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EXECUTIVE

COMPENSATION AT
AQUILA

INTRODUCTION
Utility corporation moved into the market of energy trade after Congress
passed the bill for opening the energy market.
Renamed the brand as Aquilla
CEO,Robert Green, was awarded bonus of $4.5 million for his contibution
in merchant service business
However, Energy market collapsed and Aquilla faced losses. Green resigned
though retaining the bonus

EXPANSION OF THE UTILITY BUSINESS


Regional diversification would decrease the regulatory risk from
any one state
authority
Energy policy act allowed utility operators to own unregulated
power plants outside their monopoly areas and to sell excess
energy into the wholesale market.
Through EnergyOne, UtiliCorp would attempt to directly market
itself to consumers in order to build a brand around its services
Green invested beyond the core business in order to achieve
growth of 8-10 %

AQUILA ENERGY MERCHANT OPERATIONS


UtiliCorp entered the energy trading business through its 1985
acquisition of Peoples Natural Gas
Electricity market is different from oil and gas since it cannot be
stored. Local utility balances out it shortages by entering into
agreements with companies in the open market.
Contract pricing was volatile and companies had different
strategies to hedge it
Merchant traders also cashes in by acting as middleman. They
also provides the economical path for transmitting power.

EXIT OF ROBERT GREEN


Robert finally decided to concentrate on restoring its core utility business.
In August 2002 after a second quarter loss of $810 million, Aquila decided to
completely exit wholesale energy trading business. It was eventually graded
down to junk status of BA2 by Moody.
Robert Green resigned in October and Richard Green took his place to
substantially reduce the scale and scope of the business.
Aquila aggressively sold its assets to raise capital including utilities and gas
systems in Texas, Canada, UK, Australia, and New Zealand.
Aqila stock that was prices at $25 when Robert took as CEO just 10 months
ago had crashed down to $2.

ROBERT GREEN SEVERANCE AGREEMENT


Robert Green had been CEO of Aquila for just 3 months
As per the agreement, Robert Green was supposed to receive $7.6
million as severance benefits which received intense flak from
shareholders
Compensation would include 3 times his base salary + average
annual incentive value paid over the past 3 years
The compensation was said to be appropriately reviewed and
benchmarked against 15 other companies in the same industry
It was said the Robert was responsible for huge profits but had no
control over the collapse of Aquilas energy trading operations

IMPLICATIONS
OF
AQUILA
FAILURE

Investors were not satisfied with the kind of compensation


provided to Robert as per severance agreement

Staff was furious as they were not sure about their future in the
company whereas exiting CEO was receiving huge amount of
compensation
Decline in compensation as company returned to traditional
utility based model
Between 2002 and 2004 company did not pay any bonuses and
held disastrous financial results accountable for the same.
In 2005 the company paid bonuses to executives in the
multiples of their salary stating retention of executive officers
as the motive behind it.

Thank You

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