fair value (primarily publicly traded common stocks and bonds)          240.1        208.7       191.7
     -----------------------------------------------------------------------------------------------------------------------
     Excess of plan assets over the projected benefit obligation                             34.7         22.8         7.8
     Unrecognized net loss from past experience different from that assumed                  (2.4)         8.2        24.1
     Unrecognized net asset being recognized over 16 years                                  (10.1)       (11.3)      (12.5)
     Unrecognized prior service cost                                                          1.1           .9         (.3)
     -----------------------------------------------------------------------------------------------------------------------
     PENSION ASSETS INCLUDED IN PREPAYMENTS AND OTHER                                     $  23.3      $  20.6     $  19.1
     -----------------------------------------------------------------------------------------------------------------------
     NET PENSION EXPENSE INCLUDED THE FOLLOWING COMPONENTS:
        Service cost                                                                         $6.2         $6.5        $5.8
        Interest cost on projected benefit obligation                                        13.8         13.0        12.0
        Actual return on plan assets                                                        (44.8)       (25.7)      (37.6)
        Regulatory adjustment                                                                  .8           .9          .6
        Net amortization and deferral                                                        23.8          6.5        20.5
     -----------------------------------------------------------------------------------------------------------------------
     NET PENSION EXPENSE (CREDIT)                                                          $  (.2)        $1.2        $1.3
     -----------------------------------------------------------------------------------------------------------------------
     Discount rate assumed                                                                   7.17%        7.60%       7.17%
     Assumed rate of return on future compensation levels                                    5.36%     5.0-5.4%    5.0-5.5%
     Assumed long-term rate of return on assets                                              9.73%    8.0-10.0%   8.5-10.0%
     -----------------------------------------------------------------------------------------------------------------------
</TABLE>

       The company has pension plans covering substantially all qualified union
     and non-union employees. The benefit formulas vary and are based either on
     years of service multiplied by a percentage of salary, or a flat benefit
     based upon years of service. The company's policy is to fund, at a minimum,
     an amount sufficient to meet all ERISA funding requirements. In certain of
     its jurisdictions, the company has recorded pension expense equal to its
     funding contribution, which is consistent with the rate treatment allowed
     for this cost.
       In 1995 the company changed its long-term view on pension fund asset
     returns and increased its estimated return on domestic plan assets to 10%.

     OTHER POST-RETIREMENT BENEFITS
     The company provides post-retirement health care and life insurance
     benefits to substantially all employees. The majority of the plan's funding
     is provided by the company on a pay-as-you-go basis with most retirees
     paying a portion of the cost.
       The following table summarizes the status of the company's
     post-retirement plans for financial statement purposes and the related
     amounts included in the consolidated balance sheets at December 31, 1997
     and 1996:

     ---------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                   December 31,
     In millions                                                                 1997        1996
     ----------------------------------------------------------------------------------------------
     <S>                                                                        <C>         <C>
     ACTUARIAL PRESENT VALUE OF POST-RETIREMENT BENEFIT OBLIGATIONS:
        Retirees                                                                $29.7       $27.8
        Other fully eligible participants                                         4.4         4.2
        Other active participants                                                 8.5         7.0
        Plan assets at fair value                                                (4.8)        (.5)
        Unrecognized transition obligation                                      (30.4)      (32.4)
        Unrecognized net gain                                                     7.7         8.5
     ----------------------------------------------------------------------------------------------
     ACCRUED LIABILITY                                                          $15.1       $14.6
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

     The components of health care and life insurance costs are:
<TABLE>
<CAPTION>
     In millions                                     1997      1996      1995
     --------------------------------------------------------------------------
     <S>                                             <C>       <C>       <C>
     Service cost                                    $ .7      $1.0      $ .8
     Interest cost                                    2.8       2.9       2.7
     Amortization of transition
       obligation                                     2.0       2.0       2.0
     Net amortization and deferral                    (.5)       --       (.2)
     --------------------------------------------------------------------------
     NET HEALTH CARE AND LIFE                        $5.0      $5.9      $5.3
       INSURANCE COSTS
     --------------------------------------------------------------------------
     --------------------------------------------------------------------------
</TABLE>

       The following actuarial assumptions were used in calculating the plan's
     year-end funded status:

