10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2001

or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission file number 1-16315

AQUILA, INC.
(Exact name of registrant as specified in its charter)

Delaware	47-0683480
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1100 Walnut Street, Suite 3300, Kansas City, Missouri (Address of principal executive offices)	64106 (Zip Code)

Registrant's telephone number, including area code:        816-527-1000

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  /x/  No      

    Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class	Outstanding at August 10, 2001
Class A Common Stock, $0.01 par value	19,975,000
Class B Common Stock, $0.01 par value	80,025,000

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

    Information regarding the combined financial statements can be found on pages 3 through 10.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Management's discussion and analysis of financial condition and results of operations can be found on pages 11 through 17.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are subject to market risk as described on pages 45 and 46 of the prospectus included in our Registration Statement on Form S-1 (File No. 333-51718). There have not been any material changes in our market risk since December 31, 2000.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    Information on changes in securities can be found on page 18.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Information on submission of matters to a vote of security holders can be found on page 18.

ITEM 5. OTHER INFORMATION

    None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    Exhibits and reports on Form 8-K can be found on page 18.

2

Part I. Financial Information

Item 1. Financial Statements

Aquila, Inc.
Combined Statements of Income—Unaudited

		Three Months Ended June 30,
Dollars in millions, except per share amounts
		2001			2000
Sales
	Natural Gas	$	4,824.6		$	3,525.2
	Electricity		4,800.4			1,637.3
	Other		279.0			151.6
Total Sales			9,904.0			5,314.1
Cost of sales
	Natural Gas		4,604.3			3,460.9
	Electricity		4,770.9			1,606.1
	Other		187.2			124.2
Total Cost of sales			9,562.4			5,191.2
Equity in earnings of investments and partnerships			5.5			4.1
Gross profit			347.1			127.0
Administrative expenses			159.1			79.2
Depreciation and amortization expense			13.6			12.9
Other income			(15.2	)		(5.8	)
Earnings before interest and taxes			189.6			40.7
Interest expense			1.1			5.6
Earnings before income taxes			188.5			35.1
Provision in lieu of income taxes			87.2			13.4
Net Income		$	101.3		$	21.7
Earnings per common share:
Basic Earnings Per Common Share		$	1.05		$	.25
Diluted Earnings Per Common Share		$	1.05		$	.25

See accompanying notes to combined financial statements.

3

Aquila, Inc.
Combined Statements of Income—Unaudited

		Six Months Ended June 30,
Dollars in millions, except per share amounts
		2001			2000
Sales
	Natural Gas	$	12,390.8		$	6,094.1
	Electricity		7,981.3			2,927.6
	Other		512.9			314.0
Total Sales			20,885.0			9,335.7
Cost of sales
	Natural Gas		12,020.9			5,968.6
	Electricity		7,900.5			2,889.9
	Other		377.0			266.2
Total Cost of sales			20,298.4			9,124.7
Equity in earnings of investments and partnerships			11.7			8.5
Gross profit			598.3			219.5
Administrative expenses			313.6			141.7
Depreciation and amortization expense			26.4			24.0
Other income			(20.8	)		(10.6	)
Earnings before interest and taxes			279.1			64.4
Interest expense			2.8			11.0
Earnings before income taxes			276.3			53.4
Provision in lieu of income taxes			125.7			20.9
Net Income		$	150.6		$	32.5
Earnings per common share:
Basic Earnings Per Common Share		$	1.65		$	.38
Diluted Earnings Per Common Share		$	1.65		$	.38

See accompanying notes to combined financial statements.

4

Aquila, Inc.
Combined Balance Sheets

Dollars in millions		June 30, 2001			December 31, 2000
		(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents	$	254.7		$	9.0
	Funds on deposit		288.6			149.5
	Accounts receivable, net		3,408.9			3,959.9
	Accounts and notes receivable from UtiliCorp		—			11.8
	Inventories		164.3			63.6
	Price risk management assets		931.5			1,452.6
	Other		89.6			39.7
Total current assets			5,137.6			5,686.1
Property, plant and equipment, net			574.2			559.0
Investments in subsidiaries and partnerships			454.0			408.0
Price risk management assets			561.5			744.5
Notes receivable			295.0			313.2
Other			118.0			176.4
Total Assets		$	7,140.3		$	7,887.2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current maturities of long-term debt	$	12.5		$	12.5
	Short-term debt		12.2			25.7
	Accounts payable		3,716.7			4,144.0
	Accrued liabilities		367.3			316.0
	Accounts and notes payable to UtiliCorp		26.6			6.0
	Price risk management liabilities		628.8			1,290.5
	Customer deposits		276.5			362.4
Total current liabilities			5,040.6			6,157.1
Long-term Liabilities:
	Long-term debt, net		12.5			12.5
	Notes payable to UtiliCorp		—			47.6
	Price risk management liabilities		1,144.8			1,252.4
	Deferred income taxes and credits		88.2			105.2
	Other deferred credits		112.8			57.2
Total long-term liabilities			1,358.3			1,474.9
Shareholders' Equity:
Preference stock, $.68 par value; 200,000,000 shares authorized, 28,380,000 and 8,000,000 issued and outstanding, respectively			19.3			5.4
Class A common stock, $.01 par value; 550,000,000 shares authorized, 19,975,000 and none issued and outstanding, respectively			.2			—
Class B common stock, $.01 par value; 250,000,000 shares authorized, 80,025,000 and 85,775,000 shares issued and outstanding, respectively			.8			.9
Additional paid-in capital			567.6			241.0
Accumulated other comprehensive losses			(6.7	)		(1.7	)
Retained earnings			160.2			9.6
Total shareholders' equity			741.4			255.2
Total Liabilities and Shareholders' Equity		$	7,140.3		$	7,887.2

See accompanying notes to combined financial statements.

5

Aquila, Inc.
Combined Statements of Comprehensive Income—Unaudited

		Three Months Ended June 30,						Six Months Ended June 30,
Dollars in millions
		2001			2000			2001			2000
Net Income		$	101.3		$	21.7		$	150.6		$	32.5
Other comprehensive income (loss):
	Unrealized translation adjustments		(7.5	)		(1.3	)		(6.2	)		(.5	)
	Unrealized cash flow hedge		3.6			—			1.2			—
Comprehensive Income		$	97.4		$	20.4		$	145.6		$	32.0

See accompanying notes to combined financial statements.

6

Aquila, Inc.
Combined Statements of Cash Flows—Unaudited

					Six Months Ended June 30,
Dollars in millions
					2001			2000
Cash Flows From Operating Activities:
	Net income				$	150.6		$	32.5
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization expense				26.4			24.0
		Net change in price risk management assets and liabilities				(69.9	)		(88.2	)
		Deferred income taxes and credits				(16.9	)		10.3
		Equity in earnings of investments and partnerships				(11.7	)		(8.5	)
		Dividends from investments and partnerships				13.1			7.8
		Changes in operating assets and liabilities:
			Accounts receivable			552.2			(968.4	)
			Accounts payable and receivable to/from UtiliCorp, net			(4.5	)		34.8
			Inventories			(99.7	)		77.2
			Accounts payable and accrued liabilities			(377.6	)		1,011.1
			Other			52.9			41.8
				Sub-total		214.9			174.4
			Funds on deposit, net			(225.0	)		4.6
Net cash (used in) provided by operating activities						(10.1	)		179.0
Cash Flows From Investing Activities:
	Capital expenditures					(48.7	)		(32.4	)
	Investments in subsidiaries and partnerships					(6.9	)		(5.0	)
	Repayments of (additions to) notes receivable, net					18.2			(79.3	)
	Cash received on sale of related party investments					26.1			—
	Other					12.2			—
Net cash provided by (used in) investing activities						0.9			(116.7	)
Cash Flows From Financing Activities:
	Short-term borrowings, net					(13.5	)		—
	Repayment of notes payable to UtiliCorp, net					(47.6	)		(37.8	)
	Issuance of common stock, net					316.0			—
	Cash dividends paid					—			(10.7	)
Net cash provided by (used in) financing activities						254.9			(48.5	)
Net increase in cash and cash equivalents						245.7			13.8
Cash and cash equivalents at beginning of period						9.0			6.0
Cash and cash equivalents at end of period					$	254.7		$	19.8

See accompanying notes to combined financial statements.

7

AQUILA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)

1.  Summary of Significant Accounting Policies

    The accompanying unaudited combined financial statements have been prepared in accordance with the accounting policies described in the combined financial statements and related notes included in our Registration Statements on Form S-1, as amended. We believe it is best to read this report in conjunction with our S-1 Registration Statements. The accompanying Balance Sheet as of December 31, 2000 was derived from our audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In our opinion, the accompanying combined financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair representation of our financial position and the results of our operations. Certain estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods shown have been made in preparing the combined financial statements. Actual results could differ from these estimates.

