<Page>

AQUILA, INC.

[LOGO OF AQUILA]

[AQUILA LETTERHEAD]

RE: 2001 ANNUAL REPORT Investor Newsmagazine

Dear Aquila Shareholder:

So much has changed at your company in the past 12 months, we even have a new
name. UtiliCorp United has become Aquila, Inc. Our stock now trades under the
symbol ILA.

The collapse of our biggest wholesale competitor in December 2001 sent
far-reaching shock waves throughout our industry and beyond. Our most important
message to you is that, in spite of the economic downturn and the turmoil in our
industry, AQUILA IS IN SOUND FINANCIAL CONDITION. As capital markets stabilize,
our strong balance sheet provides room to maneuver. We intend to capitalize on
opportunities to expand operations and gain market share as many of our peers
sell assets to pay down debt and meet credit commitments.

Take a close look at the numbers in this report. They tell the story. Operating
earnings per diluted share, excluding non-recurring items, were $2.44, up 17
percent from $2.08 in 2000. Earnings per diluted share including the
non-recurring items were $2.42. At the end of 2001, our debt was 50 percent of
total capitalization, and a month later it dropped to 42 percent, the lowest in
many years. In (CONTINUED ON NEXT PAGE)

<Page>

LETTER TO SHAREHOLDERS

[PHOTO OF RICHARD C. GREEN, JR. AND ROBERT K. GREEN]
- On January 1, 2002, the role of Aquila chief executive officer passed from
Chairman Richard C. Green, Jr. (left) to President Robert K. Green, who had
served as president and chief operating officer since 1996.

LETTER (CONTINUED FROM FRONT COVER)
January 2002, we completed the exchange offer that recombined the company with
its wholesale energy and risk management subsidiary. We also completed an
offering of 12.5 million common shares.

     Return on average common equity for 2001 was 11.7 percent, even while
issuing more than $750 million in equity over the year. By that standard, 2001
was one of our two best years in the past ten. Average 12-month return on equity
for our industry as of September 2001 was 10.5 percent.

     Our credit rating remains at investment grade. We are firmly committed to
keeping it that way. Our ability to cover interest costs with cash flow is
substantially higher than in recent years.

     Our systems and procedures for monitoring and controlling risk are
recognized as among the best in the business. We apply these controls
rigorously, both to limit the risk in our energy trading operations and to
manage our exposure to credit risk from transactions with others.

     Our fundamental strategy is to manage our risk and transfer it to the
capital markets. In 2001, two-thirds of our trading days were profitable and
contributed to record earnings. Our credit risk management processes have
performed exceptionally well, limiting our exposure to both the California
energy crisis and the collapse of Enron to a level well below that of our peers.

OUR NEW LOOK
We'd like to point out the kaleidoscope symbol in the upper corner of our new
letterhead. It coincides with adoption of our new name to mark the recombining
of UtiliCorp and its subsidiary formerly known as Aquila, Inc., which we had
partly spun off in April 2001. It also represents some of the company's key
qualities that have contributed to our success.

     Much like a kaleidoscope, your company is continually developing new
perspectives to create ever-expanding ways to serve our clients and customers.
Our new logo symbolizes our belief that one of our most valuable abilities is to
master change as a positive catalyst for growth.

THE AQUILA VALUES
We're committed to achieving a winning combination for our customers,
shareholders and associates. While our core values define the rules of the game,
we believe success is ensured when our associates possess the following
characteristics:

-    Accountable, taking full ownership of what they do;

-    Best in class, performing at the highest possible level;

-    Creative in their efforts to arrive at win-win-win solutions; and

-    Driven in a relentless pursuit of results for our clients.

     Speaking of results, our expectations for performance both internally and
externally have never been higher. Externally, we continue to innovate ahead of
the competition and deliver superior solutions to our clients. Internally, we
must be equally innovative in attracting and retaining the very best talent. Our
performance-based culture celebrates and rewards excellence and demands that
performance and behavior are aligned with our core values of integrity, respect
and teamwork. People who can't meet these expectations are not a fit in our
culture and business.

2001 FINANCIAL RESULTS
We had operating earnings per diluted share of $2.44 in 2001. Earnings per
diluted share were $2.42 per share, after recording the following non-recurring
items:

-    An after-tax gain of $59 million, or $.51 per share, related to the April
     2001 initial public offering of Aquila Merchant Services, Inc.;

-    An after-tax expense of approximately $40 million, or $.34 per share,
     arising from trading and investment transactions involving Enron and its
     subsidiaries;

-    $9.9 million, or $.09 per share, in after-tax expenses related to limiting
     the build-out of our communications network to only the Kansas City market;

-    A charge of $11.5 million, or $.10 per share, related to asset valuation
     reserves required at international businesses.

     For the year 2000 we reported earnings of $2.21 per diluted share, which
included a gain of $29 million, or $.30 per share, from the initial public
offering of Uecomm, Ltd. in Australia, and after-tax impairments and other
charges totaling $16.3 million, or $.17 per share.

     Sales in 2001 were $40.4 billion, up 39 percent from $29.0 billion in 2000.
Earnings before interest and taxes (EBIT) were $704.7 million, up 31 percent
from $540.0 million.

2                                                                    AQUILA 2001
<Page>

DISAPPOINTING SHARE PRICE
In 2001, we had record earnings and met our growth targets, but our share price
came under pressure. Over the past year, the equity markets have been turbulent.
Many in our industry have revised their earnings guidance and come under intense
scrutiny. While it is small consolation, on a relative basis our share price
held up better than most in the current environment--it was off less than 20
percent while many of our peers suffered much greater declines. We continue to
believe our performance ultimately will be rewarded in the financial markets.

THE NEW AQUILA, INC.
Nearly a year ago, we completed an initial public offering of 20 percent of our
energy merchant subsidiary, today known as Aquila Merchant Services. It was our
intent, if market conditions had remained favorable, to spin off the rest of
that unit within a year to achieve a market valuation more in line with the
higher price-earnings ratios which at the time were associated with energy
merchants.

     Significant events in the energy merchant sector in mid to late 2001
resulted in your board's decision to buy back the Aquila Merchant shares sold in
the offering. The board concluded that greater shareholder value could be
obtained by recombining the financial strength of Aquila's Global Networks Group
with the growth opportunities that lie ahead for the Merchant group. This was
not a change in Aquila's competitive strategy, but rather a change in how we
will finance the execution of that strategy.

     With the recombination already complete, finalizing our acquisition of
Midlands Electricity in England (expected to occur in late March) will make this
a very different company. About two-thirds of our projected earnings this year
will be from energy merchant and risk management activities and from
international network operations. All of those have higher returns and higher
growth potential than our networks in the United States, which are the most
regulated of all our businesses. Still, the Domestic Networks segment remains a
stable base of earnings and cash flow.

MERCHANT ASSETS
While we see tremendous opportunity today to expand Merchant Services'
operations, we also recognize that the markets for capital and credit are
tightening. We evaluate all opportunities against three criteria. Each must
enhance our strategy, achieve appropriate risk-adjusted financial returns, and
not diminish our overall credit rating.

     Our philosophy is to have a balanced mix of assets that complements our
trading and risk management activities. Currently, Aquila owns and operates
4,721 megawatts of generation capacity and 62.5 billion cubic feet (Bcf) of
natural gas storage capacity, including projects under construction or in
development.

     In 2001, Aquila Merchant Services invested $172 million to expand its
generation portfolio, and with a partner it will invest $220 million in the
second quarter of 2002 to acquire and develop a 12 Bcf gas storage facility in
California.

     The Aries power plant began operation as scheduled during the summer of
2001 and construction began on four power plants which consist of one
combined-cycle plant and three peaking plants. We expect three of these plants
to be on line for the 2002 cooling season.

RISK MANAGEMENT SPECIALISTS
Another expanding market opportunity for our merchant business is in products
and services specifically tailored to reduce the risk inherent in our clients'
businesses. These risks, if unmanaged, can create volatility in our clients'
financial results. For example, we can offer a utility client a combined product
specifically tailored to reduce their financial exposure to generation outages,
variations from normal weather patterns and fluctuations in natural gas or power
costs.

     Our family of GuaranteedWeather(R) products offers solutions to many
different industries that have their earnings at risk due to weather volatility.
The demand for our products continues to increase, as companies realize they can
stabilize earnings that are subject to weather volatility. The latest
innovations target utilities, the agricultural market and the chemical
fertilizer industry. Merchant Services has formed seven partnerships with
leading reinsurance companies to create a global weather risk portfolio spanning
10 countries. Today we offer more than 20 risk management products and Aquila
accounts for one third of the rapidly growing world market for weather
derivatives.

[GRAPHIC]

     With 16 years of experience in risk management and our expertise in
managing both merchant and network infrastructure assets, Aquila is ideally
situated to take advantage of today's increasing convergence of the capital,
commodity and insurance markets.

     Today we trade about 35 different commodities. New offerings include such
things as hourly gas and global liquids. We have access to the gas transmission
system as well as the electricity grid, enabling us to deliver gas or power
nearly anywhere in North America with 30 minutes' notice.

     Aquila Merchant Services is well positioned in Europe. In 2001, we exited
the retail business, transferred key personnel from North America and refocused
our efforts on the wholesale market. We are leading there with the same strategy
we deployed in North America. We build liquidity, gain fundamental knowledge of
the inner workings of a market, and then add select capacity, building a
proprietary network of owned or controlled assets.

ACCOUNTING PRACTICES
A number of accounting methods have been in the news recently. Some of them have
been portrayed as controversial, if not downright suspicious. We'd like to clear
the air, particularly regarding what is known as "mark-to-market" accounting.

     For parts of the Merchant Services business, mark-to-market accounting is
not an option--it's required by accounting standards. "Mark-to-market" literally
means what it says. Our trading operations maintain books on all their trades.
The books are adjusted--or marked--to reflect the market value for each
contract, using quotes primarily published in authoritative sources. We also
take into account any associated risks such as credit risk. These mark-to-market
values are shown on our balance sheet as price risk management assets and
liabilities.

GLOBAL NETWORKS GROUP
In November 2001 we formed the Global Networks Group to manage all of our
electricity, natural gas and communications

AQUILA 2001                                                                    3
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[GRAPHIC]

networks and field services worldwide. Our electric and gas distribution
networks around the world operate in more than 18 regulatory jurisdictions,
providing a diversity that stabilizes earnings and limits the impact of any one
regulatory decision.

     With the anticipated addition of Midlands Electricity in the United Kingdom
in late March 2002, the group will be serving more than 6 million network
customers in five countries. Formation of the Global Networks Group presents a
substantial opportunity to strengthen our businesses by applying consistent
measures of financial and operating performance. It enables us to use global
synergies to reduce costs and improve customer service.

     Aquila Merchant Services helps our networks identify and manage the various
types of risks inherent in their businesses. For example, our risk management
experts have helped our networks establish weather hedges to reduce the
financial impact of abnormal weather patterns.

     We decided to reduce our interests in the retail aspects of network
operations in Australia, and exit retail altogether in New Zealand and part of
Canada. Today we concentrate more fully on the distribution segment of the
business.

     Once we've invested in a property, our Global Networks strategy includes
optimizing and monetizing that asset. That means we improve the quality and
profitability of operations, then find ways to extract value so we can redeploy
the capital and repeat the process elsewhere.

INTERNATIONAL NETWORKS
Our income from Canadian operations more than doubled in 2001, reflecting our
successful integration of TransAlta's 58,000-mile electric distribution system
in Alberta, which we acquired in August 2000. The integration plan we carried
out last year included combining West Kootenay Power with the Alberta business
to find synergies and improve operations.

     In Australia's state of Victoria, we manage electric and gas utilities in
an environment of full retail competition for all classes of customers, which
has been phased in by class over the past eight years. United Energy, which we
manage as 34 percent owner, continued to perform well in its core businesses,
but its 2001 results were affected by challenges at its Uecomm communications
subsidiary, as well as at United Energy's remaining retail interests, which have
been adversely impacted by recent regulatory decisions.

     In Western Australia, AlintaGas had an excellent year. It is the state's
major distributor of natural gas. Since Aquila and United Energy became its
"cornerstone" shareholders with a jointly held 45 percent interest in October
2000, AlintaGas has restructured, reduced its debt, cut operating costs and
streamlined its business.

     Our UnitedNetworks unit in New Zealand achieved 10 percent growth in
earnings compared to 2000 results. During 2001 it sold its field services
business and reduced financing costs.

DOMESTIC NETWORKS
Results of the Domestic Networks segment in 2001 included a full year of
operations of St. Joseph Light & Power, which we acquired through a $282 million
merger at the end of 2000.

     In February 2002, we reached a negotiated settlement with state regulators
to reduce our Missouri electric rates by $4.3 million per year. When we applied
for a $49.4 million rate increase in June 2001, fuel costs for our power plants
had increased dramatically. As the case progressed, those costs dropped,
lessening the need for the increase.

COMMUNICATIONS NETWORKS
We've been developing communications businesses since 1997, when we launched a
network in Australia. As the supply of fiber-optic capacity outran demand, we
slowed down our activities in each of the countries where we have communications
networks.

     Uecomm, Ltd., 66 percent owned by our United Energy affiliate, went public
in 2000. It serves several metropolitan areas, including Melbourne, Sydney,
Brisbane and Perth. Uecomm expects significant improvement in its financial
results in 2002 after a difficult 2001.

     Over the past 12 months, Everest Connections, 89 percent owned by Aquila,
has gained a loyal following in several communities in the Kansas City area.
Everest provides state-of-the-art, fiber-optic connections that bring a package
of services into homes and businesses. These include cable television, local and
long-distance telephone, data services and high-speed Internet. In neighborhoods
where Everest is available, better than one-third of all households become
Everest customers within 90 days, with most of those choosing a package of all
three services.

QUANTA SERVICES
Our 38 percent equity interest in Quanta Services, Inc. makes us its largest
shareholder. Quanta is one of the largest field services companies in the U.S.,
serving the maintenance and construction needs of utilities, pipelines and
telecommunications companies.

     We believe that Quanta's disappointing financial performance underscores
the failure of its current board to create value for all Quanta shareholders.
Accordingly, we announced in February 2002 that we intend to seek control of
Quanta's board of directors by presenting an opposition slate of candidates for
election by Quanta shareholders at their 2002 annual meeting. If our candidates
are elected to the Quanta board, their goal will be to more aggressively pursue
initiatives to maximize value for all Quanta shareholders. They will consider a
full range of options, including strategic partnerships, the initiation of a
sale process and a stock repurchase program in the range of 20 to 25 percent of
Quanta's outstanding shares.

     We continue to see significant opportunity for Quanta with outsourcing from
utilities and upgrading the power transmission grid to accommodate new
generation and competitive wholesale power markets. Many of Aquila's wholesale
energy clients are large Quanta clients.

DIVIDENDS
We set the current $1.20 annual dividend rate on our common stock four years
ago. Each year since then, our earnings available to common shares have
increased.

4                                                                    AQUILA 2001
<Page>

This has caused the dividend payout ratio to decline to its present level of
about 48 percent of diluted earnings per share. This trend is likely to continue
as we concentrate on long-term earnings growth.

     We remain committed to paying the dividend at the current level of $1.20.

OFFICE OF THE CHAIRMAN
After serving as chief executive officer for 16 years, Rick Green is now
devoting his full time to the role of chairman of the board. President Bob Green
became CEO on January 1, 2002.

     When Bob became president in 1996, 58 percent of our earnings before
interest and taxes were from the regulated U.S. utility business. Five years
later, 56 percent of operating EBIT was from the energy merchant business, and
19 percent was from the international networks. Today our business model is more
focused and better positioned to deliver growth going forward. Operating
earnings per share have grown at a compound average rate of 12 percent over the
past five years.

     As chairman, Rick is focusing primarily on key issues that are of great
importance to Aquila's future. These include helping the merchant and network
businesses become more and more market-driven and customer-focused; contributing
to the debate in Washington on national energy policy; continuing to lead the
company's drive to ensure that positive values and strong ethics are a central
part of our corporate culture; and further developing Aquila's human capital.

YOUR BOARD OF DIRECTORS
Gerald L. Shaheen was named a director in August 2001. As group president at
Caterpillar Inc., he is responsible for the design, development and production
of the majority of Caterpillar's extensive line of machines, as well as
marketing and sales in North America.

     Heidi E. Hutter, chief executive officer and a principal of The Black
Diamond Group, LLC, began serving on the board of Aquila in February 2002. The
Black Diamond Group is a New York-based merchant bank and advisory company
primarily serving the insurance industry. Dr. Shirley Ann Jackson resigned from
our board in May 2001 to devote more time to her duties as president of
Rensselaer Polytechnic Institute.

OFFICER CHANGES
Keith Stamm took the helm of our Global Networks Group when it was formed in
November 2001. He served as chief executive officer of Aquila Merchant Services
since 2000 and prior to that was CEO of United Energy in Australia for two
years. Jim Miller, CEO of what is now our Domestic Networks segment, has
retired. He had nearly 20 years of service and played a key role managing the
integration of our utility acquisitions in the 1990s.

     Dan Streek became chief financial officer of the company in August 2001. He
replaced former CFO Peter Lowe, who returned to Australia last year after his
two-year assignment in Kansas City. Streek joined Aquila in 1992 and is a
certified public accountant.

     Dale J. Wolf retired in August 2001 after nearly 40 years of service. The
last 12 of those years he was vice president, finance as well as treasurer and
corporate secretary. Dale's reputation with shareholders and the investment
community as a man of integrity and dedication is very well deserved.

     In September 2001, Leslie J. Parrette, Jr., our senior vice president and
general counsel, took on the added duty of corporate secretary. Randal P. Miller
became vice president, finance and treasurer. He joined Aquila in 1988 and
recently served two years in Australia as chief financial officer of United
Energy.

A TEAM OF OWNERS
For more than 15 years, we've mentioned in this annual letter how much we value
the high level of stock ownership among our employee-associates. This year is no
exception. More than three-fourths of Aquila's people own Aquila common shares,
and more than 10 percent of our total shares outstanding are theirs.

     Our culture is built around the caring that ownership brings. Aquila
associates care about the company's future, and they care about doing what's
best for Aquila customers and shareholders.

     Several years ago our associates helped us document our expectations
regarding professional and ethical behavior. We refer to these standards
frequently and update them periodically. We also require that all our people
complete training on these matters. Our integrity individually and as a company
will continue to be fundamental and uncompromising.

THE YEAR AHEAD
We expect our balanced portfolio of businesses to again enable your company to
meet earnings growth targets. Our global network businesses should continue to
provide stable core earnings while our merchant businesses deliver growth by
providing high value-added services that help our clients optimize assets on the
energy grid and manage their business risk.

     This combination gives us confidence in our ability to meet or exceed our
target of 10 percent growth in earnings per share in 2002. For subsequent years,
we expect earnings per share to grow at 10 to 15 percent per year.

     The events that have rocked the energy industry have created further
opportunity for Aquila to grow by expanding our risk management product
offerings and investing in complementary assets. As always, we will maintain
conservative financial structures and the highest integrity.

     We expect the long-term results of this strategy will greatly benefit our
shareholders, customers and associates. On behalf of all Aquila associates
worldwide, thank you for your continued support.

/s/ Richard C. Green, Jr.                 /s/ Robert K. Green
RICHARD C. GREEN, JR.                     ROBERT K. GREEN
CHAIRMAN                                  PRESIDENT AND CHIEF EXECUTIVE OFFICER

                                FEBRUARY 28, 2002

AQUILA 2001                                                                    5
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FINANCIAL SNAPSHOT

<Table>
<Caption>
In millions, except per share                       2001        2000    % Change
----------------------------------------------------------------------------------
<S>                                            <C>         <C>             <C>
Sales                                          $40,376.8   $28,974.9        39.4%
Earnings before interest and taxes                 704.7       540.0        30.5
Earnings available for common shares               279.4       206.8        35.1
==================================================================================
Diluted earnings per common share              $    2.42   $    2.21         9.5%
Cash dividends per common share                     1.20        1.20          --
Book value per common share                        22.01       17.94        22.7
Diluted average common shares outstanding         115.71       93.75        23.4
==================================================================================
Total assets                                   $11,948.3   $14,026.9       (14.8)%
Total capitalization                             5,777.2     5,148.2        12.2
Common equity as percent of capitalization          44.2%       35.0%       26.3
Return on average common equity                     11.7%       13.5%      (13.3)
==================================================================================
</Table>

[CHART OF SALES]

- Sales increased 39% in 2001 compared to 2000, and 117% since 1999, primarily
  due to increased trading volumes in natural gas and power.

[CHART OF EARNINGS BEFORE INTEREST AND TAXES]

- The company's total EBIT rose 31% in 2001 compared to 2000. EBIT from our
  merchant business more than doubled.

[CHART OF EARNING AVAILABLE FOR COMMON SHARES]

- The increased earnings from our merchant business flowed to the bottom line.
  Earnings available for common shares rose 35%.

[CHART OF DILUTED EARNINGS VS. DIVIDENDS PAID]

- Our dividend payout ratio has continued to decline as we fund more growth in
  operations.

[CHART OF TOTAL ASSETS]

- Total assets decreased primarily due to price risk management assets
  reflecting current market conditions.

[CHART OF TOTAL CAPITALIZATION]

- Total capitalization increased 12.2% in 2001, primarily due to our stock
  offering and our sale of Aquila Merchant shares.

[CHART OF RETURN ON AVERAGE COMMON EQUITY]

- Return on average common equity decreased in 2001 due to the large equity
  increase resulting from our stock offering and sale of Aquila Merchant shares.

[CHART OF MARKET VALUE VS. BOOK VALUE PER SHARE]

- Our share price decreased 18.8% in 2001 due to the prevailing market
  conditions.

6                                                                    AQUILA 2001
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WHERE TO FIND IT

WELCOME to the fifth edition of Aquila's annual report newsmagazine for
shareholders. Our financial newsmagazine concept has been very well received
over the past four years. It reflects our firm belief that annual reports should
be both interesting and easy to understand. We always welcome your comments.

[Facsimile of Cover]

- ABOUT THE COVER
In March 2002, UtiliCorp United changed its name to Aquila, Inc. and introduced
a new corporate identity that unites all its major business units under a single
brand. To remember the trading symbol for Aquila common stock (ILA), think "I
Love Aquila."

THE ANNUAL REPORT TEAM

PUBLISHER - Aquila, Inc. Corporate
Communications. Editor-in-Chief-Ethan Hirsh, Vice President, Corporate
     Communications. Financial Information - Matt Giesecke, Vice President,
     Controller; Mark Foltz, Director, Corporate Accounting & Reporting.
     Investor Information - Kay McMillan, Manager, Investor Relations.
     Graphics Support - Craig Williams, Director, Creative Services. News
     Articles - Richard Schlesinger, Montclair, New Jersey. Desgn - Muller +
     Company, Kansas City, Missouri. Photography - Dan White, White and
     Associates, Kansas City, Missouri (except as noted otherwise).
     Typesetting - Jeff Park, Coleridge Design, Kansas City, Kansas.
     Printing - Chuck Blanken, Project Manager, Lithographix, Inc., Los Angeles,
     California.

ADDRESS LETTERS AND INQUIRIES TO:

Annual Report Editor, MSC 2-137
Aquila, Inc., 20 West Ninth Street
Kansas City, Missouri 64105
816-467-3509; Fax: 816-467-3005
ethan.hirsh@aquila.com
-C- Copyright 2002 Aquila, Inc.

1    DEAR AQUILA SHAREHOLDER ... Richard C. Green, Jr., chairman, and Robert K.
     Green, president and chief executive officer, discuss the company's
     financial performance and growth plans for Aquila Merchant Services and the
     Global Networks Group.

6    FINANCIAL SNAPSHOT ... A quick look at our 2001 numbers versus 2000
     results.

8    WHAT WE DO ... An overview of Aquila's domestic and international
     businesses, the markets they serve and the current state of competition in
     those markets.

10   WHERE WE ARE ... Maps of our various business activities in the United
     States and in the eight foreign countries where we operate.

NEWS ABOUT AQUILA

12   WE MANAGE THE WEATHER! ... Aquila's risk management experts have pioneered
     the use of specialized products that reduce risk and volatility in clients'
     financial statements. They're now being used by a variety of industries all
     over the world.

14   OUR ASSET STRATEGY ... By acquiring strategically placed electric
     generation and natural gas-related assets that complement its energy
     merchant business, Aquila keeps increasing its ability to help customers.

16   EXTENDING THE FRANCHISE ... The Global Networks Group, formed in November
     2001, applies a different perspective to Aquila's management of electric
     and gas networks in the U.S., Canada, New Zealand, Australia and (soon) the
     United Kingdom.

19   REAPING THE WIND ... The Gray County Wind Farm near Montezuma, Kansas now
     generates some of the electricity Aquila distributes to its network
     customers in that state and Missouri. It's the company's newest effort to
     make use of "green" energy.

20   A COMPANY OF OWNERS ... Aquila recognizes its 2001 Partners--employees who
     achieve a high level of ILA common stock ownership.

FINANCIAL INFORMATION

21   COMMON STOCK PERFORMANCE ... A graph showing how ILA common stock did in
     2001 compared to the S&P 500 and S&P Electric Companies index.
     INVESTMENT RESEARCH ... A listing of the investment firms that have issued
     current research reports on Aquila's equity and debt securities.
     DIVIDEND DATES FOR 2002 ... A calendar that helps shareholders anticipate
     the timing of their quarterly dividend payments and reinvestment during the
     year.

22   Financial Review - A detailed discussion of 2001 results of operations
     reported by business segment, including corresponding data for 2000 and
     1999.

41   Consolidated Financial Statements - The reported financial results for
     all of Aquila's businesses combined, covering the past three years.

45   Notes to the Financial Statements - Explanation of accounting
     principles, financings and other data related to the company's financial
     statements.

64   Report of Management - A statement on responsibility for financial
     information. Report of Independent Public Accountants - The opinion letter
     from the company's outside auditors regarding the results of their audit of
     2001 results.

65   Domestic Networks Statistics - Three-year data on our electric and
     natural gas distribution operations in the Mid-continent region of the
     United States.

66   Selected 11-Year Financial Data - Eleven-year figures and 10-year growth
     rates from income statements, plus common stock data and capitalization
     figures.

68   INVESTOR INFORMATION ... How to learn more, find Aquila's 2002 annual
     meeting, reinvest your dividends, contact Shareholder Relations or vote
     your proxy.

69   CORPORATE LEADERSHIP ... A listing of Aquila's senior management team.

70   BOARD OF DIRECTORS ... Brief background information on the company's
     directors, plus the committees of the Board and their responsibilities.

AQUILA 2001                                                                    7
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OUR BUSINESSES

WHAT WE DO

[GRAPHIC]

MERCHANT SERVICES

Our wholly owned subsidiary Aquila Merchant Services is one of the largest and
most innovative providers of risk management and wholesale energy in North
America. Its asset portfolio includes electric generation plants; natural gas
gathering, storage, pipeline and processing assets; and a coal terminal. Aquila
Merchant Services markets and trades a diverse portfolio of commodities
including natural gas, power, global liquids and weather derivatives.

<Table>
<Caption>
OPERATIONS                                                       MARKETS
<S>                                                              <C>
NORTH AMERICA

Capacity Services acquires, develops and manages electric power and natural gas
assets. These include generation, transportation, underground gas storage and
related energy delivery assets.

- Power Generation
  Aquila owns or controls approximately                          We currently serve utility and industrial clients in several
  4,721 megawatts (MW) of non-regulated power generation         parts of the United States. Aquila is developing additional
  capacity, including capacity under development. We have 26     power plants in regions where imbalances of supply and
  projects in 12 states. Each facility uses traditional fuels    demand are forecast to continue. We compete with electric
  and proven technologies.                                       utilities and other independent power producers.

- Natural Gas
  We gather natural gas from the wellhead, treat                 Our natural gas pipelines and processing plants in Texas and
  it, process it to extract the natural gas liquids, and         Oklahoma are connected to the major delivery hubs in East
  deliver the gas and gas liquids to various markets. Aquila     and West Texas. Our gas storage facilities primarily serve
  owns about 3,800 miles of pipeline and is the 14th-largest     utilities and major industrial customers. We compete with
  producer of natural gas liquids in the United States.          major integrated energy companies and with independent
  We own 62.5 billion cubic feet of natural gas storage          pipelines and processors.
  capacity, including facilities under development

- Coal
  We own and operate a coal terminal in West Virginia            We provide coal and material handling services to the
  that provides throughput, blending and storage services. It    utility and industrial markets, primarily in the Central
  has an annual capacity of about 5 million tons.                Atlantic region. Our competition includes major coal
                                                                 companies and other bulk terminals.

Wholesale Services provides commodity, risk management and financing services,
primarily to the energy and technology industries.

- Commodity Group
  As one of the largest-volume energy wholesalers in North       We market energy and other commodities to utilities and
  America, Aquila markets power, natural gas, natural gas        major industrial customers across the United States, the
  liquids, crude oil, coal and other related commodities. We     United Kingdom, Continental Europe and Canada. Our weather
  also provide a broad line of weather-derivative risk           products serve utilities, cities and a broad range of
  management products known as GuaranteedWeather(R) which        businesses that are affected by variations in weather,
  enable clients to reduce numerous financial risks related to   including agriculture, construction, commercial fishing,
  variations in the weather. Aquila participates in the global   sports and tourism. Aquila competes with other top-ten
  energy market as a founding partner and 5% owner of the        energy wholesalers in North America. The first company to
  IntercontinentalExchangeTM, the world's largest online         complete a weather derivative transaction, we are considered
  commodities exchange.                                          a pioneer and one of the few providers of such products.

- Client Group
  Aquila partners with clients to identify, assess and measure   Partners we work with include local energy distribution
  risks, then create solutions to mitigate energy portfolio      companies, industrial and manufacturing firms and municipal
  risks of all kinds.                                            power providers. Our competition is primarily other energy
                                                                 companies and the "Big Five" accounting firms.

- Capital Group
  We combine our risk management and commodity expertise to      Aquila has funded projects in the oil, gas, coal and power
  structure energy asset financing for clients in innovative     sectors across the U.S. Clients include owners and
  ways, providing a competitive alternative to traditional       developers of energy assets, producers, independent power
  project financing. Since launching this business in 1998, we   providers, industrial firms, utilities, reinsurers and new
  have completed more than 50 transactions and committed about   business ventures. Primary competitors include other energy
  $950 million in capital.                                       companies, banks and "mezzanine" lenders.

Europe

Aquila's European operations, headquartered in London,           We provide a range of wholesale and risk management services
provide wholesale energy marketing, trading and risk             to utilities and large-scale energy users in the U.K. and
management services in the United Kingdom, Germany and           Europe. We also trade physical products such as coal and
Scandinavia. We also own and operate a natural gas storage       global liquids. Our competitors include major energy
facility in Cheshire, England.                                   companies and risk management providers.
</Table>

8                                                                    AQUILA 2001
<Page>

[GRAPHIC]

GLOBAL NETWORKS GROUP

We manage electricity and natural gas distribution networks in the U.S. and in
four other countries through our Global Networks Group. This group also provides
appliance services, operates communications networks, and has an investment in a
major provider of field services for utilities and telecommunications companies.


<Table>
<Caption>
OPERATIONS                                                       MARKETS
<S>                                                              <C>
UNITED STATES

- Electricity and Natural Gas
  Our electric and gas distribution utilities, which used to     We serve 431,000 electric distribution customers in three
  operate under various division names, are changing to the      states: Missouri, Kansas and Colorado; and 874,000 gas
  name Aquila Networks. We deliver energy through networks of    distribution customers in seven states: Missouri, Kansas,
  wires and pipes serving seven states in the Mid-continent.     Colorado, Nebraska, Iowa, Michigan and Minnesota. Our
  Our operations serve territories with rates for service set    industrial and commercial gas customers in most of our
  by state or local regulators. We also market natural gas to    states can choose their gas suppliers. We have a number of
  a range of gas transportation customers and sell wholesale     programs to provide smaller-volume customers in certain
  power. We generate most, but not all, of the power we          states with price-choice alternatives.
  distribute.

- Appliance Services
  Our ServiceOne(R) subsidiary repairs and services              ServiceOne serves about 139,000 contract and home warranty
  appliances, heating and air conditioning equipment and other   customers in seven states, both inside and outside our
  critical systems, primarily through service contracts, home    utility territories. It competes with local repair services
  warranty and other services.                                   and a few regional and national providers.

- Communications Networks
  Aquila owns 89% of Everest Connections, which provides local   Competing directly against established local telephone and
  and long-distance telephone, cable television, high-speed      cable television providers, Everest has achieved market
  Internet and data services to areas of Greater Kansas City.    penetrations of more than 50% in some areas where it has
  Everest began serving residential and business customers in    completed installation of its fiber-optic network, which
  the Kansas City market in early 2001.                          provides a bundled package of voice, video and data services.

- Field Services
  Aquila holds an effective 38% equity interest in Quanta        Based in Houston, Quanta works nationwide. It serves
  Services, Inc., one of the nation's largest companies          utilities, telecommunications and cable television
  specializing in building and maintaining networks used to      operators, and government. It has grown rapidly by acquiring
  carry energy and telecommunications.                           smaller specialized contracting firms.

INTERNATIONAL

- Canada
  UtiliCorpNetworks Canada distributes electricity in Alberta    We provide electricity for 377,000 electric distribution
  and the southern interior of British Columbia. In British      customers in Alberta and 140,000 in British Columbia. In
  Columbia it also generates hydroelectric power and manages     Alberta, we provide the power under long-term contract to
  the retail accounts of its distribution customers. It will     the retailer. In our British Columbia territory, we are an
  change its name later in 2002.                                 integrated utility with no competition.

- United Kingdom
  We expect to complete our acquisition of Midlands              This utility distributes electricity under long-term
  Electricity in March 2002. Located near Birmingham, England,   contract to a retail power provider serving 2.3 million
  Midlands operates an electric distribution network and holds   customers in and around the city of Birmingham, England. It
  interests in three independent power plants. We plan to        is the fourth-largest regional electric company in the
  operate it as Aquila Networks UK.                              United Kingdom.

- Australia
  United Energy, managed and 34%-owned by Aquila, is an          United Energy and Multinet Gas distribute energy to 571,000
  electric distribution utility in Melbourne, Victoria. United   electric customers and 625,000 gas customers in areas of
  Energy also manages the gas distribution of Multinet Gas, in   metropolitan Melbourne, Victoria. Their retail energy
  which Aquila has a 25.5% interest. Uecomm, 66%-owned by        customers are serviced through the Pulse Energy joint
  United Energy, owns fiber-optic communications networks.       venture. The state of Victoria introduced full competition
  AlintaGas, 45%-owned by Aquila and United Energy jointly, is   in the retail electricity market in 2002. AlintaGas has
  the major supplier and distributor of natural gas in the       450,000 gas distribution customers in Western Australia,
  state of Western Australia. United Energy and Multinet         including the city of Perth. Industrial and commercial
  jointly own 50% of Pulse Energy, an electricity and gas        retail gas customers in Western Australia can choose their
  retailer.                                                      supplier. Uecomm serves corporate, government and wholesale
                                                                 customers.