<TABLE>
<CAPTION>
                                                   1997      1996      1995
     --------------------------------------------------------------------------
     <S>                                           <C>     <C>        <C>
     Discount rate                                  7.0%       7.5%       7.0%
     Assumed rate of return on
       future compensation levels                   5.4%   5.0-5.4%   5.0-5.5%
     Health care cost trend rate                   10-6%    8.25-6%      10-6%
     --------------------------------------------------------------------------
     --------------------------------------------------------------------------
</TABLE>

       The rate of change in health care cost has an effect on the projected
     benefit obligation. Increasing the rate by 1% each year would have
     increased the present value of the accumulated projected benefit obligation
     by $3.4 million and the aggregate of the service and interest cost
     components by $.4 million in 1997.
       Pursuant to regulatory orders or precedents, certain regulated divisions
     of the company have deferred as a regulatory asset the incremental costs
     associated with SFAS No. 106, "Employers' Accounting for Post-retirement
     Benefits--Other Than Pensions."


     NOTE 14:  COMMITMENTS AND CONTINGENCIES


     COMMITMENTS
     The company has various commitments for the years 1998 through 2002
     relating primarily to power and gas supply commitments, fixed price sales
     obligations and lease and rental commitments. A table of the company's
     estimated capital expenditures and more significant estimated commitments
     follows.

<TABLE>
<CAPTION>

     Dollars in millions except per unit                    1998         1999        2000         2001        2002
     ---------------------------------------------------------------------------------------------------------------
     <S>                                                   <C>         <C>          <C>         <C>          <C>
     Capital expenditures                                  $229.0      $249.0       $239.0      $236.0       $229.0
     Future minimum lease payments                           23.8        22.4         21.2        18.8         18.5
     Purchased power obligations                             63.1        68.1         63.0        56.5         36.3
     ---------------------------------------------------------------------------------------------------------------
     ---------------------------------------------------------------------------------------------------------------
     Coal contracts                                         $41.6       $43.8        $44.0       $31.1        $30.0
     Price ranges                                          ----------------$12.87 to $25.90 per ton-----------------
     ---------------------------------------------------------------------------------------------------------------
     ---------------------------------------------------------------------------------------------------------------
     Fixed price sales obligations (trillion BTUs)          353.9        50.7         26.4        21.4         21.3
     Price ranges                                          ------------------$.98 to $5.51 per MCF------------------
     ---------------------------------------------------------------------------------------------------------------
     ---------------------------------------------------------------------------------------------------------------
     Fixed price purchase obligations (trillion BTUs)       348.6        58.9         12.7         2.2          2.0
     Price ranges                                          ------------------$.98 to $4.19 per MCF------------------
     ---------------------------------------------------------------------------------------------------------------
     ---------------------------------------------------------------------------------------------------------------
</TABLE>

       Future minimum lease payments primarily relate to the Jeffrey Energy
     Center interest, peaking turbines, coal cars, and office space. Rent
     expense for the years 1997, 1996 and 1995 was (in millions) $32.1, $29.4
     and $25.9, respectively.
       Purchased power obligations for 1998 through 2002 are estimated to
     provide 989; 1,039; 926; 626; and 323 MW, respectively.

     LONG-TERM GAS SUPPLY CONTRACTS
     In 1996, the company realigned certain of its business relationships in the
     United Kingdom (U.K.). Its equity relationships in the Caledonian Gas
     Limited, Midlands Gas Limited (Midlands), and Egas Limited joint ventures
     were terminated. As part of the termination of the equity relationship in
     Midlands, the company assumed an interest in two long-term gas supply
     contracts (for deliveries through 2005) that it assimilated into its
     existing portfolios of sales and supply contracts.
       At December 31, 1997, the portfolio of U.K. contracts was in a net long
     position. It has 66.4 BCF of supply commitments through 2005, and 50.0 BCF
     of sales commitments through 1999. Pretax losses on the above portfolio
     range from $19 million to $26 million depending on the estimated future
     spot price of natural gas. Since the U.K. natural gas market does not have
     liquid long-term pricing, it is difficult to calculate future profitability
     of the portfolio. Based on management's estimates and available market data
     at December 31, 1997, the company is carrying a $19 million pretax reserve
     relating to future losses that may exist within the portfolio of contracts.
     Management believes that this reserve is adequate and that any additional
     increases in the reserve would not be material.