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

New Accounting Pronouncements

Business Combinations

    In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141). SFAS 141 requires that all business combinations initiated after June 30, 2001, be accounted for using the purchase method of accounting. SFAS 141 also requires certain additional disclosures regarding material business combinations. The adoption of this standard is not expected to have a material effect 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). SFAS 142 requires that, beginning on January 1, 2002, goodwill will no longer be systematically amortized against earnings over an estimated useful life. This statement will require that, no less than annually, goodwill be tested for impairment and if impaired, be written off against earnings at that time. We expect that the adoption of this standard in 2002 will result in discontinuing annual goodwill amortization of approximately $4.4 million. As of June 30, 2001, we had total goodwill of $100.7 million. We are currently assessing the potential impact, if any, that a goodwill impairment test could have on our financial position or results of operations.

Asset Retirement Obligations

    In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity will capitalize a cost by increasing the carrying amount of the related 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 be in effect for us on January 1, 2003, although earlier application is encouraged. We have not yet completed our estimate of the effect of the adoption of this standard on our financial position or results of operations at this time.

8

2.  Earnings per Common Share

    The following table shows the amounts used in computing basic and diluted earnings per common share for the three and six-month periods ended June 30, 2001 and 2000.

		Three Months Ended June 30,				Six Months Ended June 30,
In millions, except per share amounts
		2001		2000		2001		2000
Earnings available for common shares		$	101.3	$	21.7	$	150.6	$	32.5
Earnings per share:
	Basic	$	1.05	$	.25	$	1.65	$	.38
	Diluted	$	1.05	$	.25	$	1.65	$	.38
Weighted average number of common shares used in basic earnings per share			96.3		85.8		91.1		85.8
Per share effect of dilutive securities:
	Stock options		.3		—		.2		—
Weighted number of common shares and dilutive potential common shares used in diluted earnings per share			96.6		85.8		91.3		85.8

3.  Initial Public Offering

    In April 2001, we issued 14,225,000 shares of Class A common stock to the public in an initial public offering at $24.00 a share. We received net proceeds of approximately $316 million after deducting underwriting discounts, commissions and other offering expenses. We have used a portion of the proceeds to repay debt owed to UtiliCorp and have placed the remaining proceeds into short-term investments to be used for working capital and general corporate purposes.

    In connection with the offering, UtiliCorp sold 5,750,000 shares of our Class A common stock at $24.00 a share. We did not receive any of the proceeds from the shares of stock sold by UtiliCorp.

    As a result of our initial public offering, UtiliCorp owns Class B common stock representing approximately 80% of our outstanding shares, but approximately 98% of the combined voting power.

4.  Related Party Transactions

    During the second quarter of 2001, we completed three transactions with UtiliCorp in relation to our Canadian operations. Those transactions were as follows:

1.

We purchased the workforce of Aquila Canada Corp. (ACC) (a wholly owned subsidiary of UtiliCorp) for $4.3 million. As ACC is included in the combined financial statements, this transaction has been eliminated.



2.

We received $12.9 million from UtiliCorp for our preferred stock investment in a Canadian UtiliCorp subsidiary. The preferred stock was repurchased at the original issuance price.



3.

We sold back to UtiliCorp our 5% ownership of their Canadian investments. We received $13.2 million which approximates the gain connected with the sale.

    As the above transactions were all transactions with a related party, the related net gain of $10.7 million was recorded as a capital transaction and credited to additional paid in capital.

9

5.  Reportable Segment Reconciliation

	Three Months Ended June 30,				Six Months Ended June 30,
Dollars in Millions
	2001		2000		2001		2000
Sales:
Wholesale Services	$	9,631.0	$	5,165.6	$	20,268.8	$	9,083.4
Capacity Services		273.0		148.5		616.2		252.3
Total	$	9,904.0	$	5,314.1	$	20,885.0	$	9,335.7
EBIT:
Wholesale Services	$	148.5	$	25.3	$	210.9	$	40.6
Capacity Services		41.1		15.4		68.2		23.8
Total	$	189.6	$	40.7	$	279.1	$	64.4

10

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

AQUILA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Except where noted, the following discussion refers to the combined entity, Aquila, Inc. We conduct our business through two principal segments—Wholesale Services and Capacity Services. Wholesale Services consists of Client Services; our structured capital, custom risk products and consultative services business and Commodity Services; where we manage risk. Capacity Services consists of our power generation assets, natural gas assets and coal assets. We service clients throughout North America, the United Kingdom and parts of continental Europe.

FORWARD-LOOKING STATEMENTS

    This report contains forward-looking statements. These statements involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations, intentions, assumptions, and other statements that are not historical facts. We generally intend the words "may," "will," "should," "expect," "intend," "plan," "believe," "seek," "estimate," "continue," "announced," or the negative of these terms or similar expressions to identify forward-looking statements. Our actual results could differ materially from the forward-looking statements as a result of various factors. Some of these factors include:

•

political conditions in our regional, national and international markets, including legislative and regulatory initiatives regarding deregulation and restructuring of the energy industry;



•

changes in commodity prices and interest rates that could impact the value of our commodity portfolio;



•

unusual changes in weather and other natural phenomena, such as hurricanes, floods and unexpected changes in temperature, could dramatically affect commodity prices and thus the value of our commodity portfolio;



•

competition in the markets in which our businesses operate could decrease our profitability;



•

the success of our growth strategy, including our acquisition, control and disposition of assets;



•

economic and financial market conditions and the results of our financing efforts could affect our growth efforts and thus our profitability;



•

our successful development of new structured products and services which will provide new sources of revenue;



•

the pace of well connections to our gas gathering system that could affect the sales generated by our Capacity Services segment;



•

the value of the U.S. dollar relative to the British pound and Canadian dollar could affect financial results from foreign operations; and



•

additional state, federal and other regulations in the United States and in foreign countries in which we operate, including environmental regulations, that could cause us to incur additional expenses to comply with such regulation.

    Forward-looking statements are only predictions and involve risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements. We, however, cannot guarantee future results, events, performance or achievements.

11

    All forward-looking statements in this filing reflect our current views about future events and are based on assumptions we believe are reasonable. Except as required by law, including the securities law of the United States, we do not intend to update or revise any forward-looking statements.

RESULTS OF OPERATIONS

		Three Months Ended June 30,				Six Months Ended June 30,
Dollars in Millions
		2001		2000		2001		2000
Earnings Before Interest and Taxes:
	Wholesale Services	$	148.5	$	25.3	$	210.9	$	40.6
	Capacity Services		41.1		15.4		68.2		23.8
Total EBIT			189.6		40.7		279.1		64.4
Interest expense			1.1		5.6		2.8		11.0
Provision in lieu of income taxes			87.2		13.4		125.7		20.9
Net Income		$	101.3	$	21.7	$	150.6	$	32.5
Diluted Earnings per share		$	1.05	$	.25	$	1.65	$	.38

    The second quarter of 2001 was our strongest financial earnings quarter to date. All business units posted marked increases over prior quarters. Net income for the 2001 second quarter and year-to-date grew at 367% and 363%, respectively, over 2000. These strong results were driven by the following:

•

Commodity Services continues to perform well in both gas and power and was well balanced between products and regions. Our Wholesale Services business segment's EBIT for the quarter and year-to date was up 487% and 419%, respectively, over the corresponding 2000 results.



•

Strong client demand for products and physical delivery capabilities increased deal flow by 21% and 25% for the quarter and year to date, respectively.



•

Successfully optimized new generation assets by securing prices at above current market rates, which reflects on our ability to capture market opportunities. Our GPU International acquisition in December 2000 continues to perform stronger than expected. Our Capacity Services business segment's EBIT for the quarter and year-to-date was up 167% and 187%, respectively, over the corresponding 2000 financial periods.

    These strong achievements resulted in a trailing twelve-month return on equity of 56%.

12

WHOLESALE SERVICES

    The table below summarizes the operations of our Wholesale Services business segment for the three and six months periods of each year.

		Three Months Ended June 30,						Six Months Ended June 30,
Dollars in millions
		2001			2000			2001			2000
Sales		$	9,631.0		$	5,165.6		$	20,268.8		$	9,083.4
Cost of sales			9,366.6			5,076.4			19,809.9			8,934.1
Gross profit			264.4			89.2			458.9			149.3
Operating expenses:
	Administrative expenses		128.3			63.5			262.0			109.8
	Depreciation and amortization expense		3.0			4.8			6.6			7.9
	Other income		(15.4	)		(4.4	)		(20.6	)		(9.0	)
Earnings before interest and taxes (EBIT)		$	148.5		$	25.3		$	210.9		$	40.6
Sub-unit breakdown:
	Commodity Services EBIT	$	116.2		$	8.4		$	161.8		$	$16.5
	Client Services EBIT		32.3			16.9			49.1			24.1
Total EBIT for Wholesale Services		$	148.5		$	25.3		$	210.9		$	40.6
Operating Statistics:
	Physical gas volumes marketed per day (Bcf/d)		11.3			10.9			12.3			11.4
	Electricity marketing volumes (MMWhs)		77.4			40.0			132.5			84.6
	Volumes delivered (Tbtue/d)		21.2			16.3			20.9			17.1
	Average transactions per month (000's)		44.5			33.8			41.8			32.7
	Electricity prices MWh (average)	$	61.98		$	40.97		$	60.23		$	34.58
	Natural gas price per Mcf (average)	$	4.70		$	3.55		$	5.58		$	2.93

Quarter Ended June 30, 2001 as Compared to Quarter Ended June 30, 2000

Sales and Cost of Sales

    Sales and cost of sales for our Wholesale Services business segment increased 86% and 85%, respectively, in 2001 compared to second quarter 2000 resulting in a gross profit increase of $175.2 million. These increases were primarily due to the following factors:

•

A volatile pricing environment combined with strong client demand provided increased opportunity to execute our strategy and deliver products and services to our clients. Our commodity group was able to capture significant value while only consuming an average value at risk of $12.8 million.