- New Zealand
  UnitedNetworks, 55%-owned by Aquila, is New Zealand's          UnitedNetworks serves 506,000 electricity consumers, mostly
  largest energy distribution company. It owns and operates      in the Auckland and Wellington areas, and 124,000 gas
  electricity, natural gas and communications networks.          distribution customers. Its fiber-optic networks serve the
                                                                 business communities of Auckland and Wellington. There is
                                                                 full competition for all electric and gas retail customers.
                                                                 UnitedNetworks has limited gas network competition. In
                                                                 communications, we compete with established telephone
                                                                 companies.
</Table>

AQUILA 2001                                                                    9
<Page>

OUR LOCATIONS

WHERE WE ARE

MERCHANT SERVICES

[MAP OF UNITED STATES]
UNITED STATES
- GAS AND ELECTRICITY MARKETING
- INDEPENDENT POWER PROJECTS
- PLANTS UNDER CONSTRUCTION
- PLANTS IN DEVELOPMENT
- COAL TERMINAL
- GAS PIPELINE - OWNED
- GAS PIPELINE - EQUITY INTEREST
- GAS STORAGE
- GAS STORAGE UNDER CONSTRUCTION
- GAS STORAGE IN DEVELOPMENT
- GAS PROCESSING PLANT

[MAP OF CANADA]
CANADA
- GAS AND ELECTRICITY MARKETING

[MAP OF EUROPE]
EUROPE
- GAS AND ELECTRICITY MARKETING
- GAS STORAGE

10                                                                   AQUILA 2001
<Page>

GLOBAL NETWORKS GROUP

[MAP OF UNITED STATES]
UNITED STATES
- GAS DISTRIBUTION
- ELECTRICITY DISTRIBUTION
- COMBINATION GAS/ELECTRICITY
- COMMUNICATIONS NETWORK

[MAP OF CANADA]
CANADA
- ELECTRICITY DISTRIBUTION

[MAP OF UNITED KINGDOM]
UNITED KINGDOM
- ELECTRICITY DISTRIBUTION
  [PENDING ACQUISITION]

[MAP OF AUSTRALIA]
AUSTRALIA
- GAS DISTRIBUTION
- COMBINATION GAS/ELECTRICITY
- COMMUNICATIONS NETWORK

[MAP OF NEW ZEALAND]
NEW ZEALAND
- GAS DISTRIBUTION
- ELECTRICITY DISTRIBUTION
- COMMUNICATIONS NETWORK

AQUILA 2001                                                                   11
<Page>

RISK MANAGEMENT

WE MANAGE THE WEATHER!
--------------------------------------------------------------------------------
A pioneer in the field of weather risk management, Aquila excels at developing
new tools that are helping businesses around the world.
================================================================================

First there was weather. Then there was life on Earth. Then, in 1996, to help
manage the risks weather presents to life on Earth, Aquila created the first
weather derivative product. The rest, as they say, is history.

     Okay, that's a rather compressed version, but it's hard to overestimate the
significance of Aquila's risk management products, not just for the company, but
for the way our clients conduct their business. The fact is, it's hard to think
of a business that doesn't have to manage weather-related risks. Eel fishers,
power companies, sunflower growers, ski resorts--all are examples of clients who
benefit from Aquila's portfolio of risk management products.

REDEFINING RISK
Aquila's interest in managing weather-related risk should be no surprise, since
weather is at the heart of most energy risk. What sets us apart is our attitude
toward risk management.

     "Instead of treating risk defensively, as something to be warded off, we
take a proactive approach to risk management," says Aquila President and CEO Bob
Green.

     To do that, Aquila built one of the largest weather desks in the world and
invested heavily in intellectual capital--meteorologists, climatologists,
actuaries and weather traders. The investment paid off in a highly
sophisticated, profitable and constantly evolving product line.

     How do Aquila's risk management products differ from ordinary insurance,
such as flood insurance? Insurance indemnities are paid on actual physical
losses, whereas weather derivatives pay based on the occurrence (or
non-occurrence) of a particular weather event. Further, our products are
specifically tailored to our clients and generally address unusual seasonal
trends, rather than one-time catastrophic events.

     The whole topic of weather derivatives, as these products are technically
known, is about as complicated as astrophysics, but a few examples can help
provide an understanding of how they operate. An east coast utility company
presents a clear example (in fact, Aquila sold its first weather contract in
1996, to a big New York utility). Demand for energy to heat homes rises in the
winter. If the winter is exceptionally mild, demand, and consequently utility
income, is less than expected.

     In order to protect itself from this volumetric risk--less energy sold--the
utility can purchase a GuaranteedWeather(R) product from us, tailored to its
specific geographic location and priced accordingly. If the average winter
temperature is higher than the contract's "strike" point, we pay an agreed-upon
amount.

DISCIPLINED INNOVATION
Aquila has formed a number of mutually profitable partnerships, called quota
share arrangements, with traditional insurers and reinsurers. That allows us to
limit our financial exposure to predetermined amounts and allows our partners to
broaden the scope of their products.

     Last year, for instance, we teamed up with Kemper Insurance Companies, a
leading provider of insurance and risk management products here and abroad, to
jointly provide risk management for power companies. Both power generators and
their customers face increased risk as the deregulating power markets increase
power price volatility.

     While unexpectedly low demand can erode profits, usage peaks or unexpected
outages can force utilities into the spot market at the most inopportune times.
To manage that risk, we offer protection against volumetric risk, as described
in the example above, and we also offer GuaranteedGeneration(SM), which provides
customers with physical delivery of power. That's something no insurance company
can do by itself. The trick, of course, is to accurately assess the risks and
fairly price the contract. We've become expert, perhaps more expert than anyone
else in the world, at doing just that. As a result, profit growth from this
business has risen dramatically and consistently over the past five years.

[GRAPHIC]

-  Ski resorts typify the kind of business that can be at the mercy of the
   weather. Aquila's weather risk management products can reduce a resort
   owner's economic risk.

     Perhaps even more important, we've become expert at developing new products
that answer complex, pressing needs for a whole host of businesses and
industries. Which brings us back to those eel fishers.

     In 2001, we formed a partnership with Mitsui Sumitomo, one of Japan's
largest insurance companies. Eel, an expensive seafood, is extremely popular
during the warm months in Japan, especially during the hot days of August. But
if August proves unusually cool, eel consumption plummets.

     Working with an eel fishing company, we calculated the effect of
temperature variation on the company's sale of eel. Factoring in our
understanding of weather trends in Japan, we tailored a hedge for the company
that helped shield them from a previously unmanaged but potentially overwhelming
risk.

     The Japanese market for our products is huge, including the same industries
we serve elsewhere, such as power companies, the resort and entertainment
industry, and agriculture, as well as more unusual industries, such as eel
fisheries.

12                                                                   AQUILA 2001
<Page>

[GRAPHIC]

-   Aquila has been expanding its line of weather risk products for
    agriculture-related industries such as farming and fertilizer production.

Entree to all of these potential clients is greatly eased through our
partnership with Mitsui. In fact, such partnerships around the globe serve as
powerful extensions of our own sales force, giving us a truly local presence
overseas we could otherwise not hope to enjoy.

EXTENDING THE PRODUCT LINE
While we can't guarantee how many eels people in Tokyo will eat, we do guarantee
the number of bushels of corn a county will yield through GuaranteedYield(SM).
This product assists agribusinesses in managing risks associated with crop yield
volatility.

     The first industries being targeted for GuaranteedYield are not farmers,
who are already protected by federal crop insurance programs, but farm credit
institutions, grain elevators, processors and merchandisers. These businesses
are vulnerable to revenue loss when crop yields fall; GuaranteedYield will help
them manage those risks.

     We've spent over a year researching and developing GuaranteedYield
products, although we're hardly strangers to the vicissitudes of farming. Our
headquarters are located in the heart of corn, soybean and wheat country and our
utility business has supplied these industries for the better part of a century.

     To begin with, we'll be marketing GuaranteedYield on a county- and
area-wide basis in the United States, although we plan to extend our market
abroad within a year or two.

     Through the introduction of another new product, GuaranteedForecast(SM),
Aquila is helping companies manage the risk of an incorrect short-term weather
forecast. GuaranteedForecast is already helping a South American agrochemicals
producer. Like most fertilizer, its product is subject to dilution from rain.
Wet weather within 72 hours of application means a second application;
alternatively, the farmer can apply extra fertilizer the first time around, but
that's expensive and environmentally hazardous.

     To help manage that risk, Aquila will post a forecast telling farmers
whether or not to apply the fertilizer based on the likelihood of precipitation
in their area in the following 48 to 72 hours. If the forecast indicates a dry
period, the farmer notifies Aquila that he will be applying the chemical and
locks in a "no-rain guarantee."

     If it then rains within the specified period, we'll reimburse the farmer
for the cost of a second application. That benefits the farmer, who no longer
risks the cost of a second application; the manufacturer, who can offer this
extra protection to its customer; and the environment, by reducing the
detrimental impact of over-application.

     Aquila plans other forays into the agricultural market for 2002, including
other risk management products targeted at the fertilizer industry. Our plan is
to begin by managing price risk volatility associated with nitrogen and then to
add phosphate and sulfur derivative products. The effort will focus on the U.S.
and Canadian markets initially and then expand to London as a base for the
European market.

ACCELERATING GROWTH
Our weather products have proved an obvious boon to Aquila and to its clients.
We expect the worldwide market for these products to grow to $50 billion by
2005, and recent trends could drive that figure higher. Insurance companies have
become more reluctant to offer business interruption insurance. Since September
11, that reluctance has increased, and the price of such insurance, in some
cases, is now so high as to be prohibitive to many companies. That presents
significant opportunities for Aquila, both in terms of potential clients and in
terms of pricing.

     But the value of the products we've introduced goes beyond earnings and
shareholder value. At the end of 2001, a joint announcement was made by Aquila
and the International Finance Corporation (IFC), the private-sector arm of the
World Bank, that has broad social implications.

     IFC chose to partner with Aquila and the reinsurance companies we work with
to extend our weather risk management services to developing economies. We're
already working with a Mexican insurance firm to provide protection for corn,
soybean and sorghum growers to offset the risk of drought and frost that can
have a catastrophic effect on crop yields. Aquila is also working with a sugar
producer in Fiji to hedge against low sugar cane yields due to El Nino.

     Aquila expects sales from developing economies to grow ten times this year
compared to last. But the return in social benefits is far greater than the
economic opportunity. A prime obstacle facing developing countries is the high
cost of capital. By helping these economies manage weather risk, we help them
become more attractive to lending institutions. This brings down the cost of
capital and provides invaluable investment impetus.

[GRAPHIC]

-  Temperature variation can affect the fortunes of some types of commercial
   fishing. Aquila has a risk management tool that can help.

WHAT'S IT MEAN?
DERIVATIVE -- A FINANCIAL INSTRUMENT WHOSE VALUE REFLECTS THE PRICE OF SOMETHING
ELSE, SUCH AS A COMMODITY, CONTRACT, SECURITY, INDEX OR EXCHANGE RATE. AQUILA'S
GUARANTEEDWEATHER(R) PRODUCTS PROVIDE A FINANCIAL HEDGE AGAINST THE EFFECTS OF
ADVERSE WEATHER.

AQUILA 2001                                                                   13
<Page>

CAPACITY GROUP

OUR ASSET STRATEGY
--------------------------------------------------------------------------------
Aquila Merchant Services redefines and expands its portfolio of power and
natural gas assets to achieve ongoing growth.
--------------------------------------------------------------------------------

For Aquila, today's changing energy environment is an opportunity to selectively
acquire undervalued properties, develop assets at strategic locations and
upgrade or sell underperforming assets. Our asset strategy is to build a
balanced portfolio of assets to serve our clients' needs and optimize the return
to shareholders using our trading and risk management capabilities.

     Our wholly owned Aquila Merchant Services subsidiary makes investments
designed to facilitate longer-term transactions, complement its trading and risk
management activities, and diversify its asset portfolio across geographic and
product lines. In 2001 we repositioned our asset portfolio to take advantage of
opportunities to optimize strategic assets and acquire new operations at
favorable prices.

     Today, both sides of the demand/supply equation are dominated by unknowns.
On the demand side, the timing of an economic recovery from the turmoil of 2001
weighs on the market. On the supply side, there is instability in the Middle
East, volatility in energy prices, and uncertainty created by discussions around
environmental regulation. Furthermore, the weather plays a major role in
creating uncertainty on both sides of this equation. Add to that the
uncertainties introduced by progressive deregulation, and we see a business
environment in need of the skills Aquila Merchant Services has honed over the
past 16 years. Our unparalleled risk management capabilities, combined with our
expertise in managing both merchant and network infrastructure assets adds
together to provide comprehensive solutions for our clients.

REPOSITIONING THE CAPACITY GROUP
Until recently, Aquila Merchant Services' Capacity Group was focused largely on
gas gathering and processing, a combination that served us well for many years.
In the last few years it has moved toward a more balanced mix, with greater
emphasis on storage, pipeline operations and the generation of electricity.

     The Capacity Group's earnings before interest and taxes (EBIT) in 2001 were
$113.7 million. Storage and pipelines accounted for 7 percent of that amount.
Generation was 74 percent, and gathering and processing contributed 19 percent.
Behind the shift in strategy is a decision to focus on assets that will create
sustainable earnings and cash flow. Furthermore, on the gas side of the Capacity
Group the emphasis moves from a regional niche to a national presence providing
broader service offerings to a more diverse client base.

     In 2001, we sold facilities that no longer fit our strategic thrust. These
consisted of non-core gas gathering systems that required almost the same
ongoing attention, personnel and capital as some of our major, more strategic
assets. These sales are consistent with our "invest, optimize and monetize"
approach that we call a "merchant mentality."

     At the same time, we've been achieving growth in other operations. Earnings
from our interest in the Oasis Pipe Line system more than doubled last year. The
Oasis system runs from West Texas to Houston. We also improved the performance
of our gas processing facility at Elk City, Oklahoma.

ADDING STABILITY FOR CALIFORNIA
During the second quarter of 2002, we expect final approval from the California

[GRAPHIC]

- The gas-fired Aries generating facility near Kansas City, Missouri is one
  of the most advanced combined-cycle plants in service today.

[GRAPHIC]

- Mechanic Gene Turner uses a gas leak detector as he readies some of the
  systems at the Lodi natural gas storage facility in California.

14                                                                   AQUILA 2001
<Page>

Public Utilities Commission for our new gas storage facility in Lodi,
California, just south of Sacramento. Located in the heart of the state's
energy-short northern region, the Lodi facility is set to assume a key position
in helping bring energy stability to the region. It's ideally situated to serve
the major gas-fired power plants scheduled to come on line in the area during
2002 and 2003.

     The facility is a depleted underground natural gas reservoir that is
surrounded beneath the surface by water. The naturally occurring water helps
maintain pressure on the reservoir, which improves the withdrawal rate of the
stored gas. The facility ultimately will store about 12 billion cubic feet (Bcf)
of natural gas.

     The planned rate at which gas can be injected underground at Lodi is 400
million cubic feet per day (mmcf/d), and the withdrawal rate will be 500 mmcf/d,
allowing our customers to turn over the facility's gas inventory six times a
year. Since most facilities in the area can cycle inventory only once or twice a
year, Lodi will be one of the most efficient storage facilities in California.

     Adequate storage is critical because this area is downstream of significant
pipeline bottlenecks and experiences large spikes in demand. Aquila's Lodi
facility, sited at this uniquely competitive location, will provide valuable
stability in the supply of natural gas for our clients in the western United
States.

A MAJOR UPGRADE AT KATY
Like the Lodi facility, Aquila's Katy gas storage facility is competitively
located west of Houston, at the center of one of the busiest gas hubs and
largest natural gas consuming areas in North America. The facility has a total
working capacity of 21 Bcf and is connected to 12 different pipelines. Thus,
Katy gas storage customers have access to the major pipelines connecting the
Texas Gulf Coast to the northeast and midwest demand regions. Aquila purchased
the operation in 1999.

     The Katy facility's working capacity is nearly twice that of Lodi. Until
recently, though, it was operated as a baseload facility. It was a "two-turn"
operation. That means it was capable of turning over its inventory only twice a
year.

     In February 2002, we completed a major upgrade at Katy that converted it to
a five-turn facility. While the capacity remains the same, this renovation
dramatically increased the facility's financial value by giving it the
withdrawal and injection capacity necessary to meet the higher-premium,
multi-cycle services demanded by our clients in today's marketplace.

     That's exactly the kind of investment that fits Aquila's strategy for
sustainable earnings and cash flow, without large continuing capital outlays.

GOING FOR GENERATION
The goal for our generation assets is the same: Achieve highly predictable,
sustainable earnings and cash flow. That entails a three-pronged approach:
Acquiring and developing assets that fit our strategic thrust, at favorable
prices; improving existing facilities; and selling those that no longer serve
core needs. Last year we made significant progress on all these fronts.

NEW POWER PLANTS PERFORM
Our acquisition of six power plants from GPU Inc. at the end of 2000, with
a total capacity of 489 megawatts, is a good example of our strategy in action.
The former GPU plants are strategically located in four eastern states and came
with attractive long-term capacity and energy sales contracts. They provide
sustainable earnings and cash flow.

     But, it's definitely not Aquila's philosophy to just pursue a passive
acquisition strategy. We're determined to optimize all of our assets to enhance
their financial performance. It's an operating principle that pays off in
results. In the case of the six plants acquired from GPU, we surpassed our
original earnings projections by 41 percent.

A MAJOR PROJECT COMES ON LINE
In 2001, the Aries plant, a 580-megawatt facility located about 20 miles
southeast of Kansas City, Missouri, became operational--on time and on budget.
Aries is one of the most advanced gas-fired, combined-cycle power plants in
service today. With the majority of the plant's capacity sold under
intermediate-term agreements, it now provides Aquila with sustainable earnings
and cash flow.

     Our asset strategy continues to grow. Next up: Two 340-megawatt peaking
facilities are scheduled to begin commercial operations this summer, one in
Illinois and the other in Mississippi, and a 510-megawatt, gas-fired plant in
Illinois called Goose Creek is scheduled to go on line in 2003.

     Looking beyond these committed facilities, we are constantly on the lookout
for further investment opportunities in gas and power assets that fit our
strategy. They must complement our trading and marketing activities in the
Commodity Group, offer solutions to our clients' needs for capacity, and provide
our shareholders sustainable sources of earnings and cash flow.

[GRAPHIC]

- The Lodi underground storage complex is capable of storing about 12 billion
  cubic feet of natural gas for later withdrawal by Aquila customers.

WHAT'S IT MEAN?

SIMPLE-CYCLE -- IN SIMPLE-CYCLE GENERATION, NATURAL GAS IS BURNED IN A
COMBUSTION TURBINE TO PRODUCE ELECTRICITY, AND LEFTOVER HEAT GOES TO WASTE. IN
COMBINED-CYCLE OPERATIONS, THAT HEAT IS RECOVERED AND USED IN A STEAM TURBINE TO
PRODUCE ADDITIONAL POWER. THE ARIES PLANT BEGAN COMBINED-CYCLE OPERATIONS IN
FEBRUARY 2002.

AQUILA 2001                                                                   15
<Page>

GLOBAL NETWORKS

EXTENDING THE FRANCHISE
--------------------------------------------------------------------------------
To better manage growth of its electricity and natural gas networks in five
countries, Aquila draws on its breadth of energy expertise.
================================================================================

Aquila formed the Global Networks Group in November 2001 to bring management of
all our networks, here and abroad, under one umbrella and to realize the
synergies that come from sharing experience and expertise across different
geographies and in varying economic and regulatory environments.

     Keith Stamm, previously CEO of the Aquila Merchant Services subsidiary, was
tapped to head up Global Networks. He not only has a merchant perspective on how
to apply risk management expertise to the networks side of our business; he also
spent two-and-a-half years as chief executive officer of our United Energy
affiliate in Australia and prior to that managed Aquila's regulated generation
in the United States.

     This new group inherits a legacy of deep experience and excellence in
handling the assets that form the core of our original business. Global Networks
is pipes and wires, power generation, distribution of natural gas and
electricity, teams with expertise in customer service, asset management and
regulatory matters. And by executing successful strategies under different
market conditions, we hone what we do best in specific locales into truly
best-of-class, world-class standards.

GROWTH SPURT IN THE U.K.
Aquila started the ball rolling last year to make its largest acquisition ever.
Our purchase of Midlands Electricity in the United Kingdom is scheduled to close
in March 2002. We plan to operate the company under the name Aquila Networks UK.

     Aquila has had a presence in the U.K. since 1991, originally in natural gas
pipelines and wholesale services. We've been active in trading and risk
management there since 1995, but this marks our first move into British
electricity distribution.

     Based in Worcester, south of the city of Birmingham, Midlands is the U.K.'s
fourth-largest regional electric company. It had total 2001 sales of $566
million. Its 38,000-mile distribution network spans a large area in the middle
of England and serves 2.3 million customers.

     The sheer size of its distribution business offers valuable economies of
scale. The acquisition also includes Midlands' ownership interest in three
independent power plants. The purchase serves as a springboard for future
expansion of our operations into other countries in Europe.

     The Midlands acquisition is clearly a very significant step in the 85-year
history of Aquila's network operations. After the deal closes, we will serve
nearly 6.5 million network customers--80 percent of them outside the United
States, and about 70 percent outside North America.

     Aquila's Global Networks Group will be managing operations that serve what
is heavily an international customer base. It's a big contrast to how the
company was configured less than 20 years ago, when its entire service territory
was in northwest Missouri and comprised only 193,000 customers.

WHAT'S NEW IN NEW ZEALAND
Our strategy for optimizing and monetizing our assets is well illustrated by
developments last year in New Zealand where, as 55 percent owner, Aquila
operates UnitedNetworks, the country's largest electricity and natural gas
network company.

     Going by the principle that when it comes to networks bigger is better, the
company made a number of acquisitions in power and natural gas, starting in
1998. The immediate focus was to realize synergies. However, to optimize the
operations, UnitedNetworks strengthened its asset management capabilities with
improved systems and processes, extracting critical knowledge and turning it
into value.

     Realizing economies of scale by implementing best practices across the
network is common sense. And so is exiting businesses that can be more
efficiently run by others, especially when those businesses detract from our
asset ownership and management focus. That's why UnitedNetworks sold its
contracting field services business to Siemens Energy Services Ltd. in July
2001.

     "For a company with our focus," says UnitedNetworks CEO Dan Warnock, "we
must be proficient in finance, regulatory management, risk assessment, data
gathering and information management, and integrated engineering and commercial
decision-making. Servicing the network is not a necessary core competency."

     Siemens is one of the largest electrical

[GRAPHIC]

-    Aquila's pending acquisition of Midlands Electricity is expected to close
     in March 2002. Above: A university scene in Birmingham, England.

16                                                                   AQUILA 2001
<Page>

and electronic engineering companies in the world. Its global experience and
expertise in servicing networks will result in superior and more innovative
repair and maintenance services on our networks in the long term.

     Seeing the opportunity to apply its expertise to the natural gas business,
UnitedNetworks bought the gas distribution system of Orion New Zealand in the
spring of 2000 for $274 million. As with electricity distribution, the gas
business required optimizing the operations, but more importantly, we needed to
optimize its growth opportunities.

     Since natural gas has a much less developed market in New Zealand than in
the United States, there are still significant prospects for further growth.

     "There is very low customer awareness in New Zealand about natural gas and
its benefits," says Warnock. "Our approach has been to work with our industry
partners to make natural gas more accessible and desirable for the consumer."

     During 2001 UnitedNetworks launched a branded marketing campaign to educate
gas users about the consumer benefits of using the fuel. These efforts have
produced solid results that Warnock expects will lead to accelerated growth for
UnitedNetworks in 2002, with greater market penetration and more demand.

RAISING THE BAR DOWN UNDER
In January 2002, Australia's most populous states, Victoria and New South Wales,
introduced deregulation of the retail electricity market. (In Australia's
inimitable slant on English, it's called "full retail contestability.")
Translation: Some 5 million Australian residential and small business customers
can now choose the retailer that supplies their electricity. Full gas retail
contestability also went into effect in New South Wales in January, and is
scheduled to start in Victoria in October 2002.

     United Energy, which is managed and 34 percent owned by Aquila, will be
gaining invaluable experience operating in a fully deregulated environment. The
utility serves about 571,000 electric distribution customers in parts of
metropolitan Melbourne, Victoria. It has very little direct retail exposure,
except for its 25 percent stake in Pulse, an electricity and natural gas
retailer.

     Since Aquila and an investment partner acquired it in 1995, United Energy
has had a front row seat for the entire utility deregulation process in
Australia. It was the first electricity distribution company privatized by the
state of Victoria, and in 1998 it became the first electric utility to list on
the Australian Stock Exchange. It's been setting the standard, both for its
network management and for its back office operations, ever since.

     Before Aquila began managing United Energy, for the state of Victoria the
average interruption duration index, which is a measure of the average length of
time customers are without power in a year, stayed stubbornly in the range of
400-500 minutes. By 2001, on the United Energy system that number had fallen to
72.3 minutes and its average customer had only 1.1 interruptions.

     "Those are world-class numbers," says Bob Holzwarth, CEO of United Energy.
"Anyone looking for justification for privatization should look at this dramatic
improvement in the quality of service, coupled with the lower rates."

     Coming to Melbourne from Calgary, where he headed Aquila's Canadian network
operations, Holzwarth says Australia's incentive-based regulatory environment,
directly linked to performance, provides an extra motivation for companies to
excel. He's used to that way of business, because Aquila has pioneered similar
systems in part of Canada.

     But the importance of what United Energy has achieved goes even further.
The company is developing metrics--that is, standards by which to measure
performance--that determine the optimum relationship between increased costs and
increased benefits when it comes to service improvements in an incentive-based
system.

     An important corollary to United Energy's network operations is its
backoffice services business, Utili-Mode, which provides call center, metering,
billing and account collections for energy retailers and others.

     As competition heats up under deregulation, how well and how efficiently
retailers perform these back-office services becomes critical to their profits
and even to their survival. Utili-Mode's call center has achieved customer
service satisfaction levels in excess of 95 percent. Last October, it earned
International Customer Service accreditation from the Customer Service
Institute, which sets worldwide standards for call center operations.

     There's one other achievement by United Energy that outgoing chief
executive officer Don Bacon is particularly proud of, and that's employee
safety. Although the employees involved in field operations are exposed to
potentially serious hazards every day, during 2001 not a single lost-time
accident was reported. Not one. That's what United Energy and Aquila like--a
standard that can't be beat.

GOING WEST PAYS OFF
By any measure, the joint Aquila/United Energy acquisition of a 45 percent
interest in AlintaGas Limited at the end of 2000 has proved to be an excellent
move.

     Previously the monopoly natural gas distribution company owned by the state
of Western Australia, AlintaGas was privatized by selling us our "cornerstone"
interest, with the remaining 55 percent sold to the public in an initial public
offering.

     Western Australia's principal city is Perth, where the company is
headquartered. The state is in a growth mode, and so is AlintaGas. The company
supplies natural gas to 58 percent of the households in Western Australia, as
well as to the state's largest industrial and commercial customers.

     That ongoing growth, leveraged by the optimization strategy that Aquila
applies to every acquisition, yielded solid growth in sales for the fiscal year
ended June 2001--15 percent higher than was predicted in the offering
prospectus.

     But the real story is the transformation of AlintaGas from a
government-owned gas distribution company to a

[GRAPHIC]

- Areas served by UnitedNetworks in New Zealand include the cities of
  Auckland (below) and Wellington.

AQUILA 2001                                                                   17
<Page>

[GRAPHIC]

- One third of the total area of Alberta, renowned for its scenery, is served
  by Aquila's electricity networks.

publicly owned, entrepreneurial energy products and infrastructure company.

     The first order of business was to conduct a thorough review of the
company's operating structure, process design, and administrative and support
services. The first result was an immediate restructuring to achieve greater
operating efficiency. The second was a detailed strategic plan that
fundamentally redefined AlintaGas.

     Partly as a result of the restructuring effort, net profit for the six
months ended December 31 increased 22 percent over the same period a year ago.
With that effort largely complete, the chief focus in 2002 will be on executing
our growth strategy.

     Earnings from gas distribution should continue to grow between 3 and 5
percent per year. That provides a stable earnings base, but to achieve our
targeted 10-15 percent growth rate requires diversifying beyond AlintaGas's
traditional core business. One initiative is the formation of National Power
Services (WA), a joint venture that will reduce costs through an outsourcing
contract while transforming the company's field services group from a cost
center to a profit center by contracting it out to other companies throughout
Australia.

     AlintaGas has operated successfully on the industrial side for years in a
deregulated environment, but a key goal for 2002 is to translate this success
fully to the retail market when it deregulates in Western Australia next year.

     The next phase of its strategic plan involves the pursuit of a number of
potential acquisitions, joint ventures and partnerships.

     "There are about 20 investment opportunities we're seriously looking at,"
says AlintaGas CEO Bob Browning, who went to Perth from Kansas City shortly
after the company was privatized.

     Just as United Energy went from electric-only to electric and gas, Browning
is intent on having AlintaGas diversify to build a portfolio of income streams
and achieve its growth goals.

     The company's relationship with its major shareholders, Aquila and United
Energy, provides AlintaGas with a strong competitive advantage. United Energy's
deep understanding of the Australian energy industry and Aquila's extensive
experience managing risk, navigating advanced regulatory environments and
operating energy businesses around the world will be enormously important in
meeting the goal of consistent double-digit earnings growth.

IN CANADA, CONSOLIDATION
Last year was a period of significant consolidation for UtiliCorp Networks
Canada (UNC). Its transition to the name Aquila Networks Canada will pick up
speed later this year. Our north-of-the-border networks subsidiary began its
"Team of One" initiative, designed to build on the best in global practices and
integrate our electricity operations in Alberta and British Columbia.

     In fall 2001, the first step was making "UtiliCorp Networks" the unifying
operating name in Canada. The company had operated as West Kootenay Power in
British Columbia since acquiring the 104-year old hydroelectric utility in 1987.
It was the company's first international purchase. UtiliCorp Networks Canada
came into being in August 2000 with the purchase of the Alberta electric
distribution operations of TransAlta Corporation.

     Today we have 517,000 customers and 62,000 miles of electric network in
Canada. The combination of UNC and West Kootenay Power under a single name was a
logical business step that emphasized the companies' growth and focus on
networks.

     "In a busy and dynamic energy industry, making it simpler for customers to
know who we are and what we do, regardless of what regulatory jurisdiction we
are in, was a key objective in adopting a single name in Canada," says UNC's
CEO, Fauzia Lalani. "That's why we'll continue to evolve our brand identity,
migrating from UtiliCorp to Aquila Networks to support the strategy of the new
Global Networks Group.

     "We may be the largest investor-owned networks company in Canada," she
says, "but we're still a very unique player since 80 percent of Canadian network
assets remain government owned."

     UNC has embarked on an aggressive campaign to be a credible, reliable
expert in electric market restructuring. The company's responsible leadership
role was apparent during last year's three-month strike by members of the
International Brotherhood of Electrical Workers (IBEW) in British Columbia.
Members of the Office and Professional Employees International Union honored
IBEW picket lines, which meant closing customer service centers in our British
Columbia service territory. However, inconvenience to customers was minimized by
routing telephone inquiries through the Calgary service center and by invoking
essential services legislation to ensure that outage restoration and system
control functions continued with minimal interruption.

     In the end, UNC achieved a four-year agreement that struck the necessary
balance between productivity improvements and competitive rates for customers.

     UtiliCorp Networks Canada has taken an active role in provincial policy
discussions on restructuring the industry and implementing incentive-based
regulation. Among the innovative solutions advanced by UNC is a Customer
Advisory Board designed to resolve customer concerns without the need for an
adversarial and costly regulatory hearing. The board will have a pilot run in
Alberta during the first half of 2002.

     By leveraging the company's extensive experience in the deregulating
markets of Australia, New Zealand and the United Kingdom, UNC is well positioned
to help reform and restructure the electricity market throughout Canada. In
turn, the lessons learned in Canada will help nourish ongoing efforts to
increase the value of our networks elsewhere as we shift toward a global Aquila
Networks business portfolio.

18                                                                   AQUILA 2001
<Page>

REAPING THE WIND
--------------------------------------------------------------------------------
Our huge wind project on the prairie produces electricity without using any of
the traditional fuels for generation.
================================================================================

The 170 wind turbines generating power on the plains near Montezuma, Kansas are
an arresting sight. The Gray County Wind Farm, which began operation in December
2001, was constructed by FPL Energy, a subsidiary of Florida Power and Light
that is the most experienced builder of wind farms in the country.

     FPL continues to own and operate the facility, and Aquila arranged to
purchase its entire output, 110 megawatts, enough power to supply the needs of
33,000 homes. We'll distribute about 75% of that power to our customers in
Kansas and Missouri, with the rest going to power wholesalers. The Gray County
facility is the product of vision, not regulation. It's the largest wind project
in the United States that wasn't mandated by state regulations as part of a
utility company's "green" energy mix.

AN AGE-OLD DREAM
Harnessing the wind has captivated man's imagination for millennia. Using wind
to generate electricity would seem an obvious goal, but its realization has been
frustratingly elusive. Until recently, the economics of wind power simply did
not work. While wind is free, the up-front costs of turbines and towers,
amortized over the life of the equipment, meant costs of more than 15 cents per
kilowatt-hour, far higher than costs from traditional fuel-powered turbines. In
the past decade or so, however, big improvements in technology have lowered the
costs of wind-generated power as much as 80%, bringing it in line with, and
sometimes even below, the typical costs of traditionally-fueled generation.

     But cost is hardly the only force behind the new interest in wind power.
It's abundantly clear our increasing dependence on foreign oil threatens our
national security, and concern with the environment, a largely local issue 20
years ago, today focuses on the global issue of greenhouse gases and climate
change. That adds up to strong public support for renewable sources of energy,
and the market has responded accordingly. Wind power capacity has almost doubled
in the past two years, from about 2,500 megawatts in 1999 to 4,500 megawatts at
the end of 2001.

     Still, wind power today accounts for less than half a percent of the
country's total installed electric capacity. Wind-powered generation grew 31%
last year, making it the fastest-growing segment of generation. Global capacity
has increased 500% since 1995, to 23,300 megawatts, enough to meet the needs of
23 million people.

SOME NEW CHALLENGES
For Aquila's dispatchers, wind power presents unique challenges. You can't keep
excess wind in storage tanks, and when the turbines are still, no electrons
flow. While FPL Energy has become expert at predicting wind patterns and finding
where those patterns make wind generation economic, there's no way to predict
wind speed moment to moment. But knowing exactly what power's needed on a
moment-to-moment basis and where to find it is exactly what power dispatching is
all about. In order to factor wind into the generation mix--and wind now
accounts for 2% to 5% of the electricity supply for Aquila's networks in Kansas
and Missouri--our dispatchers have learned to balance wind power with power from
gas-fired turbines. They can do that almost instantaneously because the gas
turbines respond quickly (unlike plants fueled by coal).

     The Gray County Wind Farm has already brought Aquila recognition--a
nomination for the Green Power Leadership Award, sponsored by the U.S.
Environmental Protection Agency, and receipt of the Missouri Governor's
Environmental Excellence and Pollution Control Award.

[GRAPHIC]

- Prior to installation on one of the project's towers, a windmill's blades,
  each 77 feet long, dwarf a large barn that stands nearby.

[GRAPHIC]

- Perhaps Kansas' answer to the stone sculptures found on Easter Island, the
  wind turbines of the Gray County Wind Farm give a new look to the landscape,
  as well as to the generation mix serving Aquila's electric customers in two
  states.

[SIDENOTE]

THE AQUILA-FPL ENERGY PROJECT IS THE LARGEST U.S. WIND FARM THAT WAS NOT
MANDATED BY STATE REGULATIONS.

AQUILA 2001                                                                   19
<Page>

AQUILA PARTNERS

A COMPANY OF OWNERS

THREE-FOURTHS OF AQUILA'S ASSOCIATES IN NORTH AMERICA OWN SHARES OF THE
COMPANY'S COMMON STOCK. AT THE END OF 2001, THIS GROUP HELD MORE THAN 12 PERCENT
OF ALL OUR SHARES OUTSTANDING. FOR MANY YEARS, THIS LEVEL OF EMPLOYEE OWNERSHIP
HAS BEEN ONE MORE THING THAT DISTINGUISHES AQUILA FROM OTHER COMPANIES IN OUR
INDUSTRY. WE FEEL IT'S AN IMPORTANT DIFFERENCE. EVERY DAY OUR PEOPLE PUT INTO
ACTION THE EXTRA CARING THAT OWNERSHIP BRINGS. IT SHOWS IN THE WAY THEY SERVE
CUSTOMERS AND THE WAY THEY MAKE BUSINESS DECISIONS. EACH YEAR WE RECOGNIZE AS
AQUILA PARTNERS THE INDIVIDUALS WHO HAVE REACHED A PARTICULARLY HIGH LEVEL OF
SHARE OWNERSHIP COMPARED TO SALARY LEVEL. OUR PARTNERS FOR 2001 ARE PRESENTED
BELOW.

