Executive Compensation

at Aquila
GROUP 9

Brief History of Aquila

1908 - Lemuel Green purchased electric generator for his mill in Osbourne, Kansas and sold excess
power to surrounding community

1917 - Given to his liking to utility business, built a generator in Pleasant Hill, Missouri that became
Missouri Public Services

1940 - Lemuel's son Ralph bought the controlling interest in Missouri Public Services to become its CEO

1962 - Ralph's son Richard became the CEO upon Ralph's death

1982 - Upon Richard's death, Richard Jr. became the CEO who had to steer the business through
challenging times of high interest rates, rising inflation, high utility prices and regulators adversity

1985 - Revenues of $260 million and served 200,000 electric and gas customers in western Missouri

Expansion for Regional

Diversification
In order to transform the company from state-specific utility to one with broader ambitions, Green
purchased few companies and changed the name of Missouri Public Service to UtiliCorp

1985 - Peoples Natural Gas with operations in five Midwestern states

Utilites in Minnesota (1986), West Virginia (1986), British Columbia (1986), Michigan (1987)

Energy Policy Act - 1992

The act allowed utility operators to own unregulated power plants outside their monopoly areas and to
sell excess energy into the wholesale market

To grab the growth opportunity, UtiliCorp purchased additional energy assets in Nebraska, Kansas,
Missouri, Ohio, Texas and Alabama

Attempt to turn UtiliCorp into the "first truly national utility in the US"

Falied investment of $50 million in marketing program called EnergyOne to promote homeowners to
choose UtiliCorp as the energy provider

International Expansion

1992 - Joint venture to distribute natural gas in UK

1993 - Acquired minority interest in a New Zealand utility

1995 - Boldest move of taking a 49.9 percent interest in United Energy Limited of Australia

by

This $1.5 billion deal gave UtiliCorp access to over 500,000 consumers, increasing customer base
nearly 40% over 1.2 million customers it served in the US.

2000 - Alongside, in US UtiliCorp purchased 38 percent stake in Quanta Service, a contract provider
that dug specialized ditches for laying optic-fiber cables, for $700 million

Through their aggressive approach they expected growth of 8-10 percent from 2-5 percent and had
gas and electric operations in seven states providing service to nearly 4 million customers.

Growth & Decline in Energy Trading

business

Under Robert's leadership, Aquila's growth was explosive and by 2000 revenues had grown by 340 percent to
$26.4 billion

In March 2002, the company changed its name from UtiliCorp to Aquila to emphasize its commitment to
energy trading.

Robert Green, as a reward for repositioning Aquila as a major player in the energy trading industry, would be
awarded discretionary bonus of $4.5 million, comprising $3 million of cash and $1.5 million of restricted stock.

With weakening US economy, energy demand plummeted.

To retain adequate working capital company took following steps:

- Cut costs by $100 million
- Sell over $1 billion in assets, majorly international energy assets.
- Eliminate 1100 jobs or 15% of its workforce including 150 traders in European trading.
- 42 percent reduction in annual dividend from $1.2 to $0.70 per share.

Exit of Robert Green

Robert finally decided to concentrate on restoring its core utility business.

In August 2002 after a second quarter loss of $810 million, Aquila decided to completely exit
wholesale energy trading business. It was eventually graded down to junk status of BA2 by
Moody.

Robert Green resigned in October and Richard Green took his place to substantially reduce the
scale and scope of the business.

Aquila aggressively sold its assets to raise capital including utilities and gas systems in Texas,
Canada, UK, Australia, and New Zealand.

Aqila stock that was prices at $25 when Robert took as CEO just 10 months ago had crashed
down to $2.

Robert Green Severance Agreement

Robert Green had been CEO of Aquila for just 3 months

As per the agreement, Robert Green was supposed to receive $7.6 million as
severance benefits which received intense flak from shareholders

Compensation would include 3 times his base salary + average annual incentive
value paid over the past 3 years

The compensation was said to be appropriately reviewed and benchmarked against

15 other companies in the same industry

It was said the Robert was responsible for huge profits but had no control over the
collapse of Aquilas energy trading operations

Implications of Aquila Failure

Investors were not satisfied with the kind of compensation provided to Robert as per severance
agreement

Staff was furious as they were not sure about their future in the company whereas exiting CEO
was receiving huge amount of compensation

Decline in compensation as company returned to traditional utility based model

Between 2002 and 2004 company did not pay any bonuses and held disastrous financial
results accountable for the same.

In 2005 the company paid bonuses to executives in the multiples of their salary stating
retention of executive officers as the motive behind it.

Thank You