•

An increase of 94% and 4% in electricity and gas volumes marketed, respectively, a combined 30% increase on a Tbtue/d basis and a 32% increase in the average number of transactions per month also contributed to an increase in gross profit, sales and cost of sales.



•

A 21% increase in term deal flow contributed to a 23% increase in gross profit stemming from our origination deals and our more highly structured products we refer to as our Client Services business. These include our GuaranteedWeather® and GuaranteedGeneration^SM products as well as our longer duration gas and electric transactions.



•

Higher natural gas and electricity prices significantly increased both sales and cost of sales in the 2001 quarter compared to 2000.

13

Administrative Expenses

    Administrative expenses increased $64.8 million, or 102% in 2001 compared to 2000 due to our continued expansion, payroll associated with additional employees and higher incentive expenses directly linked to our improved financial performance in 2001.

Other Income

    Other income has increased by $11 million, or 250%, as earnings from our Capital Services group continues to grow due to our portfolio size increasing by 14% and a strong return mix comprised of both interest and equity.

Six Months Ended June 30, 2001 as Compared to Six Months Ended June 30, 2000

Sales and Cost of Sales

    Sales and cost of sales for our Wholesale Services business segment increased 123% and 122%, respectively, in 2001 compared to 2000 resulting in a gross profit increase of $309.6 million. These increases were primarily due to the following:

•

A robust and volatile pricing environment provided increased opportunities to execute our strategy and deliver products and services to our clients.



•

An increase of 57% and 8% in electricity and gas volumes marketed, respectively, a 22% increase on a Tbtue/d basis and a 28% increase in the average number of transactions per month also contributed to an increase in gross profit, sales and cost of sales.



•

A 25% increase in term deal flow contributed to a 47% increase in gross profit stemming from our origination deals and are more highly structured products we call our Client Services business. These include our GuaranteedWeather® and GuaranteedGeneration^SM products as well as our longer duration gas and electric transactions.



•

Higher natural gas and electricity prices significantly increased both sales and cost of sales in 2001 compared to 2000.

Administrative Expenses

    Administrative expenses increased $152.2 million, or 139% in 2001 compared to 2000 due to our continued expansion, payroll associated with approximately 169 additional employees and higher incentive expenses directly linked to our improved financial performance in 2001.

14

CAPACITY SERVICES

    The table below summarizes the operations of our Capacity Services business segment for the three and six month periods of each year.

		Three Months Ended June 30,					Six Months Ended June 30,
Dollars in millions
		2001		2000			2001			2000
Sales		$	273.0	$	148.5		$	616.2		$	252.3
Cost of sales			195.8		114.8			488.5			190.6
Equity in earnings of investments and partnerships			5.5		4.1			11.7			8.5
Gross profit			82.7		37.8			139.4			70.2
Operating expenses:
	Administrative expenses		30.8		15.7			51.6			31.9
	Depreciation and amortization expense		10.6		8.1			19.8			16.1
	Other expense/(income)		0.2		(1.4	)		(0.2	)		(1.6	)
Earnings before interest and taxes (EBIT)		$	41.1	$	15.4		$	68.2		$	23.8
Operating Statistics:
	Gas throughput volumes (Mcf/d)		378.0		475.9			398.9			479.9
	Natural gas liquids produced (MBbls/d)		21.6		23.3			18.4			22.4
	Natural gas liquids price per gallon	$	.47	$	.44		$	.49		$	.44
	MW owned or controlled		4,357		1,096			4,357			1,096

Quarter Ended June 30, 2001 as Compared to Quarter Ended June 30, 2000

Sales and Cost of Sales

    Sales and cost of sales for our Capacity Services businesses increased $124.5 million and $81.0 million, or 84% and 71%, respectively, in 2001 compared to second quarter 2000 representing $43.5 million of the gross profit increase. The strong results were primarily due to the following factors:

•

The impact of the GPU International acquisition in December 2000 added approximately $16.3 million to gross profit in the 2001 quarter while adding $21.8 million and $5.5 million to sales and costs of sales, respectively.



•

We successfully optimized new generation assets by securing prices at above current market rates that significantly improved our margins for the 2001 quarter. We attempt to optimize asset positions with forward positions that can create earnings volatility from time to time. Generally, when we optimize asset positions with derivative instruments they are recorded at fair market value while the underlying asset position is reflected at historical cost. This tends to produce some earnings volatility.

Administrative Expenses

    Administrative expenses increased $15.1 million or 96% in the 2001 quarter compared to 2000. The majority of this increase is directly related to the effects of our GPU International acquisition in December 2000.

15

Six Months Ended June 30, 2001 as Compared to Six Months Ended June 30, 2000

Sales and Cost of Sales

    Sales and cost of sales for our Capacity Services businesses increased $363.9 million and $297.9 million, respectively, in the six months ending June 30, 2001 compared to 2000 representing $66.0 million of the gross profit increase. The stronger results were primarily due to the following factors:

•

The GPU International acquisition in December 2000 added approximately $35.4 million to gross profit in 2001 while adding $47.2 million and $11.8 million to sales and costs of sales, respectively.



•

We successfully optimized new generation assets by securing prices at above current market rates that significantly improved our margins in the 2001 year-to-date results. We attempt to optimize asset positions with forward positions that can create earnings volatility from time to time. Generally, when we optimize asset positions with derivative instruments they are recorded at fair market value while the underlying asset position is reflected at historical cost. This tends to produce some earnings volatility.



•

Stronger natural gas prices favorably impacted our gas storage operations as we were able to capitalize on larger spreads between injection and withdrawal prices.

Equity in Earnings of Investments and Partnerships

    Improved earnings in 2001 over 2000 relates to our 50% equity interest in the Oasis Pipeline. In December 2000, we obtained an additional 15% interest in the Oasis Pipeline Company that brought our total ownership up to 50%. The additional earnings mainly stem from the increase in ownership and transportation opportunities that existed due to high demand in the West.

Administrative Expenses

    Administrative expenses increased $19.7 million or 62% in 2001 compared to 2000. The majority of this increase is directly related to the effects of our GPU International acquisition in December 2000.

SIGNIFICANT BALANCE SHEET MOVEMENTS

    Total assets at June 30, 2001 decreased by $746.9 million compared to December 31, 2000. This decrease is primarily attributable to the following:

•

Cash increased by $245.7 million primarily related to the $316 million of net proceeds received from the initial public offering that was completed in April 2001.



•

Funds on deposit increased $139.1 million due to price fluctuations and our over-all position in our gas and power trading business.



•

Accounts receivable decreased $551.0 million primarily due to the seasonality and price fluctuations of our gas and power trading business.



•

Inventories increased by $100.7 million as storage facilities were replenished at higher prices with a total of 16.9 BCF being added since December 31, 2000.



•

Price risk management assets decreased by $704.1 million due to a change in market prices of gas and power which can fluctuate significantly.

16

    Total liabilities at June 30, 2001 decreased by $1,233.1 million compared to December 31, 2000. This decrease is primarily attributable to the following:

•

Accounts payable decreased by $427.3 million primarily due to the seasonality and price fluctuations of our gas and power trading business.



•

Price risk management liabilities decreased by $769.3 million due to a change in market prices of gas and power which can fluctuate significantly.



•

Customer deposits decreased by $85.9 million due to price fluctuations and our customers' over-all position in our gas and power trading business.

LIQUIDITY AND CAPITAL RESOURCES

    We are subject to various demands on cash stemming from price changes of commodities and the resultant impact on cash requirements. We have managed our liquidity needs through a variety of methods that include a credit facility, borrowings from UtiliCorp, selling accounts receivable through a bank facility and commodity sales contracts. Our Wholesale Services business relies on our ability to manage liquidity and cash. At June 30, 2001, our total cash and cash equivalents was $254.7 million, an increase of $245.7 million from December 31, 2000. The increase in cash is primarily due to our initial public offering that was completed in April 2001 that raised a net $316 million. Cash flows from operations were fairly flat as strong operating results before margin deposits were offset by $225 million of customer deposit refunds and additional cash deposits required from us due to price fluctuations and our over-all position in our gas and power trading business. Cash flows from investing activities were also fairly flat as capital expenditures were offset by cash received on note receivable repayments and on the sale of certain investments to UtiliCorp. We also reduced our notes payable to UtiliCorp by $47.6 million during the year.