Donald R. Albon
Gail M. Allen
Paul Allerton
Hugh E. Alm, Jr.
Dennis D. Ambrose
William S. Anderson
Michael R. Apprill
George E. Armstrong
Stephen Ash
John P. Ashworth
Verle D. Ayres
Donald Bacon
Marjorie K. Bajor
Michael P. Baker
William J. Balk
Jerald Ball
Robert G. Barbee
Arthur W. Barr, Jr.
Robert G. Barry
Timothy K. Bass
Patricia A. Bauer
Cheryl L. Baumann
Robert C. Beck
Ted B. Beissenherz
Thomas J. Benore
Robert L. Benstead
Diana Berger
Ken Bergstedt
Edward R. Bettin
Buddy Ray Black
David E. Blann
Patricia A. Blanton
Hal Bloomberg
Delta F. Boden
William I. Bolonyi
Jill L. Bonk
Raymond Bonkowski, Jr.
Randall K. Boone
Roger A. Booze
Dean B. Boren
Lance A. Boyd
Joseph A. Braden
Richard A. Bradshaw
John T. Britton
James S. Brook
J. Alan Brooker
Pauline Broom
Linda R. Brown
Bob Browning
Kevin G. Burbach
Roy A. Burke, Jr.
James E. Burnett
Dale A. Burtch
Robert E. Callegari
Ronald J. Carlberg
Patricia L. Carlson
Thomas L. Carmody
Bruce C. Chaney
Donald F. Cheloha
David S. Christensen
Neal R. Clausen
Pamela S. Coble
Steve Cochennet
Michael W. Cochran
Gary D. Colgrove
Tim L. Connealy
Elliott W. Connell
Timothy E. Conner
Lyle Cook
Roger W. Cook
William S. Cook
Frank B. Costanza
Dennis E. Coughlin
Mary L. Courter
John C. Creek
Robert L. Curtis
Larry D. Damme
Allan N. Dancy
Lois A. Danielson
Janet L. Daugherty
Dennis M. Davis
Kay M. Deahl
Glenn W. Dee
Michael Deggendorf
Donald Lee Dekema
Gary M. Denny
Margaret A. Desmet
Richard W. Devine
Jerry A. Dick
Thomas Disterheft
Rick J. Dobson
Albert J. Dolan
Robert B. Draeger
John D. Durdahl
Dale E. Dwyer
Robert J. Dye
Judy K. Eby
Chris Edlin
Donna K. Elliott
James E. Elliott
Kathryn A. Ellis
Jesse R. Elrick
Debra L. Emo
Jon R. Empson
James L. Erickson
Mark E. Even
Debra J. Everett
Ralph C. Eye
Phillip W. Fagg
John G. Favreau
Beverly A. Feine
Russel W. Feller
Dave Fincher
John R. Fischer
Michael J. Fisher
Frank F. Fong
William B. Ford
Kevin J. Fox
Michael H. Fragale
Charles T. Friend
William H. Fries
James L. Friesel
George J. Frisbie
Joe L. Fulton
Kenneth L. Gerdts
Leslie E. Gibson
Wayne H. Giese
Deanna L. Giessel
Danny L. Gillam
Harold L. Gillihan
Charles R. Gray
Dennis M. Greashaber
Keith Frank Green
Richard C. Green, Jr.
Robert K. Green
Sandra J. Guge
Mark H. Gurley
Gary Mac Hackett
Eric Hall
John G. Hall
Laurie J. Hamilton
Rodney F. Hamm
Ralph E. Hammond
Kenneth J. Hansen
Gary R. Hanson
Thomas E. Hanson
Della D. Harris
Garry D. Harter
Steven E. Hartman
Jim R. Hasley
Ed Hatter
Charles F. Hauska
Leroy J. Havener
Barbara A. Hawkins
Milo A. Hawkinson
Billy J. Hayes
Becky Heeres
Michael D. Hehl
Vicki Heider
Jerald F. Heims
Donna L. Heinicke
Lyle R. Henderson
Steven L. Hensevelt
A. Jean Herndon
Ronald L. Herr
Ronald W. Herstein
Michael E. Hertling
Chester W. Hill
Ronald J. Hinsley
Gary M. Hoffman
Jay P. Hohne
Robert W. Holzwarth
Michael R. Hook
Edward L. Horne
Martin C. Hotchkiss
Gordon D. Hough
Ted Houts
David A. Howrigon
Robert J. Huckaby
Charles W. Hudler
John R. Hugelen
Terry L. Hutchins
Steve L. Hyke
Donald B. Jackson
Dave Jaschen
Tommy R. Johnson
Larry W. Jones
Leroy M. Junge
Anne Kahle
David F. Kaminski
Mike Kane
Michael G. Kelly
Ronald W. Kester
Ronald G. Kieft
James D. Kimbrell
Dennis J. Kinne
Michael J. Kisicki
Joseph A. Klusaw
Roger A. Kort
Richard A. Kramer
David P. Kreimer
Richard C. Kreul
Patricia A. Krier
Douglas E. Kubash
John E. Kubesh
Daniel M. Kuehne
Timothy M. Kuehnlein
Donal D. Kuhlman
Randy J. Kull
Patricia A. Lammers
Sonna A. Lane
Carole J. Lange
Steven R. Larner
Jerry D. Laughlin
Billy D. Leach
Norman E. Lecy
Jesse R. Lee
Bob Leen
Michael E. Lemmer
Sandra K. Lewandowski
Jerry L. Lewis
David G. Light
Harold E. Link
Paul J. Livernois
Karen L. Loomis
Kenneth L. Loose
Willis L. Lutes
Carol Lyon
Thomas D. Manderscheid
Donald E. Maristuen
Thomas L. Markstrom
Thomas F. Martin
Donald T. Mason
Janice McCall
Thomas L. McCoy
Sandra K. McDannel
John V. McDonald
Jerri McDonnell
David J. McLaughlin
Jeffrey D. McNally
Vernon R. Means
Daniel Medeiros
Walt Mier
Herman L. Miller
Judith L. Miller
Randal P. Miller
Edward K. Mills
Loretta G. Millstead
Haney D. Milstead
David J. Miracle
Mario A. Morales
Betty J. Morgan
Julianne Morton
Leo E. Morton
Paul D. Mumm
Steve Munckton
Ralph K. Neasham
Paul F. Nelson
Judy Ness
James A. Nieman
Alvin O. Niendick
Rene A. Nix
Robert E. Norem
Donald W. North
Denise M. Novak
Harry E. Odell
Thomas F. O'Grady
Lynn J. Oltmanns
Marvin L. Oppedal
Roger G. Oursland
Larry E. Owens
Angelo F. Palumbo, Jr.
Kris J. Paper
Stephen D. Parker
Lou Ann Patterson
Kenneth A. Pedersen
Harold W. Peery
Stephen L. Pella
Robert P. Perkins
Chris A. Perrault
George M. Peterson
Gary L. Pike
Ronald L. Pischke
Mark E. Pratt
James Prchal, Jr.
Nancy J. Preucil
Gary J. Price
Diana L Prine
Bob Qualkinbush
Timothy C. Raburn
Michael B. Radl
Jim Read
Bruce A. Reed
James H. Reed
Mark W. Reed
Jim L. Reineke
Daniel F. Rembold
Don Richardson
Tim E. Richardson
Clayton P. Risdahl
Kent J. Roberts
Bruce W. Robertson
Thomas B. Robertson
Linda R. Robinson
Michael Rodenbeck
Lawrence L. Rodenz
Arnold L. Rogers
Richard J. Rogers
Danny L. Rose
Daniel W. Ruffner
Gary J. Sauser
Jim Schaum
Stan P. Schiermeyer
Ed Schulte
Barb Schultz
Debra D. Schumann
Thomas M. Schweikert
Dean M. Schwendinger
Robert R. Scott
Susan R. Sears
Richard P. Sena
David J. Sevcik
Stan P. Shreve
Vern J. Siemek
Daniel R. Sikkema
Jacki Sima
David A. Sisel
James R. Sisung
Bobbie J. Skeels
Bernard L. Smith
Charles W. Smock
Susan M. Snively
Dale A. Sonder
Leroy L. Soppe
Gerald C. Soukup
Keith G. Stamm
Daniel L. Stanton
William A. Starnes
Jeri L. Steffy
Kenneth W. Stegall
Mary P. Stepp
Leslie P. Stotz
Becky Streeter
Duane D. Strong
John M. Strunk
Linda S. Stuart
William F. Sudholt
Darrell C. Suedmeier
Robert S. Sulek
Frank L. Sullivan
Shirley R. Swedlund
John M. Talcott
Jon R. Tangen
Donald Tapken
Patti J. Taylor
Donna J. Thomas
Kathleen M. Tierney
Denise Tillman
Michael J. Troupe
Carl Turner
Jennifer D. Turner
Michael J. Tylutki
Linda M. Tyree
Lawrence L. Valentine
W. E. Valentine
Karen J. VanDusseldorp
Carolyn F. Vansickle
Richard E. Veatch
David H. Vergot
David D. Vincent
Diane K. Vitamvas
David W. Volker
Robert E. Waechter
Susan J. Walter
Greg Walters
Reginald C. Walton
Daniel W. Warnock
Burt Watkins
Bradley A. Watrous
Douglas R. Welch
Gordon L. Welch
Julie M. Welch
Carol S. Weller
Marsha J. Wellman
Carol I. White
Judy L. White
Darlene M. Whiteaker
Paul E. Whitehead
James E. Whitelow
Allan Chip Wical
Jim Wilcox
Julian B. Wildrom
Dennis R. Williams
Jeff Williams
Donald S. Wilson
Larry R. Wilson
Bradley D. Wiltse
Harry J. Winfrey
Kathleen A. Wiseman
James L. Witt
Paul K. Wohl
Larry M. Woody
John W. Wortman
James H. Wurster
Steven T. Yates
Michael R. Young
Cheryl L. Zatko
Betty Zimmerman

20                                                                   AQUILA 2001
<Page>

[CHART OF COMMON STOCK PERFORMANCE]

[PLOT POINTS TO COME]

INVESTMENT RESEARCH
Analysts at the following investment firms currently follow Aquila and have
issued research reports on our performance:

EQUITY RESEARCH
Banc of America Securities
Credit Lyonnais Securities
Credit Suisse First Boston
Deutsche Banc Alex. Brown
Edward Jones
Fidelity Capital Markets
Goldman Sachs & Co.
JP Morgan Chase
Lehman Brothers
Merrill Lynch & Co.
Morgan Stanley Dean Witter
RBC Dain Rauscher
Robert W. Baird & Co.
Salomon Smith Barney, Inc.
UBS Warburg LLC
Value Line Publishing, Inc.

DEBT RESEARCH
ABN AMRO
Credit Suisse First Boston
Merrill Lynch & Co.
PaineWebber Incorporated
Prudential Fixed Income
Warburg Dillon Read

DIVIDEND DATES FOR 2002

<Table>
<Caption>
===========================================================================================================================
                                                                        First         Second        Third         Fourth
                                                                        Quarter       Quarter       Quarter       Quarter
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>           <C>           <C>
DIVIDENDS (a)
Dividends are declared by the board of directors on:                    Feb. 6        May 1         Aug. 7        Nov. 6
---------------------------------------------------------------------------------------------------------------------------
The record dates to qualify for a dividend are:                         Feb. 22       May 22        Aug. 22       Nov. 22
---------------------------------------------------------------------------------------------------------------------------
Dividend checks should be received on (b):                              March 12      June 12       Sept. 12      Dec. 12
===========================================================================================================================
DIVIDEND REINVESTMENT (c)
Dividends for Plan participants are reinvested by
  the company with a 5% discount on:                                    March 12      June 12       Sept. 12      Dec. 12
---------------------------------------------------------------------------------------------------------------------------
Additional share purchases may be made periodically subject to
  terms of the Plan.
---------------------------------------------------------------------------------------------------------------------------
Quarterly statements for Plan participants are mailed:                  Late March    Late June     Late Sept.    Late Dec.
===========================================================================================================================
</Table>

(a) DECLARATION OF DIVIDENDS, DIVIDEND RATES AND THE DATES SHOWN ARE SUBJECT TO
    THE DISCRETION OF THE AQUILA BOARD OF DIRECTORS. THE DATES SHOWN ASSUME PAST
    PATTERNS WILL CONTINUE. HOWEVER, WE DO NOT AND CANNOT MAKE ANY ASSURANCES
    THAT ANY OR ALL OF THE LISTED EVENTS WILL OCCUR ON THE DATES SHOWN, IF AT
    ALL. AQUILA RESERVES THE RIGHT TO AMEND, SUSPEND OR TERMINATE THE DIVIDEND
    REINVESTMENT AND COMMON STOCK PURCHASE PLAN AT ANY TIME. PLAN PARTICIPANTS
    WILL BE NOTIFIED OF ANY CHANGES IN WRITING.

(b) IF YOU DON'T RECEIVE YOUR DIVIDEND CHECK ON THE PAYMENT DATE, PLEASE ALLOW
    REASONABLE TIME FOR POSTAL DELAYS BEFORE INQUIRING.

(c) PLEASE REFER TO THE LATEST PROSPECTUS OF THE DIVIDEND REINVESTMENT AND
    COMMON STOCK PURCHASE PLAN. TO REQUEST A PROSPECTUS AND AN ENROLLMENT FORM,
    CALL TOLL-FREE IN THE U.S. AND CANADA: 1-866-235-0223; OR DOWNLOAD THESE
    DOCUMENTS FROM THE INVESTOR INFORMATION SECTION OF AQUILA'S WEBSITE AT
    www.aquila.com.

AQUILA 2001                                                                   21
<Page>

FINANCIAL REVIEW

KEY EVENTS IN 2001
     - In March we raised approximately $332 million through the sale of shares
       of our common stock.

     - We completed an initial public offering of Class A Aquila Merchant common
       shares in April, which raised approximately $446 million in net proceeds
       and left us with an 80% interest in the subsidiary.

     - In June, we exchanged $189.5 million of senior notes with interest rates
       ranging from 8.0% to 9.0% for $200 million of new senior notes with
       interest rates at 7.75%, maturing in June 2011. We also retired $204.1
       million of senior notes, mortgage bonds and company-obligated preferred
       securities.

     - We formed a partnership in August with ArcLight Energy Partners Fund I,
       L.P. to buy a gas storage facility under construction near Sacramento,
       California. The cost to acquire and complete the facility is about $220
       million. Our investment in this project is expected to be $25.0 million.
       We expect to complete the purchase in the second quarter of 2002, subject
       to regulatory approval.

     - We have agreed to acquire Midlands Electricity plc for $362 million.
       Midlands is the fourth-largest regional electric company in the United
       Kingdom. The transaction is expected to close in the first quarter of
       2002. Midlands also has $1.7 billion of debt that would be non-recourse
       to us.

     - We announced in November that we would offer to acquire all outstanding
       publicly held shares of Aquila Merchant in exchange for shares of Aquila
       common stock. We completed the exchange offer in January 2002 by issuing
       about 12.6 million Aquila common shares. At that time Aquila Merchant
       again became a wholly-owned subsidiary and public trading of its shares
       ceased.

     - In December 2001, Enron Corporation filed for bankruptcy. As a result, we
       made provisions for receivables and open trade positions of $40 million
       on an after-tax basis.

This review of 2001 performance is organized by business segment, reflecting the
way we manage our businesses. Each business unit leader is responsible for
operating results, expressed as earnings before interest and taxes (EBIT).
Therefore, each segment discussion focuses on the factors affecting EBIT.

     We use the term "Operating EBIT" to describe our recurring earnings before
interest and taxes excluding items we deem to be non-recurring. The term is not
meant to replace actual EBIT or other performance measures used under generally
accepted accounting principles.

     We generally make decisions on finance, dividends and taxes at the
corporate level. We discuss those topics separately on a consolidated basis.

     In 2001, our performance versus our main financial objective was as
follows:

<Table>
<Caption>
                                                             2001
                                               ---------------------------------
                                                 Objective          Result
--------------------------------------------------------------------------------
<S>                                                 <C>               <C>
Operating earnings per share growth                 15%               17%
================================================================================
</Table>

     At the end of 2001, our three-year total shareholder return was 15.4%.
Total shareholder return is a measure of the change in price of our common stock
over the period plus dividends paid.

OPERATING EARNINGS BEFORE INTEREST AND TAXES

A summary of our Operating EBIT by business segment is shown below.

<Table>
<Caption>
Dollars in millions, except per share                 2001               2000       1999
------------------------------------------------------------------------------------------
<S>                                                 <C>      <C>       <C>       <C>
MERCHANT SERVICES:
  Wholesale Services                                $296.5    43.1%    $148.3    $  40.7
  Capacity Services                                  113.7    16.5       53.6       39.0
  Minority Interest                                  (26.4)   (3.8)        --         --
------------------------------------------------------------------------------------------
Total Merchant Services                              383.8    55.8      201.9       79.7
------------------------------------------------------------------------------------------
GLOBAL NETWORKS GROUP:
  International Networks                             133.0    19.3      114.0      129.9
  Domestic Networks                                  166.2    24.1      219.6      208.3
------------------------------------------------------------------------------------------
Total Global Networks Group                          299.2    43.4      333.6      338.2
------------------------------------------------------------------------------------------
Corporate and other                                    5.7      .8      (12.3)      (3.9)
------------------------------------------------------------------------------------------
TOTAL OPERATING EBIT                                $688.7   100.0%    $523.2    $ 414.0
==========================================================================================
OPERATING EARNINGS PER SHARE--DILUTED               $ 2.44             $ 2.08    $  1.75
==========================================================================================
ACTUAL EARNINGS PER SHARE--DILUTED                  $ 2.42             $ 2.21    $  1.75
==========================================================================================
</Table>

22                                                                   AQUILA 2001
<Page>

[PHOTO OF DAN STREEK]

AS AQUILA'S CHIEF FINANCIAL OFFICER, DAN STREEK OVERSEES ALL OF OUR TREASURY,
TAX, ACCOUNTING AND INVESTOR RELATIONS ACTIVITIES. A CERTIFIED PUBLIC
ACCOUNTANT, HE JOINED THE COMPANY IN 1992 AND WAS NAMED TO HIS CURRENT POSITION
IN AUGUST 2001.

NON-RECURRING ITEMS
Our earnings before interest and taxes (EBIT) and diluted earnings per share
(EPS) for the three years ended December 31, 2001 were affected by several items
that we expect will not have a continuing impact on our financial position or
results of operations. The table below summarizes the effect of non-recurring
items on EBIT and diluted EPS.

<Table>
<Caption>
                                                                            Year Ended December 31,
                                                            ----------------------------------------------------
                                                                     2001            2000             1999
                                                            ----------------------------------------------------
In millions, except per share                                   EBIT     EPS     EBIT      EPS    EBIT      EPS
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>      <C>     <C>      <C>     <C>     <C>
ACTUAL                                                         $704.7   $2.42   $540.0   $ 2.21  $414.0  $ 1.75
Gain on sale of Aquila Merchant shares (a)                     (110.8)   (.51)      --       --      --      --
Enron exposures (b)                                              66.8     .34       --       --      --      --
Communications construction and lease termination (c)            16.5     .09      4.0      .02      --      --
Australia asset valuation reserves (d)                           11.5     .10       --       --      --      --
Gain on Uecomm IPO (e)                                             --      --    (44.0)    (.30)     --      --
Merchant asset impairments (f)                                     --      --     10.8      .07      --      --
Corporate charge for technology assets and intangibles (g)         --      --     12.4      .08      --      --
----------------------------------------------------------------------------------------------------------------
Operating                                                      $688.7   $2.44   $523.2   $ 2.08  $414.0  $ 1.75
================================================================================================================
</Table>

(a) IN 2001, WE SOLD 5.75 MILLION SHARES OF AQUILA MERCHANT AS PART OF THE
    INITIAL PUBLIC OFFERING OF THAT SUBSIDIARY AND REALIZED A GAIN OF $110.8
    MILLION.
(b) IN 2001, WE WROTE OFF EXPOSURES RELATED TO THE ENRON BANKRUPTCY OF $35.0
    MILLION IN AQUILA MERCHANT AND $31.8 MILLION IN DOMESTIC NETWORKS.
(c) IN 2001, WE RECORDED CHARGES OF $16.5 MILLION IN OUR COMMUNICATIONS BUSINESS
    RELATED TO PRELIMINARY SYSTEM DESIGN AND LEASES IN MARKETS WE DO NOT INTEND
    TO DEVELOP. IN 2000, WE RECORDED A CHARGE OF $4.0 MILLION RELATED TO THE
    CONSTRUCTION OF OUR FIBER-OPTIC COMMUNICATIONS NETWORK.
(d) IN 2001, WE RECORDED CHARGES OF $11.5 MILLION IN OUR AUSTRALIAN NETWORKS
    RELATED TO VALUATION ALLOWANCES ON CERTAIN DEFERRED TAXES AND COLLECTIBILITY
    OF CERTAIN RECEIVABLES.
(e) IN 2000, WE RECORDED A $44.0 MILLION GAIN ON THE INITIAL PUBLIC OFFERING OF
    34% OF UECOMM LTD. BY UNITED ENERGY.
(f) IN 2000, WE RECORDED AN ASSET IMPAIRMENT CHARGE OF $7.8 MILLION ON CERTAIN
    UNDER-PERFORMING PIPELINE ASSETS AND $3.0 MILLION ON CERTAIN RETAIL ASSETS
    IN THE UNITED KINGDOM.
(g) IN 2000, WE RECORDED CHARGES OF $10.0 MILLION RELATED TO CERTAIN INFORMATION
    TECHNOLOGY ASSETS THAT ARE NO LONGER USED AND $2.4 MILLION RELATED TO
    CERTAIN CORPORATE IDENTITY INTANGIBLES.

AQUILA 2001                                                                   23
<Page>

MERCHANT SERVICES
We conduct our Merchant Services business through Aquila Merchant Services, Inc.
(Aquila Merchant) in two segments, Wholesale Services and Capacity Services.
Wholesale Services includes our North American and European commodity and client
businesses (including our capital services business). Capacity Services
primarily consists of power development, natural gas gathering and processing
operations, and investments in independent power projects.

     In 1999, 2000 and the first four months of 2001, we owned 100% of Aquila
Merchant. In April 2001, approximately 20% of Aquila Merchant was sold to the
public. In connection with the initial public offering of Aquila Merchant, we
sold 5.75 million previously issued shares and realized a pretax gain of
approximately $110.8 million. In January 2002, we acquired the outstanding
public shares of Aquila Merchant in an exchange offer and merger. Aquila
Merchant was consolidated in each year with a minority interest reflected in
2001. The following Merchant Services financial information includes 100% of
Aquila Merchant before minority interest, which totaled $26.4 million for the
year ended December 31, 2001.

IMPACT OF ENRON ON THE COMMODITY MARKETS
Enron Corporation has been the dominant company in the energy commodity markets
in recent years with its proprietary electronic trading platform, EnronOnLine,
processing a significant share of the trading volume in the market. When Enron's
financial difficulties became public in late 2001, many companies doing business
with Enron and using EnronOnLine began to look to other energy companies,
including Aquila Merchant, and other trading platforms for their energy and risk
management needs. Aquila Merchant experienced a 52% increase in total Btu
equivalent per day volumes during the fourth quarter of 2001 over 2000. It is
difficult to directly attribute this increase to the absence of Enron from the
market; however, we believe a portion of the increase was Enron-related.
IntercontinentalExchange (ICE), in which Aquila has a 5% ownership interest,
also experienced increased activity as the markets shifted from EnronOnLine to
other electronic trading platforms. Total volumes and users on ICE increased by
65% and 30%, respectively, from October to November 2001. ICE also had an
increased volume of gas and power trades for next-day delivery rather than
next-month delivery in response to shortened timeframes for planning.

     We also had an increase in the number of client transactions in the fourth
quarter of 2001 compared to 2000. It is still too early to predict how
transactions, volumes and earnings will be affected by the Enron bankruptcy, but
overall we believe the situation has created a number of market opportunities
for us.

THREE-YEAR REVIEW--WHOLESALE SERVICES

<Table>
<Caption>
                                                                 Year Ended December 31,
                                                         -------------------------------------------
Dollars in millions                                             2001           2000           1999
----------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>             <C>
Sales                                                    $  36,607.1    $  25,662.5     $ 16,345.2
Cost of sales                                               35,976.7       25,219.4       16,167.0
----------------------------------------------------------------------------------------------------
Gross profit                                                   630.4          443.1          178.2
----------------------------------------------------------------------------------------------------
Operating expenses:
  Operating expense                                            352.4          315.6          148.8
  Depreciation and amortization expense                         16.2           16.5            9.6
  Impairments and other charges                                 35.0            3.0             --
----------------------------------------------------------------------------------------------------
Total operating expenses                                       403.6          335.1          158.4
----------------------------------------------------------------------------------------------------
Equity in earnings of investments                                 .2             --             --
Other income (expense)                                          34.5           37.3           20.9
----------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)                      261.5          145.3           40.7
====================================================================================================
NON-RECURRING ITEMS:
  Enron exposure                                                35.0             --             --
  Retail asset impairments                                        --            3.0             --
----------------------------------------------------------------------------------------------------
OPERATING EBIT                                           $     296.5    $     148.3     $     40.7
====================================================================================================
OPERATING EBIT CONTRIBUTION TO AQUILA                           43.1%          28.3%           9.8%
====================================================================================================
Identifiable assets                                      $   4,653.5    $   6,505.0     $  2,153.7
Average value at risk                                    $      11.3    $       6.9     $      4.6
Total Btu equivalent per day                                    24.6           18.4           18.0
Physical gas volumes marketed (BILLION CUBIC FEET
  PER DAY)                                                      13.5           12.0           10.5
Electricity volumes marketed (MEGAWATT-HOURS 000's)          350,000        189,900        236,500
Natural gas--average price per thousand cubic feet       $      3.91    $      3.71     $     2.15
Electricity--average price per megawatt-hour             $     50.24    $     49.45     $    33.68
====================================================================================================
</Table>

24                                                                   AQUILA 2001
<Page>

[PHOTO OF EDWARD MILLS]

ED MILLS HAS BEEN PRESIDENT AND CHIEF OPERATING OFFICER OF AQUILA MERCHANT
SERVICES SINCE 1998. PRIOR TO THAT, HE HEADED AQUILA'S RISK MANAGEMENT AND
TRADING OPERATIONS. HE JOINED THE COMPANY IN 1993.

2001 VERSUS 2000

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our Wholesale Services operations increased 43% in
2001 compared to 2000. Gross profit increased $187.3 million or 42% in 2001
compared to 2000. These increases were primarily due to the following:

     - A volatile pricing environment for gas and electricity, particularly in
       early 2001, provided opportunities to execute our strategies and deliver
       products and services to our clients.

     - Electricity and gas volumes marketed in 2001 increased 84% and 13%,
       respectively, over 2000, contributing to a combined 34% increase on a
       total Btu equivalent per day basis. These increases, together with a 27%
       increase in the number of commodity transactions executed, contributed to
       the increase in sales, cost of sales and gross profit.

     - A 5% increase in average gas prices also increased our sales and cost of
       sales.

     - A 28% increase in the number of client transactions in 2001 compared to
       2000 contributed to a 34% increase in gross profit from our origination
       deals and from the more highly customized products we call Client
       Services. These products include our GuaranteedWeather(R) and
       GuaranteedGeneration(SM) products as well as our longer-duration gas and
       electric contracts.

OPERATING EXPENSES
Total operating expenses increased $68.5 million due to the write-off of
approximately $35.0 million related to our trading exposures with Enron, the
continued expansion of the merchant business and our strong performance
resulting in higher incentive compensation expense. Also impacting operating
expenses was the allocation of $10.8 million of expenses from Corporate and
other. While the $35.0 million write-off represents our best estimate of our
exposure based on our contracts with Enron, the ultimate outcome is subject to
review by the bankruptcy courts.

2000 VERSUS 1999

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our Wholesale Services operations increased $9.3
billion and $9.1 billion, respectively, in 2000 compared to 1999. These
increases were primarily due to higher prices for electricity and natural gas in
2000.

     Gross profit increased $264.9 million in 2000 compared to 1999. The
increase in gross profit was primarily due to the following:

     - Strong wholesale commodity results in our gas, power and origination
       businesses are due to several factors, principally related to excellent
       execution in a favorable pricing environment. Natural gas and electricity
       prices increased 73% and 47%, respectively, in 2000 compared to 1999.
       Electricity volumes in 2000 were lower than in 1999, due to the shorter
       duration of our portfolio combined with higher price volatility.

     - Expansion of our GuaranteedWeather(R) and Guaranteed-Generation(SM)
       products compared to 1999. We started our weather business in 1997 and
       GuaranteedGeneration in 1999. Combined with our natural gas and power
       origination businesses, deal flow in all origination businesses combined
       was up 231%.

     - Gross profit in 1999 included a $19.8 million loss from the retail gas
       supply business we sold in January 2000.

OPERATING EXPENSES
Total operating expenses increased $176.7 million due to the expansion of Aquila
Merchant's business along with higher incentive compensation expense resulting
from our strong performance in 2000. Also, bad debt expense was higher in 2000
due to the expansion of our overall business and certain accounts receivable
that were not collectible. Depreciation expense was $6.9 million higher
primarily due to the additional investments in technology assets. In 2000, we
also recognized impairment charges of $3.0 million on retail assets in the U.K.

AQUILA 2001                                                                   25
<Page>

OTHER INCOME (EXPENSE)
Other income (expense) increased $16.4 million in 2000 compared to 1999. This
increase mainly stems from our Merchant Notes Receivable which increased by 75%
in 2000 compared to 1999, resulting in increased interest income. This increase
was the result of an increase in the number of financing transactions,
reflecting higher demand for capital in the exploration and production market.
This increase was partially offset by fees associated with the increased amount
of accounts receivable we sold in 2000 compared to 1999.

THREE-YEAR REVIEW--CAPACITY SERVICES

<Table>
<Caption>
                                                                      Year Ended December 31,
                                                             ----------------------------------------
Dollars in millions                                              2001             2000           1999
------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>              <C>
Sales                                                        $1,162.9         $  815.6         $384.8
Cost of sales                                                   952.7            681.5          289.5
------------------------------------------------------------------------------------------------------
Gross profit                                                    210.2            134.1           95.3
------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Operating expense                                              92.5             66.7           48.7
  Depreciation and amortization expense                          39.3             32.3           29.5
  Impairments and other charges                                    --              7.8             --
------------------------------------------------------------------------------------------------------
Total operating expenses                                        131.8            106.8           78.2
------------------------------------------------------------------------------------------------------
Equity in earnings of investments                                32.4             18.4           34.7
Other income (expense)                                            2.9               .1          (12.8)
------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)                       113.7             45.8           39.0
======================================================================================================
NON-RECURRING ITEMS:
  Pipeline asset impairments                                       --              7.8             --
------------------------------------------------------------------------------------------------------
OPERATING EBIT                                               $  113.7         $   53.6         $ 39.0
======================================================================================================
OPERATING EBIT CONTRIBUTION TO AQUILA                            16.5%            10.2%           9.4%
======================================================================================================
Identifiable assets                                          $1,595.1         $1,382.1         $935.4
Power capacity owned/controlled (MEGAWATTS)                     4,357            4,107            546
Gas throughput volumes (MILLION CUBIC FEET PER DAY)               381              449            548
Natural gas liquids--average price per gallon                $    .44         $    .47         $  .31
Natural gas liquids produced (THOUSAND BARRELS PER DAY)            20               22             22
======================================================================================================
</Table>

2001 VERSUS 2000

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our Capacity Services operations increased 43% and
40%, respectively, in 2001 compared to 2000. Gross profit increased $76.1
million. These increases were primarily the result of the following factors:

     - The GPU International acquisition in December 2000 added approximately
       $54.9 million to gross profit in 2001 while adding $81.6 million and
       $26.7 million to sales and cost of sales, respectively.

     - We secured power capacity prices on our generation assets above current
       market prices, improving our margins in 2001. We attempt to optimize
       asset positions with forward contracts from time to time. When we take
       these positions with derivative instruments, they are recorded at fair
       value while the underlying asset position is reflected at historical
       cost.

     - The additional sales and cost of sales are also the result of additional
       capacity brought on line.

[CHART OF SALES-MERCHANT SERVICES]

-   In 2001 Merchant Services had exceptional growth in its trading operations;
    gas trading and natural gas and power volumes increased dramatically.

[CHART OF EBIT-MERCHANT SERVICES]

-   EBIT from our merchant activities benefited greatly from a volatile pricing
    environment and increased natural gas and electricity volumes.

26                                                                   AQUILA 2001
<Page>

[PHOTO OF C. E. PAYNE, JR.]
C.E. PAYNE, JR.

AQUILA APPLIES ITS RISK MANAGEMENT EXPERTISE ACROSS MANY DISCIPLINES. OUR
COMPANY-WIDE RISK MANAGEMENT PROGRAM, DIRECTED BY CAL PAYNE, COVERS TRADING
ACTIVITIES, INTERNAL AUDITING, INSURABLE RISKS AND CREDIT MANAGEMENT.

OPERATING EXPENSES
Total operating expenses increased $25.0 million in 2001 compared to 2000,
primarily as the result of our GPU International acquisition in December 2000.
In 2000, impairment charges of $7.8 million were recorded on certain pipeline
related assets.

EQUITY IN EARNINGS OF INVESTMENTS
Equity earnings increased $14.0 million in 2001 compared to 2000. Approximately
$11.6 million of this increase relates to the equity investments in four
independent power plants that we added to our power capacity as part of our
acquisition of GPU International in December 2000.

2000 VERSUS 1999

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our Capacity Services operations increased $430.8
million and $392.0 million, respectively, in 2000 compared to 1999. Gross profit
increased $38.8 million in 2000 compared to 1999. These increases resulted
primarily from the following factors:

     - Additional power capacity in the Southeast in 2000 and other contractual
       transactions added about $22 million to our gross profit.

     - A 52% increase in the average price of natural gas liquids contributed to
       a $20 million increase in gross profit.

     - Partially offsetting those increases was an 18% decrease in natural gas
       throughput volumes.

OPERATING EXPENSES
Total operating expenses increased $28.6 million due to establishing power
development and analysis teams to support construction of power plants. In 2000,
we also recognized impairment charges of $7.8 million on certain underperforming
pipeline assets.

EQUITY IN EARNINGS OF INVESTMENTS
Equity earnings decreased $16.3 million in 2000 compared to 1999. This was
primarily due to the sale in late 1999 of our interest in a power project that
contributed equity earnings of $17.1 million in 1999, including the gain on the
sale of the project.

CURRENT OPERATING DEVELOPMENTS
ACQUISITIONS. In August 2001, Aquila Merchant and a partner agreed to purchase a
12 Bcf gas storage facility under development in Lodi, California. This facility
is strategically located and is important in helping to meet the gas needs of
the California energy market.

     In January 2002, we acquired property and rights to develop a 12 Bcf gas
storage facility near Kingman, Arizona. This facility is located to serve the
Arizona, Nevada and California gas markets. The first phase of the facility,
with a storage capacity of 6 Bcf, is expected to be in operation by the fourth
quarter of 2003, with the full 12 Bcf planned for the fourth quarter of 2004.

CONSTRUCTION/DEVELOPMENT. We currently have four power projects under
construction or in development that will produce an additional 1,770 MW of power
capacity. The work is largely ahead of schedule and below budget and three of
the plants are expected to be on line for the 2002 cooling season.

[CHART OF GAS MARKETING VOLUMES]

-   Natural gas marketing volumes in 2001 rose 13% overall, reflecting strong
    demand for wholesale energy.

[CHART OF ELECTRICITY MARKETING VOLUMES]

-   Electricity marketing volumes increased 84% in 2001 after declining the year
    before.