<PAGE>

     ENVIRONMENTAL
     The company is subject to various environmental laws, including regulations
     governing air and water quality and the storage and disposal of hazardous
     or toxic wastes. The company assesses, on an ongoing basis, measures to
     ensure compliance with laws and regulations related to hazardous materials
     and hazardous waste compliance and remediation activities. The company owns
     or previously operated 29 former manufactured gas plants (MGPs) which may,
     or may not, require some form of environmental remediation. The company has
     contacted appropriate federal and state agencies and is in the process of
     determining what, if any, specific cleanup activities may be needed at
     these sites.
       As of December 31, 1997, the company estimates its cleanup costs on its
     identified MGP sites to be approximately $6.2 million. These amounts could
     change materially based upon further investigations, the actions of
     environmental agencies and the financial viability of other responsible
     parties. Additionally, the ultimate liability may be significantly affected
     if the company is held responsible for parties not financially able to
     contribute to these costs. Based on prior experience, available facts and
     existing law, the company has recorded a liability of $6.2 million
     representing its estimate of the amount of environmental costs currently
     expected to be incurred.
       The company has received favorable rate orders for recovery of its
     environmental cleanup costs in certain jurisdictions. In other
     jurisdictions, favorable regulatory precedent exists for the recovery of
     these costs. The company is also pursuing recovery from insurance carriers
     and other potentially responsible parties.
       In December 1996, the U.S. Environmental Protection Agency (EPA)
     promulgated its final rule for nitrous oxide (NOx) emissions pursuant to
     the requirements of the Clean Air Act Amendments of 1990. The new NOx
     regulations will require the installation of additional emissions control
     equipment at one of the company's power plants by January 1, 2000. The
     company estimates that it will spend approximately $2.0 million to comply
     with these rules.
       It is management's opinion that the ultimate resolution of these
     environmental matters will not have a material adverse impact upon the
     financial position or results of operations of the company.

     PENDING RATE PROCEEDING
     In the first quarter of 1997, the Staff of the Missouri Public Service
     Commission (the Staff) filed a complaint against the company seeking to
     reduce annual Missouri electric revenues by $23 million. In September 1997,
     the Staff increased its recommendation for a rate reduction to $28.5
     million. In a separate filing with the Staff, the company requested to
     increase electric rates by $24.6 million. The Staff is reviewing the
     company's position and the final order is expected to be issued in March
     1998. The primary differences between these two dockets center on rate of
     return, capital structure, transition costs, depreciation methods and
     corporate allocations.
       The company's filing is designed to recover inflationary and other cost
     increases which include the investment of approximately $20 million in
     plant and facility improvements. The rate increase also reflects the
     request for a temporary surcharge of $.0028 per kilowatt-hour to cover
     costs related to transitioning to the competitive customer-choice
     marketplace. In addition, the filing includes a mechanism to lessen the
     impact of the surcharge on consumers, and requests that the Commission
     approve the establishment of a $1 million fund to assist low-income
     customers.
       The Commission is expected to issue an order by March 7, 1998, with new
     rates effective March 17, 1998.  Although this matter is still pending, the
     public scenarios under consideration by the Commission range from a $12
     million to a $23 million rate reduction.

     OTHER
     The company is subject to various legal proceedings and claims which arise
     in the ordinary course of business operations. In the opinion of
     management, the amount of liability, if any, with respect to these actions
     would not materially affect the consolidated financial position of the
     company or its results of operations.

<PAGE>

     NOTE 15:  SEGMENT INFORMATION


     A. BUSINESS LINES

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
     In millions                                      1997                          1996          1995
     -------------------------------------------------------------------------------------------------------
     <S>                                           <C>                <C>        <C>            <C>
     SALES:
     Energy Delivery--
        Electric:
          Total                                    $   557.4                     $   519.3      $   490.1
          Affiliated                                  (313.6)                       (285.2)        (263.2)
     -------------------------------------------------------------------------------------------------------
        Total unaffiliated electric                    243.8            2.7%         234.1          226.9
        Gas                                            767.4            8.6          727.9          616.6
        Non-regulated                                  258.7            2.9          124.8           88.1
     -------------------------------------------------------------------------------------------------------
     Total Energy Delivery                           1,269.9           14.2        1,086.8          931.6
     Generation--affiliated                            313.6            3.5          285.2          263.2
     Aquila Energy                                   7,031.0           78.8        2,672.7        1,309.6
     International and other                           311.8            3.5          287.6          288.2
     -------------------------------------------------------------------------------------------------------
     TOTAL                                          $8,926.3          100.0%      $4,332.3       $2,792.6
     -------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------