    We have a $125 million letter of credit facility with a group of banks that is used to support our trading and other activities. At June 30, 2001, approximately $58 million was outstanding against this facility. This facility expires in December 2001. We anticipate that this facility will become part of a larger corporate revolver that we plan to put in place in the fourth quarter. As part of the transition agreement with UtiliCorp, we can borrow needed funds from UtiliCorp until it completes the distribution of our stock. UtiliCorp intends to distribute our shares to its shareholders after it receives a favorable letter ruling from the Internal Revenue Service that such a distribution will be tax-free to its shareholders and providing that market conditions warrant the distribution. We also have a $275 million accounts receivable sales program (all of which is used) to help fund short-term cash needs.

    We are in the process of completing the financing of a power plant in Clay County, Illinois for approximately $150 million and the financing of ten additional GE turbines secured last January. Our financing strategy with respect to our power plant development program is to first finance these assets using an off-balance sheet structure and then permanently finance the projects with non-recourse project-level debt. We generally do not intend to hold 100% ownership positions in these plants long-term, meaning we will monetize or repackage assets to take advantage of market opportunities.

Effects of Our Separation From UtiliCorp

    Under agreements between UtiliCorp and us, we are required to indemnify UtiliCorp for taxation costs, including taxes payable by UtiliCorp on the indemnification amounts paid by us, if we cause the distribution of our stock by UtiliCorp to fail to be tax-free. We do not currently maintain capital resources to fund potential indemnification payments to UtiliCorp for this purpose. We believe the probability of an event occurring that would require us to make these payments is sufficiently low and sufficiently under our control that we do not allocate liquidity for this contingency. If, however, the contingency should occur, we believe we could fund the indemnification payments through cash flows from operations, new borrowings and, if necessary, asset sales. Payment of this obligation could materially affect our financial condition and our earnings and impair our ability to achieve our growth strategy.

17

Part II. Other Information

Item 2. Changes in Securities and Use of Proceeds

    Our registration statements for the sale of our common stock (Registration Statement Nos. 333-51718 and 333-59412) were declared effective by the Securities and Exchange Commission on April 23, 2001. We registered a total of 19,975,000 shares of our Class A common stock under the registration statements with 14,225,000 being offered by us and the remaining 5,750,000 offered by UtiliCorp. The managing underwriters in the offering were Lehman Brothers Inc., Merrill Lynch Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Credit Lyonnais Securities (USA) Inc., and J.P. Morgan Securities Inc.

    The initial public offering commenced on April 24, 2001 and was completed with all shares sold on April 27, 2001. A total of 19,975,000 shares were sold at a per share public price offering of $24.00. This included 2,475,000 shares that were sold upon exercise of the underwriters' over-allotment option. Of the total shares sold, we received net proceeds of $316.0 million, after deducting approximately $19.6 million of underwriter discounts and commissions and $5.7 million of other expenses. UtiliCorp received net proceeds of $130.1 million, after deducting approximately $7.9 million of underwriter discounts. Expenses of the offering were direct payments to persons other than officers, directors, affiliates or persons owning 10% or more of our securities.

    We have used a portion of the proceeds to repay debt owed to UtiliCorp and have placed the net remaining proceeds of the offering into short-term investments to be used for working capital and general corporate purposes.

Item 4. Submission of Matters to a Vote of Security Holders

    On April 5, 2001, UtiliCorp, acting in its capacity as our sold shareholder, executed a written consent in lieu of a special meeting of our sole shareholder approving our 2001 incentive plan and the amended and restated certificate of incorporation in the form outlined in our prospectus dated April 23, 2001.

Item 6. Exhibits

(a)

List of exhibits



3.1

Restated Certificate of Incorporation.

(b)

Reports on Form 8-K

No reports on Form 8-K were filed during the second quarter of 2001

18

Signatures

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AQUILA, INC.

By:	/s/ DAN STREEK
	Dan Streek Chief Financial Officer
	Signing on behalf of the registrant and as principal financial and accounting officer.

Date: August 13, 2001

19

QuickLinks

PART II—OTHER INFORMATION

Part I. Financial Information
Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits

Signatures

EX-3.1

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                  AQUILA, INC.

     1. The name of the corporation is Aquila, Inc. (the "CORPORATION"),
originally incorporated under the name Aquila Energy Corporation. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
the State of Delaware on March 21, 1991.

     2. This Restated Certificate of Incorporation has been duly adopted in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware (the "DGCL"). The sole stockholder of the Corporation adopted this
Restated Certificate of Incorporation by written consent in accordance with
Section 228 of the DGCL.

     3. The certificate of incorporation of the Corporation is hereby restated
and integrated and further amended to read in its entirety as follows:


                                    ARTICLE I

                               NAME OF CORPORATION

     The name of the corporation is Aquila, Inc.


                                   ARTICLE II

                                REGISTERED OFFICE

     The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801, County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.


                                   ARTICLE III

                                     PURPOSE

     The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.


                                   ARTICLE IV

                                   AFFILIATES

     A. For purposes of this Restated Certificate of Incorporation, the term
"AFFILIATE" shall mean (a) in respect of UtiliCorp United Inc., a Delaware
corporation, or any successor thereof by way of merger or consolidation
("UTILICORP"), any entity that is controlled by




UtiliCorp, controls UtiliCorp or is under common control with UtiliCorp,
exclusive of the Corporation and any entity that is controlled by the
Corporation, and (b) in respect of the Corporation, any entity that is
controlled by the Corporation, controls the Corporation or is under common
control with the Corporation, exclusive of UtiliCorp and its Affiliates. For
purposes of the foregoing, "control" of an entity shall mean, exclusively, the
direct or indirect beneficial ownership of 50% or more of the outstanding equity
in, or voting stock, voting power, or other voting interests of, such entity.
For all purposes of this Certificate of Incorporation, beneficial ownership
shall have the meaning provided in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.

     B. AMENDMENT OF ARTICLE. In addition to any other affirmative vote or
written consent required by applicable law, until such time as UtiliCorp and its
Affiliates first cease to beneficially own, in the aggregate, stock representing
20% or more of the combined voting power of the then issued and outstanding
capital stock of the Corporation entitled to vote generally in the election of
directors, this Article IV may not be amended, modified or repealed except by
the affirmative vote of the holders of not less than 80% of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, considered for purposes
hereof as a single class.


                                    ARTICLE V

                            AUTHORIZED CAPITAL STOCK

     A. AUTHORIZED STOCK. The maximum number of shares of capital stock that the
Corporation shall have authority to issue is 1,000,000,000 shares consisting of
550,000,000 shares of class A common stock, par value $0.01 per share (the
"CLASS A COMMON STOCK"), 250,000,000 shares of class B common stock, par value
$0.01 per share (the "CLASS B COMMON STOCK"), and 200,000,000 shares of
preferred stock, par value $0.01 per share (the "PREFERRED STOCK"). As used in
this Restated Certificate of Incorporation, the term "COMMON STOCK" refers
collectively to each class and series of common stock then outstanding.

     Subject to applicable law, this Restated Certificate of Incorporation, and
the rights, powers and preferences of any series of Preferred Stock, the
authorized number of shares of any class or series of stock may be increased or
decreased by the affirmative vote of a majority of the total votes entitled to
be cast by the holders of the Common Stock, voting as a single class, without a
separate vote of the holders of the class or series of stock affected; provided,
however, that the authorized number of shares of such class or series shall not
be decreased below the aggregate of the number of shares of such class or series
then outstanding and the number of shares of such class or series reserved for
issuance upon exercise of stock options or conversion of any other class or
series of stock or other securities of the Corporation.

     B. RECLASSIFICATION OF OLD COMMON STOCK. Upon the filing and effectiveness
(the "EFFECTIVE TIME") of this Restated Certificate of Incorporation pursuant to
the General Corporation Law of the State of Delaware, each share of the
Corporation's common stock, $1.00 par value per share, issued and outstanding or
held in treasury immediately prior to the Effective Time (the "OLD COMMON
STOCK") shall be reclassified as and changed and converted into 81,025 validly
issued, fully paid, and non-assessable shares of Class B Common Stock, without
any

                                       2



action by the holder thereof. Each certificate that prior to the Effective Time
represented a share or shares of Old Common Stock shall thereafter represent
that number of shares of Class B Common Stock into which the share or shares of
Old Common Stock represented by such certificate shall have been reclassified;
provided, however, that each record holder of a certificate or certificates that
prior to the Effective Time represented a share or shares of Old Common Stock
shall receive, upon surrender of such certificate or certificates, a new
certificate or certificates evidencing and representing the number of shares of
Class B Common Stock to which such record holder is entitled pursuant to the
foregoing reclassification.