AQUILA 2001                                                                   27
<Page>

GLOBAL NETWORKS GROUP

Our Global Networks Group consists of our investments in international and
domestic regulated electricity and gas utilities and communications networks.
International Networks includes our investments in Canada, Australia and New
Zealand. Our wholly owned Canadian electricity distribution company, UtiliCorp
Networks Canada Ltd., has operations in the provinces of Alberta and British
Columbia. Our Australian investments include a 34% interest in United Energy
Limited, an electricity distribution company in the Melbourne area; a 25.5%
interest in Multinet Gas, a gas distribution company in the Melbourne area; and
a 45% interest, held jointly with United Energy, in AlintaGas Limited, a gas
distribution company in Western Australia. In New Zealand we have a 55.5%
interest in UnitedNetworks Ltd., an electricity and gas distribution company
based in Auckland. Domestic Networks includes our electricity and gas network
businesses in Colorado, Iowa, Kansas, Michigan, Minnesota, Missouri and
Nebraska. Also included are our 89% owned subsidiary, Everest Connections, a
communications business that is rolling out comprehensive fiber-optic
communication services in two Kansas City suburbs, and our 38% interest in
Quanta Services, Inc. Quanta is the premier provider of field services to
electric utilities, telecommunications and cable television companies, and
governmental entities.

THREE-YEAR REVIEW--INTERNATIONAL NETWORKS

<Table>
<Caption>
                                                                                 Year Ended December 31,
                                                                      ----------------------------------------------
Dollars in millions                                                         2001              2000              1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>                <C>
Sales                                                                 $    353.9        $    492.4         $   309.2
Cost of sales                                                              143.3             311.8             106.3
--------------------------------------------------------------------------------------------------------------------
Gross profit                                                               210.6             180.6             202.9
--------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Operating expense                                                         80.7              48.6              46.5
  Depreciation and amortization expense                                     55.8              45.5              42.2
  Maintenance expense                                                        2.3               2.3               2.7
  Taxes, other than income taxes                                            15.8              13.5              11.6
  Impairments and other charges                                             11.5                --                --
--------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                   166.1             109.9             103.0
--------------------------------------------------------------------------------------------------------------------
Equity in earnings of investments                                           61.5              44.3              21.7
Minority interest in income of subsidiaries                                   --              (3.3)            (11.5)
Gain on sale of subsidiary stock                                              --              44.0                --
Other income (expense)                                                      15.5               2.3              19.8
--------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)                                  121.5             158.0             129.9
--------------------------------------------------------------------------------------------------------------------
NON-RECURRING ITEMS:
  Australian asset valuation reserves                                       11.5                --                --
  Gain on Uecomm initial public offering                                      --             (44.0)               --
--------------------------------------------------------------------------------------------------------------------
OPERATING EBIT                                                        $    133.0        $    114.0         $   129.9
--------------------------------------------------------------------------------------------------------------------
OPERATING EBIT CONTRIBUTION TO AQUILA                                       19.3%             21.8%             31.4%
--------------------------------------------------------------------------------------------------------------------
Identifiable assets                                                   $  1,864.9        $  2,174.0         $ 1,792.1
Electric sales and transportation volumes (MWH 000's)                     25,484            13,785             9,023
--------------------------------------------------------------------------------------------------------------------
Electric customers                                                     1,595,000         1,553,000         1,165,000
Gas customers                                                          1,200,000         1,148,000           587,000
--------------------------------------------------------------------------------------------------------------------
Total customers*                                                       2,795,000         2,701,000         1,752,000
--------------------------------------------------------------------------------------------------------------------
</Table>

* INCLUDES CUSTOMER CONNECTIONS IN OUR EQUITY METHOD INVESTMENTS IN
  ELECTRICITY AND GAS DISTRIBUTION BUSINESSES IN AUSTRALIA AND NEW ZEALAND.

[CHART OF SALES-GLOBAL NETWORKS]

Our acquisition of St. Joseph Light & Power and higher gas prices in early 2001
were the primary reasons for the 4% increase in Global Networks Group sales in
2001.

[CHART OF EBIT-GLOBAL NETWORKS]

Non-recurring items in 2001 and 2000 were the primary reason for the 2001
decrease in EBIT from Global Networks.

28                                                                   AQUILA 2001
<Page>

[PHOTO OF KEITH STAMM]

Heading up the new Global Networks Group formed in November 2001, Keith Stamm
brings an energy merchant perspective to the management of our network
operations around the world. He was formerly the CEO of Aquila Merchant
Services.

2001 VERSUS 2000

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our International Networks businesses decreased
$138.5 million and $168.5 million, respectively, in 2001 compared to 2000. Gross
profit for our International Networks businesses increased $30.0 million in
2001. These changes were primarily due to the following:

     - The deconsolidation of our New Zealand operations in June 2000 decreased
       sales, cost of sales and gross profit by $104.6 million, $32.7 million
       and $71.9 million, respectively.

     - Our acquisition of TransAlta's electricity distribution business in
       Alberta, Canada in August 2000, and subsequent sale of its lower margin
       retail business effective January 2001, resulted in a decrease in sales
       and cost of sales of $34.7 million and $136.8 million, respectively.
       Gross profit increased at our Alberta network by $102.1 million from a
       full year's operations in 2001.

OPERATING EXPENSES
Total operating expenses increased $56.2 million in 2001 compared to 2000. The
purchase of our Alberta network increased total operating expenses by $79.4
million. Deconsolidating our New Zealand business decreased total operating
expenses by $28.8 million. In 2001, we also recorded charges of $11.5 million
relating to the realizability of deferred tax assets and interest receivable on
shareholder loans in our Australian equity investments.

EQUITY IN EARNINGS OF INVESTMENTS
Equity in earnings increased $17.2 million in 2001 compared to 2000. After the
sale of a portion of our New Zealand business we now use the equity method of
accounting to record our net share of that business. This increased equity
earnings by $16.5 million.

OTHER INCOME (EXPENSE)
Other income increased $13.2 million, primarily reflecting the allowed recovery
of carrying costs on deferred purchased power costs ordered by Alberta
regulators in December 2001.

GAIN ON SALE OF SUBSIDIARY STOCK
United Energy completed an initial public offering of 34% of Uecomm Limited, its
telecom business, which resulted in a $44.0 million gain in 2000.

2000 VERSUS 1999

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our International Networks businesses increased
$183.2 million and $205.5 million, respectively, in 2000 compared to 1999. These
increases were primarily due to our acquisition of TransAlta's electricity
distribution business in Alberta, Canada. Gross profit for our International
Networks businesses decreased $22.3 million in 2000 compared to 1999. The
deconsolidation of our New Zealand business in June 2000 resulted in a $74.9
million decrease in gross profit from the prior year, when we consolidated our
New Zealand business for the full year. The purchase of our Alberta network
partially offset the decreases in our New Zealand business by contributing a
gross profit of $52.6 million.

OPERATING EXPENSES
Total operating expenses increased $6.9 million in 2000 compared to 1999. The
purchase of our Alberta network resulted in a $37.8 million increase in total
operating expenses. Deconsolidating our New Zealand business decreased total
operating expenses by $28.8 million.

EQUITY IN EARNINGS, MINORITY INTEREST AND OTHER INCOME (EXPENSE)
These items increased $13.3 million in 2000 compared to 1999. Since the sale of
a portion of our New Zealand business, we now use the equity method of
accounting to record our net share of that business. This increased equity
earnings by $13.3 million and decreased minority interest in income of
subsidiaries by $8.2 million. Equity earnings also increased $9.3 million
reflecting higher earnings from our Australian investments. In addition, other
income decreased $17.5 million on lower interest income on loans to our equity
investments.

GAIN ON SALE OF SUBSIDIARY STOCK
United Energy completed an initial public offering of 34% of Uecomm, its telecom
business, in 2000, resulting in a $44.0 million gain.

AQUILA 2001                                                                   29
<Page>

[PHOTO OF LESLIE J. PARRETTE, JR.]

After representing Aquila several years as outside counsel, Les Parrette joined
the company to form our own legal department. As senior vice president, general
counsel and corporate secretary, he is our senior legal officer.

CURRENT OPERATING DEVELOPMENTS
COMPETITION IN AUSTRALIA. The State of Victoria is deregulating its electricity
market in stages. In January 2002, all customers of United Energy Limited (UEL)
chose their retail electricity suppliers. A majority of UEL's gross margin comes
from distribution line charges that are not affected by these customer choices.

REGULATION IN NEW ZEALAND. An Electricity Act came into force in August 2001.
This new Act empowers the Commerce Commission to exercise control over goods and
services lines businesses to promote efficient operation of markets through
targeted controls. The Commerce Commission is currently developing its approach
to implementing this legislation.

PURCHASE OF UNITED KINGDOM ELECTRICITY NETWORK. We have entered into an
agreement to purchase Midlands Electricity plc, a United Kingdom electricity
network, from FirstEnergy Corp. The price of this investment is approximately
$362 million, plus the assumption of approximately $1.7 billion of debt that
would be non-recourse to us. If consummated, we expect to account for this
acquisition using the equity method of accounting. Under terms of our agreement,
if the transaction is not completed by April 26, 2002, either party may
terminate the transaction. Although we have received the necessary regulatory
approvals, those approvals require that we have a financial partner. We are in
discussions with FirstEnergy to modify our agreement to allow us to complete the
transaction in a manner consistent with the regulatory approvals and expect that
it will close in March 2002.

MULTINET GAS. In March 1999, we invested in the Multinet gas distribution
business in Melbourne, Australia. Because this property's service territory
overlapped with our existing electric distribution property, we expected and
have been able to extract significant synergies. However, since March 1999, the
Melbourne area has experienced consecutive mild winters, one of them the mildest
on record. Additionally, gas volumes, normalized for weather, have not met
expectations.

  As a result of this unexpected financial performance, it was necessary for
us to invest, in December 2001, an additional $81.9 million in the business as
subordinated debt. Multinet used these funds to retire senior bank debt. In
evaluating the recoverability of our total investment in that business we
evaluated its cash flow potential under probable capitalization scenarios.
Existing shareholder debt will likely be converted to equity as the result of
recent tax law changes. Given this, cash flow forecasts indicated sufficient
cash flow to service and retire the existing senior bank debt and provide a
return of invested capital, including shareholder loans, to the equity holders.
As a result, we have determined no impairment of this investment exists as of
December 31, 2001. However, valuation reserves totaling about $4.6 million on
portions of the carrying value of certain future income tax benefits were
recorded at Multinet and existing accrued interest balances were written down as
uncollectible.

PULSE RETAIL. Our Melbourne, Australia businesses are partners in the retail
energy provider Pulse. Their investments consist primarily of shareholder loans.
In December, the Victorian government capped increases in retail electricity
prices at less than 5%, compared with an average price increase sought by
retailers of around 18%. This decision dampened retailers' enthusiasm for full
retail competition in the residential market, which began in January 2002.
Pulse's financial outlook has been hampered by the Victorian government's
actions and accordingly, the full balance of accrued interest due from Pulse on
the shareholder loans and a portion of the shareholder loan balances were
written off. These write-offs were approximately $3.9 million and are reflected
in our 2001 financial statements. As the retail markets continue to evolve under
full retail competition, our distribution businesses in Australia will continue
to evaluate the remaining carrying value of their shareholder loans to Pulse.

30                                                                   AQUILA 2001
<Page>

THREE-YEAR REVIEW--DOMESTIC NETWORKS

<Table>
<Caption>
                                                                                 Year Ended December 31,
                                                                      ----------------------------------------------
Dollars in millions                                                         2001              2000              1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>
Sales:
  Electric                                                            $    758.2        $    717.6        $    675.4
  Gas                                                                      964.3             826.5             638.2
  Non-regulated businesses                                                 569.9             514.0             265.2
--------------------------------------------------------------------------------------------------------------------
Total sales                                                              2,292.4           2,058.1           1,578.8
--------------------------------------------------------------------------------------------------------------------
Cost of sales:
  Electric                                                                 355.6             378.6             305.4
  Gas                                                                      720.1             565.7             380.8
  Non-regulated businesses                                                 479.7             442.9             215.6
--------------------------------------------------------------------------------------------------------------------
Total cost of sales                                                      1,555.4           1,387.2             901.8
--------------------------------------------------------------------------------------------------------------------
Gross profit                                                               737.0             670.9             677.0
--------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Operating expense                                                        359.2             292.3             268.1
  Depreciation and amortization expense                                    162.1             129.3             115.3
  Maintenance expense                                                       55.5              54.6              50.5
  Taxes, other than income taxes                                            39.4              39.1              57.7
  Impairments and other charges                                             48.3               4.0                --
--------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                   664.5             519.3             491.6
--------------------------------------------------------------------------------------------------------------------
Equity in earnings of investments                                           28.5              52.9              13.2
Minority interest in loss of subsidiaries                                    6.4               1.9                --
Other income                                                                10.5               9.2               9.7
--------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)                                  117.9             215.6             208.3
--------------------------------------------------------------------------------------------------------------------
NON-RECURRING ITEMS:
  Enron exposure                                                            31.8                --                --
  Communications construction and lease termination                         16.5               4.0                --
--------------------------------------------------------------------------------------------------------------------
OPERATING EBIT                                                        $    166.2        $    219.6        $    208.3
--------------------------------------------------------------------------------------------------------------------
OPERATING EBIT CONTRIBUTION TO AQUILA                                       24.1%             42.0%             50.3%
--------------------------------------------------------------------------------------------------------------------
Identifiable assets                                                   $  3,512.5        $  3,584.7        $  2,370.0
Electric sales and transportation volumes (MWH 000's)                     13,143            12,173            12,043
Gas sales and transportation volumes (MCF 000's)                         216,559           241,708           247,831
--------------------------------------------------------------------------------------------------------------------
Electric customers                                                       431,000           408,000           349,000
Gas customers                                                            874,000           863,000           831,000
Appliance service contract customers                                     139,000           156,000           170,000
--------------------------------------------------------------------------------------------------------------------
Total customers                                                        1,444,000         1,427,000         1,350,000
--------------------------------------------------------------------------------------------------------------------
</Table>

2001 VERSUS 2000

SALES, COST OF SALES AND GROSS PROFIT
Sales, cost of sales and gross profit for our Domestic Networks businesses
increased $234.3 million, $168.2 million and $66.1 million, respectively, in
2001 compared to 2000. Our acquisition of St. Joseph Light & Power Company in
December 2000 contributed sales, cost of sales and gross profit of $104.1
million, $40.9 million and $63.2 million, respectively. Also contributing to
increased sales and cost of sales were higher natural gas prices in early 2001.

OPERATING EXPENSES
Operating expenses increased $66.9 million in 2001 compared to 2000 primarily
due to inclusion of a full year's operations of St. Joseph Light & Power, which
had operating expenses of $21.9 million. Also contributing to higher operating
expenses were increased bad debt expenses related to higher natural gas costs in
late 2000 and early 2001 and certain industrial customer bankruptcies in 2001.
Start-up operating expenses in connection with the build-out of our
communications networks also contributed $30.5 million to increased operating
expenses.

DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $32.8 million in 2001 compared
to 2000, primarily as the result of $16.4 million of increased depreciation
related to the assets acquired in the St. Joseph Light & Power merger. Also
contributing to the increase was $4.6 million of depreciation due to continued
capital expenditures in our utility operations and $10.3 million due to our
communications network build-out.

IMPAIRMENTS AND OTHER CHARGES
Impairments and other charges in 2001 included $31.8 million of unsecured cash
participation notes receivable that were writ-

AQUILA 2001                                                                   31
<Page>

[PHOTO OF R. PAUL PERKINS]

R. PAUL PERKINS
Before joining Aquila in 1994, Paul Perkins had conducted business in more than
50 countries. Today he is our senior vice president, corporate development,
focused on finding compatible growth opportunities around the world.

ten off following the Enron bankruptcy filing in December 2001. Also included
was the write-off of $16.5 million of communications system assets not being
utilized and related leases in markets not actively being developed as we
concentrate on developing our communications networks in the Kansas City area.

EQUITY IN EARNINGS OF INVESTMENTS
Equity in earnings decreased $24.4 million in 2001 compared to 2000, primarily
due to reduced equity earnings from our investment in Quanta and the termination
of our management fee agreement with Quanta in December 2000. The slowdown in
the telecom market and the write-off of certain receivables from its telecom
customers by Quanta reduced equity earnings in 2001.

2000 VERSUS 1999

SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales for our Domestic Networks businesses increased $479.3
million and $485.4 million, respectively, in 2000 compared to 1999. These
increases were primarily due to increased natural gas prices. Gross profit for
our Domestic Networks businesses decreased $6.1 million in 2000 compared to
1999. The decrease primarily related to a 1999 Kansas show-cause rate case that
resulted in a $7.9 million reduction in gross profit. Costs of fuel and
purchased power also increased in 2000, offset in part by higher gross profits
due to a hotter summer and colder winter.

TOTAL OPERATING EXPENSES
Total operating expenses increased $27.7 million in 2000 compared to 1999. Our
communications business incurred start-up costs, depreciation expense and other
charges of $23.5 million in 2000 that were not incurred in 1999. Total operating
expenses of our domestic utility networks increased primarily because of higher
depreciation due to continued investments in network infrastructure, and higher
bad debt expense as a result of the increase in the cost of natural gas.

EQUITY IN EARNINGS OF INVESTMENTS
Equity in earnings increased $39.7 million in 2000 compared to 1999. In 2000, we
included a full year of equity earnings and management fees in equity earnings
of investments and partnerships relating to our investment in Quanta. This
increased equity in earnings by $40.5 million compared to 1999. We invested an
additional $360 million in Quanta stock in 2000. In December 2000, we terminated
our management services contract with Quanta and received payment of the
management fees recorded, including a termination fee.

CURRENT OPERATING DEVELOPMENTS

QUANTA OWNERSHIP. We are presently arbitrating a dispute with Quanta regarding
our right to acquire additional shares of Quanta. We have informed Quanta's
board of directors that we intend to present an opposition slate of directors at
Quanta's 2002 annual meeting of shareholders. Although the market price of
Quanta shares was below our cost basis per share at December 31, 2001, we do not
believe that our investment is impaired. This conclusion is based on our
evaluation of Quanta's financial condition and future prospects and our intent
and ability to hold this investment.

DOMESTIC UTILITY OPERATIONS. Our domestic network businesses operate in a
regulated environment. Industrial and large commercial customers generally have
access to energy sources, so some of the competitive pricing benefits have been
transferred to these customers through open access tariffs relating to
transmission lines and pipelines. Competition at the retail level is dependent
on legislation in each state.

SALE OF PIPELINE ASSETS. On February 1, 2001 we entered into an agreement to
sell our wholly-owned subsidiary UtiliCorp Pipeline Systems for our book value
of approximately $66 million. We closed this transaction in January 2002.

MISSOURI RATE CASE. In June 2001, we filed for a $49.4 million increase in our
Missouri electric rates. Approximately $39 million of the requested increase
related to anticipated higher fuel and purchased power costs that did not
materialize. In February 2002, we reached a negotiated settlement with the
Commission staff and all intervenors that will result in a $4.3 million rate
reduction.

32                                                                   AQUILA 2001
<Page>

CORPORATE MATTERS

CORPORATE AND OTHER
The table below summarizes corporate and other EBIT for the three years ended
December 31, 2001. Corporate primarily contains the retained costs of the
company that are not allocated to the business units.

<Table>
<Caption>
In millions                               2001          2000         1999
--------------------------------------------------------------------------------
<S>                                      <C>         <C>           <C>
EBIT                                     $ 5.7       $ (24.7)      $ (3.9)
--------------------------------------------------------------------------------
NON-RECURRING ITEMS:
  Write-off of certain technology
    and corporate identity assets           --          12.4           --
--------------------------------------------------------------------------------
OPERATING EBIT                           $ 5.7       $ (12.3)      $ (3.9)
================================================================================
</Table>

2001 VERSUS 2000

EBIT
Corporate and other EBIT increased $30.4 million in 2001 compared to 2000 due to
$12.4 million of impairments and other charges recognized in 2000. Also
contributing to the increase in EBIT was the allocation of $10.8 million of
expenses to our merchant business and $3.6 million of lower accounts receivable
sales program costs due to reduced utilization in 2001.

INTEREST EXPENSE
Interest expense and minority interests in income of partnership and trusts
increased $8.1 million in 2001 compared to 2000. This was primarily due to
increased long-term borrowings in late 2000 and early 2001 related to the
acquisitions of our Alberta network, AlintaGas, St. Joseph Light & Power and GPU
International.

INCOME TAXES
Income taxes increased $84.0 million in 2001 compared to 2000. This was
primarily due to the increased earnings before income taxes in 2001 resulting
from the factors discussed previously. Our overall effective tax rate increased
from 36.4% in 2000 to 42.0% in 2001. The increase in our effective tax rate was
due primarily to the effect of increased minority interest in income of
subsidiaries, taxes on the gain recognized on the sale of our shares in Aquila
Merchant, and valuation allowances on certain international losses.

2000 VERSUS 1999

EBIT
Corporate and other EBIT decreased $20.8 million in 2000 compared to 1999 due to
impairments and other charges of $12.4 million. These related to certain
technology assets and purchased intangibles no longer used in our operations.
Also contributing to the decrease in EBIT were certain project costs and other
corporate costs not allocated to business units.

INTEREST EXPENSE
Interest expense and minority interest in income of partnership and trusts
increased $29.7 million in 2000 compared to 1999. The issuance of $250.0 million
of company-obligated preferred securities in September 1999 and $100.0 million
in June 2000 resulted in an increase of $15.8 million. Increased short-term and
long-term borrowings to fund acquisitions and investments resulted in the
remaining increase.

INCOME TAXES
Income taxes increased $50.0 million in 2000 compared to 1999. This was
primarily due to the increased income before income taxes in 2000 resulting from
the factors discussed previously. Our overall effective tax rate increased from
29.8% in 1999 to 36.4% in 2000, primarily as a result of an increase in our
pretax earnings in Canada, which has higher statutory tax rates.

CRITICAL ACCOUNTING POLICIES
We have prepared our financial statements in conformity with accounting
principles generally accepted in the United States of America. These statements
include some amounts that are based on informed judgments and estimates of
management. Our significant accounting policies are discussed in Note 1 to the
consolidated financial statements. Our critical accounting policies are subject
to judgments and uncertainties that affect the application of such policies. As
discussed below, while we believe these financial statements include the most
likely outcomes with regard to amounts that are based on our judgments and
estimates, our financial position and results of operations may be materially
different when reported under different conditions or when using different
assumptions in the application of such policies. In the event estimates or
assumptions prove to be different from actual amounts, adjustments are made in
subsequent periods to reflect more current information. Our critical accounting
policies include:

SALES RECOGNITION. A significant portion of our sales are recorded in connection
with our trading activities and are recorded under the mark-to-market method of
accounting. The market prices or fair values used in determining the value of
our portfolio are our best estimates utilizing information such as closing
exchange rates, over-the-counter quotes, historical volatility and the potential
impact on market prices of liquidating our positions in an orderly manner over a
reasonable period of time under current market conditions. As additional
information becomes available, or actual amounts are determinable, the recorded
estimates are revised. As a result, operating results can be affected by
revisions to prior accounting estimates.

PRINCIPLES OF CONSOLIDATION. We consolidate all operations which we control. In
accordance with Emerging Issues Task Force Issue No. 96-16, we do not
consolidate operations in which we have granted substantive participating and
protective rights to our partners. We account for these unconsolidated
investments using the equity method of accounting. See Notes 4 and 17 to the
consolidated financial statements for further discussion.

IMPAIRMENT OF LONG-LIVED ASSETS. We review the carrying value of long-lived
assets, including goodwill, whenever events or changes in circumstances indicate
that such carrying values may not be recoverable. Unforeseen events and changes
in conditions could negatively affect the fair value of our assets and result in
impairment charges. Fair value is the amount at which an asset could be bought
or sold in a current transaction between willing parties and may be estimated
using a number of approaches. These approaches may include quoted market prices
or valuations by third parties, present value techniques based on estimated cash
flows, or multiples of earnings or sales.

REGULATORY ACCOUNTING IMPLICATIONS. We currently record 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." Accordingly, our balance sheet reflects certain

AQUILA 2001                                                                   33
<Page>

costs as regulatory assets. We expect our rates will continue to be based on
historical costs for the foreseeable future. If we discontinued applying SFAS
No. 71, we would make adjustments to the carrying value of our regulatory
assets. Total net regulatory assets at December 31, 2001 were $308.8 million,
including deferred purchased power costs of $177.5 million related to our
Alberta, Canada electricity business. The Alberta government issued regulations
in December 2001 that permit us to recover these deferred costs in 2002 to 2003.
These regulations also provide for the current recovery of carrying costs. We,
along with the other Alberta electricity distribution companies, are working
with the provincial government, rating agencies and financial institutions to
pursue the securitization of these balances as the lowest cost of financing to
the customers.

ENVIRONMENTAL MATTERS
We own or once operated former manufactured gas plant sites which may require
some form of environmental remediation. As of December 31, 2001, we estimate
cleanup costs on these identified sites to be $9.0 million. See Note 17 to the
consolidated financial statements for further discussion.

     We also are currently named as a potentially responsible party (PRP) at two
disposal sites for polychlorinated biphenyl (PCB). We anticipate that future
expenditures on the two sites and others where we are currently named as a PRP
or have remediation liability will be less than $2 million.

     In May 2000, the state of Missouri adopted a revised regulation that also
requires reduction of nitrous oxide (NOx) from our power plants. We estimate the
cost of compliance to be approximately $21.9 million in capital costs and $2.2
million in annual operation and maintenance costs. The new standard will be
effective in May 2003.

     In December 2000, the U.S. Environmental Protection Agency (EPA) announced
that it would regulate mercury emissions from coal- and oil-fired power plants.
The EPA is expected to propose regulations by December 2003 and issue final
regulations by December 2004. The impact of this action on our power plants
cannot be determined until final regulations are issued.

MARKET RISK--TRADING
We are exposed to market risk, including changes in commodity prices, interest
rates and currency exchange rates. To manage the volatility relating to these
exposures, we enter into various derivative transactions in accordance with our
policy approved by the board of directors. Our trading portfolios consist of
natural gas, electricity, coal, global liquids, weather derivatives and interest
rate contracts that are settled by the delivery of the commodity or cash. These
contracts take many forms, including futures, forwards, swaps and options.

     We measure the risk in our trading portfolio using value-at-risk
methodologies, to simulate forward price curves in the energy markets and
estimate the size of future potential losses. Value-at-risk measures the
potential loss in a portfolio's value due to market volatility, over a specified
time horizon, stated with a specific degree of probability. 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, such as:

     - Selection of a confidence level (we use 95%);

     - Estimated holding period (this is the time needed to liquidate
       different commodity and term positions; we use holding periods of one
       to five days depending on the commodity and duration of the position);
       and

     - Use of historical estimates of volatility and correlation with recent
       activity more heavily weighted.

     The average value at risk for all commodities during 2001 was $11.3
million. Our total value at risk as approved by the board of directors is
limited to $15.0 million. We also use additional risk control mechanisms such as
stress testing, daily loss limits and commodity position limits, as well as
daily monitoring of the trading activities which is performed by an independent
function.

     All Merchant interest and foreign currency risks are monitored within the
commodity portfolios and value-at-risk calculation. The value of our commodity
portfolios is impacted by interest rates as the portfolio is valued using an
estimated interest discount factor to December 31, 2001. We often sell Canadian
sourced natural gas into the U.S. markets accepting U.S. dollars from customers,
but paying Canadian dollars to suppliers. This exposes our portfolio to currency
risk and we generally hedge this exposure.

     The table below shows the expected cash flows associated with the interest
rate financial instruments at December 31, 2001.

<Table>
<Caption>
Dollars in millions              2002          2003         2004         2005
--------------------------------------------------------------------------------
<S>                             <C>          <C>           <C>          <C>
Fixed to variable rate          $ (.8)       $ (2.1)       $ (.1)       $ (.3)
Average rate paid                 6.7%          6.8%         6.7%         6.7%
Average rate received             4.8%          5.2%         4.8%         4.8%
================================================================================
</Table>

MARKET RISK--NON-TRADING
We are also exposed to commodity price changes outside of price risk management
activities. The following table summarizes these exposures on an EBIT basis as
if our positions were completely unhedged:

<Table>
<Caption>
                                                 Commodity             EBIT
                                                Price Change        Impact (a)
--------------------------------------------------------------------------------
<S>                                              <C>               <C>
Natural gas liquids price per gallon (b)         +/- $  .01        $ 1.7 million
Natural gas price per MCF                        +/-   1.00           .3 million
================================================================================
</Table>

(a) ASSUMES THE PRICE CHANGE OCCURS FOR AN ENTIRE YEAR.
(b) WE HAVE HEDGED APPROXIMATELY 54% OF OUR FORWARD NATURAL GAS LIQUIDS
    PRODUCTION TO MINIMIZE THE EFFECT OF PRICE CHANGES.

34                                                                   AQUILA 2001
<Page>

CERTAIN TRADING ACTIVITIES
We engage in price risk management activities for both trading and non-trading
activities. Transactions carried out in connection with trading activities are
accounted for under the mark-to-market method of accounting. Under this method,
our energy commodity trading contracts, including physical transactions (mainly
gas and power) and financial instruments, are recorded at fair value. As part of
the valuation of our portfolio, we value the credit risks associated with the
financial condition of counterparties and the time value of money. We primarily
use quoted market prices from published sources or comparable transactions in
liquid markets to value our contracts. If actively quoted market prices are not
available, we contact brokers and other external sources or use comparable
transactions to obtain current values of our contracts. When market prices are
not readily available or determinable, certain contracts are valued at fair
value using an alternative approach such as model pricing. The market prices or
fair values used in determining the value of the portfolio are our best
estimates utilizing information such as closing exchange rates, over-the-counter
(OTC) quotes, volatility, time value, counterparty credit and the potential
impact on market prices of liquidating our positions in an orderly manner over a
reasonable period of time under current market conditions. The changes in fair
value of our trading contracts for 2001 are summarized below:

<Table>
<Caption>
                                                                                 Trading                Long-term
In millions                                                                     Contracts              Gas Contracts       Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>              <C>
Fair value of contracts outstanding at the beginning of the year                $ 562.4                 $ (912.9)        $ (350.5)
Fair value generated during the year                                              623.2                       --            623.2
Contracts realized or settled during the year--entered into in 2001              (429.0)                      --           (429.0)
Contracts realized or settled during the year--entered into in prior years       (191.3)                    80.4           (110.9)
Other, net                                                                         25.6                       --             25.6
-----------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding at the end of the year                      $ 590.9                 $ (832.5)        $ (241.6)
===================================================================================================================================
</Table>

     The fair value of contracts maturing in each of the next four years and
thereafter are shown below:

<Table>
<Caption>
                                               2002          2003      2004      2005      Thereafter (a)      Total
---------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>      <C>       <C>            <C>            <C>
Prices actively quoted                      $ 297.9        $ 90.7   $    --   $    --        $     --       $  388.6
Prices provided by other
  external sources                               --            --      71.1      28.2              --           99.3
Prices based on models and
  other valuation methods                      10.4           1.1       1.9        --            89.6          103.0
---------------------------------------------------------------------------------------------------------------------
Fair value of contracts                       308.3          91.8      73.0      28.2            89.6          590.9
Long-term gas contracts                       (79.7)        (81.5)    (85.1)    (87.8)         (498.4)        (832.5)
---------------------------------------------------------------------------------------------------------------------
Total price risk management assets
  (liabilities)                             $ 228.6        $ 10.3   $ (12.1)  $ (59.6)       $ (408.8)      $ (241.6)
=====================================================================================================================
</Table>

(a) THE FAIR VALUE OF OUR LONG-TERM CONTRACTS IS COMPOSED PRIMARILY OF FIXED
    PRICE RISK THAT HAS BEEN SIGNIFICANTLY HEDGED.

CREDIT RISK
In conducting our energy marketing and risk management activities, we regularly
transact business with a broad range of entities and a wide variety of end
users, trading companies and financial institutions. Credit risk is measured by
the loss we would record if our counterparties failed to perform pursuant to the
terms of their contractual obligations and the value of collateral held, if any,
was not adequate to cover such losses.

     We have established controls to determine and monitor the creditworthiness
of counterparties, as well as the quality of pledged collateral, and use master
netting agreements whenever possible to mitigate our exposure to counterparty
credit risk. Master netting agreements enable us to net certain assets and
liabilities by counterparty. We also net across product lines and against cash
collateral, provided such provisions are established in the master netting and
cash collateral agreements. Additionally, we may require counterparties to
pledge additional collateral when deemed necessary.

     Concentrations of credit risk from financial instruments, including
contractual commitments, exist when groups of counterparties have similar
business characteristics or are engaged in like activities that would cause
their ability to meet their contractual commitments to be adversely affected, in
a similar manner, by changes in the economy or other market conditions. We
monitor credit risk on both an individual basis and a group counterparty basis.
A majority of our merchant portfolio is with counterparties who have investment
grade credit ratings.

AQUILA 2001                                                                   35
<Page>

CURRENCY RATE EXPOSURE
We do not currently hedge our net investment in foreign operations. As a result,
the foreign denominated assets and liabilities fluctuate in value. Historically,
our net exposure to changes in foreign currency has been limited as the
company's foreign investments are financed largely through foreign debt.

     The table below summarizes the average value of foreign currencies used to
value sales and expenses along with the related sensitivity.

<Table>
<Caption>
                                                                                  Average Currency Unit Value in U.S. Dollars
                                  Net Investment       Impact of 10% change     ----------------------------------------------
Dollars in millions           at December 31, 2001       on 2001 EBIT (a)           2001             2000               1999
------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                     <C>                   <C>              <C>               <C>
Australia                           $ 529.5                 +/-  $  1.2           $  .52           $  .58            $  .65
Canada                                164.3                 +/-     7.8              .65              .67               .67
New Zealand                           386.7                 +/-     3.1              .42              .46               .53
United Kingdom                          1.0                 +/-     2.2             1.44             1.52              1.62
------------------------------------------------------------------------------------------------------------------------------
Total                                                       +/-  $ 14.3
==============================================================================================================================
</Table>

(a) ASSUMING A 10% CHANGE IN LOCAL CURRENCY VALUE RELATIVE TO THE U.S. DOLLAR IF
    THE CHANGE OCCURRED UNIFORMLY OVER THE ENTIRE YEAR, BASED ON 2001 EBIT.

INTEREST RATE EXPOSURE
We have about $1.6 billion in variable rate financial obligations. A
100-basis-point change in the variable rate financial instruments would affect
net income by about $9.6 million.

LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements arise primarily from continued growth, network
construction programs, non-regulated investment opportunities, merchant working
capital requirements and common stock dividends. Our ability to attract the
necessary financial capital at reasonable terms is critical to our overall plan.
We have an investment grade rating from credit rating agencies. A downgrade in
our credit ratings to non-investment grade would have a negative impact on our
ability to obtain capital on terms currently available to the company.
Historically, we have financed acquisitions and investments initially with
short-term debt and later funded them 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 loans and commercial
paper which aggregated $548.6 million at December 31, 2001. We can issue up to
$150 million of commercial paper supported by a $400 million committed revolving
credit agreement. The current domestic credit agreement is composed of two
parts, a one year $250 million revolving credit agreement that expires in 2002
and a three year $150 million revolving credit agreement that expires in 2003.
Both of these allow for issuance of notes at interest rates based on various
money market rates. At December 31, 2001, we had $135.0 million of commercial
paper under the program described above and $305.0 million of other unsecured
domestic bank loans outstanding. We also have a C$150 (US$ 94.2) million
commercial paper program supported by a C$150 million credit facility expiring
in 2002 that provides liquidity to our Alberta electricity distribution
business. At December 31, 2001, US$66.6 million was outstanding under this
facility. In addition, we have C$80 (US$50.3) million of credit facilities that
expire in 2002 with an outstanding balance of US$36.5 million.