<CAPTION>

                                                                    Year Ended December 31,
     In millions                                       1997                          1996           1995
     -------------------------------------------------------------------------------------------------------
     <S>                                              <C>             <C>           <C>            <C>
     EARNINGS BEFORE INTEREST AND TAXES:
     Energy Delivery                                  $153.5           42.7%        $170.0         $153.6
     Generation (a)                                     71.8           20.0           79.3           35.3
     Aquila Energy                                      54.7           15.2           47.2           64.9
     International (b)                                  52.5           14.6           79.7           31.7
     Corporate and other                                26.6            7.5          (50.0)         (31.9)
     -------------------------------------------------------------------------------------------------------
     TOTAL                                            $359.1          100.0%        $326.2         $253.6
     -------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------
</TABLE>

(a)  THE GENERATION SEGMENT INCLUDES THE UTILCO GROUP PARTNERSHIP EQUITY
     INVESTMENTS THAT HAD EQUITY EARNINGS OF $29.6, $48.5 AND $19.6 MILLION IN
     1997, 1996 AND 1995, RESPECTIVELY.

(b)  THE INTERNATIONAL SEGMENT INCLUDES OPERATING ACTIVITIES IN AUSTRALIA, NEW
     ZEALAND, CANADA AND THE UNITED KINGDOM WHICH HAD TOTAL EQUITY EARNINGS OF
     $42.3, $60.1 AND $9.9 MILLION IN 1997, 1996 AND 1995, RESPECTIVELY.

<TABLE>
<CAPTION>
 
                                                                    Year Ended December 31,
     In millions                                       1997                          1996           1995
     -------------------------------------------------------------------------------------------------------
     <S>                                              <C>             <C>           <C>            <C>
     DEPRECIATION, DEPLETION AND AMORTIZATION:
     Energy Delivery                                  $ 68.7           53.0%        $ 66.8         $ 66.9
     Generation                                         16.2           12.5           16.4           18.1
     Aquila Energy                                      27.6           21.3           28.6           49.6
     International                                      11.0            8.5           12.5            7.1
     Corporate and other                                 6.1            4.7            1.1           17.9
     -------------------------------------------------------------------------------------------------------
     TOTAL                                            $129.6          100.0%        $125.4         $159.6
     -------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                December 31,
     In millions                                                     1997                          1996
     -------------------------------------------------------------------------------------------------------
     <S>                                                           <C>               <C>         <C>
     IDENTIFIABLE ASSETS:
     Energy Delivery                                               $1,806.7           35.3%      $1,814.7
     Generation                                                       503.0            9.8          482.1
     Aquila Energy                                                  2,067.7           40.4        1,698.9
     International                                                    789.0           15.4          848.3
     Corporate and other (a)                                          (52.9)           (.9)        (104.2)
     -------------------------------------------------------------------------------------------------------
     TOTAL                                                         $5,113.5          100.0%      $4,739.8
     -------------------------------------------------------------------------------------------------------
     -------------------------------------------------------------------------------------------------------
</TABLE>

(a)  INCLUDES APPROXIMATELY $130 MILLION OF SOLD ACCOUNTS RECEIVABLE THAT RELATE
     TO ENERGY DELIVERY AND GENERATION.
<PAGE>

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
     In millions                                        1997                     1996        1995
     ----------------------------------------------------------------------------------------------
     <S>                                              <C>          <C>         <C>        <C>
     CAPITAL EXPENDITURES:
     Energy Delivery --
       Electric                                       $ 49.8        24.6%      $ 47.7     $  39.1
       Gas                                              59.2        29.2         48.5        39.9
     ----------------------------------------------------------------------------------------------
     Total Energy Delivery                             109.0        53.8         96.2        79.0
     ----------------------------------------------------------------------------------------------
     Generation                                          7.6         3.7         16.6        11.2
     Aquila Energy                                      28.4        14.0         26.4       144.0
     International                                      19.4         9.6         21.5        19.2
     Corporate and other                                38.2        18.9         70.5        46.8
     ----------------------------------------------------------------------------------------------
     TOTAL                                            $202.6       100.0%      $231.2      $300.2
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
</TABLE>