     C. COMMON STOCK. The powers, preferences and rights of the holders of each
class and series of Common Stock, and the qualifications, limitations or
restrictions thereof, shall be in all respects identical on the basis of the
number of shares held, whether as to dividends or upon liquidation, dissolution
or winding up of the affairs of the Corporation, or otherwise, except as
otherwise required by law or expressly provided in this Restated Certificate of
Incorporation.

        1. VOTING. Except as may be otherwise required by law or this Restated
Certificate of Incorporation, on each matter upon which holders of Common Stock
have the right to vote, whether at an annual or special meeting of the
stockholders or by written consent:

        (a) each holder of Class A Common Stock shall be entitled to one (1)
vote in person or by proxy for each share of Class A Common Stock standing in
such stockholder's name on the stock transfer records of the Corporation;

        (b) each holder of Class B Common Stock shall be entitled to ten (10)
votes in person or by proxy for each share of Class B Common Stock standing in
such stockholder's name on the stock transfer records of the Corporation; and

        (c) the holders of Class A Common Stock and Class B Common Stock shall
vote together as a single class.

        2. DIVIDENDS.

        (a) Subject to applicable law and to the rights, powers and preferences
of any series of Preferred Stock, the holders of the Common Stock shall be
entitled to receive dividends and other distributions in cash, property, or
other securities of the Corporation out of any funds legally available therefor
at such times and in such amounts as may be determined and declared by the Board
of Directors.

        (b) Dividends shall not be declared or paid in respect of the Class A
Common Stock or the Class B Common Stock unless such dividends are declared and
paid in respect of all Common Stock equally on a per share basis without
preference or priority of any kind as between Class A Common Stock and Class B
Common Stock; provided, however, that if dividends are declared that are payable
in shares of Common Stock, such dividends shall be payable at the same rate on
both Class A Common Stock and Class B Common Stock but shall be payable in
shares of Class A Common Stock and Class B Common Stock, respectively.

        3. DISTRIBUTIONS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary,


                                       3



after payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any stock
ranking prior to the Common Stock in the distribution of assets shall be
entitled upon liquidation, the holders of the Common Stock and the holders of
any other stock ranking on a parity with the Common Stock in the distribution of
assets upon liquidation shall be entitled to share pro rata in the remaining
assets of the Corporation according to their respective number of shares.

        4. SPLITS, SUBDIVISIONS, ETC. If the Corporation shall in any manner
split, reclassify, subdivide or combine the outstanding Class A Common Stock or
Class B Common Stock, the outstanding shares of the other such class of Common
Stock shall be proportionately split, reclassified, subdivided or combined in
the same manner and on the same basis.

        5. MERGER OR CONSOLIDATION. In the event of a merger or consolidation of
the Corporation with or into another entity (whether or not the Corporation is
the surviving entity), the holders of each share of Class A Common Stock and
Class B Common Stock shall be entitled to receive the same per share
consideration as the per share consideration, if any, received by the holders of
each share of the other class of Common Stock; provided that, if such
consideration shall consist in any part of voting securities (or of options,
rights or warrants to purchase, or of securities convertible into or
exchangeable for, voting securities), then the Corporation may provide in the
applicable merger or such other agreement for the holders of shares of Class B
Common Stock to receive, on a per share basis, voting securities having ten (10)
times the number of votes per share as those voting securities to be received by
the holders of shares of Class A Common Stock (or options, rights or warrants to
purchase, or securities convertible into or exchangeable for, voting securities
with ten (10) times the number of votes per share as those voting securities
issuable upon exercise of the options, rights or warrants to be received by the
holders of the shares of Class A Common Stock, or into which the convertible or
exchangeable securities to be received by the holders of the shares of Class A
Common Stock may be converted or exchanged).

        6. NO PREEMPTIVE RIGHTS. No holder of Common Stock shall, by reason of
such holding, have any preemptive right to subscribe to any additional issue of
stock of any class or series of the Corporation or to any security of the
Corporation convertible into such stock.

        7. ISSUANCE AND CONVERSION OF CLASS B COMMON STOCK. After giving effect
to the reclassification specified in Section B of this Article V, and except as
required by paragraph 2 or 4 of this Section C, the Corporation shall not issue
additional shares of Class B Common Stock, or issue options, warrants or other
rights to subscribe for or purchase additional shares of Class B Common Stock.
Each share of Class B Common Stock shall be subject to conversion into Class A
Common Stock pursuant to and in accordance with the provisions of Section D of
this Article V.

        8. PRIORITY OF PREFERRED STOCK. The Common Stock is subject to all
powers, rights, privileges, preferences and priorities of the Preferred Stock as
may be stated herein or in any resolution or resolutions adopted by the Board of
Directors pursuant to authority expressly granted to and vested in it by Section
E of this Article V.


                                       4



     D. CONVERSION OF CLASS B COMMON STOCK.

        1. VOLUNTARY CONVERSION OF SHARES. Each share of Class B Common Stock
may, at the option of the record holder thereof at any time prior to a transfer
of Class B Common Stock to UtiliCorp stockholders in a Tax-Free Spin-Off (as
defined in Section D, Paragraph 3 of this Article V), be converted into one (1)
fully paid and non-assessable share of Class A Common Stock.

        2. VOLUNTARY CONVERSION PROCEDURES. The right of a record holder of
Class B Common Stock to convert such shares into Class A Common Stock shall be
exercised by delivering to the principal executive offices of the Corporation or
to the office of any agent for the registration of transfer of shares of Common
Stock (the "TRANSFER AGENT") (i) the certificate representing such shares of
Class B Common Stock, (ii) a written notice of the election by the holder
thereof to convert, stating the name or names and denominations in which the
certificate or certificates representing the shares of Class A Common Stock
issuable upon conversion are to be issued, and including instructions for the
delivery thereof, and (iii) if the holder thereof directs that any of the shares
of Class A Common Stock to be issued upon conversion are to be issued in the
name of any person other than such holder, then such instruments of transfer in
such form as may be required by the Corporation or the Transfer Agent, duly
executed by such holder or his duly authorized attorney, together with the
amount of any tax which may be payable in respect of such transfer or evidence
satisfactory to the Corporation that such tax has been paid. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of delivery of the foregoing, or, if the stock transfer books of the
Corporation are closed on such date, then immediately prior to the close of
business on the next succeeding day on which such stock transfer books are open.
As promptly as practicable following such conversion, the Corporation will
deliver or will cause the Transfer Agent to deliver, in accordance with the
instructions set forth in the notice of conversion, a certificate or
certificates representing the number of shares of Class A Common Stock issuable
upon such conversion, issued in such name or names as directed in the notice of
conversion.

        3. AUTOMATIC CONVERSION OF SHARES. Each share of Class B Common Stock
shall be automatically converted on a share-for-share basis into Class A Common
Stock upon any Transfer of such share of Class B Common Stock occurring prior to
a Tax-Free Spin-Off. For purposes of the immediately preceding sentence,
"TRANSFER" means any sale, gift, exchange, assignment, pledge, encumbrance,
alienation or other direct or indirect transfer of any legal or beneficial
ownership or voting interest in any share of Class B Common Stock, whether
voluntary, involuntary or by operation of law, but shall not include:

        (a) any pledge of such Class B Common Stock to a financial institution
as collateral security for the repayment of indebtedness or performance of any
other obligation; provided, however, that if at any time thereafter and prior to
a Tax-Free Spin-Off such shares are voted by or registered in the name of any
pledgee or nominee thereof, or any foreclosure, realization or other similar
action is taken against such shares by any person pursuant to such pledge, a
Transfer of such shares of Class B Common Stock shall be deemed to have occurred
at such time;

                                       5




        (b) any transfer or other disposition of any shares of Class B Common
Stock to any person or entity that is an Affiliate of UtiliCorp; provided,
however, that if at any time thereafter and prior to a Tax-Free Spin-Off such
Affiliate ceases to be an Affiliate of UtiliCorp, a Transfer of such shares of
Class B Common Stock held by such Affiliate at such time shall be deemed to have
occurred at such time;

        (c) a grant of a revocable proxy, written consent or other authorization
with respect to any share of Class B Common stock to a person designated by the
Board of Directors or management of the Corporation for such purpose; or

        (d) any transfer of any shares of Class B Common Stock by operation of
law to any successor of UtiliCorp by way of merger or consolidation, or any
change in the ownership of capital stock or other securities of UtiliCorp.

In addition to the foregoing, each share of Class B Common Stock shall be
automatically converted on a share-for-share basis into Class A Common Stock
immediately prior to a distribution by UtiliCorp of capital stock of the
Corporation to stockholders or security holders of UtiliCorp in a transaction
(including any distribution in exchange for shares of capital stock or
securities of UtiliCorp) intended to qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any successor statute (a "TAX-FREE SPIN-OFF") if, and
only if, immediately following such conversion the shares of Class A Common
Stock to be so distributed represent (i) at least 80% of the total combined
voting power of all classes of the then issued and outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, and (ii) at least 80% of the total number of shares of all other
classes of the then issued and outstanding capital stock of the Corporation;
provided, however, that the Class B Common Stock shall not be so converted if,
prior to such transaction, UtiliCorp delivers to the Corporation an opinion of
counsel to the effect that such conversion would more likely than not preclude
UtiliCorp from obtaining a favorable ruling from the Internal Revenue Service
that such transaction would qualify as a Tax-Free Spin-Off.