     To maintain flexibility in our capital structure and to take advantage of
favorable short-term rates, we have historically sold our accounts receivable
under two programs to fund part of our short-term cash requirements. The level
of funding available from these programs was limited to $405 million, $275
million based on the sale of Aquila Merchant receivables and $130 million based
on the sale of Domestic Networks receivables. The amount fluctuates seasonally.
We had sold $220 million under the Aquila Merchant program and $77.5 million
under the Domestic Networks program at December 31, 2001. In January 2002, the
Aquila Merchant program was terminated.

     Under a series of master agreements with our customers, Aquila Merchant is
required to post, and requires our customers to post, either cash or a letter of
credit when certain agreed-upon credit limits are exceeded. As of December 31,
2001, $49.3 million of letters of credit were outstanding. We intend to replace
our domestic revolving credit agreement with a new facility totaling $650
million to provide additional liquidity to support our business needs.

     We have a dispute with an insurance company regarding certain indemnity
agreements we have with them. These agreements relate to surety bonds issued to
support our obligations under certain long-term gas supply contracts. The
maximum amount that the insurance company could be required to pay under the
surety bonds is approximately $570 million. Notwithstanding our continued
performance under the gas supply agreements and strong financial position, this
company has demanded that we replace it as the surety, or alternatively, that we
post collateral to secure all of their obligations under the agreements. We
believe there is no merit to the insurance company's position given our full
compliance with the related gas supply contracts, and that a court would agree
with our interpretation of the indemnity agreements.

     We executed the following financing transactions which affected our
liquidity and capital resources in 2001:

     - In February 2001, we issued $250 million of 7.95% senior notes due in
       February 2011.

     - We sold 11,500,000 shares of our common stock in March 2001, which raised
       approximately $332 million.

     - In April 2001, our Aquila Merchant subsidiary sold 19,975,000 of Class A
       common stock, including 5,750,000 shares owned by us. The offering raised
       approximately $446 million.

36                                                                   AQUILA 2001
<Page>

[PHOTO OF LEO E. MORTON]

LEO E. MORTON
As our senior vice president and chief administrative officer, Leo Morton is
responsible for a wide range of enterprise support functions, including human
resources, corporate services, information technology and corporate
communications.

     - In June 2001, we exchanged $189.5 million of senior notes with interest
       rates ranging from 8.0% to 9.0% for $200 million of new senior notes with
       an interest rate of 7.75%, maturing in June 2011.

     - Also in June 2001, we retired $204.1 million of senior notes, mortgage
       bonds and company-obligated preferred securities.

     - In January 2002, we completed an exchange offer and merger that resulted
       in the issuance of approximately 12.6 million shares of our common stock
       for all publicly held shares of Aquila Merchant. The holders of 1.8
       million shares of Aquila Merchant common stock rejected the consideration
       in the merger as inadequate and are pursuing their right to receive fair
       value in cash.

     - On January 30, 2002, we sold 12.5 million shares of our common stock to
       the public, including an over-allotment of 1.5 million shares, which
       raised approximately $278 million in net proceeds.

     The components of our capital structure at December 31, 2001 and 2000 are
summarized in the following table. ->

<Table>
<Caption>
                                         Pro
                                        Forma       2001          2000
============================================================================
<S>                                     <C>        <C>           <C>
Common stock equity                      51.7%      44.2%         35.0%
Company-obligated preferred
  securities                              5.7        6.0           8.7
Short-term debt                           4.5        9.5           9.7
Long-term debt                           38.1       40.3          46.6
----------------------------------------------------------------------------
Total Capitalization                    100.0%     100.0%        100.0%
============================================================================
</Table>

     The above pro forma capitalization adjusts the December 31, 2001 amounts
for the issuance of approximately 12.6 million shares of common stock in the
Aquila Merchant exchange offer and the issuance of 12.5 million shares of
Aquila, Inc. common stock in a public offering. The proceeds of approximately
$278 million from the public offering were assumed to pay down short-term debt.
Our intention is to maintain common equity at 50% of total capital or higher.

     Our dividend payout ratio was 48.2% in 2001 (annualized dividends of $1.20
divided by basic earnings per share of $2.49). We expect our earnings per share
to grow faster than our dividend.

CASH REQUIREMENTS AND CONTRACTUAL OBLIGATIONS
We estimate future cash requirements for capital expenditures for property,
plant and equipment additions will be as follows:

<Table>
<Caption>
                                Actual                 Future Cash Requirements
                             -----------         ----------------------------------
In millions                       2001                2002       2003       2004
-----------------------------------------------------------------------------------
<S>                            <C>                 <C>        <C>        <C>
Capital expenditures           $ 626.1             $ 643.0    $ 643.0    $ 594.0
===================================================================================
</Table>

     We also have contractual cash obligations including maturities of long-term
debt and company-obligated preferred securities, minimum payments on operating
leases and obligations under tolling agreements, power purchase contracts and
fuel purchase contracts. Nearly all of the power to be purchased under tolling
and leasing agreements has been sold to third parties over comparable contract
periods.

AQUILA 2001                                                                   37
<Page>

     The amounts of contractual cash obligations maturing in each of the next
five years and thereafter are shown below:

<Table>
<Caption>
In millions                     2002       2003         2004      2005       2006     Thereafter        Total
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>         <C>         <C>         <C>        <C>         <C>           <C>
Long-term debt             $   579.1   $  148.9    $   449.8   $  40.2    $ 124.2     $   984.8     $ 2,327.0
Company-obligated
  preferred securities         100.0         --        250.0        --         --            --         350.0
Operating leases                31.2       31.7         31.7      27.7       21.6         164.9         308.8
Purchase obligations           379.5      301.9        298.7     241.1      221.0       1,862.3       3,304.5
-----------------------------------------------------------------------------------------------------------------
TOTAL CONTRACTUAL
  CASH OBLIGATIONS         $ 1,089.8   $  482.5    $ 1,030.2   $ 309.0    $ 366.8     $ 3,012.0     $ 6,290.3
=================================================================================================================
</Table>

     We expect that cash generated from operations and new financing activities
will be adequate to meet these estimated cash requirements and contractual
obligations.

OFF-BALANCE SHEET ARRANGEMENTS

INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS
We have a number of equity method investments in unconsolidated subsidiaries and
partnerships that are discussed in detail in Note 4 to the consolidated
financial statements. In most cases we have no legal or economic obligation to
make additional investments of equity or debt to fund these operations.
Following are descriptions of certain commitments or conditions that could
impact our financial condition, liquidity or results of operations.

NEW ZEALAND INTEREST
In connection with the sale of a 21% preferred and common stock equity interest
in our New Zealand electricity distribution business to a financial partner in
June 2000, the financial partner received an option that entitles them to sell
their equity interest to us on the third anniversary of the initial sale, or on
the occurrence of certain events. The purchase would be exercised at par value
for the preferred stock and fair value for the common stock for a total of
approximately $33.0 million. If the option were exercised we would be required
to include the financial statements of this operation in our consolidated
financial statements. This operation had total assets of approximately $1.0
billion and long-term debt of $520.6 million as of December 31, 2001. We expect
to extend or remove this option before it matures and do not expect to
reconsolidate our New Zealand interest.

QUANTA OWNERSHIP
We are presently arbitrating a dispute with Quanta regarding our right to
acquire additional shares of Quanta. We have informed Quanta's board of
directors that we intend to present an opposition slate of directors at Quanta's
2002 annual meeting of shareholders. As of December 31, 2001, Quanta reported
total assets of $2.0 billion, including $1.0 billion of goodwill, total
liabilities of $842.5 million, including debt of $508.3 million, and equity of
$1.2 billion. Quanta's revenues and net income for 2001 were $2.0 billion and
$85.8 million, respectively.

ACCOUNTS RECEIVABLE SALES PROGRAMS
As of December 31, 2001, we had two programs totaling $405 million through which
we sold accounts receivable. In January 2002, one program totaling $275 million
was terminated.

LEASES
We have operating leases of power plants, facilities and other equipment.
Certain of these leases are considered synthetic leases through special purpose
entities for whom we provide guarantees of their obligations in specific
circumstances. See Note 17 to the consolidated financial statements for further
discussion.

CREDIT RATING TRIGGERS
Approximately $167.0 million of our long-term debt facilities and notes contain
provisions that would make a put option exercisable by the debt holders if our
Standard & Poor's (S&P) or Moody's credit ratings are reduced below investment
grade. We currently have investment grade credit ratings from S&P and Moody's.

[CHART OF CAPITAL EXPENDITURES-MERCHANT]

-   Merchant Services capital expenditures increased as a result of power plant
    development by Capacity Services during 2001.

[CHART OF CAPITAL EXPENDITURES-GLOBAL NETWORKS]

-   Network capital expenditures rose in 2001, reflecting continued system
    improvements to ensure reliability and costs to build our U.S.
    communications system.

38                                                                   AQUILA 2001
<Page>

SIGNIFICANT BALANCE SHEET MOVEMENTS
Total assets decreased $2.1 billion in 2001 compared to 2000. This decrease is
primarily due to the following:

     - Decreased accounts receivable of $1.6 billion that resulted from lower
       natural gas and electricity prices from the record prices at the end of
       2000.

     - Price risk management assets, current and non-current, decreased $937.9
       million primarily as a result of lower forward pricing of natural gas and
       electricity.

     - Prepayment and other increased $135.8 million, primarily due to deferred
       purchased power costs classified as current in 2001 as they will be
       collected from customers in 2002, as well as cash collateral on turbines
       that will be released as turbines are financed at the project level.

     - A $276.9 million increase in property, plant and equipment, net resulted
       primarily from increased investment in power plant development, gas
       pipeline and storage and communications networks expenditures.

     - A $126.6 million increase in investments in subsidiaries and partnerships
       primarily reflects the additional investment of $81.9 million in
       Multinet, an additional $40 million investment in Quanta Services, Inc.
       and undistributed equity earnings.

     - Merchant notes receivables increased $102.4 million from continued growth
       of our structured finance business.

     - Deferred charges and other assets decreased $217.0 million, primarily due
       to deferred purchased power costs reclassified to current as discussed
       above, and cash collateral on turbines not assigned to current projects.

     In 2001, total liabilities decreased by $2.6 billion, company-obligated
preferred securities decreased $200.0 million as we redeemed our Monthly Income
Preferred Securities and reclassified $100.0 million to current maturities, and
common shareholders' equity increased $752.0 million. These changes were
primarily due to the following:

     - Decreased accounts payable of $1.6 billion that resulted from lower
       natural gas and electricity prices compared to the record prices at the
       end of 2000.

     - Price risk management liabilities, current and non-current, decreased
       $1,046.8 million primarily as a result of lower forward pricing of
       natural gas and electricity and deliveries on long-term prepaid gas
       contracts.

     - Customer funds on deposit decreased $247.4 million due to price
       fluctuations and our customers' overall position with our gas and power
       trading business.

     - Minority interest increased $139.5 million as the result of the sale of
       an approximately 20% interest in our Aquila Merchant business in April
       2001.

     - Common shareholders' equity increased $752.0 million. This was primarily
       the result of the sale of 11.5 million shares of common stock for
       approximately $332 million, the sale of shares of our Aquila Merchant
       business which raised common equity by $212 million, the issuance of
       approximately $112.6 million in shares of common stock pursuant to stock
       option exercises and other compensation plans, and net income of $279.4
       million. These increases were offset in part by common dividends paid of
       $134.6 million and a $51.3 million increase in accumulated other
       comprehensive losses related to unfavorable foreign currency movements.

NEW ACCOUNTING STANDARDS
In 2001, the Financial Accounting Standards Board (FASB) issued four new
Statements of Financial Accounting Standards (SFAS). SFAS No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," SFAS No.
143, "Accounting for Asset Retirement Obligations," and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." See Note 3 to
the consolidated financial statements for further discussion.

EFFECTS OF INFLATION
In the next few years, we anticipate 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. We generally intend
the words, "may," "will," "should," "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate," "continue," or the negative of those terms or
similar expressions to identify forward-looking statements. Some of the
important factors which could cause actual results or liquidity to differ
materially from those anticipated include:

     - Both our Merchant Services and Global Networks Group businesses are
       weather-sensitive. Weather can affect results significantly to the extent
       that temperatures differ from normal.

     - We are exposed to market risk, which may cause us to incur losses from
       our Wholesale Services operations.

     - We may not be able to implement our strategy if we are unable to access
       or generate capital at competitive rates.

     - The failure to maintain our investment grade bond rating would increase
       our borrowing costs and limit our ability to raise additional capital.

     - The timing and extent of changes in interest rates could affect our
       financial results.

AQUILA 2001                                                                   39
<Page>

     - We may not be able to successfully integrate acquired businesses into our
       operations.

     - The volatility of prices of natural gas and natural gas liquids can
       significantly affect the earnings contribution from the Capacity Services
       segment of Merchant Services.

     - The pace of well connections to our gas gathering system can affect the
       earnings contribution from the Capacity Services segment of Merchant
       Services.

     - Our development of merchant power plants may not be successful or
       profitable.

     - The pace and degree of regulatory changes in the U.S. and abroad can
       affect new business opportunities and the intensity of competition.

     - The value of the U.S. dollar relative to the British pound, Canadian
       dollar, Australian dollar and New Zealand dollar can affect financial
       results from our foreign operations.

     - The inability to pass through increased fuel and purchased power costs in
       certain regulatory jurisdictions may affect the results of operations of
       our networks. The modification of regulations or historical practices in
       other jurisdictions in which we rely upon our ability to recover our
       costs from our customers could adversely affect our earnings.

     - The result of future rate proceedings could affect future growth of our
       networks business.

     - Expansion of electricity markets in the United Kingdom and Europe will
       affect both opportunity and competition in marketing and trading
       activities.

     - The construction of fiber-optic communications networks and start-up
       operations of our communications business will have a negative effect on
       results of operations over the next few years.

     - Current declines in the fair value of certain investments may become
       other than temporary.

40                                                                   AQUILA 2001
<Page>

CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                         Year Ended December 31,
                                                         ----------------------------------------------
In millions, except per share                                     2001           2000           1999
-------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>             <C>
SALES:
 Natural gas                                              $   18,682.4   $   10,563.2    $   8,729.4
 Electricity                                                  20,798.5       17,609.5        9,178.7
 Other                                                           895.9          802.2          713.4
-------------------------------------------------------------------------------------------------------
TOTAL SALES                                                   40,376.8       28,974.9       18,621.5
-------------------------------------------------------------------------------------------------------
COST OF SALES:
 Natural gas                                                  17,811.4        9,985.6        8,296.2
 Electricity                                                  20,299.2       17,257.6        8,985.0
 Other                                                           478.2          303.0          183.5
-------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES                                           38,588.8       27,546.2       17,464.7
-------------------------------------------------------------------------------------------------------
GROSS PROFIT                                                   1,788.0        1,428.7        1,156.8
-------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
 Operating and maintenance expense                             1,006.5          844.3          635.3
 Depreciation and amortization expense                           272.9          225.0          193.7
 Impairments and other charges                                    94.8           27.2             --
-------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES                                       1,374.2        1,096.5          829.0
-------------------------------------------------------------------------------------------------------
Equity in earnings of investments                                122.8          115.5           69.5
Minority interest in income of subsidiaries                      (20.1)          (1.4)         (11.5)
Gain on sale of subsidiary stock                                 110.8           44.0             --
Other income                                                      77.4           49.7           28.2
-------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES                               704.7          540.0          414.0
-------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
 Interest expense--long-term debt                                182.4          166.2          160.9
 Interest expense--short-term debt                                12.2           17.9            9.3
 Minority interest in income of partnership and trust             28.5           30.9           15.1
-------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE                                           223.1          215.0          185.3
-------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES                                     481.6          325.0          228.7
Income tax expense                                               202.2          118.2           68.2
-------------------------------------------------------------------------------------------------------
NET INCOME AND EARNINGS AVAILABLE FOR COMMON SHARES       $      279.4   $      206.8    $     160.5
=======================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 Basic                                                          112.10          93.05          91.47
 Diluted                                                        115.71          93.75          92.11
-------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
 Basic                                                    $       2.49   $       2.22    $      1.75
 Diluted                                                          2.42           2.21           1.75
=======================================================================================================
</Table>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

[CHART OF SOURCES OF EBIT-2001*]

*   Excluding gain on sale of Aquila Merchant shares of $110.8 million and EBIT
    from Corporate and other of $5.7 million.

[CHART OF SALES-MERCHANT / / VS. TOTAL / /]

-   The primary factor behind our 39% increase in total sales was a 43% rise in
    Merchant Services sales.

AQUILA 2001                                                                   41
<Page>

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                           December 31,
                                                                --------------------------
Dollars in millions                                                     2001          2000
------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                      $      262.9  $      392.6
 Funds on deposit                                                      168.2         154.3
 Accounts receivable, net                                            2,926.8       4,485.4
 Inventories and supplies                                              304.2         195.2
 Price risk management assets                                          824.4       1,454.3
 Prepayments and other                                                 320.9         185.1
------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                 4,807.4       6,866.9
------------------------------------------------------------------------------------------
 Property, plant and equipment, net                                  3,412.0       3,135.1
 Investments in unconsolidated subsidiaries and partnerships         2,145.0       2,018.4
 Price risk management assets                                          436.5         744.5
 Merchant notes receivable                                             415.6         313.2
 Deferred charges and other assets                                     731.8         948.8
------------------------------------------------------------------------------------------
TOTAL ASSETS                                                    $   11,948.3  $   14,026.9
------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Current maturities of long-term debt and
   company-obligated preferred securities                       $      679.1  $       51.7
 Short-term debt                                                       548.6         501.0
 Accounts payable                                                    3,212.8       4,850.8
 Accrued and other current liabilities                                 542.0         521.3
 Price risk management liabilities                                     573.2       1,296.9
 Customer funds on deposit                                             122.0         369.4
------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                            5,677.7       7,591.1
------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
 Long-term debt, net                                                 1,747.9       2,345.9
 Deferred income taxes and credits                                     347.8         362.0
 Price risk management liabilities                                     929.3       1,252.4
 Minority interests                                                    157.6          18.1
 Deferred credits                                                      286.4         207.8
------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES                                          3,469.0       4,186.2
------------------------------------------------------------------------------------------
Company-obligated preferred securities                                 250.0         450.0
Common shareholders' equity                                          2,551.6       1,799.6
------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                      $   11,948.3  $   14,026.9
==========================================================================================
</Table>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

[CHART OF COMMON EQUITY RATIO]

-    Our common equity ratio increased due to our sale of Aquila shares and
     Aquila Merchant shares. At the end of January 2002 our common equity ratio
     was 52%.

[CHART OF FOREIGN ASSETS AT YEAR END]

-    Foreign assets declined because of decreases in electricity and natural gas
     prices in our Canadian merchant operations.

42                                                                   AQUILA 2001
<Page>

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                                                                    Year Ended December 31,
                                                                             ---------------------------------
Dollars in millions, except per share                                             2001         2000       1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>          <C>
COMMON STOCK: authorized 400,000,000 at December 31, 2001 and
  200,000,000 shares at December 31, 2000 and 1999, par value $1 per
  share, 115,941,120 shares issued at December 31, 2001 (100,350,977 at
  December 31, 2000 and 93,605,700 at December 31, 1999); authorized
  20,000,000 shares of Class A common stock, par value $1 per share,
  none issued
  Balance beginning of year                                                  $   100.4   $     93.6   $   93.6
  Issuance of shares to acquire St. Joseph Light & Power                            --          6.6         --
  Issuance of shares in public offering                                           11.5           --         --
  Issuance of shares under compensation arrangements                               4.0           .2         --
--------------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR                                                              115.9        100.4       93.6
--------------------------------------------------------------------------------------------------------------
PREMIUM ON CAPITAL STOCK:
  Balance beginning of year                                                    1,405.7      1,226.5    1,253.5
  Issuance of shares to acquire St. Joseph Light & Power                            --        183.7         --
  Issuance of shares in public offering                                          321.1           --         --
  Issuance of subsidiary common stock                                            211.6           --         --
  Issuance of shares under compensation arrangements                             108.6         (4.5)     (27.0)
--------------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR                                                            2,047.0      1,405.7    1,226.5
--------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
  Balance beginning of year                                                      334.5        239.3      190.0
  Net income                                                                     279.4        206.8      160.5
  Dividends on common stock, $1.20 per share                                    (134.6)      (111.6)    (111.2)
--------------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR                                                              479.3        334.5      239.3
--------------------------------------------------------------------------------------------------------------
TREASURY STOCK, at cost (447 shares at December 31, 2001,
  40,441 shares at December 31, 2000, and 282,233 shares
  at December 31, 1999)                                                            --          (.8)      (5.4)
ACCUMULATED OTHER COMPREHENSIVE LOSSES                                           (90.6)       (40.2)     (28.6)
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS' EQUITY                                            $ 2,551.6   $  1,799.6   $1,525.4
==============================================================================================================
</Table>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<Table>
<Caption>
                                                                                    Year Ended December 31,
                                                                             ---------------------------------
Dollars in millions                                                               2001         2000       1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>          <C>
NET INCOME                                                                   $   279.4   $    206.8   $  160.5
Unrealized translation adjustments, net                                          (51.3)       (42.2)       9.0
Unrealized cash flow hedges                                                         .9           --         --
--------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME                                                         $   229.0   $    164.6   $  169.5
==============================================================================================================
</Table>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

[CHART OF WEIGHTED AVERAGE SHARES OUTSTANDING]

-    Weighted average diluted common shares outstanding increased in 2001,
     primarily from the dilutive effect of our stock offering during the year.

[CHART OF CASH PROVIDED FROM OPERATIONS*]

-    Cash from operations decreased $49.5 million, primarily due to decreases in
     price risk management liabilities and increases in inventories.

*    Before changes in funds on deposit, net.

AQUILA 2001                                                                   43
<Page>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
--------------------------------------------------------------------------------
                                                  YEAR ENDED DECEMBER 31,
                                        ----------------------------------------
Dollars in millions                          2001        2000        1999
--------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                   $279.4      $  206.8    $  160.5
 Adjustments to reconcile net income to net
   cash provided from operating activities:
   Depreciation and amortization expense       272.9         225.0       193.7
   Impairments and other charges                94.8          27.2          --
   Net changes in price risk management assets
    and liabilities                           (109.0)        178.9       185.7
   Deferred income taxes and investment tax
    credits                                    (29.7)       (111.0)       (8.0)
   Equity in earnings of investments          (122.8)       (115.5)      (69.5)
   Dividends and fees from investments          57.0          74.4        33.9
   Minority interests in income of subsidiaries 20.1           1.4        11.5
   Changes in certain assets and liabilities,
    net of effects of acquisitions:
     Accounts receivable/payable, net          (59.7)        (21.9)      128.2
     Inventories and supplies                 (109.0)         83.4       (30.9)
     Prepayments and other                     (78.7)        (53.6)       (3.6)
     Accrued liabilities, net                   84.5         204.2        22.2
     Other                                     185.2        (164.8)       10.6
 --------------------------------------------------------------------------------
   Sub-total                                   485.0         534.5       634.3
   Funds on deposit, net                      (261.3)        255.4       (33.9)
 --------------------------------------------------------------------------------
 CASH PROVIDED FROM OPERATING ACTIVITIES       223.7         789.9       600.4
 --------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to utility plant                 (252.4)       (138.7)     (129.3)
   Merchant capital expenditures              (273.6)        (56.1)     (108.9)
   Increases in merchant notes receivable     (102.4)       (133.9)     (159.2)
   Investments in international businesses    (105.6)       (725.2)     (485.0)
   Investments in domestic businesses         (106.5)       (640.6)     (421.6)
   Sales of assets and partnership investment     --            --       159.0
   Other                                       (46.0)        (34.9)     (125.4)
 -------------------------------------------------------------------------------
 CASH USED FOR INVESTING ACTIVITIES           (886.5)     (1,729.4)   (1,270.4)
 -------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of common stock                    332.6           5.8          --
   Issuance of subsidiary common stock         315.4            --          --
   Issuance (retirement) of company-obligated
    preferred securities                      (100.0)        100.0       250.0
   Issuance of long-term debt                  612.4         973.9       986.0
   Retirement of long-term debt               (624.1)       (309.7)     (384.5)
   Short-term borrowings, net                   47.6         454.3        13.2
   Cash dividends paid                        (134.6)       (111.6)     (111.2)
   Other                                        83.8          (5.5)       20.8
 -------------------------------------------------------------------------------
 CASH PROVIDED FROM FINANCING ACTIVITIES       533.1       1,107.2       774.3
 -------------------------------------------------------------------------------
 Increase (decrease) in cash and cash
  equivalents                                 (129.7)        167.7       104.3
 Cash and cash equivalents at beginning of
  year                                         392.6         224.9       120.6
 -------------------------------------------------------------------------------
 CASH AND CASH EQUIVALENTS AT END OF YEAR     $262.9      $  392.6    $  224.9
 -------------------------------------------------------------------------------
 SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid, net of amount capitalized   $236.0      $  215.4    $  167.7
   Income taxes paid                           241.5          60.2        76.8
 -------------------------------------------------------------------------------
 LIABILITIES ASSUMED IN ACQUISITIONS:
   Fair value of assets acquired              $   --      $2,229.2    $  898.9
   Cash paid for acquisitions                     --      (1,421.9)     (898.9)
   Stock issued for acquisitions                  --        (190.2)         --
 -------------------------------------------------------------------------------
   Liabilities assumed                        $   --      $  617.1    $     --
 -------------------------------------------------------------------------------
</Table>

See accompanying notes to consolidated financial statements.

44                                                                   AQUILA 2001
<Page>

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Aquila, Inc. (Aquila), formerly UtiliCorp United Inc., is an international
energy and energy solutions provider headquartered in Kansas City, Missouri. We
operate in two business groups, Merchant Services and the Global Networks Group,
with four financial reporting segments. In Merchant Services, we conduct our
business through two segments, Wholesale Services and Capacity Services, while
our Global Networks Group is comprised of our International Networks and
Domestic Networks segments.

     Our Merchant business operates as Aquila Merchant Services, Inc. (Aquila
Merchant), which markets natural gas, electricity and other commodities
throughout North America and Western Europe through its Wholesale Services
business segment, which also includes our capital services business. Through its
Capacity Services business segment, it also gathers, transports, stores and
processes natural gas and gas liquids, and owns, operates or controls power
plants. In 1999, 2000 and through April 2001, we owned 100% of Aquila Merchant.
In April 2001, approximately 20% of Aquila Merchant's ownership was sold to the
public. In January 2002, we acquired the outstanding public shares of Aquila
Merchant in an exchange offer and merger. Aquila Merchant was consolidated in
each year with a minority interest reflected in 2001.

     The main activity of International Networks is operating foreign businesses
that distribute and transmit electricity and natural gas to retail and wholesale
customers. Our Canadian electric generation facilities supply electricity,
primarily for our own distribution systems. International Networks operates in
two Canadian provinces, New Zealand and Australia.

     Our Domestic Networks segment operates domestic businesses that distribute
and transmit electricity and natural gas to retail and wholesale customers in
seven states. Our electric generation facilities supply electricity, primarily
for our own distribution systems in three states. However, we also sell to
outside service areas. Domestic Networks also includes our communications
business, which is rolling out comprehensive communications services in
mid-sized and smaller communities in the Kansas City metropolitan area, and our
investment in Quanta Services, Inc. (Quanta), a field services firm based in
Houston, Texas. Quanta provides specialized construction and maintenance
services to the utility, telecommunications and cable television industries.

     In March 2002, we changed our name from UtiliCorp United Inc. to Aquila,
Inc. to reflect our embracing of the merchant business.

USE OF ESTIMATES

We prepared these financial statements in conformity with accounting principles
generally accepted in the United States. We made certain estimates and
assumptions that affect the reported amounts of assets and liabilities. Our
estimates and assumptions affect the disclosure of contingent assets and
liabilities in this report and reported amounts of sales and expenses during the
reporting period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include all of Aquila's operating
divisions and majority-owned subsidiaries for which we maintain controlling
interests. We use equity accounting for investments in which we have significant
influence but do not control. In certain investments we have granted substantive
participating and protective rights to our partners, in accordance with Emerging
Issues Task Force Issue No. 96-16, which does not allow us to control those
investments. We eliminate significant inter-company accounts and transactions.

PROPERTY, PLANT AND EQUIPMENT

We show property, plant and equipment at cost. We expense repair and maintenance
costs as incurred or as provided for by regulatory order. Depreciation is
provided on a straight-line basis over the estimated lives of the assets. When
regulated property is replaced, removed or abandoned, its cost, together with
the costs of removal less salvage, is charged to accumulated depreciation. See
Note 7.

GOODWILL

We have recorded goodwill, representing the excess of the cost of acquisitions
over the fair value of the related net assets at the dates of acquisition, of
$802.8 million, less accumulated amortization of $52.2 million as of December
31, 2001. We amortize goodwill on the straight-line method over periods of 40
years or less. Amortization expense for the years ended December 31, 2001, 2000
and 1999 was (in millions) $22.4, $13.3 and $4.1, respectively.

SALES RECOGNITION

We recognize sales as products and services are delivered, except for trading
and energy marketing activities. Transactions carried out in connection with
trading activities are accounted for under the mark-to-market method of
accounting. Under this method, our energy commodity trading contracts, including
both physical transactions and financial instruments, are recorded at fair value
and shown on the consolidated balance sheets as "Price Risk Management Assets"
and "Price Risk Management Liabilities." As part of the valuation of our
portfolio, we value our credit risks associated with the financial condition of
counterparties and the time value of money. We primarily use quoted market
prices from published sources or comparable transactions in liquid markets to
value our contracts. If actively quoted market prices are not readily available,
we contact brokers or other external sources or use comparable transactions to
obtain current values of our contracts. When market prices are not readily
available or determinable, certain contracts are valued at fair value using an
alternate approach such as model pricing. The market prices or fair values used
in determining the value of our portfolio are our best estimates utilizing
information such as closing exchange rates, over-the-counter quotes, historical
volatility and the potential impact on market prices of liquidating our
positions in an orderly manner over a reasonable period of time under current
market conditions. When the portfolio market value changes (primarily due to the
effect of price changes, newly originated transactions and the settlement of
existing transactions), the change is recognized as a gain or loss in the period
of change. We record the resulting unrealized gains or losses as price risk
management assets and liabilities.

FUNDS ON DEPOSIT

Funds that our Aquila Merchant business has on deposit with counterparties
consist primarily of margin requirements related to commodity swap and futures
contracts. Pursuant to individual contract terms with counterparties, deposit
amounts required vary with changes in market prices, credit provisions and
various other factors. Interest is earned on most funds on

AQUILA 2001                                                                   45
<Page>

deposit. We also hold funds on deposit from counterparties in the same manner.

INVENTORIES

Our inventories consist primarily of natural gas in storage, coal and materials
and supplies valued at the lower of weighted average cost or market.

DEVELOPMENT ACTIVITY

We incur project-related development costs. These include costs of feasibility
studies, bid preparation, permitting, licensing and contract negotiations that
are expensed as incurred until the project is deemed to be probable. At that
point, we expense or capitalize the costs based on their nature. These costs may
be recoverable through partners in the projects or other third parties, or
classified as investment and recovered through future project cash flows.
Accumulated capitalized costs for project development are expensed during the
period in which we determine it is probable the costs will not be recovered.

INCOME TAXES

We use the liability method to reflect income taxes on our financial statements.
To estimate deferred tax assets and liabilities, we apply current tax
regulations 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. We amortize deferred investment tax credits
over the lives of the related properties.

CASH EQUIVALENTS AND CASH FLOW INFORMATION

Cash includes cash in banks and temporary investments with an original maturity
of three months or less. As of December 31, 2001, 2000, and 1999, our cash held
in foreign countries was $93.7 million, $198.3 million, and $46.6 million,
respectively.

EARNINGS PER COMMON SHARE

The table below shows how we calculated diluted earnings per share and diluted
shares outstanding. Basic earnings per share and basic weighted average shares
are the starting point in calculating the dilutive measures. To calculate basic
earnings per share, divide earnings available for common shares by weighted
average shares outstanding without adjusting for dilutive items. Diluted
earnings per share is calculated by dividing earnings available for common
shares after assumed conversion of dilutive securities by weighted average
shares outstanding adjusted for the effect of dilutive securities.

<Table>
<Caption>
In millions, except per share                  2001          2000        1999
--------------------------------------------------------------------------------
<S>                                           <C>           <C>         <C>
Earnings available for common shares          $279.4        $206.8      $160.5
Convertible bonds                                 .2            .2          .2
--------------------------------------------------------------------------------
Earnings available for common shares
 after assumed conversion of dilutive
 securities                                   $279.6        $207.0      $160.7
--------------------------------------------------------------------------------
EARNINGS PER SHARE:
 Basic                                        $ 2.49        $ 2.22      $ 1.75
 Diluted                                        2.42          2.21        1.75
 Weighted average number of common shares used
  in basic earnings per share                 112.10         93.05       91.47
Effect of dilutive securities:
 Stock options and restricted stock             1.46           .42         .32
 Convertible bonds                               .24           .28         .32
 Company-obligated preferred securities         1.91            --          --
--------------------------------------------------------------------------------
Weighted number of common shares and dilutive
 common stock used in diluted earnings per
 share                                        115.71         93.75       92.11
--------------------------------------------------------------------------------
</Table>

CURRENCY ADJUSTMENTS

For income statements items, we translate the financial statements of our
foreign subsidiaries and operations into U.S. dollars using the average exchange
rate during the period. For balance sheet items, we use the year-end exchange
rate. When translating foreign currency-based assets and liabilities to U.S.
dollars, we show any differences between accounts as unrealized translation
adjustments in common shareholders' equity. Currency transaction gains or losses
on transactions executed in a currency other than the functional currency are
recorded in income.

RECLASSIFICATIONS

Certain prior year amounts in the consolidated financial statements have been
reclassified where necessary to conform to the 2001 presentation.

46                                                                   AQUILA 2001
<Page>

NOTE 2: PRICE RISK MANAGEMENT

A. COMMODITY TRADING ACTIVITIES:

PRICE RISK MANAGEMENT ACTIVITIES

We trade energy commodity contracts daily. Our trading activities attempt to
match our portfolio of physical and financial contracts to current or
anticipated market conditions. Within the trading portfolio, we take certain
positions to hedge physical sale or purchase contracts and we take certain
positions to take advantage of market trends and conditions. We record most
energy contracts--both physical and financial--at fair value. Changes in value
are reflected in the consolidated statement of income. We use all forms of
financial instruments, including futures, forwards, swaps and options. Each type
of financial instrument involves different risks. We believe financial
instruments help us manage our contractual commitments, reduce our exposure to
changes in cash market prices and take advantage of selected arbitrage
opportunities. We refer to these transactions as price risk management
activities.

MARKET RISK

Our price risk management activities involve offering fixed price commitments
into the future. The contractual amounts and terms of these financial
instruments at December 31, 2001 and 2000, are below:

<Table>
<Caption>
                                                   December 31, 2001
                                   ---------------------------------------------
                                   Fixed Price     Fixed Price      Maximum Term
Dollars in millions                    Payor        Receiver         In Years
--------------------------------------------------------------------------------
<S>                                <C>             <C>                      <C>
ENERGY COMMODITIES:
  Natural gas (TRILLION BTU'S)           6,233           5,350              11
  Electricity (MEGAWATT-HOURS)      31,271,408      34,002,676               7
  Crude oil (BARRELS)                9,421,662       7,794,800               3
  Natural gas liquids (BARRELS)      8,902,000      11,364,000               2
  Coal (TONS)                           69,750         153,450               1
--------------------------------------------------------------------------------
FINANCIAL PRODUCTS:
  Interest rate instruments             $2,047          $4,532               9
--------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                             December 31, 2000
                                   --------------------------------------------
                                   Fixed Price     Fixed Price      Maximum Term
Dollars in millions                   Payor         Receiver         In Years
--------------------------------------------------------------------------------
<S>                                <C>             <C>                      <C>
ENERGY COMMODITIES:
  Natural gas (TRILLION BTU'S)           5,700           4,533              12
  Electricity (MEGAWATT-HOURS)       9,820,208      14,068,008               5
  Crude oil (BARRELS)                5,200,219       5,219,800               4
--------------------------------------------------------------------------------
FINANCIAL PRODUCTS:
  Interest rate instruments             $1,127          $4,884              10
--------------------------------------------------------------------------------
</Table>

     Although we generally attempt to balance our physical and financial
contracts in terms of quantities and contract performance, net open positions
typically exist. We will at times create a net open position or allow a net open
position to continue when we believe that future price movements will increase
the portfolio's value. To the extent we have an open position, we are exposed to
fluctuating market prices that may adversely impact our financial position or
results from operations.