B. GEOGRAPHICAL INFORMATION

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
     In millions                                        1997                     1996        1995
     ----------------------------------------------------------------------------------------------
     <S>                                            <C>            <C>       <C>         <C>
     SALES:
     United States                                  $8,007.8        89.7%    $3,962.5    $2,505.0
     Canada (a)                                        704.4         7.9        180.9        89.2
     United Kingdom                                    214.1         2.4        188.9       198.4
     ----------------------------------------------------------------------------------------------
     TOTAL                                          $8,926.3       100.0%    $4,332.3    $2,792.6
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------

     ----------------------------------------------------------------------------------------------
     EARNINGS AVAILABLE FOR COMMON SHARES:
     United States                                    $105.2        86.3%     $  77.0       $68.4
     Canada (a)                                         10.8         8.9          9.5         8.2
     Australia (b)                                      11.3         9.3         14.1         2.9
     New Zealand (b)                                     1.9         1.6          2.4          .7
     United Kingdom                                     (7.4)       (6.1)          .7        (2.5)
     ----------------------------------------------------------------------------------------------
     TOTAL                                            $121.8       100.0%      $103.7       $77.7
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
     In millions                                                    1997                     1996
     ----------------------------------------------------------------------------------------------
     <S>                                                        <C>             <C>      <C>
     IDENTIFIABLE ASSETS:
     United States                                              $4,205.6         82.2%   $3,798.9
     Canada (a)                                                    376.4          7.4       351.5
     Australia (b)                                                 270.3          5.3       306.3
     New Zealand (b)                                               160.7          3.1       185.1
     United Kingdom                                                100.5          2.0        98.0
     ----------------------------------------------------------------------------------------------
     TOTAL                                                      $5,113.5        100.0%   $4,739.8
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
</TABLE>


(a)  CANADIAN SALES, EARNINGS AVAILABLE FOR COMMON SHARES AND IDENTIFIABLE 
     ASSETS INCLUDE AQUILA ENERGY'S CANADIAN OPERATIONS AND VARIOUS SMALL 
     CANADIAN GAS MARKETING COMPANIES.

(b)  EARNINGS AVAILABLE AND A MAJORITY OF THE IDENTIFIABLE ASSETS RELATE TO 
     EQUITY INVESTMENTS.
<PAGE>

     NOTE 16:  TERMINATED MERGER--KANSAS CITY POWER & LIGHT COMPANY (KCPL)


     On September 17, 1996, KCPL terminated the Amended and Restated Agreement 
     and Plan of Merger (the Agreement) among KCPL, KC Merger Sub, Inc., the 
     company and KC United Corp., which would have provided for the merger of 
     the company and KCPL.  Since KCPL's shareholders did not approve the merger
     under the terms of the Agreement, KCPL was required to pay the company 
     $5.0 million. The company received this termination payment on 
     September 19, 1996. In connection with the Agreement termination, the 
     company expensed deferred merger costs of approximately $11.0 million 
     (pretax), net of the termination fee payment.
       In February 1997, Western Resources Inc. and KCPL signed a definitive 
     agreement to merge. As a result, KCPL paid the company a $53.0 million 
     breakup fee which was recorded in the first quarter of 1997.


     NOTE 17:  QUARTERLY FINANCIAL DATA (UNAUDITED)


     Due to the timing of acquisitions, the effect of weather on sales, and 
     other factors characteristic of utility operations and energy related 
     businesses, financial results for interim periods are not necessarily 
     indicative of trends for any 12-month period.