        4. AUTOMATIC CONVERSION PROCEDURES. Any conversion of Class B Common
Stock pursuant to Paragraph 3 of this Section D shall be deemed to have been
effected at the time of the event giving rise to such conversion. At such time,
the certificate or certificates that represented the shares of Class B Common
Stock so converted shall, automatically and without further action, represent
the same number of shares of Class A Common Stock. Without limiting the
foregoing, as promptly as practicable following such conversion, the holder of
any such certificates shall deliver all such certificates to the principal
executive offices of the Corporation or to the office of the Transfer Agent,
together with such further documents as the Corporation or Transfer Agent may
reasonably request. As promptly as practicable following satisfaction of the
foregoing, the Corporation will deliver or will cause the Transfer Agent to
deliver to such holder a certificate or certificates representing the number of
shares of Class A Common Stock into which the shares of Class B Common Stock
have been converted.

        5. DETERMINATION OF AUTOMATIC CONVERSION. The Board of Directors of the
Corporation shall have the power to determine, in good faith after reasonably
inquiry, whether an event has occurred causing the automatic conversion of any
shares of Class B Common Stock


                                       6


into Class A Common Stock pursuant to Paragraph 3 of this Section D. Upon the
request of any holder of Class B Common Stock, the Board shall determine in good
faith whether a specified event would cause an automatic conversion, which
determination shall be binding on the Board with respect to such specified
event. As a condition to counting any votes cast by any holder of shares of
Class B Common Stock, as a condition to registration of any transfer of shares
of Class B Common Stock by any holder thereof, or for any other purpose, the
Board of Directors may, in its reasonable good faith discretion, require that
such holder furnish such affidavits or other proof as the Board of Directors
reasonably and in good faith deems necessary or advisable to determine whether
any such event causing a conversion has occurred.

        6. UNCONVERTED SHARES. In the event of the conversion of less than all
of the shares of Class B Common Stock evidenced by a certificate surrendered to
the Corporation in accordance with the procedures of this Section D, the
Corporation will deliver or will cause the Transfer Agent to deliver, in
accordance with the instructions set forth in the notice described in Paragraph
2 or 4 of this Section D, as applicable, a new certificate or certificates
representing the number of shares of Class B Common Stock not so converted,
issued in the name of the holder of such certificate or, except to the extent
constituting a Transfer, in such other name or names as directed in such notice,
provided in such case that the holder has delivered such instruments of transfer
in such form as may be required by the Corporation or the Transfer Agent, duly
executed by such holder or his duly authorized attorney, together with the
amount of any tax which may be payable in respect of such transfer or evidence
satisfactory to the Corporation that such tax has been paid.

        7. DIVIDENDS DECLARED PRIOR TO CONVERSION. In the event that any share
of Class B Common Stock is converted subsequent to the record date for the
payment of a dividend or other distribution on shares of Class B Common Stock
but prior to such payment, the registered holder of such share at the close of
business on such record date shall be entitled to receive the dividend or other
distribution payable on such share on such payment date notwithstanding the
conversion thereof.

        8. RESERVATION OF SHARES. The Corporation will, at all times prior to a
Tax-Free Spin-Off, reserve and keep available, solely for the purpose of
issuance upon conversion of the outstanding shares of Class B Common Stock, such
number of shares of Class A Common Stock as shall be issuable upon the
conversion of all Class B Common Stock then outstanding, provided, that nothing
contained herein shall be construed to preclude the Corporation from satisfying
its obligations in respect of the conversion of the outstanding shares of Class
B Common Stock by delivery of previously issued shares of Class A Common Stock
that are held in the treasury of the Corporation. If any shares of Class A
Common Stock that are required to be reserved for purposes of conversion
hereunder require registration with or approval of any governmental authority
under any federal or state law before such shares of Class A Common Stock may be
issued upon conversion, the Corporation will cause such shares to be duly
registered or approved, as the case may be. The Corporation covenants that all
shares of Class A Common Stock that are issued upon conversion of the shares of
Class B Common Stock, will, upon such issuance, be fully paid and non-assessable
and not subject to any preemptive rights.

     E. PREFERRED STOCK. Shares of Preferred Stock may be issued in one or more
series from time to time by the Board of Directors, and the Board of Directors
is expressly authorized


                                       7



to fix by resolution or resolutions the designations and the powers, preferences
and rights, and the qualifications, limitations and restrictions thereof, of the
shares of each series of Preferred Stock, which may include but shall not be
limited to any of the following:

        1. the distinctive serial designation of such series which shall
distinguish it from other series;

        2. the number of shares included in such series;

        3. the dividend rate (or method of determining such rate) payable to the
holders of the shares of such series, any conditions upon which such dividends
shall be paid, the means and types of property that may be used in making any
such payment and the date or dates upon which such dividends shall be payable;

        4. whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which dividends on
the shares of such series shall be cumulative;

        5. the amount or amounts which shall be payable out of the assets of the
Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of the shares of such series;

        6. the price or prices at which, the period or periods within which and
the terms and conditions upon which the shares of such series may be redeemed,
in whole or in part, at the option of the Corporation or at the option of the
holder or holders thereof or upon the happening of a specified event or events;

        7. the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price or
prices at which, the period or periods within which and the terms and conditions
upon which the shares of such series shall be redeemed or purchased, in whole or
in part, pursuant to such obligation;

        8. whether shares of such series shall be convertible or exchangeable,
at any time or times at the option of the holder or holders thereof or at the
option of the Corporation or upon the happening of a specified event or events,
into shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation, and the price or prices or
rate or rates of exchange or conversion and any adjustments applicable thereto;
and

        9. whether the holders of the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and if so the terms of
such voting rights.


                                       8



                                   ARTICLE VI

                               BOARD OF DIRECTORS

     A. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be
not less than three (3) nor more than twenty-one (21), as may be fixed from time
to time by resolution duly adopted by the Board of Directors.

     B. UTILICORP NOMINEES. For so long as UtiliCorp and its Affiliates
beneficially own, in the aggregate, a majority of the combined voting power of
the then issued and outstanding capital stock of the Corporation entitled
generally to vote in the election of directors, UtiliCorp shall be entitled to
designate a majority of the nominees of the Board of Directors for election to
the Board of Directors at each annual meeting of the Corporation's stockholders.
If and for so long as UtiliCorp and its Affiliates beneficially own, in the
aggregate, more than 20% but less than a majority of the combined voting power
of the then issued and outstanding capital stock of the Corporation entitled to
vote generally in the election of directors (such percentage from time to time,
the "UtiliCorp Voting Percentage"), UtiliCorp shall be entitled to designate,
for election to the Board of Directors at each annual meeting of the
Corporation's stockholders, a number of nominees of the Board of Directors equal
to the UtiliCorp Representation Number less the number of UtiliCorp Nominated
Directors whose terms expire subsequent to such annual meeting. "UtiliCorp
Nominated Directors" shall be all directors then in office previously nominated
by UtiliCorp in accordance with this Section. The "UtiliCorp Representation
Number" shall be the number obtained by multiplying the total number of
directorships then constituting the Board of Directors by the UtiliCorp Voting
Percentage, with such product rounded to the nearest whole number (with any
number ending exactly in .5 rounded upwards to the next whole number). Upon the
classification of the Board of Directors pursuant to Section C of this Article
VI, the UtiliCorp Nominated Directors then in office shall be distributed among
the classes in as nearly equal a number as possible. All rights of UtiliCorp to
nominate directors pursuant to this Section B or any other provision of this
Certificate of Incorporation shall be subject to, and shall be exercised by
UtiliCorp in a manner to ensure compliance by the Corporation with, all
applicable laws, rules, regulations, and requirements of any securities exchange
to which the Corporation is then subject, including, without limitation, any
requirement that any directors of the Corporation be "independent"; provided,
however, that to the extent that any such law, rule, regulation or requirement
imposes limitations on less than all of the nominees of the Board, the Board and
any nominating committee thereof shall exercise its authority to designate
nominees in a manner than minimizes any restrictions on UtiliCorp's designation
discretion.

     C. TERM OF OFFICE; CLASSIFICATION OF BOARD.

        1. INITIAL STRUCTURE. For so long as UtiliCorp and its Affiliates
beneficially own, in the aggregate, at least a majority of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled generally to vote in the election of directors, at each annual meeting
of the stockholders each director of the Corporation shall be elected to hold
office for a term expiring upon the first annual meeting of stockholders
thereafter, subject to extension pursuant to the provisions of this Section C.