MARKET VALUATION

The prices we use to value price risk management activities reflect our best
estimate of fair values considering various factors, including closing exchange
and over-the-counter quotations, time value of money and price volatility
factors underlying the commitments. We adjust prices to reflect the potential
impact of liquidating our position in an orderly manner over a reasonable period
of time under present market conditions.

     We consider a number of risks and costs associated with the future
contractual commitments included in our energy portfolio, including credit risks
associated with the financial condition of counterparties and the time value of
money. The value of all forward contracts is discounted to December 31, 2001,
using market interest rates for the contract term adjusted for our credit rating
or the credit of the counterparty. We continuously monitor the portfolio and
value it daily based on present market conditions. The following table displays
the fair values of energy transactions at December 31, 2001, and the average
value for the year ended December 31, 2001:

<Table>
<Caption>
                          Price Risk Management Assets        Price Risk Management Liabilities
                       ----------------------------------    -----------------------------------
Dollars in millions    Average Value    December 31, 2001    Average Value     December 31, 2001
------------------------------------------------------------------------------------------------
<S>                     <C>                <C>                <C>                  <C>
Natural gas             $1,237.4           $  984.4           $1,652.9             $1,274.5
Electricity                357.0              208.3              276.8                197.9
Coal                        44.0               46.5               33.6                 21.1
Other                       36.1               21.7               19.2                  9.0
------------------------------------------------------------------------------------------------
Total                   $1,674.5           $1,260.9           $1,982.5             $1,502.5
------------------------------------------------------------------------------------------------
</Table>

AQUILA 2001                                                                   47
<Page>

     Future changes in our creditworthiness and the creditworthiness of our
counterparties affect the value of our portfolio. We adjust the value of
contracts and set dollar limits with counterparties based on our assessment of
their credit quality.

     The value of price risk management assets is concentrated in five contracts
representing 25% of the total asset value of the portfolio. This concentration
of customers may impact our overall exposure to credit risk, either positively
or negatively, since the counterparties may be similarly affected by changes in
economic, regulatory or other conditions.

     In 1997 through 2000, we were paid in advance on certain contracts with
natural gas purchasing agents to deliver gas to municipal utilities they
represent over the subsequent 10 to 12 years. In 2000 and 1999, we received $444
million and $250 million, respectively. Included in price risk management
liabilities is $832.5 million of these advance payments. These contracts are
settled monthly through the physical delivery of gas. We have hedged our
exposure to changes in gas prices related to these contracts. These contracts
mature as follows (in millions): $79.7 in 2002, $81.5 in 2003, $85.1 in 2004,
$87.8 in 2005, $91.2 in 2006 and $407.2 from 2007 through 2012.

B. NON-TRADING ACTIVITIES

We use derivative financial instruments primarily to reduce our exposure to
adverse fluctuations in interest rates, foreign exchange rates, commodity prices
and other market risks. When we enter into a financial instrument, we formally
designate and document the instrument as a hedge of a specific underlying
exposure, as well as the risk management objectives and strategies for
undertaking the hedge transaction. Because of the high degree of correlation
between the hedging instrument and the underlying exposure being hedged,
fluctuations in the value of the derivative instruments are generally offset by
changes in the value or cash flows of the underlying exposures being hedged. We
record derivatives in the consolidated balance sheets at fair value in either
Price Risk Management Assets or Liabilities and in Other Comprehensive Income
(OCI). The fair values of derivatives used to hedge or modify our risks
fluctuate over time. These fair value amounts should not be viewed in isolation,
but rather in relation to the fair values or cash flows of the underlying hedged
transactions and the overall reduction in our risk relating to adverse
fluctuations in foreign exchange rates, interest rates, commodity prices and
other market factors. In addition, the net income effect resulting from our
derivative instruments is recorded in the same line item within the consolidated
statements of income as the underlying exposure being hedged. We also formally
assess, both at the inception and at least quarterly thereafter, whether the
financial instruments that are used in hedging transactions are effective at
offsetting changes in either the fair value or cash flows of the related
underlying exposures. Any ineffective portion of a financial instrument's change
in fair value is immediately recognized in net income.

INTEREST RATE MANAGEMENT

Our long-term debt contains a combination of fixed and variable rate
instruments. Our policy is to fix the future cash flows related to this debt
within defined parameters. To accomplish this we use floating to fixed rate
swaps. These swaps related to debt with a principal amount of $199.6 million and
had maturities ranging from less than one year to four years at December 31,
2001. Interest rate swap agreements, which meet the hedge criterion required
under Statement of Financial Accounting Standards (SFAS) No. 133 for cash flow
hedges, are accounted for as such.

FOREIGN CURRENCY MANAGEMENT

We use foreign currency hedging to reduce the risk that our eventual inflows or
outflows of net U.S. dollar cash resulting from inter-company financing
transactions outside the U.S. will be adversely affected by changes in exchange
rates. We also enter into forward exchange contracts and swaps to hedge certain
anticipated cash flows denominated in foreign currencies. These contracts,
designated as cash flow hedges, had maturities of one year or less on December
31, 2001.

ACCOUNTING FOR HEDGING ACTIVITIES

Effective January 1, 2001, we adopted SFAS No. 133 as amended, which requires us
to recognize all derivative instruments on the balance sheet at fair value. It
also establishes new accounting rules for hedging instruments, which depend on
the nature of the hedge relationship. The adoption of SFAS No. 133 resulted in
our recording transition adjustments to recognize derivative instruments at fair
value and to recognize the ineffective portion of the change in the fair value
of derivatives. The cumulative effect of these transition adjustments at January
1, 2001, was a reduction to OCI of approximately $4.5 million ($2.7 million net
of tax). The reduction in OCI was related to cash flow hedges of forecasted
foreign currency transactions, future natural gas liquids production and
variable interest rate obligations. The effect on net income was not
significant.

     We recorded a $3.6 million increase to OCI in 2001, net of both income
taxes and reclassifications to earnings. This will generally offset future cash
flow losses relating to the underlying exposures being hedged. We estimate that
we will reclassify gains into earnings during the next 12 months approximating
$1.7 million from the net amount recorded in OCI as of December 31, 2001. We did
not discontinue any fair value or cash flow hedge relationships during the year
ended December 31, 2001. As of December 31, 2001, the fair value of cash flow
hedges was $1.5 million ($.9 million net of tax). The effect on net income was
not significant.

NOTE 3: NEW ACCOUNTING STANDARDS

BUSINESS COMBINATIONS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations." SFAS 141 addresses financial accounting and
reporting for business combinations and requires that all business combinations
initiated after June 30, 2001 be accounted for using the purchase method of
accounting. It prohibits the pooling-of-interests method. SFAS 141 also requires
certain additional disclosures regarding material business combinations. The
adoption of this standard is not expected to have a material impact on our
financial position or results of operations.

GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS 142 requires that, beginning on January 1, 2002,
goodwill no longer be amortized against earn-

48                                                                   AQUILA 2001
<Page>

ings. Rather, this statement requires that goodwill be tested no less than
annually for impairment, and if impaired, be written off against earnings at
that time.

     During the year ended December 31, 2001, we finalized purchase price
allocations related to the acquisitions of TransAlta's Alberta electricity
distribution business and St. Joseph Light & Power Company that resulted in the
reclassification of approximately $284 million of additional goodwill from
Property, Plant and Equipment. We estimate the adoption of this standard will
reduce annual amortization by approximately $22.4 million on approximately
$750.6 million of goodwill. Additionally, we expect this new standard will
increase equity in earnings of investments by approximately $18 million because
those underlying investments currently have goodwill and identified intangibles
with indefinite lives on their balance sheets. We are currently evaluating the
impact the new standard and its impairment testing could have on our financial
position and results of operations.

ASSET RETIREMENT OBLIGATIONS

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which the
liability is incurred. When the liability is initially recorded, the entity will
capitalize the estimated cost by increasing the carrying amount of the related
long-lived asset. The liability will be accreted to its present value each
subsequent period and the capitalized cost will be depreciated over the useful
life of the related asset. Upon settlement of the liability, the company will
record a gain or loss for the difference between the settled liability and the
recorded amount. This standard will become effective for us on January 1, 2003.
Earlier application is encouraged. We are in the process of assessing how
adopting this standard will affect our financial position and results of
operations.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." This standard retains the provisions of SFAS 121 regarding the impairment
of long-lived assets to be held and used. SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale. It requires
that those long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. The adoption of this standard is not expected to have a
material impact on our financial position or results of operations.

NOTE 4:INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS

Our consolidated balance sheets contain various equity investments as shown in
the table below. The table below summarizes our investments, including
shareholder loans, and related equity earnings:

<Table>
<Caption>
                                                          Investment            Equity Earnings
                          Effective                   at December 31,     Year Ended December 31,
                          Ownership                   -----------------  --------------------------
Dollars in millions       at 12/31/01   Country         2001     2000      2001    2000    1999
---------------------------------------------------------------------------------------------------
<S>                           <C>                    <C>      <C>        <C>      <C>      <C>
United Energy Limited         34.0%   Australia      $  218.8 $  239.5   $ 16.5   $  19.8  $  28.0
Multinet                      25.5%   Australia         222.8    168.6      6.5      10.4     (6.9)
AlintaGas Limited             22.5%   Australia          87.9     69.4      8.1        .1       --
UnitedNetworks Ltd.           55.5%   New Zealand       386.7    374.9     30.4      13.9       --
Independent power project
   partnerships             17%-50%   U.S. & Jamaica    312.5    310.4     28.9      18.7     34.0
Oasis Pipe Line Company         50%   United States      99.4     97.5      3.5       (.3)      .6
Quanta Services, Inc.           38%   United States     773.6    711.9     30.6      53.7     13.2
Other                      Various                       43.3     46.2     (1.7)      (.8)      .6
--------------------------------------------------------------------------------------------------
Total                                                $2,145.0 $2,018.4   $122.8   $ 115.5  $ 69.5
--------------------------------------------------------------------------------------------------
</Table>

     Our investments include our 34% ownership interest in United Energy Limited
(UEL), an electricity distribution company in Melbourne, Australia. UEL also
owns a 66% interest in Uecomm Ltd., a communications business, a 25% interest in
Pulse Energy Ltd., a retail electricity and gas company, and a 22.5% interest in
AlintaGas Limited, a gas utility in Western Australia. In addition to equity
earnings in 2000, we recorded a $44 million gain on the Uecomm initial public
offering. In 2001, UEL recognized charges totaling $4.9 million related to its
investment in Uecomm and Pulse that we classified in Impairments and Other
Charges. See Note 8.

     On March 12, 1999, we acquired a 25.5% interest in Multinet, a natural gas
network in Melbourne, Australia. Multinet also owns a 25% interest in Pulse. In
December 2001, we advanced an additional $81.9 million in the form of a loan to
enable Multinet to repay certain external debt. In 2001, we recognized charges
totaling $6.6 million related to our investment in Multinet and Pulse that we
classified in Impairments and Other Charges. See Note 8. While this operation
has incurred operating losses we do not believe that this investment is
impaired.

     On October 17, 2000, we and UEL purchased a 45% interest in AlintaGas for
$166 million. Our 22.5% interest is reflected as an equity investment with the
remaining 22.5% reflected as part of our interest in UEL.

     On June 30, 2000, we sold a portion of our New Zealand investment to a
private equity investor (minority shareholder) that reduced our effective
ownership in UnitedNetworks to approximately 62%. In connection with the
transaction we granted the minority shareholder substantive participating and
protective rights and therefore no longer consolidate these operations for
financial statement purposes. Our New Zealand investments were reflected on a
consolidated basis from

AQUILA 2001                                                                   49
<Page>

October 1998 to June 2000. On April 9, 2001, additional shares of UnitedNetworks
Ltd. were sold, reducing our effective interest in UnitedNetworks to 55.5%. A
$5.8 million pretax gain was recognized on this transaction. The minority
shareholder has the ability in June 2003 and under certain circumstances to sell
(or "put") its interest to us for approximately $33 million. See Note 17 for
further discussion.

     We own interests in 14 independent power projects located in eight states
and Jamaica. These investments are aggregated because individual investments are
not significant. In 1999, our partner in a power project exercised an option to
purchase our interest in the project. We received $83.8 million and recognized a
gain of $7.1 million.

     We acquired a 35% interest in Oasis Pipe Line Company, a natural gas
pipeline in Texas, in 1996. In December 2000 we obtained an additional 15%
interest in Oasis, bringing our total ownership interest to 50%. At December 31,
2001, the unamortized excess of our Oasis investment over our interest in the
underlying net assets of Oasis was approximately $73.3 million.

     In 2001, 2000 and 1999, we acquired voting convertible preferred and common
stock of Quanta Services, Inc. (Quanta) for approximately $40 million, $360
million and $319 million, respectively. Our fully converted beneficial voting
interest in Quanta is approximately 38%. Quanta paid us management advisory fees
of $36.2 million and $7.6 million for 2000 and 1999, respectively. The
management fee agreement was terminated in December 2000. We used Quanta as a
construction contractor in our utility and communications businesses. These
services were contracted under competitive bids at Quanta's standard rates for
comparable services. The cost of such services was $35.9 million and $18.2
million in 2001 and 2000, respectively. At December 31, 2001, the unamortized
excess of our Quanta investment over our interest in the underlying net assets
of Quanta was approximately $328.0 million. Our cost basis in our Quanta
investment is approximately $26.45 per share and is above Quanta's trading price
of $15.43 per share as of December 31, 2001. We believe this is temporary and
are confident in the long-term potential of our investment in Quanta.

     We evaluate the carrying value of our equity method investments
periodically or when there are specific indications of potential impairment,
such as continuing operating losses or a substantial decline in market price if
publicly traded. In assessing these investments, we consider the following
factors, among others, relating to the investment: financial performance and
near-term prospects of the company, condition and prospects of the industry and
our investment intent.

     Following is the summarized combined financial information of the
unconsolidated material equity investments listed above:

<Table>
<Caption>
                                  December 31,
                             -----------------------
In millions                     2001        2000
----------------------------------------------------
<S>                           <C>          <C>
ASSETS:
   Current assets             $1,097.6     $1,087.8
   Non-current assets          6,084.4      6,713.9
----------------------------------------------------
TOTAL ASSETS                  $7,182.0     $7,801.7
----------------------------------------------------

LIABILITIES AND EQUITY:
   Current liabilities        $  609.6     $  684.1
   Non-current liabilities     4,120.9      3,810.6
   Equity                      2,451.5      3,307.0
---------------------------------------------------
TOTAL LIABILITIES AND EQUITY  $7,182.0     $7,801.7
---------------------------------------------------
</Table>

<Table>
<Caption>
                                    Year Ended December 31,
                             ---------------------------------
In millions                      2001        2000     1999(a)
--------------------------------------------------------------
<S>                            <C>         <C>        <C>
OPERATING RESULTS:
   Sales                       $3,394.0    $3,069.3   $1,986.0
   Costs and expenses           3,122.0     2,751.4    1,801.1
--------------------------------------------------------------
NET INCOME                     $  272.0    $  317.9   $  184.9
--------------------------------------------------------------
</Table>

(a) EXCLUDES UNITEDNETWORKS SINCE THIS SUBSIDIARY IS REFLECTED IN THE
    CONSOLIDATED STATEMENTS.

NOTE 5: ACCOUNTS AND MERCHANT NOTES RECEIVABLE

Our accounts receivable on the consolidated balance sheets are comprised as
follows:

<Table>
<Caption>
                                        December 31,
                                 ------------------------
In millions                          2001       2000
---------------------------------------------------------
<S>                                <C>        <C>
Accounts receivable                $3,201.8   $4,777.2
Allowance for bad debt                (65.9)     (53.1)
Unbilled revenue                       88.4      166.3
Accounts receivable sale programs    (297.5)    (405.0)
---------------------------------------------------------
TOTAL                              $2,926.8   $4,485.4
---------------------------------------------------------
</Table>

     We have two agreements allowing us to periodically transfer undivided
ownership interests in a revolving pool of our trade receivables to multi-seller
conduits administered by independent financial institutions. One agreement,
which was terminated in January 2002, was for up to $275 million of our Merchant
Services receivables. The second, totaling up to $130 million, relates to
accounts receivable generated from sales of gas and power by our domestic
regulated utilities.

     Under the terms of the agreements, the company may transfer trade
receivables to bankruptcy-remote special purpose entities ("SPE's"). The
percentage ownership interest in receivables purchased by the SPE's may increase
or decrease over time, depending on the characteristics of the trade
receivables, including delinquency rates and debtor concentrations. We service
the receivables transferred to the SPE's and receive a servicing fee, which we
have determined approximates market compensation for these services. We have
minimal servicing assets and liabilities relative to the receivables sold under
these facilities. Collections on these receivables are reinvested on behalf of
the conduits in newly created receivables. We had gross sales of accounts
receivable of $4.1 billion, $4.5 billion and $3.5 billion during 2001, 2000 and
1999, respectively. The selling price of the receivables is tied to short-term
commercial paper rates. Our consolidated statements of income include the loss
on the sale of receivables of $15.6 million, $26.6 million and $14.2 million in
2001, 2000 and 1999, respectively. As a result of the termination of the $275
million agreement, we will not be permitted to reinvest the collections of the
$220 million of receivables sold under the agreement.

     We provide capital primarily to client energy-related businesses seeking
financing to fund energy projects. We have classified these transactions as
merchant notes receivable in our consolidated balance sheets. Merchant notes
receivable consist of notes with terms ranging from two to ten years and
interest rates ranging from 5.75% to 13.5%. At December 31, 2001 and 2000, the
fair value of these instruments approximated their carrying value of $415.6
million and $313.2 million, respectively.

50                                                                   AQUILA 2001
<Page>

NOTE 6:REGULATORY ASSETS

State, provincial or local authorities regulate certain of our utility
operations. Our financial statements therefore include the economic effects of
rate regulation in accordance with SFAS No. 71, "Accounting for the Effects of
Certain Types of Regulation." This means our consolidated balance sheets show
some assets and liabilities that would not be found on the balance sheets of a
non-regulated company.

     The following table lists our regulatory assets and liabilities at December
31, 2001 and 2000. We primarily show these as deferred charges and credits on
the consolidated balance sheets. In 2000, purchased power costs for UtiliCorp
Networks Canada rose to levels well above that collected in rates. We deferred
these excess costs and filed to increase future rates charged to customers in
order to recover these costs. In November 2000, the provincial government in
Alberta, Canada suspended pending rate increases to recover such purchased power
costs incurred by our Alberta electric operation. In December 2001, the Alberta
Energy and Utility Board issued its decision permitting us to recover such costs
over 2002 through 2003, including carrying costs. Underrecovered gas costs
represent the cost of gas in excess of that in current rates that will be
collected from customers in future periods as we adjust rates on an annual
basis. Income taxes represent amounts due from customers for accelerated tax
benefits previously flowed through to customers that we expect to recover in the
future as the accelerated tax benefits reverse. Environmental costs include
certain site clean-up costs that are deferred and collected from customers in
the future as authorized by regulatory authorities. Debt-related costs include
the cost to reacquire debt amortized over the term of the reacquired debt or, if
refinanced, the term of the new debt and debt issuance costs amortized over the
term of the associated debt. Substantially all of the regulatory assets below
are either currently being collected in rates or will be collected through rates
in a future period.

<Table>
<Caption>
In millions                          2001      2000
-----------------------------------------------------
<S>                                 <C>       <C>
Purchased power costs               $177.5    $232.8
Underrecovered gas costs              21.5      44.8
Income taxes                          82.3      69.0
Environmental                         17.2      24.4
Debt-related costs                    33.4      25.6
Regulatory accounting orders           7.3       8.1
Demand-side management programs        5.9       6.9
Other                                 40.7      27.5
-----------------------------------------------------
TOTAL REGULATORY ASSETS             $385.8    $439.1
-----------------------------------------------------
Regulatory liabilities                77.0      34.6
-----------------------------------------------------
NET REGULATORY ASSETS               $308.8    $404.5
-----------------------------------------------------
</Table>

     If all or a separable portion of our operations were deregulated and no
longer subject to the provisions of SFAS 71, we would have to write off related
regulatory assets and liabilities, unless some form of transition cost recovery
(refund) continues through rates established and collected for the remaining
regulated operations. We would also be required to determine any impairment to
carrying costs of deregulated plant and inventory assets.

NOTE 7: PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are below:

<Table>
<Caption>
                                         December 31,
                                   ----------------------
In millions                           2001       2000
---------------------------------------------------------
<S>                                 <C>        <C>
Electric utility                    $3,100.8   $3,008.8
Gas utility                          1,237.5    1,198.4
Gas gathering and pipeline systems     680.9      647.6
Communications                         105.3       52.1
Other                                  414.8      350.0
Construction in process                239.6      152.9
---------------------------------------------------------
                                     5,778.9    5,409.8
Less--depreciation and amortization  2,366.9    2,274.7
---------------------------------------------------------
Property, plant and equipment, net  $3,412.0   $3,135.1
---------------------------------------------------------
</Table>

     Our property, plant and equipment includes acquisition- related intangibles
that are being amortized over useful lives not exceeding 40 years. Amounts
included in electric and gas utility plant that are not included in rate base
were $99.1 million and $98.6 million at December 31, 2001 and 2000,
respectively.

<Table>
<Caption>
                                     Composite
                                    Depreciation
                                      Rates
------------------------------------------------
<S>                                  <C>
Electric utility                      2.7%
Gas utility                           3.3%
Gas gathering and pipeline systems    3.8%
Communications                       10.5%
Other                                 4.5%
------------------------------------------------
</Table>

NOTE 8:IMPAIRMENTS AND OTHER CHARGES

<Table>
<Caption>
                                      Year Ended December 31,
                                -------------------------------
In millions                             2001     2000     1999
--------------------------------------------------------------
<S>                                    <C>     <C>         <C>
Enron exposures                        $66.8   $   --      $--
Communications construction
  and lease terminations                16.5      4.0       --
Australian asset write-offs             11.5       --       --
Pipeline and retail assets                --     10.8       --
Information technology assets             --     10.0       --
Corporate identity intangibles            --      2.4       --
--------------------------------------------------------------
Total                                  $94.8   $ 27.2      $--
--------------------------------------------------------------
</Table>

     In connection with the bankruptcy filing of Enron Corporation in December
2001, we evaluated our overall exposure with Enron and wrote off $31.8 million
related to an unsecured note receivable in our Domestic Networks group and $35.0
million related to trading activity in Merchant Services. While these write-offs
represent our best estimate of our exposure based on our contracts with Enron,
the ultimate outcome is subject to review by the bankruptcy courts.

     During 2001, we decided to limit our fiber-optic communications business to
the Kansas City market. As a result, we wrote off $16.5 million related to
network design, long-term leases and other development costs related to markets
outside of Kansas City that we currently do not intend to develop. In 2000, we
recorded $4.0 million of charges related to the construction of our
communications networks.

AQUILA 2001                                                                   51
<Page>

     In 2001, we recorded $11.5 million of charges in our International Networks
group relating to certain of our Australian equity investments. We recorded
charges related to the collectibility of interest on shareholder loans to
Multinet and the realizability of Multinet's deferred tax assets. Multinet also
wrote off its interest receivable on shareholder loans to Pulse Energy, an
equity investment of both United Energy and Multinet. In addition, through our
investment in United Energy, which owns approximately 66% of Uecomm, writedowns
and provisions were taken during the year related to the realizability of loans
and interest due from Uecomm.

     During 2000, we adjusted the reported value of certain assets to their net
realizable value. We recognized asset impairment charges of $7.8 million with
respect to our assessment of certain underperforming pipeline assets; and $3.0
million related to our investments in certain retail assets in the United
Kingdom. We also recognized charges of $10.0 million related to certain
information technology assets that are no longer used in the business, and $2.4
million related to our decision to discontinue use of certain corporate identity
intangibles.

NOTE 9: SHORT-TERM DEBT

     Short-term debt includes the following components:

<Table>
<Caption>
                                                     December 31,
                                             -------------------------
<S>                                          <C>            <C>
Dollars in millions                             2001           2000
----------------------------------------------------------------------
Bank borrowings and other                    $    347.0     $    388.0
Commercial paper                                  201.6          113.0
----------------------------------------------------------------------
Total                                        $    548.6     $    501.0
----------------------------------------------------------------------
Weighted average interest rate at year end         3.10%          7.32%
----------------------------------------------------------------------
</Table>

     We have a $150 million commercial paper program, supported by a portion of
our $400 million domestic revolving credit agreement. At December 31, 2001, $135
million of commercial paper was outstanding under this credit agreement. Our
credit agreement contains restrictive covenants and charges annual commitment
fees ranging from .15% to .175%. This agreement requires us to maintain a ratio
of total debt to total capitalization of less than 65%. We intend to replace our
domestic revolving credit agreement with a new facility totaling $650 million.

     We have a $30 million credit facility with a U.S. financial institution
that provides overdraft protection and letters of credit support to our European
energy merchant business. We had $25.9 million committed on this facility at
December 31, 2001, comprised of $19.5 million in overdrafts recorded in accounts
payable and $6.4 million in letters of credit.

     We also had a $125 million letter of credit facility with a group of banks
that is used for trading and other activities of Aquila Merchant with various
counterparties. As of December 31, 2001, we had $49.3 million outstanding
against this facility. This facility was not renewed when it expired in December
2001.

     We have $310.5 million outstanding under various uncommitted, unsecured
facilities with U.S. and Canadian institutions. During 2001, we put in place an
additional C$150 (US$94.2) million commercial paper program at our Canadian
networks business.

     This program is supported by a C$150 million credit facility which charges
annual commitment fees of .135%. At December 31, 2001, US$66.6 million was
outstanding.

     In addition, we have C$80 (US$50.3) million of credit facilities at our
Canadian networks business that have US$36.5 million outstanding at an average
interest rate of 3.46% at December 31, 2001.

     As of December 31, 2001, we were in compliance with all debt covenants.

NOTE 10:COMPANY-OBLIGATED PREFERRED SECURITIES

Summarized information regarding our company-obligated preferred securities is
as follows:

<Table>
<Caption>
                                                                                   December 31,
                                                                                -----------------   Liquidation Value
Dollars in millions except per share                                              2001     2000          Per Share
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>      <C>              <C>
UtiliCorp Capital L.P. (UC) 8.875% Cumulative Monthly
   Preferred Securities, Series A (4,000,000 shares at December 31, 2000) (a)   $   --   $  100.0         $   25
UtiliCorp Capital Trust I (UCT I) 9.75% Premium Equity Participating
   Security Units (PEPS Units) (9,999,960 shares) (b)                              250.0    250.0             25
UtiliCorp Capital Trust II (UCT II) 3.68% Trust Preferred Securities
   (100,000 shares)(c)                                                             100.0    100.0          1,000
---------------------------------------------------------------------------------------------------------------------
TOTAL COMPANY-OBLIGATED PREFERRED SECURITIES                                    $  350.0 $  450.0
---------------------------------------------------------------------------------------------------------------------
Fair value of company-obligated preferred securities (d)                        $  351.5 $  488.7
---------------------------------------------------------------------------------------------------------------------
</Table>

(a) THESE SECURITIES WERE REDEEMED IN JUNE 2001.
(b) EACH PEPS UNIT HAD AN ISSUE PRICE OF $25 AND CONSISTS OF A CONTRACT TO
    PURCHASE SHARES OF OUR COMMON STOCK ON OR PRIOR TO NOVEMBER 16, 2002 AND A
    PREFERRED SECURITY OF UCT I. THE SOLE ASSET OF UCT I CONSISTS OF 7.35%
    SENIOR DEFERRABLE NOTES DUE NOVEMBER 16, 2004 OF AQUILA. EACH PURCHASE
    CONTRACT YIELDS 2.40% PER YEAR, PAID QUARTERLY, ON THE $25 STATED AMOUNT OF
    THE PEPS UNIT. EACH TRUST PREFERRED SECURITY YIELDS 7.35% PER YEAR, PAID
    QUARTERLY ON THE $25 STATED AMOUNT OF THE PEPS UNIT, UNTIL NOVEMBER 16,
    2002, AT WHICH TIME THE YIELDS WILL BE RESET AT A RATE THAT WILL BE EQUAL TO
    OR GREATER THAN 7.35%. AQUILA HAS FULLY AND UNCONDITIONALLY GUARANTEED THESE
    SECURITIES.
(c) THE SOLE ASSET OF UCT II CONSISTS OF SENIOR DEFERRABLE NOTES DUE SEPTEMBER
    30, 2002 OF AQUILA. EACH TRUST PREFERRED SECURITY YIELDS INTEREST ADJUSTED
    QUARTERLY AT THREE-MONTH LIBOR PLUS 90 BASIS POINTS PER YEAR. THE RATE
    PAYABLE AT DECEMBER 31, 2001 WAS 3.68%. THIS SECURITY IS INCLUDED IN CURRENT
    MATURITIES AS OF DECEMBER 31, 2001.
(d) THE FAIR VALUE OF THE COMPANY-OBLIGATED PREFERRED SECURITIES IS BASED ON THE
    MOST RECENT QUOTED MARKET PRICE OF THE PEPS UNITS PLUS THE COST OF THE
    FLOATING RATE 3.68% TRUST PREFERRED SECURITIES WHICH APPROXIMATES FAIR
    VALUE.

52                                                                   AQUILA 2001
<Page>

NOTE 11:LONG-TERM DEBT

This table summarizes the company's long-term debt:
<Table>
<Caption>
                                                                                   December 31,
                                                                              ---------------------
In millions                                                                     2001         2000
---------------------------------------------------------------------------------------------------
<S>                                                                           <C>          <C>
FIRST MORTGAGE BONDS:
  Various, 9.62%*, due 2002-2021                                              $   29.5     $   37.6
SENIOR NOTES:
  2.89% Floating Rate Series, due May 15, 2002                                   230.0        250.0
  Aquila Southwest Energy 8.29% Series, due September 15, 2002                    12.5         25.0
  7.0% Series, due July 15, 2004                                                 250.0        250.0
  6.875% Series, due October 1, 2004                                             150.0        150.0
  9.03% Series, due December 1, 2005                                              20.2         20.2
  6.70% Series, due October 15, 2006                                              85.9        100.0
  8.2% Series, due January 15, 2007                                               36.9        130.0
  7.625% Series, due November 15, 2009                                           200.0        200.0
  7.95% Series, due February 1, 2011                                             250.0           --
  10.5% Series, due December 1, 2020                                                --         35.7
  8.27% Series, due November 15, 2021                                             80.9        131.8
  9.0% Series, due November 15, 2021                                               5.0         18.2
  8.0% Series, due March 1, 2023                                                  51.5        125.0
MEDIUM TERM NOTES:
  Various, 7.77%*, due 2005-2023                                                  40.0         40.0
CONVERTIBLE SUBORDINATED DEBENTURES:
  6.625%, due July 1, 2011 (convertible into 231,461 common shares)                3.7          4.2
OTHER:
  Canadian Secured Debentures: 8.87%*, due 2002-2023                              62.2         66.5
  Canadian Senior Notes, 7.75%, due June 2011                                    200.0           --
  Australian Senior Notes, 6.72%*, due October 2002                               76.6         83.8
  Australian Medium-term Notes, due December 2003-2006                            90.3         44.7
  New Zealand Floating Rate Notes, 5.67%, due April-October 2002                  83.5         88.8
  New Zealand Denominated Credit Facility, due June 2002                         110.5        110.8
  Australian Denominated Credit Facilities, due March 2002 and March 2004         49.7        114.6
  Canadian Denominated Credit Facilities, due February 2002 and June 2003        159.7        290.7
  Other notes and obligations                                                     48.4         80.0
---------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT                                                           2,327.0      2,397.6
Less current maturities                                                          579.1         51.7
---------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET                                                           $1,747.9     $2,345.9
---------------------------------------------------------------------------------------------------
Fair value of long-term debt, including current maturities (a)                $2,416.6     $2,455.2
---------------------------------------------------------------------------------------------------
</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.

     All of our Michigan network assets are subject to the lien of a mortgage
indenture. We cannot issue mortgage bonds under our General Mortgage Indenture
without providing security for certain Senior Notes at the same level as any
mortgage bond issue. Currently we have no plans to issue mortgage bonds.

     The amounts of long-term debt maturing in each of the next five years and
thereafter are below:

<Table>
<Caption>
In millions           Maturing Amounts
--------------------------------------
<S>                      <C>
2002                     $  579.1
2003                        148.9
2004                        449.8
2005                         40.2
2006                        124.2
Thereafter                  984.8
--------------------------------------
TOTAL                    $2,327.0
--------------------------------------
</Table>

     Current maturities include $334.4 million of international debt. We intend,
as in prior years, to refinance these facilities under comparable terms.

SENIOR NOTES

On February 2, 2001, we issued $250.0 million of 7.95% senior notes due in
February 2011. Net proceeds from the sale were used to reduce short-term debt
incurred for acquisitions and general corporate purposes.

DEBT REFINANCING EXCHANGE OFFER

In June 2001, we exchanged $189.5 million of senior notes with interest rates
ranging from 8.0% to 9.0% for $200.0 million of new senior notes with interest
rates at 7.75%, maturing in June 2011. Additionally, during 2001, we retired
$204.1 million of senior notes, mortgage bonds and company-obligated preferred
securities.

NEW ZEALAND DENOMINATED CREDIT FACILITIES

Our New Zealand networks business maintains a NZ$290.0 (US$121.0) million credit
facility with two banks, which matures in June 2002. The interest rate on this
credit facility fluctuates

AQUILA 2001                                                                   53
<Page>

with changes in the New Zealand bank bill rate and charges a commitment fee of
..40% on any unused portion of the facility. At December 31, 2001, US$110.5
million was outstanding at a rate of 5.72%.

AUSTRALIAN DENOMINATED CREDIT FACILITIES
Our Australian networks business maintains a credit facility with a consortium
of banks which matures in March 2002. The interest rate on this facility
fluctuates with changes in the Australian bank bill rate and charges a
commitment fee of .50% on any unused portion of the facility. At December 31,
2001, US$33.2 million was outstanding at a rate of 5.37%.

     Our Australian networks business also maintains a credit facility with one
bank which matures in March 2004. The interest rate on this facility fluctuates
with changes in the Australian bank bill rate and charges a commitment fee of
..40% on any unused portion of the facility that has not been cancelled. At
December 31, 2001, US$16.5 million was outstanding at a rate of 5.24%.

     Approximately US$167 million of the Australian Senior Notes and Medium Term
Notes contain provisions that give the debt holders the ability to put the notes
back to us if Aquila's credit ratings are lowered to non-investment grade. We
currently have investment grade ratings from three major credit rating agencies.

CANADIAN DENOMINATED CREDIT FACILITIES
Our Canadian networks business maintains a credit facility with five banks,
which matures in June 2003. The interest rate on this facility fluctuates with
changes in the Bankers Acceptance Discount Rate. At December 31, 2001, US$129.4
million was outstanding at a rate of 3.64%.

     Our Canadian networks business also maintains a credit facility with two
banks, which matures in February 2002. The interest rate on this facility
fluctuates with changes in the Bankers Acceptance Discount Rate. At December 31,
2001, US$30.3 million was outstanding at a rate of 3.26%.

     In June 2001, our Canadian finance subsidiary, UtiliCorp Canada Finance
Corporation, issued $200.0 million of 7.75% senior notes in the U.S. public debt
market. Aquila has fully and unconditionally guaranteed these notes.