<TABLE>
<CAPTION>

                                                                 1997 Quarters                            1996 Quarters
                                                   ---------------------------------------  ---------------------------------------
     In millions, except per share                    First    Second     Third    Fourth     First     Second     Third   Fourth
     ------------------------------------------------------------------------------------------------------------------------------
     <S>                                            <C>       <C>       <C>       <C>       <C>         <C>       <C>     <C>
     Sales                                          $2,059.6  $1,550.1  $2,256.5  $3,060.1  $1,084.4    $765.0    $892.6  $1,590.3
     Gross profit                                      254.2     216.7     237.0     246.4     249.7     202.4     206.8     253.1
     Earnings before extraordinary item
        and cumulative effect of software
        accounting change                               57.9      20.3      24.9      31.0      37.3      26.3      14.1      28.1
     Net income                                         50.7      20.3      24.9      26.2      37.3      26.3      14.1      28.1
     ------------------------------------------------------------------------------------------------------------------------------
     Earnings per common share before
        extraordinary item and cumulative
        effect of software accounting change:
        Basic (a)(b)                                   $1.08      $.38      $.46      $.58      $.80      $.55      $.29      $.56
        Diluted (a)(b)                                  1.07       .38       .46       .58       .79       .55       .29       .56
     ------------------------------------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------------------------------------
     Cash dividend per common share                     $.44      $.44      $.44      $.44      $.44      $.44      $.44      $.44
     Market price per common share:
        High                                          $28.25    $29.38    $30.88    $39.06    $30.25    $29.13    $29.13    $27.25
        Low                                            25.50     25.75     29.00     30.13     28.25     25.75     26.50     26.38
     ------------------------------------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  RESTATED FOR ACCOUNTING CHANGE RELATED TO EARNINGS PER SHARE. SEE NOTE 1.

(b)  THE SUM OF THE QUARTERLY EARNINGS PER SHARE AMOUNTS DIFFERS FROM THAT
     REFLECTED IN NOTE 1 DUE TO THE WEIGHTING OF COMMON SHARES OUTSTANDING
     DURING EACH OF THE RESPECTIVE PERIODS.

--------------------------------------------------------------------------------
<PAGE>

     REPORT OF MANAGEMENT

     The management of UtiliCorp United Inc. is responsible for the information
     that appears in this annual report, including its accuracy. The
     accompanying Consolidated Financial Statements were prepared in accordance
     with generally accepted accounting principles. In addition to selecting
     appropriate accounting principles, management is responsible for the manner
     of presentation and for the reliability of the information. In fulfilling
     this responsibility, it is necessary for management to make estimates based
     on currently available information and judgments of current conditions and
     circumstances.

       Through well-developed systems of internal control, management seeks to
     assure the integrity and objectivity of the consolidated financial
     information contained herein. These systems of internal control are
     designed to provide reasonable assurance that the assets of the company are
     safeguarded and that the transactions are executed to management's
     authorizations, and are recorded in accordance with the appropriate
     accounting principles.

       The Board of Directors participates in the financial information
     reporting process through its Audit Committee, which selects the
     independent accountants and reviews, along with management, the company's
     financial reporting and internal accounting controls, policies and
     practices.


     /s/ Richard C. Green, Jr.               /s/ James S. Brook

     Richard C. Green, Jr.                   James S. Brook
     Chairman of the Board                   Vice President, Controller
     and Chief Executive Officer             and Chief Accounting Officer


     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

     TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF UTILICORP UNITED INC.:

     We have audited the accompanying consolidated balance sheets of UtiliCorp
     United Inc. and subsidiaries at December 31, 1997 and 1996 and the related
     consolidated statements of income, common shareowners' equity, and cash
     flows for each of the three years in the period ended December 31, 1997.
     These financial statements are the responsibility of the company's
     management. Our responsibility is to express an opinion on these financial
     statements based on our audits.

       We conducted our audits in accordance with generally accepted auditing
     standards. Those standards require that we plan and perform the audit to
     obtain reasonable assurance about whether the financial statements are free
     of material misstatement. An audit includes examining, on a test basis,
     evidence supporting the amounts and disclosures in the financial
     statements. An audit also includes assessing the accounting principles used
     and significant estimates made by management, as well as evaluating the
     overall financial statement presentation. We believe that our audits
     provide a reasonable basis for our opinion.

       In our opinion, the financial statements referred to above present
     fairly, in all material respects, the consolidated financial position of
     UtiliCorp United Inc. and subsidiaries at December 31, 1997 and 1996 and
     the consolidated results of their operations and their cash flows for each
     of the three years in the period ended December 31, 1997 in conformity with
     generally accepted accounting principles.

       As explained in Note 4 to the consolidated financial statements,
     effective October 1, 1997, the company changed its method of accounting for
     internally developed software costs. As explained in Note 1 and Note 5 to
     the consolidated financial statements, effective January 1, 1995, the
     company changed its method of accounting for price risk management
     activities, and its method of assessing the impairment of long-lived
     assets, respectively.


     /s/ Arthur Andersen LLP

     Arthur Andersen LLP
     Kansas City, Missouri
     February 3, 1998