                                       9



        2. CLASSIFICATION. Effective upon and commencing as of the day UtiliCorp
and its Affiliates shall first cease to beneficially own, in the aggregate, at
least a majority of the combined voting power of the then issued and outstanding
capital stock of the Corporation entitled generally to vote in the election of
directors, the directors of the Corporation shall by resolution divide the Board
of Directors into three (3) classes. The number of directors in each such class
shall be as nearly equal in number as possible, with any necessary numerical
inequality being distributed among the classes as the Board of Directors shall
determine by such resolution. The Board of Directors, by such resolution, shall
determine into which class each director then in office shall be placed. The
initial term of office of the first class of such directors following such
classification shall expire at the first annual meeting of stockholders
thereafter, the initial term of office of the second class of such directors
following such classification shall expire at the second annual meeting of
stockholders thereafter, and the initial term of office of the third class of
such directors following such classification shall expire at the third annual
meeting of stockholders thereafter. At each annual meeting of stockholders
following such initial classification, each director elected to succeed a
director whose term expires at such annual meeting shall be elected to hold
office for a term expiring upon the annual meeting of stockholders in the third
year following the year of such director's election. Each director shall hold
office, whether before or after the classification of the Board of Directors,
until the expiration of such director's term and the election and qualification
of such director's successor, or until such director's earlier resignation or
removal.

     D. WRITTEN BALLOTS NOT REQUIRED. Elections of directors need not be by
written ballot except to the extent provided in the bylaws of the Corporation.

     E. REMOVAL OF DIRECTORS. Effective upon and commencing as of the day
following the day on which UtiliCorp and its Affiliates shall first cease to
beneficially own, in the aggregate, at least a majority of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, no director may be
removed except for cause. After such time, a director may be removed for cause
by the affirmative vote of the holders of a majority of the combined voting
power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors.

     F. VACANCIES.

        1. GENERAL. Any vacancy occurring on the Board of Directors and any
newly created directorship may be filled only by a majority of the remaining
directors or by the sole remaining director in office. In the event of the
death, resignation, retirement, removal or disqualification of a director during
his or her elected term of office, his or her successor shall serve until the
next stockholders' meeting at which directors of such class are elected, and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal.

        2. UTILICORP NOMINATED DIRECTORS. Notwithstanding any other provision of
this Restated Certificate of Incorporation, if (i) any vacancy occurring on the
Board of Directors results from the death, resignation, retirement, removal or
disqualification of a UtiliCorp Nominated Director, (ii) at such time UtiliCorp
and its Affiliates beneficially own, in the aggregate, at least 20% of the
combined voting power of the then issued and outstanding capital stock of the
Corporation entitled to vote generally in the election of directors, and (iii)
at such

                                       10




time one or more other UtiliCorp Nominated Directors are then in office,
such vacancy shall be filled by such remaining UtiliCorp Nominated Director or
Directors (any successor so appointed to be deemed a UtiliCorp Nominated
Director for all purposes under this Restated Certificate of Incorporation).

     G. OBSERVER RIGHTS. If, at any time during such time that UtiliCorp and its
Affiliates beneficially own, in the aggregate, at least 20% of the combined
voting power of the then issued and outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, there are no UtiliCorp
Nominated Directors then in office, UtiliCorp shall have the right to designate
an individual who shall be entitled to notice of, and who shall have the right
to attend, all meetings of the Board of Directors of the Corporation, such
rights of notice and attendance to continue until such time as a UtiliCorp
Nominated Director is appointed or elected or UtiliCorp and its Affiliates cease
to beneficially own, in the aggregate, at least 20% of the combined voting power
of the then issued and outstanding capital stock of the Corporation entitled to
vote generally in the election of directors.

     H. AMENDMENTS TO ARTICLE. So long as UtiliCorp, together with its
Affiliates, beneficially owns at least 20% of the combined voting power of the
then issued and outstanding capital stock of the Corporation entitled generally
to vote in the election of directors, the rights of UtiliCorp specified in this
Article VI cannot be amended, modifed or repealed without the prior written
consent of UtiliCorp.


                                   ARTICLE VII

                             LIABILITY OF DIRECTORS

     A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that such exemption from liability or limitation thereof is
not permitted under the General Corporation Law of the State of Delaware as
currently in effect or as the same may hereafter be amended. No amendment,
modification or repeal of this Article VII shall adversely affect any right or
protection of a director with respect to events occurring prior to such
amendment, modification or repeal.


                                  ARTICLE VIII

                               STOCKHOLDER ACTION

     A. RIGHT TO CALL STOCKHOLDER MEETINGS. Subject to the rights of the holders
of any series of Preferred Stock, effective upon the day on which UtiliCorp and
its Affiliates cease to beneficially own, in the aggregate, at least a majority
of the combined voting power of the then issued and outstanding capital stock of
the Corporation entitled to vote generally in the election of directors, special
meetings of stockholders of all or any class or series of capital stock of the
Corporation for any purpose or purposes may be called at any time only by the
chairman of the Board of Directors or a majority of the Board of Directors, and
effective as of such day, any power of stockholders to call a special meeting is
specifically denied. Business transacted at


                                       11



any special meeting of stockholders shall be confined to the purpose or purposes
of the meeting as stated in the notice of the meeting.

     B. STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of the
holders of any series of Preferred Stock, effective upon the day on which
UtiliCorp and its Affiliates cease to hold, in the aggregate, at least a
majority of the combined voting power of the then issued and outstanding capital
stock of the Corporation entitled to vote generally in the election of
directors, any action required or permitted to be taken by any stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
stockholders.


                                   ARTICLE IX

                       CERTAIN TRANSACTIONS WITH UTILICORP

     A. APPLICABILITY. Subject to Section F of this Article IX, the provisions
of this Article IX shall regulate and define the conduct of certain of the
businesses and affairs of the Corporation and its Affiliates in relation to
UtiliCorp and its Affiliates. Notwithstanding the foregoing or any other
provision contained herein, no contract or business relation between the
Corporation and its Affiliates on the one hand, and UtiliCorp and its Affiliates
on the other, that does not comply with the procedures set forth in this Article
IX shall by reason thereof be deemed void or voidable or unfair or result in any
breach of fiduciary duty or duty of loyalty or failure to act in good faith or
in the best interests of the Corporation or constitute derivation of any
improper personal benefit, but shall be governed by the provisions of this
Amended and Restated Certificate of Incorporation, the bylaws of the
Corporation, the General Corporation Law of the State of Delaware and other
applicable law.

     B. STOCKHOLDER CONSENT. Any person purchasing or otherwise acquiring any
shares of capital stock of the Corporation, or any interest therein, shall be
deemed to have notice of and to have consented to the provisions of this Article
IX, and to have acknowledged and agreed that (i) UtiliCorp (and its Affiliates)
is or may be a stockholder of the Corporation and will or may have continued
contractual, corporate, and business relations with the Corporation and its
Affiliates; (ii) the Corporation and UtiliCorp and their respective Affiliates
may enter into contracts and otherwise transact business with each other; (iii)
directors, officers and employees of UtiliCorp and of its Affiliates may serve
as directors and officers of the Corporation and of its Affiliates, (iv)
UtiliCorp and its Affiliates engage and are expected to continue to engage in
the same, similar or related lines of business as those in which the Corporation
and its Affiliates may engage and other business activities in each case that
may overlap with or compete with those in which the Corporation and its
Affiliates may engage, (v) UtiliCorp and its Affiliates may compete with the
Corporation and its Affiliates in any of such business lines and business
activities and with respect to business opportunities relating to any such
business lines and business activities.

     C. AFFILIATE TRANSACTIONS. The following provisions of this Section C shall
apply to any contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) between (i) the Corporation or any of its
Affiliates, on the one hand, and (ii)

                                       12



UtiliCorp, any Affiliate thereof, or one or more of the directors or officers of
the Corporation, UtiliCorp, or any of its Affiliates, on the other (any of the
foregoing, an "AFFILIATE TRANSACTION").

        1. TRANSACTIONS PERMITTED. No Affiliate Transaction shall, solely
because it is an Affiliate Transaction, or because any directors or officers of
UtiliCorp or its Affiliates are present at or participate in any meeting of the
Board of Directors or committee thereof which authorizes the Affiliate
Transaction, or because his, her or their votes are counted for such purpose, be
(a) void or voidable, (b) considered to be unfair to the Corporation or its
Affiliates, (c) considered to be contrary to any fiduciary duty that UtiliCorp
or any Affiliate thereof may owe to the Corporation or any Affiliate thereof or
to any stockholder or other owner of an equity interest in the Corporation or
any Affiliate thereof, or (d) considered contrary to any fiduciary duty of any
director or officer of the Corporation or of any Affiliate thereof who is also a
director, officer or employee of UtiliCorp or any Affiliate thereof to the
Corporation or such Affiliate, or to any stockholder thereof.