NOTE 12: CAPITAL STOCK AND STOCK COMPENSATION

CAPITAL STOCK
We have two types of authorized common stock--unclassified common stock and
Class A common stock. No Class A common stock is issued or outstanding. We also
have authorized 10,000,000 shares of preference stock, without par value, none
of which is issued or outstanding. As of December 31, 2001, we had no
restrictions on our ability to pay cash dividends.

     In January 2002, we completed an exchange offer and merger that resulted in
the issuance of approximately 12.6 million shares of our common stock for all
outstanding publicly held shares of Aquila Merchant. The holders of 1.8 million
shares of Aquila Merchant common stock rejected the consideration in the merger
as inadequate and are pursuing their right to receive fair value in cash.

     On January 30, 2002, we sold 12.5 million shares of our common stock to the
public, including an over-allotment of 1.5 million shares, which raised
approximately $278 million in net proceeds.

STOCKHOLDER RIGHTS PLAN
Our board of directors has adopted a rights plan and declared a dividend
distribution of one right for each outstanding share of our common stock. The
rights become exercisable if a person acquires beneficial ownership of 15% or
more of our outstanding common stock. If the rights are exercised, the value of
the shares of our common stock held by the acquiring person would be
substantially diluted. The purpose of the rights plan is to encourage a person
desiring to acquire 15% or more of our outstanding common stock to negotiate the
terms of their acquisition with our board of directors.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
We offer to current and potential shareholders a Dividend Reinvestment and
Common Stock Purchase Plan (the Stock Plan).

     The Stock Plan allows participants to purchase up to $10,000 per month of
common stock at the average market price on the date of the transaction, with
minimal sales commissions. The Stock Plan also allows members to reinvest
dividends into additional common shares at a 5% discount. For the year ended
December 31, 2001, 843,201 shares were issued under the Stock Plan. As of
December 31, 2001, 2,778,141 shares were available to issue under this plan.

EMPLOYEE STOCK PURCHASE PLAN
Participants in our Employee Stock Purchase Plan have the opportunity to buy
shares of 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 stock. 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.

RETIREMENT INVESTMENT PLAN
A defined contribution plan, the Retirement Investment Plan (Savings Plan),
covers all of our full-time and eligible part-time employees. Participants may
generally elect to contribute up to 15% of their annual pay on a before- or
after-tax basis subject to certain limitations. The company generally matches
contributions up to 6% of pay. Participants may direct their contributions into
various investment options. All company matching contributions are invested in
Aquila common stock. Company contributions were $11.2 million and $9.9 million
during the years ended December 31, 2001 and 2000, respectively. The Savings
Plan also includes a stock contribution fund to which the company contributes
common stock equal to 3% of base wages for eligible full-time employees. Vesting
occurs over five years with distribution upon termination of employment. All
dividends are reinvested in Aquila common stock. Effective in 2002, participants
may elect to receive their vested dividends in cash. For 2001, compensation
expense of $5.0 million was recognized, which approximates 3% of eligible
employees' base wages. All shares related to this program are classified as
outstanding when calculating earnings per share.

54                                                                   AQUILA 2001
<Page>

LONG-TERM INCENTIVE PLAN
Our Long-Term Incentive Plan (LTIP) enables the company to reward key
executives who have an ongoing companywide impact. Eligible executives are
awarded performance units based on experience and responsibilities in the
company. Incentives earned are based on a comparison of our total shareholder
return to a specific group of companies with operations similar to ours.
Incentives are paid in cash, restricted stock or restricted stock units based on
the executives' total shareholdings of the company common stock and their
elections. Total compensation expense for the three years ended December 31,
2001, 2000 and 1999, respectively, was $19.6 million, $8.5 million and $10.5
million.

STOCK INCENTIVE PLAN
Our Stock Incentive Plan enables the company to grant common shares to
certain employees as restricted stock awards and as stock options. The company
holds shares issued as restricted stock awards until certain restrictions lapse,
generally on the third award anniversary. 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. They expire 10 years after the date of grant.

EMPLOYEE STOCK OPTION PLAN
The Board approved the establishment of an Employee Stock Option Plan in 1991
and readopted the plan in 2001. This Plan provides for the granting of up to 3.0
million stock options to eligible 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. Broad-based option grants have been made under this plan in only
two years. During 1998 and 1992, respectively, options for 1,278,713 and
1,114,350 shares were granted to employees. The exercise prices of these options
are $24.02 and $18.21, respectively.

     This table summarizes all stock options as of December 31, 2001, 2000 and
1999:

<Table>
<Caption>

Shares                                             2001             2000           1999
-----------------------------------------------------------------------------------------
<S>                                           <C>               <C>            <C>
BEGINNING BALANCE                               7,156,600        7,347,961      5,440,403
Granted                                           825,069        1,153,487      2,640,401
Exercised                                      (1,779,548)        (610,345)      (214,724)
Cancelled                                         (83,998)        (734,503)      (518,119)
-----------------------------------------------------------------------------------------
ENDING BALANCE                                  6,118,123        7,156,600      7,347,961
=========================================================================================
WEIGHTED AVERAGE PRICES:
Beginning balance                             $     21.39       $    21.80     $    21.15
Granted price                                       28.75            18.84          23.19
Exercised price                                     21.42            20.73          19.09
Cancelled price                                     21.69            21.91          22.51
-----------------------------------------------------------------------------------------
Ending balance                                $     22.37       $    21.39     $    21.80
=========================================================================================
</Table>

     This table summarizes all outstanding and exercisable stock options as of
December 31, 2001:

<Table>
<Caption>
                               Outstanding Options                              Exercisable Options
                  ----------------------------------------------            ------------------------------------
                                  Weighted
                                  Average               Weighted                               Weighted
                                 Remaining              Average                                Average
Exercise                        Contractual             Exercise                               Exercise
Price Range        Number       Life in Years            Price                   Number         Price
----------------------------------------------------------------------------------------------------------------

               <C>               <C>                 <C>                   <C>             <C>
$16.31-23.99      4,802,959         6.00                $  21.10              2,039,729       $  20.29
$24.00-29.79      1,315,164         6.82                   27.01                474,267          24.15
----------------------------------------------------------------------------------------------------------------
TOTAL             6,118,123                                                   2,513,996
================================================================================================================
</Table>

   Total restricted stock awards granted during the year were 1,108,776 shares
at a weighted average grant date fair value of $29.83.

STOCK BASED COMPENSATION
We issue stock options to employees from time to time and account for these
options under Accounting Principles Board Opinion No. 25 (APB 25). All stock
options issued are granted at the common stock's current market price. This
means we record no compensation expense related to stock options. We also offer
employees a 15% discount from the market price of common stock.

     Since we record options and discounts under APB 25, we must disclose the
pro forma net income and earnings per share (dilutive method) as if we reflected
the estimated fair value of options and discounts as compensation at the date of
grant or issue. For the years ended December 31, 2001, 2000, and 1999, our pro
forma net income and diluted earnings per share would have been as follows:

AQUILA 2001                                                                   55
<Page>

<Table>
<Caption>
In millions, except per share                   2001              2000           1999
----------------------------------------------------------------------------------------
<S>                                           <C>               <C>            <C>
NET INCOME:
  As reported                                 $  279.4          $  206.8       $  160.5
  Pro forma                                      277.0             205.3          155.5
----------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
  As reported                                 $   2.42          $   2.21       $   1.75
  Pro forma                                       2.40              2.19           1.70
========================================================================================
</Table>

     The fair value of stock options granted in 2001, 2000 and 1999 was
estimated on the date of grant using the Black-Scholes option-pricing model. The
weighted average fair values and related assumptions were as follows:

<Table>
<Caption>
                                                2001               2000          1999
----------------------------------------------------------------------------------------
<S>                                           <C>              <C>            <C>
Weighted average fair value per share         $   5.08         $    2.39      $    3.23
Expected volatility                              19.75%            17.78%         17.25%
Risk-free interest rate                           5.06%             6.71%          5.45%
Expected lives                                 8 years           9 years       10 years
Dividend yield                                    3.93%             6.25%          5.10%
========================================================================================
</Table>

NOTE 13: INCOME TAXES

<Table>
<Caption>
                                                        Year Ended December 31,
                                               -----------------------------------------
In millions                                     2001              2000            1999
----------------------------------------------------------------------------------------
<S>                                           <C>               <C>            <C>
CURRENTLY PAYABLE:
  Federal                                     $  189.8          $  168.5       $   58.7
  Foreign                                         20.2              43.4            7.5
  State                                           21.9              17.3           10.0
DEFERRED:
  Federal                                        (23.5)           (101.0)          (5.9)
  State                                           (4.7)             (8.9)          (1.0)
  Investment tax credit amortization              (1.5)             (1.1)          (1.1)
----------------------------------------------------------------------------------------
TOTAL INCOME
  TAX EXPENSE                                 $  202.2          $  118.2       $   68.2
========================================================================================
</Table>

     The principal components of deferred income taxes consist of the following:

<Table>
<Caption>
                                                     December 31,
                                               --------------------------
In millions                                      2001             2000
-------------------------------------------------------------------------
<S>                                           <C>               <C>
DEFERRED TAX ASSETS:
  Alternative minimum tax credit
    carryforward                              $     --          $   43.0
DEFERRED TAX LIABILITIES
  AND CREDITS:
  Accelerated depreciation and
   other plant differences:
   Regulated                                     220.1             209.0
   Non-regulated                                 176.6             170.0
  Regulatory asset                                29.7              57.8
  Mark-to-market                                 (30.2)            (15.6)
  Other, net                                     (48.4)            (16.2)
-------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES
  AND CREDITS                                    347.8             405.0
-------------------------------------------------------------------------
DEFERRED INCOME TAXES AND
  CREDITS, NET                                $  347.8          $  362.0
=========================================================================
</Table>

   Our effective income tax rates differed from the statutory federal income
tax rates primarily due to the following:

<Table>
<Caption>
                                                             December 31,
                                              -----------------------------------------
Percent                                         2001              2000          1999
---------------------------------------------------------------------------------------
<S>                                               <C>               <C>            <C>
STATUTORY FEDERAL INCOME
  TAX RATE                                        35.0%             35.0%          35.0%
TAX EFFECT OF:
  Investment tax credit
    amortization                                   (.3)              (.3)           (.5)
  State income taxes, net
    of federal benefit                             2.7               1.5            2.7
  Difference in tax rate of
    foreign subsidiaries                           (.8)               .4           (2.6)
  Minority interest                                1.9                --             --
  Goodwill                                         1.1                .9             .2
  Other                                            2.4              (1.1)          (5.0)
---------------------------------------------------------------------------------------
EFFECTIVE INCOME
  TAX RATE                                        42.0%             36.4%          29.8%
=======================================================================================
</Table>

     At December 31, 2001, all of our alternative minimum tax credit
carryforwards from prior years have been utilized.

     We have made no provision for U.S. income taxes on undistributed earnings
from our international businesses ($283.3 million at December 31, 2001) because
it is our intention to reinvest those earnings. If we distribute those earnings
in the form of dividends, we 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, 2001, 2000, and 1999
included (in millions) $78.0, $129.3 and $70.7, respectively, from international
operations.

56                                                                   AQUILA 2001
<Page>

NOTE 14: EMPLOYEE BENEFITS

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

<Table>
<Caption>
                                                                                                              Other
                                                                                                           Post-retirement
                                                           Pension Benefits                                   Benefits
                                               --------------------------------------    ------------------------------------------
Dollars in millions                             2001            2000           1999            2001            2000        1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>            <C>             <C>           <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at start of year           $   269.3      $   218.6       $  221.4       $    69.6       $   51.4      $   42.2
Service cost                                        9.7            8.3            7.7             1.1             .9           1.0
Interest cost                                      20.3           16.3           14.8             6.5            3.7           3.2
Plan participants' contribution                      .9             .9             .7             1.4            1.0            .9
Amendments                                         19.3             .3             .3            (9.8)            --            --
Net acquisitions                                     --           42.5             --              --           17.1            --
Actuarial (gain) loss                              19.3           (2.1)         (16.0)           23.9            1.0           7.5
Curtailment (gain) loss                            (1.4)           (.5)            --              .7            (.3)           --
Benefits paid                                     (17.6)         (13.4)         (12.5)           (6.9)          (5.1)         (3.6)
Foreign Currency Exchange changes                  (3.0)          (1.6)           2.2             (.2)           (.1)           .2
-----------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year             $   316.8      $   269.3       $  218.6       $    86.3       $   69.6      $   51.4
===================================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at start of year    $   387.6      $   259.6       $  227.0       $    13.4       $    7.6      $    4.5
Actual return on plan assets                      (49.9)          51.4           40.6              .1             .4            .3
Employer contribution                               1.7            2.1            1.9             4.1            3.6           5.5
Plan participants' obligation                       1.0             .9             .7             1.4            1.0            .9
Net acquisitions                                     --           88.4             --              --            5.9            --
Benefits paid                                     (17.6)         (13.4)         (12.5)           (6.9)          (5.1)         (3.6)
Foreign Currency Exchange changes                  (3.4)          (1.4)           1.9              --             --            --
-----------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year      $   319.4      $   387.6       $  259.6      $     12.1       $   13.4      $    7.6
===================================================================================================================================
Funded status                                 $     2.6      $   118.3       $   41.0       $   (74.2)      $  (56.2)     $  (43.8)
Unrecognized transition amount                     (5.1)          (7.0)          (7.7)           21.6           28.2          26.3
Unrecognized net actuarial (gain) loss             67.5          (45.6)         (13.6)           28.9           10.1           3.8
Unrecognized prior service cost                    28.3           12.7           10.0             4.2            1.4            .3
Additional minimum liability                      (12.2)            --             --              --             --            --
Employer Contribution                                .7             .7             .9             3.6            2.1            --
-----------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                $    81.8      $    79.1       $   30.6       $   (15.9)      $  (14.4)     $  (13.4)
===================================================================================================================================
WEIGHTED AVERAGE ASSUMPTIONS AS OF
   SEPTEMBER 30:
Discount rate                                      7.42%          7.75%          7.61%           7.50%          7.88%         7.75%
Expected return on plan assets                     9.67%          9.47%          9.70%           7.76%          7.87%         7.00%
Rate of compensation increase                      5.21%          4.90%          5.04%           5.40%          5.06%         5.40%
===================================================================================================================================
</Table>

     For measurement purposes, to calculate the annual rate of increase in the
per capita cost of covered health benefits for each future fiscal year, we used
a graded rate starting at 12% in 2002 and decreasing 1% annually until the rate
levels out at 5% for years 2008 and thereafter.

<Table>
<Caption>
                                                         Pension Benefits                        Other Post-retirement Benefits
                                              ---------------------------------------       ---------------------------------------
Dollars in millions                             2001           2000            1999           2001            2000         1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>            <C>             <C>           <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost                                  $     9.7      $     8.3       $    7.7       $     1.1       $     .9      $    1.0
Interest cost                                      20.3           16.3           14.8             6.5            3.7           3.2
Expected return on plan assets                    (36.8)         (27.7)         (23.4)           (1.0)           (.5)          (.4)
Amortization of transition amount                  (1.9)          (1.2)          (1.2)            2.2            1.9           2.0
Amortization of prior service cost                   .8             .6             .5             1.3             .1            .1
Recognized net actuarial (gain) loss               (1.0)          (1.9)            --              .3             --            --
Curtailment (gain) loss                             (.8)          (1.0)            --             1.5            (.3)           --
Regulatory adjustment                              (4.1)          (1.3)            .1              --             --            --
-----------------------------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST                     $   (13.8)     $    (7.9)      $   (1.5)      $    11.9       $    5.8      $    5.9
===================================================================================================================================
</Table>

AQUILA 2001                                                                   57
<Page>

     The U.S. pension plan was amended effective December 1, 1999 to provide the
same pension benefits for almost all participants. The Supplemental Executive
Retirement Plan was amended in 2001 to include certain participants' annual
incentive compensation in the calculation of plan benefits. This amendment
resulted in an $18.3 million increase in plan benefit obligation at December 31,
2001.

     We maintain defined benefit pension plans in the United States and Canada.
The actuarial assumptions used to calculate the benefit obligation and periodic
pension costs for those plans are fundamentally identical. For the United States
plan, plan obligations exceeded plan assets by $.6 million at December 31, 2001.
Plan assets exceed benefit obligations in the years ended December 31, 2000 and
1999 by (in millions) $108.3 and $47.1, respectively. For the Canadian plan,
plan assets exceeded benefit obligations by $3.2 million and $10.0 million (in
U.S. dollars) as of December 31, 2001 and 2000, respectively. For 1999 the
benefit obligation exceeds plan assets by $6.1 million (in U.S. dollars). The
prepaid benefits relating to the United States and Canada for the years ended
December 31, 2001, 2000 and 1999 are (in millions) $66.7 and $15.1, $63.6 and
$15.5, and $27.3 and $3.2, respectively.

     Our health care plans are contributory, with participants' contributions
adjusted annually. The life insurance plans are non-contributory. In estimating
future health care costs, we have assumed future cost-sharing changes. The
expense recognition for health care costs does not necessarily match the cost
estimates due to certain differences in regulatory accounting at domestic
utility operations.

     The assumed health care cost trends significantly affect the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects for 2001.

<Table>
<Caption>
                                                 1 Percentage-Point
                                              ------------------------
In millions                                    Increase      Decrease
-----------------------------------------------------------------------
<S>                                           <C>            <C>
Effect on total of
  service and interest
  cost components                             $      .8      $     (.7)
Effect on post-retirement
  benefit obligation                                7.3           (6.5)
-----------------------------------------------------------------------
</Table>

NOTE 15: MERGERS, ACQUISITIONS AND DIVESTITURES

ACQUISITION OF UNITED KINGDOM ELECTRICITY NETWORK

We have entered into an agreement to purchase Midlands Electricity plc, a
United Kingdom electricity network, from FirstEnergy Corp. The price of this
investment is approximately $362 million, plus the assumption of approximately
$1.7 billion of debt that would be non-recourse to us. If consummated, we expect
to account for this acquisition using the equity method of accounting. Under
terms of our agreement, if the transaction is not completed by April 26, 2002,
either party may terminate the transaction. Although we have received the
necessary regulatory approvals, those approvals require that we have a financial
partner. We are in discussions with FirstEnergy to modify our agreement to allow
us to complete the transaction in a manner consistent with the regulatory
approvals and expect that it will close in March 2002.

QUANTA OWNERSHIP
We are presently arbitrating a dispute with Quanta regarding our right to
acquire additional shares of Quanta. We have informed Quanta's board of
directors that we intend to present an opposition slate of directors at Quanta's
2002 annual meeting of shareholders. As of December 31, 2001, Quanta reported
total assets of $2.0 billion, including $1.0 billion of goodwill, total
liabilities of $842.5 million, including debt of $508.3 million, and equity of
$1.2 billion. Quanta's revenues and net income for 2001 were $2.0 billion and
$85.8 million, respectively.

SALE OF PIPELINE OPERATIONS
On February 1, 2001, we entered into an agreement to sell our wholly owned
subsidiary UtiliCorp Pipeline Systems for our book value of approximately $66
million. We closed the transaction in January 2002.

PURCHASE OF GAS STORAGE INTEREST
On August 23, 2001, Aquila Merchant and a partner agreed to acquire a 12 Bcf
gas storage facility under construction near Lodi, California for $105 million.
Further expenditures to complete construction will increase the total project
cost to $220 million. We expect this acquisition to close in the second quarter
of 2002 after regulatory approval.

UNITEDNETWORKS LTD. STOCK SALE
On April 9, 2001, shares of UnitedNetworks Ltd. were sold to institutional
investors in New Zealand and the United States. This sale reduced Aquila's
effective interest in UnitedNetworks to 55.5%. Net proceeds from the sale
totaled $41 million, which resulted in a $5.8 million pretax gain in the second
quarter.

AQUILA MERCHANT EQUITY OFFERING
An initial public offering of 19,975,000 Class A Aquila Merchant common
shares, including an over-allotment of 2,475,000 shares, closed on April 27,
2001. The offering price was $24.00 per share and raised approximately $446
million in net proceeds. Of the 19,975,000 shares, Aquila Merchant sold
14,225,000 new shares and Aquila sold 5,750,000 previously issued shares. A
pretax gain of $110.8 million, or $.51 per share, was recognized in the second
quarter on the shares sold by Aquila. Upon completion of the offering, Aquila
owned approximately 80% of Aquila Merchant's outstanding shares.

On January 7, 2002, we completed an offer to acquire all of the outstanding
publicly held shares of Aquila Merchant in exchange for shares of Aquila common
stock and subsequent merger of Aquila Merchant with another Aquila subsidiary.
The public shareholders of Aquila Merchant received .6896 shares of Aquila
common stock in a tax-free exchange for each outstanding share of Aquila
Merchant Class A common stock. Approximately 76% of the outstanding public
shares of Aquila Merchant Class A shares were tendered in the offer. In the
subsequent merger, each remaining share of Aquila Merchant's Class A stock was
converted into shares of Aquila common stock at the same ratio as paid in the
exchange offer. Aquila Merchant shareholders holding approximately 1.8 million
shares of Aquila Merchant Class A shares have advised us

58                                                                   AQUILA 2001
<Page>

they intend to exercise dissenters' rights with respect to the merger.

ST. JOSEPH LIGHT & POWER COMPANY
Effective December 31, 2000, St. Joseph Light & Power Company (SJL&P) merged
with us. Under the agreement, SJL&P shareholders received $23.00 in Aquila
common shares for each SJL&P common share held. We issued approximately 6.6
million shares of Aquila common stock with a total value of $190.2 million in
connection with this merger. We also assumed short-term debt of $23.6 million
and long-term debt of $68.1 million. We accounted for the transaction as a
purchase.

GPU INTERNATIONAL
On December 22, 2000, Aquila Merchant purchased GPU International, a company
holding interests in six independent U.S.-based generating plants, for $225
million. We accounted for the transaction as a purchase.

ALINTAGAS
On October 17, 2000, we closed on our $166 million joint acquisition with
United Energy Limited of a 45% cornerstone interest in AlintaGas Limited, a gas
distribution utility in Western Australia. The remaining 55% of the shares of
AlintaGas were sold to the Australian public in a share float on October 17,
2000. Aquila owns approximately 34% of United Energy.

INITIAL PUBLIC OFFERING--UECOMM LIMITED
In September 2000, Uecomm Limited (UEC), formerly a wholly owned subsidiary
of United Energy Limited, sold 34% of its common stock to the public, reducing
United Energy's ownership share of UEC to 66%. As a result, we recorded a $44
million gain from the public offering in "Gain on sale of subsidiary stock."

TRANSALTA ASSETS
On August 31, 2000, we completed our acquisition of TransAlta Corporation's
Alberta-based electricity distribution and retail assets for approximately $480
million. We operate this business as UtiliCorp Networks Canada (Alberta) Ltd. On
November 28, 2000, we sold the retail assets to Epcor, an Edmonton-based
utility, for approximately $75 million.

PULSE ENERGY
On June 30, 2000, United Energy and Energy Partnership (Ikon Energy Pty Ltd)
closed a transaction that resulted in the formation of Pulse Energy, a joint
venture with Shell Australia Ltd and Woodside Energy Ltd. United Energy
contributed its electric retail customers in exchange for $210 million and Ikon
contributed its gas retail customers in exchange for $281 million. United Energy
and Ikon each loaned Pulse $70 million, and hold a combined 50% ownership of
Pulse.

SALE OF WEST VIRGINIA POWER DIVISION
On September 9, 1999, we agreed to sell our West Virginia Power division to
Allegheny Energy, Inc. for $75 million. The sale closed on December 31, 1999 and
resulted in a 1999 fourth quarter gain of $4.5 million. In addition to the sale
of West Virginia Power's electric and natural gas distribution assets, we
entered into a separate agreement for Allegheny to purchase Appalachian Electric
Heating, our heating and air conditioning service business in West Virginia.

AQUILA GAS PIPELINE TENDER OFFER
On May 7, 1999, approximately 3.4 million shares of Aquila Gas Pipeline
Corporation (AQP) were tendered to us at $8.00. The 3.4 million shares together
with the 24.0 million shares already held represented 93% of AQP's total shares
outstanding. All remaining shares not tendered were converted in a "short-form"
merger into a right to receive $8.00 per share. Upon completion of the
short-form merger on May 14, 1999, AQP ceased being a publicly traded company
and became wholly owned by Aquila Merchant.

MULTINET/IKON
In March 1999, we acquired a 25.5% equity interest in two Melbourne-area gas
businesses, the Multinet gas distribution utility and the Ikon Energy gas retail
sales business, for $224 million. These investments are accounted for under the
equity method.

NATURAL GAS STORAGE FACILITY
On March 29, 1999, we agreed to purchase Western Gas Resources Storage Inc.
The $100 million cash transaction increased our ownership and control of
strategically located natural gas storage assets. The 2,400-acre subsurface
facility in Katy, Texas has a storage capacity of 20 billion cubic feet. The
purchase closed on May 3, 1999.

INTEREST IN NEW ZEALAND UTILITIES
On March 22, 2000, we expanded our presence in the New Zealand energy market
by announcing an agreement to purchase the natural gas distribution network and
North Island contracting business of Orion New Zealand Limited for about $274
million. The transaction had an effective date of April 1, 2000.

   On June 30, 2000, we sold a portion of our New Zealand investment to a
private equity investor (minority shareholder) that reduced our effective
ownership in UnitedNetworks. In connection with the transaction we granted the
minority shareholder substantive participating and protective rights and
therefore no longer consolidate our New Zealand operations for financial
statement purposes.

PRO FORMA OPERATING RESULTS
The following reflects our results for the two years ended December 31, 2000,
assuming significant acquisitions during the year ended December 31, 2000
occurred as of the beginning of each of the respective periods:

<Table>
<Caption>
                                                   (Unaudited)
                                              Year Ended December 31,
                                           ----------------------------
Dollars in millions, except per share            2000          1999
-----------------------------------------------------------------------
<S>                                         <C>            <C>
Sales                                       $  29,418.2    $  19,206.0
Net income                                        243.1          185.9
Diluted earnings per
   common share                             $      2.42    $      1.88
=======================================================================
</Table>

     The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had we made the acquisitions at the
beginning of the respective periods, or of results which may occur in the
future. The 2000 pro forma operating results include certain unusually large
mark-to-market gains. The pro forma operating results do not include adjustments
for synergies or other adjustments to the business operations. There were no
significant acquisitions in 2001.

AQUILA 2001                                                                   59
<Page>

NOTE    16. SEGMENT INFORMATION

We manage our business in two distinct groups, Merchant Services and Global
Networks Group. Merchant Services is further divided and managed in two
segments, the Wholesale Services segment and the Capacity Services segment. Our
Global Networks Group is divided and managed in the International Networks
segment and Domestic Networks segment. Each segment is managed based on
operating results, expressed as earnings before interest and taxes. Generally,
decisions on finance, dividends and taxes are made at the Corporate and other
level.

A. BUSINESS LINES

<Table>
<Caption>
                                                            Year Ended December 31,
                                                   -------------------------------------------
Dollars in millions                                     2001                 2000         1999
----------------------------------------------------------------------------------------------
<S>                                                <C>          <C>     <C>         <C>
SALES:
Merchant Services--
  Wholesale Services                               $36,607.1     90.7%  $25,662.5   $ 16,345.2
  Capacity Services                                  1,162.9      2.9       815.6        384.8
----------------------------------------------------------------------------------------------
TOTAL MERCHANT SERVICES                             37,770.0     93.6    26,478.1     16,730.0
----------------------------------------------------------------------------------------------
Global Networks Group--
  International Networks                               353.9       .9       492.4        309.2
  Domestic Networks                                  2,292.4      5.6     2,058.1      1,578.8
----------------------------------------------------------------------------------------------
TOTAL GLOBAL NETWORKS GROUP                          2,646.3      6.5     2,550.5      1,888.0
----------------------------------------------------------------------------------------------
Corporate and other, including eliminations            (39.5)     (.1)      (53.7)         3.5
----------------------------------------------------------------------------------------------
TOTAL                                              $40,376.8    100.0%  $28,974.9   $ 18,621.5
==============================================================================================

<Caption>
                                                            Year Ended December 31,
                                                   -------------------------------------------
Dollars in millions                                     2001                 2000         1999
----------------------------------------------------------------------------------------------
<S>                                                   <C>       <C>        <C>          <C>
EARNINGS BEFORE INTEREST AND TAXES:*
Merchant Services--
  Wholesale Services                                  $261.5     37.1%     $145.3       $ 40.7
  Capacity Services                                    113.7     16.1        45.8         39.0
  Minority Interest                                    (26.4)    (3.7)         --           --
  Gain on sale of Aquila Merchant shares by Aquila     110.8     15.7          --           --
----------------------------------------------------------------------------------------------
TOTAL MERCHANT SERVICES                                459.6     65.2       191.1         79.7
----------------------------------------------------------------------------------------------
Global Networks Group--
  International Networks                               121.5     17.3       158.0        129.9
  Domestic Networks                                    117.9     16.7       215.6        208.3
----------------------------------------------------------------------------------------------
TOTAL GLOBAL NETWORKS GROUP                            239.4     34.0       373.6        338.2
----------------------------------------------------------------------------------------------
Corporate and other                                      5.7       .8       (24.7)        (3.9)
----------------------------------------------------------------------------------------------
TOTAL                                                 $704.7    100.0%     $540.0       $414.0
==============================================================================================
</Table>

*    INCLUDED IN EBIT FOR EACH SEGMENT FOR THE YEARS ENDED DECEMBER 31, 2001,
     2000 AND 1999, RESPECTIVELY, IS EQUITY IN EARNINGS OF INVESTMENTS AS
     FOLLOWS (IN MILLIONS): WHOLESALE SERVICES, $.2 IN 2001; CAPACITY SERVICES,
     $32.4, $18.4 AND $34.7; INTERNATIONAL NETWORKS, $61.5, $44.3 AND $21.7; AND
     DOMESTIC NETWORKS, $28.5, $52.9 AND $13.2.

<Table>
<Caption>
                                                            Year Ended December 31,
                                                   -------------------------------------------
Dollars in millions                                     2001                 2000         1999
----------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>      <C>          <C>
DEPRECIATION AND AMORTIZATION EXPENSE:
Merchant Services--
  Wholesale Services                                $   16.2      5.9%   $   16.5     $    9.6
  Capacity Services                                     39.3     14.4        32.3         29.5
----------------------------------------------------------------------------------------------
TOTAL MERCHANT SERVICES                                 55.5     20.3        48.8         39.1
----------------------------------------------------------------------------------------------
Global Networks Group--
  International Networks                                55.8     20.5        45.5         42.2
  Domestic Networks                                    162.1     59.4       129.3        115.3
----------------------------------------------------------------------------------------------
TOTAL GLOBAL NETWORKS GROUP                            217.9     79.9       174.8        157.5
----------------------------------------------------------------------------------------------
Corporate and other                                      (.5)     (.2)        1.4         (2.9)
----------------------------------------------------------------------------------------------
TOTAL                                               $  272.9    100.0%   $  225.0     $  193.7
==============================================================================================
</Table>

60                                                                   AQUILA 2001
<Page>

<Table>
<Caption>
                                                           December 31,
                                                   -------------------------------
Dollars in millions                                      2001                 2000
----------------------------------------------------------------------------------
<S>                                                <C>           <C>     <C>
IDENTIFIABLE ASSETS:
Merchant Services--
  Wholesale Services                               $ 4,653.5     38.9%   $ 6,505.0
  Capacity Services                                  1,595.1     13.4      1,382.1
----------------------------------------------------------------------------------
TOTAL MERCHANT SERVICES                              6,248.6     52.3      7,887.1
----------------------------------------------------------------------------------
Global Networks Group--
  International Networks                             1,864.9     15.6      2,174.0
  Domestic Networks                                  3,512.5     29.4      3,584.7
----------------------------------------------------------------------------------
TOTAL GLOBAL NETWORKS GROUP                          5,377.4     45.0      5,758.7
----------------------------------------------------------------------------------
Corporate and other                                    322.3      2.7        381.1
----------------------------------------------------------------------------------
TOTAL                                              $11,948.3    100.0%   $14,026.9
==================================================================================

<Caption>
                                                            Year Ended December 31,
                                                   -------------------------------------------
Dollars in millions                                     2001                 2000         1999
----------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>       <C>          <C>
CAPITAL EXPENDITURES:
Merchant Services--
  Wholesale Services                                $   36.1      5.8%    $  32.2      $   4.7
  Capacity Services                                    237.5     37.9        23.9        104.2
----------------------------------------------------------------------------------------------
TOTAL MERCHANT SERVICES                                273.6     43.7        56.1        108.9
----------------------------------------------------------------------------------------------
Global Networks Group--
  International Networks                                95.7     15.3        24.2         23.0
  Domestic Networks                                    223.3     35.6       249.9        130.2
----------------------------------------------------------------------------------------------
TOTAL GLOBAL NETWORKS GROUP                            319.0     50.9       274.1        153.2
----------------------------------------------------------------------------------------------
Corporate and other                                     33.5      5.4        24.8         39.0
----------------------------------------------------------------------------------------------
TOTAL                                               $  626.1    100.0%    $ 355.0      $ 301.1
==============================================================================================
</Table>

B. GEOGRAPHICAL INFORMATION

<Table>
<Caption>
                                                            Year Ended December 31,
                                                   -------------------------------------------
Dollars in millions                                     2001                 2000         1999
----------------------------------------------------------------------------------------------
<S>                                                <C>          <C>     <C>          <C>
SALES:
United States                                      $32,935.7     81.6%  $22,671.5    $15,348.5
Canada                                               3,806.5      9.4     4,358.0      2,381.8
Other international                                  3,634.6      9.0     1,945.4        891.2
----------------------------------------------------------------------------------------------
TOTAL                                              $40,376.8    100.0%  $28,974.9    $18,621.5
==============================================================================================

<Caption>
                                                            December 31,
                                                   ------------------------------
Dollars in millions                                     2001                 2000
---------------------------------------------------------------------------------
<S>                                                 <C>         <C>      <C>
LONG-LIVED ASSETS:*
United States                                       $4,116.3     74.1%   $3,819.9
Canada                                                 482.3      8.7       438.4
Other international                                    958.4     17.2       895.2
---------------------------------------------------------------------------------
TOTAL                                               $5,557.0    100.0%   $5,135.5
=================================================================================
</Table>

*    INCLUDES PROPERTY, PLANT AND EQUIPMENT, NET AND INVESTMENTS IN
     UNCONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS.

AQUILA 2001                                                                   61
<Page>

NOTE 17: COMMITMENTS AND CONTINGENCIES

COMMITMENTS
We have various commitments relating to power, gas and coal supply commitments
and lease commitments as summarized below. As with any estimates, the actual
amounts paid or received could differ materially.

<Table>
<Caption>
Dollars in millions                   2002     2003     2004     2005     2006   Thereafter
-------------------------------------------------------------------------------------------
<S>                                 <C>      <C>      <C>      <C>      <C>        <C>
Future minimum lease payments       $ 31.2   $ 31.7   $ 31.7   $ 27.7   $ 21.6     $  164.9
Purchased power obligations          191.8    240.4    245.0    199.4    187.2      1,456.3
Purchased gas obligations            104.8      6.7       --       --       --           --
Coal contracts                        82.9     54.8     53.7     41.7     33.8        406.0
===========================================================================================
</Table>

     Future minimum lease payments primarily relate to coal cars and office
space. Rent expense for the years 2001, 2000, and 1999 was (in millions) $35.6,
$23.9, and $26.9, respectively.

     In 1998 we entered into a 15-year agreement to obtain the rights to
dispatch 279 megawatts of purchased power from a facility owned by a third
party. As part of the agreement we will provide the natural gas to the power
plant and will be able to dispatch the power. This facility became operational
in July 2000.

     In October 2000, we announced two agreements, a 15-year agreement and a
20-year agreement, for the power output of two natural gas-fired peaking
facilities. The agreements are expected to provide us with approximately 1,184
megawatts of additional capacity. One of these plants became operational in the
summer of 2001 and the other is expected to be operational in the summer of
2002.

     In January 2000, we formed a joint venture with Calpine Corporation
(Calpine) to develop a 580-megawatt, combined-cycle power plant in Missouri. In
September 2000, the joint venture closed on the financing of this project. Prior
to completion of construction, the project costs are funded through a project
level construction loan facility. After completion of construction, the joint
venture will sell the facility to a group of investors and enter into a 30-year
lease of the facility. This is expected to occur in the first half of 2002. This
lease is classified as an operating lease in the partnership financial
statements. As such, we have included the annual purchased power above. We
manage the plant's fuel supply and the marketing of the plant's power. Calpine
oversees construction, operation and maintenance of the plant.

     In November 2000, we entered into a $145.0 million synthetic lease through
a special purpose entity to finance a 340-megawatt power plant, currently under
construction. We expect this plant to be completed by May 2002. The lease has a
term of seven years. During construction, we guarantee up to 89.95% of
construction costs, and under certain limited circumstances, we guarantee up to
100% of the construction cost. As of December 31, 2001, approximately $78.9
million had been funded under this lease agreement. We have guaranteed up to 82%
of the power plant's value at the end of the lease under the agreement.

     In May 2001, we entered into a five-year operating lease through a special
purpose entity for 10 GE turbines plus related equipment. Lease payments are not
required during the construction period and will commence at date of operation,
or, if a site has not been selected, once construction of the turbines is
completed. We can lease up to $265 million in turbines and equipment under this
agreement. During construction, we guarantee up to 89.99% of construction costs,
and under certain limited circumstances, we guarantee up to 100% of the
construction cost. As of December 31, 2001, approximately $99 million had been
spent under the above agreement. Under the terms of the turbine and equipment
lease, we must cash collateralize cumulative borrowings of the lessor above
$42.4 million. As of December 31, 2001, our outstanding collateral balance was
approximately $56.2 million, which is included in Deferred Charges and Other
Assets in the consolidated balance sheets. Upon expiration of the lease, we may
either extend the lease if accepted, refinance the agreement or sell the
equipment on behalf of the lessor. We have guaranteed up to 84% of the lessor's
unrecovered principal and costs should the sale proceeds not be sufficient.

PURCHASE OF UNITED KINGDOM ELECTRICITY NETWORK
As further discussed in Note 15, we have entered into an acquisition agreement
that is expected to close in the first quarter of 2002. Under the terms of the
agreement, we are committed to purchase an equity investment in certain United
Kingdom electricity networks estimated to be valued at approximately $362
million.

PURCHASE OF GAS STORAGE INTEREST
In August 2001, Aquila Merchant and a partner agreed to purchase a 12 Bcf gas
storage facility under development in Lodi, California for $105 million. Further
capital expenditures are expected to bring the total project cost to $220
million. We expect this acquisition to close in the second quarter of 2002 after
regulatory approval. As of December 31, 2001, we have invested approximately
$18.8 million. In order to complete construction of the project, interim bank
financing of up to $60 million was put in place and guaranteed by Aquila. As of
December 31, 2001, $37.5 million was outstanding under this facility. Once the
acquisition closes, the interim financing will be replaced with $170 million of
non-recourse project level debt, in addition to a net investment of $50 million
by Aquila Merchant and its partner.

NEW ZEALAND INTEREST
In connection with the sale of a 21% preferred and common stock interest in our
New Zealand electricity distribution business to a financial partner in June
2000, the financial partner received an option that entitles it to sell their
equity interest to us on the third anniversary of the initial sale, or on the
occurrence of certain events. This purchase would be exercised at par value for
the preferred stock and fair value for the common stock for a total value of
approximately $33 million. If the option were exercised, we would be required to
include the financial statements of this operation in our consolidated financial
statements. This operation had total assets of approximately $1.0 billion and
long-term debt of $520.6 million as of December 31, 2001. We expect to extend or
remove this option before it matures and do not expect to reconsolidate our New
Zealand interests.

LEGAL
A consolidated lawsuit was filed in connection with the Aquila recombination.
The plaintiffs' initial claims for equitable relief have been denied by the
courts. We do not believe the pending litigation will have an outcome materially
adverse to us.

     We have a dispute with an insurance company regarding certain indemnity

62                                                                   AQUILA 2001
<Page>

agreements we have with them. These agreements relate to surety bonds issued to
support our obligations under certain long-term gas supply contracts. The
maximum amount that the insurance company could be required to pay under the
surety bonds is approximately $570 million. Notwithstanding our continued
performance under the gas supply agreements and strong financial position, this
company has demanded that we replace it as the surety, or alternatively, that we
post collateral to secure all of their obligations under the agreements. We
believe there is no merit to the insurance company's position given our full
compliance with the related gas supply contracts, and that a court would agree
with our interpretation of the indemnity agreements.

     The company is subject to various other legal proceedings and claims that
arise in the ordinary course of business operations. We do not expect the amount
of liability, if any, from these actions to materially affect our consolidated
financial position or results of operations.

ENVIRONMENTAL
We are subject to various environmental laws. These include regulations
governing air and water quality and the storage and disposal of hazardous or
toxic wastes. We continually assess ways to ensure we comply with laws and
regulations on hazardous materials and hazardous waste and remediation
activities.

     We own or previously operated former manufactured gas plant (MGP) sites
which may, or may not, require some form of environmental remediation. We have
contacted appropriate federal and state agencies and are working to determine
what, if any, specific cleanup activities these sites may require.

     As of December 31, 2001, we estimate probable cleanup costs on our
identified MGP sites to be $9.0 million. This amount is our best estimate of the
costs of investigation and remediation of our identified MGP sites, and is the
amount we consider to be probable for future investigation and remediation of
these sites. This estimate is based upon a comprehensive review of the potential
costs associated with conducting investigative and remedial actions at our
identified MGP sites, as well as the likelihood of whether such actions will be
necessary. There are also additional costs that we consider to be less likely
but still "reasonably possible" to be incurred at these sites. Based upon the
results of studies at these sites and our knowledge and review of potential
remedial action options, it is reasonably possible that these additional costs
could exceed our best estimate by approximately $31.1 million. This estimate
could change materially once we have investigated further. It could also be
affected by the actions of environmental agencies and the financial viability of
other responsible parties. Ultimate liability also may be affected significantly
if we are held responsible for parties unable to contribute financially to the
cleanup effort.

     We have received favorable rate orders that enable us to recover
environmental cleanup costs in certain jurisdictions. In other jurisdictions,
there are favorable regulatory precedents for recovery of these costs. We are
also pursuing recovery from insurance carriers and other potentially responsible
parties.

     In May 2000, the state of Missouri adopted a revised regulation that
requires reduction of nitrous oxide (NOx) from our power plants. We estimate the
cost of compliance to be $21.9 million in capital costs and $2.2 million in
annual operation and maintenance expense. The new standard is effective in May
2003.

     In December 2000, the U.S. Environmental Protection Agency (EPA) announced
that it would regulate mercury emissions from coal- and oil-fired power plants.
The EPA is expected to propose regulations by December 2003 and issue final
regulations by December 2004. The impact of this action on our power plants
cannot be determined until final regulations are issued.

     We do not expect final resolution of these environmental matters to have a
material adverse affect on our financial position or results of operations.

RATE PROCEEDINGS
We filed a $9.8 million Minnesota gas rate case in August 2000. The case is
pending before the Minnesota Utilities Commission with an interim rate increase
of approximately $5.2 million in effect at this time. We filed a $14.2 million
Kansas electric rate case in December 2000. A final order for an increase of
$3.9 million became effective in August 2001. In June 2001, we filed for a $49.4
million increase in our Missouri electric rates. Approximately $39 million of
the requested increase related to anticipated increased fuel and purchased power
costs that did not materialize. In February 2002, we reached a negotiated
settlement with the Commission staff and all intervenors that will result in a
$4.3 million rate reduction.

     In December 2001, we filed for an annual rate increase in Alberta of about
$30 million along with an application for a performance-based rate-setting
mechanism. We expect hearings to be held in May 2002.

NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED)

Financial results for interim periods do not necessarily indicate trends for any
12-month period. Quarterly results can be affected by the timing of
acquisitions, the effect of weather on sales, and other factors typical of
utility operations and energy related businesses.

<Table>
<Caption>
                                                      2001 Quarters                              2000 Quarters
                                     ------------------------------------------ ----------------------------------------
In millions, except per share            First   Second        Third    Fourth     First    Second     Third      Fourth
------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>        <C>       <C>       <C>       <C>       <C>        <C>
SALES                                $11,980.0   $10,441.4  $9,315.5  $8,639.9  $4,609.1  $5,761.0  $7,998.9   $10,605.9
Gross profit                             506.2       559.4     343.8     378.6     317.9     323.2     267.8       519.8
Net income                                73.5       143.2      68.9      (6.2)     54.4      29.3      74.9        48.2
Earnings per common share:*
  Basic                              $     .71   $    1.26  $    .60  $   (.05) $    .59  $    .32  $    .80   $     .51
  Diluted                                  .69        1.21       .58      (.05)      .59       .31       .80         .50
========================================================================================================================
Cash dividend per common share       $     .30   $     .30  $    .30  $    .30  $    .30  $    .30  $    .30   $     .30
Market price per common share:
  High                               $   32.40   $   37.85  $  33.00  $  31.80  $  20.06  $  21.88  $  28.50   $   31.31
  Low                                    24.81       29.35     26.60     21.85     15.19     17.31     19.88       23.94
========================================================================================================================
</Table>

*    THE SUM OF THE QUARTERLY EARNINGS PER SHARE AMOUNTS MAY DIFFER FROM THAT
     REFLECTED IN NOTE 1 DUE TO THE WEIGHTING OF COMMON SHARES OUTSTANDING
     DURING EACH OF THE RESPECTIVE PERIODS.

AQUILA 2001                                                                   63
<Page>

REPORT OF MANAGEMENT

The management of Aquila, Inc. is responsible for the information that appears
in this annual report, including its accuracy. We prepared the accompanying
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. In addition to selecting
appropriate accounting principles, we are responsible for the way information is
presented and for its reliability. To report financial results we must often
make estimates based on currently available information and judgments of current
conditions and circumstances.

     We have set up well-developed systems of internal control to ensure the
integrity and objectivity of the consolidated financial information in this
report. These systems are designed to provide reasonable assurance that Aquila's
assets are safeguarded and that the transactions are properly authorized and
recorded in accordance with the appropriate accounting principles.

     Through its Audit Committee, the Board of Directors participates in the
process of reporting financial information. The Audit Committee selects our
independent accountants. It also reviews, along with management, our financial
reporting and internal accounting controls, policies and practices.

/s/ Robert F. Jackson, Jr.
Robert F. Jackson, Jr.
Audit Committee Chairman

/s/ Dan Streek
Dan Streek
Chief Financial Officer

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AQUILA, INC.:

We have audited the accompanying consolidated balance sheets of Aquila, Inc.
(formerly UtiliCorp United Inc.) and subsidiaries as of December 31, 2001 and
2000 and the related consolidated statements of income, common shareholders'
equity, comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2001. 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 auditing standards generally
accepted in the United States of America. 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 Aquila, Inc.
and subsidiaries as of December 31, 2001 and 2000 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.

/s/ Arthur Andersen LLP
Arthur Andersen LLP
Kansas City, Missouri
February 5, 2002

64                                                                   AQUILA 2001
<Page>

DOMESTIC NETWORKS STATISTICS

<Table>
<Caption>
                                    10-Year
                                Average Annual
Dollars in millions               Growth Rate             2001                                 2000        1999
---------------------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>                   <C>            <C>         <C>
ELECTRIC OPERATIONS
SALES:
  Residential                          6.4%          $   269.7              35.6%         $   234.7   $   236.4
  Commercial                           8.1%              186.6              24.6              162.6       162.1
  Industrial                          10.6%               97.2              12.8               83.4        77.2
  Other                               18.5%              204.7              27.0              236.9       199.7
---------------------------------------------------------------------------------------------------------------
TOTAL SALES                            9.6%          $   758.2             100.0%         $   717.6   $   675.4
===============================================================================================================
MWH SALES (000'S):
  Residential                          7.4%              3,847              29.3%             3,137       3,130
  Commercial                           9.4%              3,209              24.4              2,641       2,654
  Industrial                          11.8%              2,325              17.7              1,874       1,838
  Other                               19.1%              3,762              28.6              4,522       4,421
---------------------------------------------------------------------------------------------------------------
TOTAL MWH SALES                       11.0%             13,143             100.0%            12,174      12,043
===============================================================================================================
CUSTOMERS AT YEAR END:
  Residential                          2.6%            368,682              85.6%           349,165     299,995
  Commercial                           2.7%             57,939              13.4             54,901      45,404
  Industrial                           5.8%                469                .1                460         317
  Other                                4.0%              3,836                .9              3,967       3,590
---------------------------------------------------------------------------------------------------------------
TOTAL CUSTOMERS                        2.7%            430,926             100.0%           408,493     349,306
===============================================================================================================
GENERATION MIX:
  Coal                                                    90.8%                                84.8%       85.4%
  Natural gas and oil                                      9.2                                 15.2        14.6
---------------------------------------------------------------------------------------------------------------
TOTAL                                                    100.0%                               100.0%      100.0%
===============================================================================================================
GENERATING CAPABILITY (MW):
  Coal                                                   1,184              56.0%             1,174         895
  Natural gas and oil                                      931              44.0                912         802
---------------------------------------------------------------------------------------------------------------
TOTAL GENERATING CAPABILITY                              2,115             100.0%             2,086       1,697
===============================================================================================================

GAS OPERATIONS
SALES:
  Residential                          8.9%          $   603.0              62.5%         $   516.3   $   398.1
  Commercial                           8.1%              258.0              26.7              213.8       161.7
  Industrial                          (6.4%)              47.0               4.9               43.4        29.3
  Other                                7.0%               56.3               5.9               53.0        49.1
---------------------------------------------------------------------------------------------------------------
TOTAL SALES                            6.9%          $   964.3             100.0%         $   826.5   $   638.2
===============================================================================================================
MCF SALES (000's):
  Residential                          1.7%             66,858              30.9%            72,648      70,082
  Commercial                            .2%             31,474              14.5             34,247      33,418
  Industrial                         (13.0%)             7,664               3.5              8,247       7,305
  Other                              (13.9%)               431                .2                607       1,334
---------------------------------------------------------------------------------------------------------------
TOTAL MCF SALES                       (1.2%)           106,427              49.1            115,749     112,139
  Gas transportation                    .2%            110,132              50.9            125,959     135,692
---------------------------------------------------------------------------------------------------------------
TOTAL SALES AND TRANSPORTATION         (.5%)           216,559             100.0%           241,708     247,831
===============================================================================================================
CUSTOMERS AT YEAR END:
  Residential                          4.2%            783,409              89.6%           773,017     749,219
  Commercial                           3.0%             78,062               8.9             77,319      71,933
  Industrial                          (4.9%)             2,226                .3              2,361       1,354
  Other                               34.4%             10,341               1.2             10,019       8,665
---------------------------------------------------------------------------------------------------------------
TOTAL CUSTOMERS                        4.2%            874,038             100.0%           862,716     831,171
===============================================================================================================
</Table>

AQUILA 2001                                                                   65
<Page>

SELECTED 11-YEAR FINANCIAL DATA(a)

<Table>
<Caption>
                                                10-Year
                                            Average Annual
Dollars in millions except per share          Growth Rate             2001           2000             1999            1998
--------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>            <C>              <C>             <C>
STATEMENT OF INCOME
Total sales                                      43.7%           $40,376.8      $28,974.9        $18,621.5       $12,563.4
Total cost of sales                              53.0%            38,588.8       27,546.2         17,464.7        11,596.0
--------------------------------------------------------------------------------------------------------------------------
Gross profit                                     13.0%             1,788.0        1,428.7          1,156.8           967.4
Total expenses, net                              12.9%             1,083.3          888.7            742.8           616.0
--------------------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes               13.2%               704.7          540.0            414.0           351.4
Total interest expense                           10.5%               223.1          215.0            185.3           132.6
Income tax expense                               16.6%               202.2          118.2             68.2            86.6
--------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary items
  and effects of accounting changes              13.7%               279.4          206.8            160.5           132.2
Extraordinary items and effects of
  accounting changes                                                    --             --               --              --
--------------------------------------------------------------------------------------------------------------------------
Net income                                       13.7%               279.4          206.8            160.5           132.2
Preference and preferred dividends                                      --             --               --              --
--------------------------------------------------------------------------------------------------------------------------
Earnings Available for Common Shares             14.9%           $   279.4      $   206.8        $   160.5       $   132.2
==========================================================================================================================
COMMON STOCK DATA
Diluted earnings per common share                 4.8%           $    2.42      $    2.21        $    1.75       $    1.63
Return on average common equity                  (1.3%)              11.70%         13.46%           10.80%          11.43%
Cash dividends paid per common share              1.6%           $     1.20     $    1.20        $    1.20       $    1.20
Book value per common share at year end           5.6%               22.01          17.94            16.34           15.83
Market price of common stock at year end          2.9%               25.17          31.00            19.44           24.46
==========================================================================================================================
CAPITALIZATION
Common shareholders' equity                                      $ 2,551.6      $ 1,799.6        $ 1,525.4       $ 1,446.3
Preference and preferred stock                                          --             --               --              --
Company-obligated preferred securities (b)                           350.0          450.0            350.0           100.0
Short-term debt                                                      548.6          501.0            248.9           235.6
Long-term debt (b)                                                 2,327.0        2,397.6          2,245.1         1,625.4
--------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION                                             $ 5,777.2      $ 5,148.2        $ 4,369.4       $ 3,407.3
==========================================================================================================================
CAPITALIZATION RATIOS:
Common shareholders' equity                                           44.2%          35.0%            34.9%           42.5%
Preference and preferred stock                                          --             --               --              --
Company-obligated preferred securities (b)                             6.0            8.7              8.0             2.9
Short-term debt                                                        9.5            9.7              5.7             6.9
Long-term debt (b)                                                    40.3           46.6             51.4            47.7
--------------------------------------------------------------------------------------------------------------------------
Total                                                                100.0%         100.0%           100.0%          100.0%
==========================================================================================================================
DEBT RATINGS
Fitch Ratings                                                         BBB-            BBB              BBB             BBB
Moody's Investors Service                                             Baa3           Baa3             Baa3            Baa3
Standard and Poor's Corporation                                        BBB            BBB              BBB             BBB
==========================================================================================================================
</Table>

(a) AMOUNTS PRIOR TO 1999 MAY NOT REFLECT RECLASSIFICATIONS TO CONFORM TO
    THE 2001 PRESENTATION, AND MAY NOT CONSISTENTLY REFLECT CHANGES IN
    ACCOUNTING POLICIES THAT MAY HAVE OCCURRED DURING THE EIGHT YEARS PRIOR
    TO 1999.
(b) INCLUDES CURRENT MATURITIES.

66                                                                   AQUILA 2001
<Page>

<Table>
<Caption>

Dollars in millions except per share             1997         1996          1995       1994         1993         1992         1991
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>        <C>          <C>          <C>          <C>
STATEMENT OF INCOME
Total sales                                  $8,926.3    $ 4,332.3      $2,792.6   $2,398.1     $2,746.1     $1,298.9     $1,075.2
Total cost of sales                           7,972.0      3,420.3       1,886.1    1,575.8      1,960.6        707.5        549.9
----------------------------------------------------------------------------------------------------------------------------------
Gross profit                                    954.3        912.0         906.5      822.3        785.5        591.4        525.3
Total expenses, net                             595.2        585.8         652.9      582.3        578.6        407.8        321.6
----------------------------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes              359.1        326.2         253.6      240.0        206.9        183.6        203.7
Total interest expense                          135.3        139.7         121.8       93.5         90.5         99.1         82.5
Income tax expense                               89.7         80.7          52.0       52.1         30.0         31.6         43.6
----------------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary items
  and effects of accounting changes             134.1        105.8          79.8       94.4         86.4         52.9         77.6
Extraordinary items and effects of
  accounting changes                             12.0           --            --         --           --           --           --
----------------------------------------------------------------------------------------------------------------------------------
Net income                                      122.1        105.8          79.8       94.4         86.4         52.9         77.6
Preference and preferred dividends                 .3          2.1           2.1        3.0          6.9          6.9          7.8
----------------------------------------------------------------------------------------------------------------------------------
Earnings Available for Common Shares         $  121.8    $   103.7      $   77.7   $   91.4     $   79.5     $   46.0     $   69.8
==================================================================================================================================
COMMON STOCK DATA
Diluted earnings per common share            $   1.51    $    1.46      $   1.14   $   1.37     $   1.28     $    .87     $   1.51
Return on average common equity                 10.27%       10.31%         8.40%     10.24%        9.84%        6.93%       13.32%
Cash dividends paid per common share         $   1.17    $    1.17      $   1.15   $   1.13     $   1.08     $   1.07     $   1.03
Book value per common share at year end         14.43        14.50         13.73      13.49        13.51        12.44        12.79
Market price of common stock at year end        25.87        18.00         19.59      17.67        21.17        18.42        19.00
==================================================================================================================================
CAPITALIZATION
Common shareholders' equity                  $1,163.6    $ 1,158.0      $  946.3      906.8     $  851.7     $  661.1     $  660.7
Preference and preferred stock                     --         25.0          25.4       25.4         83.9         95.1         97.1
Company-obligated preferred securities (b)      100.0        100.0         100.0         --           --           --           --
Short-term debt                                 113.8        252.0         288.6      182.4         70.0        230.9        111.0
Long-term debt (b)                            1,508.9      1,496.4       1,370.5    1,115.7      1,011.5        896.7        931.6
----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION                         $2,886.3    $ 3,031.4      $2,730.8   $2,230.3     $2,017.1     $1,883.8     $1,800.4
==================================================================================================================================
CAPITALIZATION RATIOS:
Common shareholders' equity                      40.3%        38.2%         34.7%      40.7%        42.2%        35.1%        36.7%
Preference and preferred stock                     --           .8            .9        1.1          4.2          5.0          5.4
Company-obligated preferred securities (b)        3.5          3.3           3.7         --           --           --           --
Short-term debt                                   3.9          8.3          10.6        8.2          3.5         12.3          6.2
Long-term debt (b)                               52.3         49.4          50.1       50.0         50.1         47.6         51.7
----------------------------------------------------------------------------------------------------------------------------------
Total                                           100.0%       100.0%        100.0%     100.0%       100.0%       100.0%       100.0%
==================================================================================================================================
DEBT RATINGS
Fitch Ratings                                     BBB          BBB           BBB        BBB          BBB          BBB          BBB
Moody's Investors Service                        Baa3         Baa3          Baa3       Baa3         Baa3         Baa2         Baa2
Standard and Poor's Corporation                   BBB          BBB           BBB        BBB          BBB          BBB          BBB
==================================================================================================================================
</Table>

AQUILA 2001                                                                   67
<Page>

INVESTOR INFORMATION

www.aquila.com

Information you'll find on our website includes our news releases, annual
reports, live stock quotes, audio and video of management presentations,
documents filed with the Securities and Exchange Commission such as Forms 10-K
and 10-Q, and information about our products and services.

  Links make it easy to visit the home pages of our business units. From time to
time we also provide live webcasts of presentations to the investment community.

  For the quickest way to stay informed, sign up through the website to receive
dividend information, press releases, meeting notices and other types of
information by e-mail as soon as they are released.

ANNUAL MEETING
We will hold our 2002 annual meeting of Aquila shareholders in Kansas City,
Missouri at 2:30 p.m. on Wednesday, May 1 at Starlight Theatre, 4600 Starlight
Road. We will host a reception with light refreshments before the meeting.

  You can file your proxy for the annual meeting electronically. See page 69 for
details on this easy process. We also encourage you to help us reduce costs and
save trees by signing up to receive future annual reports electronically instead
of by mail.

STOCK LISTINGS
The common shares of Aquila, Inc. are listed on the New York, Pacific and
Toronto stock exchanges. The company's trading symbol is ILA. At the end of
2001, Aquila had approximately 112,000 common shareholders and about 115.9
million shares outstanding.

  The Aquila name and the "ILA" symbol were previously used by the former
Aquila, Inc. subsidiary of UtiliCorp United (NYSE: UCU). UtiliCorp acquired all
of the publicly held shares of the subsidiary in January 2002 and the
subsidiary's shares ceased trading. In March, the parent of the recombined
company changed its name from UtiliCorp United to Aquila, Inc. and adopted the
ILA ticker symbol. The subsidiary formerly known as Aquila, Inc. is now Aquila
Merchant Services, Inc.

  Sources of current investment research on Aquila, Inc. securities are shown on
page 21.

  Shares of UnitedNetworks Limited, which is 55 percent owned by Aquila, are
traded on the New Zealand Stock Exchange under the symbol UNL.NZ. Shares of
United Energy Limited, 34 percent owned by Aquila, are traded on the Australian
Stock Exchange (ASE) under the symbol UEL.AX. Shares of Uecomm Limited, 66
percent owned by United Energy, are also traded on the ASE under the symbol
UEC.AX. Shares of AlintaGas Limited, in which Aquila and United Energy jointly
hold a 45 percent interest, are traded on the ASE under the symbol ALN.AX.

DIVIDEND REINVESTMENT AND DIRECT PURCHASES
Aquila's Dividend Reinvestment and Common Stock Purchase Plan combines dividend
reinvestment and optional cash purchase with a direct purchase provision. This
enables investors to acquire their first shares of our common stock directly
from the company without brokerage fees. (The minimum initial purchase for
first-time buyers is $250.)

-  You may purchase $50 or more in additional shares under the terms of our
   purchase plan, up to a maximum of $10,000 per month.

-  Direct shareholders can buy more shares automatically with all or some of
   their dividends.

-  We purchase reinvestment shares for you under the plan at 5% less than the
   market price.

-  Other options include partial reinvestment of dividends, electronic payment
   for cash purchases, and safekeeping of share certificates.

-  The plan prospectus explains all of these points in full detail. You may
   download the prospectus and an enrollment form from www.aquila.com; or call
   1-866-235-0223 toll-free to have them come by mail.

SHAREHOLDER INQUIRIES
Our transfer agent is UMB Bank, n.a. Please call them for answers to questions
about your account, including dividend payments, the Dividend Reinvestment and
Common Stock Purchase Plan, direct deposit service or the transfer of shares.
  Here is how to reach them:

--------------------------------------------------------
Toll-free...............................  1-866-235-0223
From outside the United States..........    816-860-7786
Internet................www.umb.com/business/shareholder
--------------------------------------------------------

  You may contact Aquila Investor Relations toll-free at 1-800-487-6661, or at
816-421-6600. However, we usually refer to the transfer agent any calls about
the transfer of shares, dividend reinvestment, cash purchases or direct deposit
service. You may also contact Investor Relations by e-mail through the Investor
Relations section of Aquila's website: www.aquila.com.

MAILING ADDRESSES
Investor Relations
Aquila, Inc.
P.O. Box 13287
Kansas City, MO 64199-3287

  Mail regarding the transfer of shares should be addressed to the transfer
agent:

UMB Bank, n.a.
Securities Transfer Division
P.O. Box 410064
Kansas City, MO 64141-0064

  Documents may also be delivered to UMB Securities Transfer Division, 928 Grand
Blvd., 13th Floor, Kansas City, MO 64106.

FORM 10-K
Contact Investor Relations if you want to receive a printed copy of the Annual
Report on Form 10-K as filed with the Securities and Exchange Commission.

68                                                                   AQUILA 2001
<Page>

INVESTOR RELATIONS
When you call or e-mail Aquila Investor Relations for information, the person
you reach is likely to be (left to right) either Stephanie Sulzen, Kay McMillan
or Pat Blanton. They're prepared to help you with your individual shareholder
account or answer your questions.

[PHOTO]

ELECTRONIC PROXY VOTING
There are several ways to cast your proxy vote. Each proxy card contains
instructions and a personal security number to allow you to vote over the
telephone or via the Internet. You may vote by telephone using a toll-free
number. Just follow the voice prompts to vote on each issue shown on the proxy
card. This takes only minutes. You may also vote online by accessing our secure
Aquila shareholder voting site. The web address and instructions are shown on
your 2002 proxy card.

  When you vote online, you can also sign up to receive all future proxy
materials, annual meeting notices and annual reports electronically. When doing
this, you will be prompted to supply your e-mail address.

ONLINE ACCOUNT ACCESS
You can review your Aquila stock account over the Internet, using your personal
identification number (PIN). To access your account, log on to
www.UMB.com/business/shareholder and choose Shareholder View. Then use the
account number shown on your statement. Your new PIN will be supplied on the
first dividend check or reinvestment statement you receive from UMB in March.
You may also request a new PIN at www.UMB.com/business/shareholder under
Shareholder View, or by calling 1-866-235-0223. This service allows you to check
the current share price and total value of your account, obtain account and
dividend history, or request investment plan information. It is available 24
hours a day.

SHAREHOLDER INFORMATION LINE
Our current stock price, news releases and other Aquila information are
accessible by dialing a toll-free number--1-888-828-2000. By following the voice
prompts, you can also get information about our shareholder services and
transfer agent.

CORPORATE LEADERSHIP

<Table>
<Caption>
                                                                                                 AGE / YEAR
                                                                                               JOINED COMPANY
                                                                                               --------------
<S>                          <C>                                                                  <C>
Richard C. Green, Jr.        Chairman of the Board                                                47 / 1976
Robert K. Green              President and Chief Executive Officer                                40 / 1988
Keith Stamm                  President and Chief Operating Officer, Global Networks Group         41 / 1983
Edward Mills                 President and Chief Operating Officer, Aquila Merchant Services      42 / 1993
Dan Streek                   Chief Financial Officer                                              40 / 1992
Leo E. Morton                Senior Vice President and Chief Administrative Officer               56 / 1994
Leslie J. Parrette, Jr.      Senior Vice President, General Counsel and Corporate Secretary       40 / 2000
C. E. Payne, Jr.             Senior Vice President and Chief Risk Officer                         51 / 1995
R. Paul Perkins              Senior Vice President, Corporate Development                         59 / 1994
</Table>

AQUILA 2001                                                                   69
<Page>

BOARD OF DIRECTORS

--------------------------------------------------------------------------------
The Aquila board welcomes two new directors, continues to draw on diverse
strengths to guide the company's strategy.
================================================================================

The depth and diversity of Aquila's outside directors equip the board to provide
our senior management with objective counsel seasoned by a broad range of
experience. Their input reflects a variety of backgrounds and professional
experience, including retail products and services, higher education, banking
and finance, risk management, manufacturing and marketing. In the past year we
welcomed two new directors, bringing the number of board members back up to 10.
Gerald L. Shaheen, group president at Caterpillar Inc., joined the board in
August 2001. Heidi E. Hutter, chief executive officer and a principal of The
Black Diamond Group, LLC, became an Aquila director in February 2002. Dr.
Shirley Ann Jackson resigned as a director in May 2001 to devote more of her
time to her duties as president of Rensselaer Polytechnic Institute.

[PHOTO OF RICHARD C. GREEN, JR.]

47; a director since 1982. Chairman of the board since 1989. Chief executive
officer from 1985 through 2001. Joined the company in 1976 and held various
positions in network operations, legal affairs, treasury and finance prior to
becoming executive vice president in 1982. Launched the company's growth
strategy in 1985 and formed UtiliCorp United (now Aquila, Inc.) from Missouri
Public Service Company.

Committee chairmen are underlined.

Executive Committee: R.C. GREEN, R.K. GREEN, JACKSON AND HOCKADAY.
When the Board is not in session, exercises the Board's authority to the extent
delegated by the Board.

Audit Committee: JACKSON, BAKER, IKENBERRY AND SHAHEEN.
Reviews management's selection of independent accountants and makes
recommendation to the Board; reviews and approves audit plans, accounting
policies, financial statements and reporting, and internal audit reports and
controls.

Compensation Committee: CAIN, HOCKADAY AND IKENBERRY.
Reviews policies, practices and procedures covering compensation of key
employees; establishes and administers compensation programs and plans.

Nominating Committee: IKENBERRY, BAKER, CAIN AND HOCKADAY.
Considers and recommends nominees for director, including those nominated by
shareholders.

Pension and Benefits Committee: BAKER, R.K. GREEN AND JACKSON.
Establishes and administers the retirement plan and certain other employee
benefit plans.

70                                                                   AQUILA 2001
<Page>

[PHOTO OF JOHN R. BAKER]

75; a director since 1971. Retired as Aquila's vice chairman of the board in
1995; 47 years as an employee included many different positions in accounting,
finance and corporate development. Played a key role in Aquila's successful
merger and acquisition program during his tenure as senior vice president,
corporate development, 1985-91.

[PHOTO OF HERMAN CAIN]

56; a director since 1992. Chief executive officer of T.H.E. Inc., a leadership
consulting company, and chairman of the board of Godfather's Pizza, Inc., Omaha,
NE. Former chief executive officer and president of the National Restaurant
Association, and a former director of the Federal Reserve Bank, Kansas City.

[PHOTO OF ROBERT K. GREEN]

40; a director since 1993. President and chief executive officer since January
2002. Served as president and chief operating officer, 1996-2001. Previously was
executive vice president of the company, 1993-96; president of the Missouri
Public Service division, 1991-96; and held other executive positions, 1989-91.
Practiced law 1987-89.

[PHOTO OF IRVINE O. HOCKADAY, JR.]

65; a director since 1995. Retired as president and CEO of Hallmark Cards, Inc.,
Kansas City, MO, at the end of 2001; joined Hallmark in 1983. Previously
president and CEO of Kansas City Southern Industries, Inc. (rail transportation
and financial services). Practiced law before joining KCSI in 1968. A former
chairman of the Federal Reserve Bank, Kansas City.

[PHOTO OF HEIDI E. HUTTER]

44; a director since February 2002. Chief executive officer and a principal of
The Black Diamond Group, LLC, a merchant bank and advisory company, New York,
NY, since 2001. Chairman, president and CEO of Swiss Reinsurance America Corp.,
1996-99. Prior insurance industry experience includes project management for
Lloyd's of London.

[PHOTO OF DR. STANLEY O. IKENBERRY]

67; a director since 1993. Former president, American Council on Education,
Washington, DC (association of American institutions of higher learning),
1996-2001. Previously president, the University of Illinois, Urbana, IL,
1979-95. Prior posts include senior vice president, The Pennsylvania State
University and administrative and research positions at West Virginia University
and Michigan State University.

[PHOTO OF ROBERT F. JACKSON, JR.]

76; a director since 1981. Retired in 1985 as president of CharterCorp of Kansas
City, MO, a bank holding company comprised of 26 affiliate banks in Missouri
(through mergers, now Bank of America Corporation). Long career in banking
included a number of executive positions and service as a director of banks and
banking associations.

[PHOTO OF L. PATTON KLINE]

73; a director since 1986. Retired as vice chairman of Marsh & McLennan,
Incorporated, an international insurance brokerage company, New York, NY; held
several other senior executive positions before becoming vice chairman.
Previously president of Mann-Kline, an insurance brokerage firm which merged
with Marsh & McLennan in 1969.

[PHOTO OF GERALD L. SHAHEEN]

57; a director since August 2001. Group president at Caterpillar Inc. since
1998, responsible for the design, development and production of Caterpillar's
mining, forest and construction equipment and North American marketing and
sales. Has served as managing director of Caterpillar Overseas S.A. in Geneva,
Switzerland, then vice president of the Engine Products Division. He joined
Caterpillar in 1967.

[PHOTO OF AVIS GREEN TUCKER]

86; Director emeritus since May 2000; previously a director since 1973. Editor
and publisher of The Daily Star-Journal (a daily newspaper), Warrensburg,
Missouri. Became chairman of the board of directors of Aquila's predecessor,
Missouri Public Service Company, in 1982. Retired as Aquila's chairman in 1989.

AQUILA 2001                                                                   71