        2. SATISFACTION OF FIDUCIARY DUTIES. UtiliCorp, any Affiliate thereof,
and the directors and officers of the Corporation shall be deemed to have acted
in good faith and in a manner such persons reasonably believe to be in and not
opposed to the best interests of the Corporation and shall be deemed not to have
breached their duties of loyalty to the Corporation and its stockholders and not
to have derived an improper personal benefit therefrom, if any of the following
conditions shall have been satisfied:

        (a) such Affiliate Transaction shall have been entered into before the
Corporation ceased to be a wholly owned subsidiary of UtiliCorp; or

        (b) the material facts as to the Affiliate Transaction are disclosed or
are known to the Board of Directors and the Board of Directors authorizes,
approves or ratifies the Affiliate Transaction by the affirmative vote of a
majority of the members (even though less than a quorum) who are not Interested
Persons (as hereinafter defined) in respect of such Affiliate Transaction; or

        (c) the material facts as to the Affiliate Transaction are disclosed or
are known to, and the Affiliate Transaction is authorized, approved or ratified
by, a committee of the Board of Directors constituted solely of members who are
not Interested Persons in respect of such Affiliate Transaction; or

        (d) the material facts as to the Affiliate Transaction are disclosed or
are known to, and the Affiliate Transaction is authorized, approved or ratified
by, an officer or employee of the Corporation who is not an Interested Person in
respect of such Affiliate Transaction; or

        (e) the material facts as to the Affiliate Transaction are disclosed or
are known to the holders of voting stock entitled to vote thereon, and the
Affiliate Transaction is authorized, approved or ratified by vote of the holders
of a majority of the then outstanding voting stock not owned by UtiliCorp or an
Affiliate of UtiliCorp who vote thereon; or


                                       13


        (f) such Affiliate Transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, an officer or employee of the Corporation, or the
stockholders of the Corporation; or

        (g) such Affiliate Transaction is fair to the Corporation as of the time
it was entered into by the Corporation.

So long as any of the foregoing shall have been satisfied with respect to an
Affiliate Transaction, neither UtiliCorp nor any Affiliate thereof, as a
stockholder of the Corporation or participant in control of the Corporation,
shall have or be under any fiduciary duty to refrain from entering into or
participating in such Affiliate Transaction, and no director, officer or
employee of the Corporation who is also a director, officer or employee of
UtiliCorp or any Affiliate thereof shall have or be under any fiduciary duty to
the Corporation to refrain from acting on behalf of the Corporation or any
Affiliate thereof in respect of such Affiliate Transaction.

        3. QUORUM. Directors of the Corporation who are also directors, officers
or employees of UtiliCorp or any Affiliate thereof may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes, approves or ratifies any Affiliate Transaction.
Voting stock beneficially owned by UtiliCorp and any Affiliates thereof may be
counted in determining the presence of a quorum at a meeting of stockholders
which authorizes, approves or ratifies any Affiliated Transaction.

     D. CORPORATE OPPORTUNITIES.

        1. NO DUTY OF UTILICORP. UtiliCorp and its Affiliates shall have no duty
to refrain from engaging in the same or similar activities or lines of business
as the Corporation, and except as provided below, neither UtiliCorp nor any of
its Affiliates, nor any officer, director or employee thereof shall be liable to
the Corporation or its stockholders for breach of any fiduciary duty by reason
of any such activities of UtiliCorp or its Affiliates or of such person. In the
event that UtiliCorp or any of its Affiliates acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both UtiliCorp
(and/or its Affiliates) and the Corporation (and/or its Affiliates), neither
UtiliCorp nor any of its Affiliates shall have any duty to communicate or offer
such corporate opportunity to the Corporation or any of its Affiliates and shall
not be liable to the Corporation or its Affiliates or stockholders for breach of
any fiduciary duty as a stockholder of the Corporation by reason of the fact
that UtiliCorp or any of its Affiliates pursues or acquires such corporate
opportunity, directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to the Corporation.

        2. CONDUCT OF DIRECTORS AND OFFICERS. In the event that a director or
officer of the Corporation or of any of its Affiliates, who is also a director
or officer of UtiliCorp or any of its Affiliates, acquires knowledge of a
potential transaction or matter that may be a corporate opportunity for both the
Corporation (or any of its Affiliates) and UtiliCorp (or any of its Affiliates),
such director or officer shall have fully satisfied and fulfilled his or her
fiduciary duty to the Corporation and its stockholders with respect to such
corporate opportunity, and shall not be liable to the Corporation or its
stockholders for breach of any fiduciary duty by reason of the fact that
UtiliCorp or any of its Affiliates pursues or acquires such corporate
opportunity or

                                       14



directs such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Corporation, if such
director or officer acts consistent with the following: a corporate opportunity
offered to any person who is a director or officer of the Corporation or any of
its Affiliates, and who is also a director or officer of UtiliCorp or any of its
Affiliates, shall belong to the Corporation or one or more of its Affiliates if
such opportunity is expressly offered to such person solely in his or her
capacity as a director or officer of the Corporation or of one or more of its
Affiliates. If such opportunity is not expressly offered to such person solely
in such capacity, the opportunity shall belong solely to UtiliCorp and its
Affiliates.

     E. INTERESTED PERSONS. For purposes of this Article IX, "INTERESTED PERSON"
in respect of an agreement or transaction referred to in this Article IX shall
mean any director, officer or employee of UtiliCorp or of an Affiliate thereof
and any person who has a financial interest that is material to such person in
UtiliCorp or such Affiliate or otherwise has a personal financial interest that
is material to such person in such agreement or transaction; provided, however,
that no such financial interest shall be considered material by reason of a
person's ownership of securities of UtiliCorp or of an Affiliate thereof, if
such ownership of securities has been determined in good faith not to be
reasonably likely to influence such individual's decision on behalf of the
Corporation or an Affiliate thereof in respect of the contract, agreement,
arrangement or transaction (or the amendment, modification or termination
thereof) either in the specific instance by, or pursuant to a policy adopted by,
the Board of Directors by the affirmative vote of a majority of the members
(even though less than a quorum) who are not directors, officers or employees of
UtiliCorp or any Affiliate thereof or a committee of the Board of Directors
constituted solely of members who are not directors, officers or employees of
UtiliCorp or any Affiliate thereof by the affirmative vote of a majority of such
committee.

     F. TERMINATION OF EFFECT. The provisions of this Article IX shall have no
further force or effect at such time as UtiliCorp and its Affiliates shall first
cease to beneficially own, in the aggregate, stock representing 20% or more of
the combined voting power of the then issued and outstanding capital stock of
the Corporation entitled to vote generally in the election of directors;
provided, however, that such termination shall not terminate the effect of such
provisions with respect to (i) any contract, agreement, arrangement or
transaction (or the amendment, modification or termination thereof) between the
Corporation or an Affiliate thereof and UtiliCorp or an Affiliate thereof that
was entered into before such time or any transaction entered into in the
performance of any such contract, agreement, arrangement or transaction (or the
amendment, modification or termination thereof), whether entered into before or
after such time, or (ii) any transaction entered into between the Corporation or
an Affiliate thereof and UtiliCorp or an Affiliate thereof or the allocation of
any opportunity between them before such time.

     G. AMENDMENT OF ARTICLE. In addition to any other affirmative vote or
written consent required by applicable law, this Article IX may not be amended,
modified or repealed except by the affirmative vote of the holders of not less
than 80% of the combined voting power of the then issued and outstanding capital
stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes hereof as a single class.


                                       15



                                    ARTICLE X

                       AMENDMENT OF CERTIFICATE AND BYLAWS

     A. AMENDMENT OF CERTIFICATE OF INCORPORATION. Except as otherwise expressly
provided in this Restated Certificate of Incorporation, or as otherwise
expressly required by applicable law, no provision of this Restated Certificate
of Incorporation shall be altered, amended or repealed, or any provision
inconsistent therewith adopted, except by the affirmative vote of the holders of
a majority of the combined voting power of all of the then issued and
outstanding capital stock of the Corporation entitled to vote generally in the
election of directors, considered for purposes hereof as a single class;
provided, however, that any amendment to this Restated Certificate of
Incorporation that would alter or change the powers, preferences, or special
rights of any class of capital stock of the Corporation then outstanding in a
manner that adversely affects the holders of the outstanding shares thereof must
also be approved by the affirmative vote of the holders of not less than a
majority of the then outstanding shares of such class.

     B. AMENDMENT OF BYLAWS. The Board of Directors of the Corporation is
expressly authorized to adopt, amend or repeal bylaws of the Corporation, but
the stockholders entitled to vote thereon may adopt additional bylaws and may
amend or repeal any bylaw, whether or not adopted by them, at a meeting duly
called for that purpose.



        IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate
of Incorporation to be duly executed this 23rd day of April, 2001.


                          AQUILA, INC.


                          By:      /s/ Jeffrey D. Ayers
                              --------------------------------
                          Name:   Jeffrey D. Ayers
                          Title:  General Counsel and Corporate Secretary


                                      16