Geneva December, 2007

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GenevaDecember, 2007

World Meteorological Organization Simple Heating Degree

Day Program

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Weather and Natural Gas Distribution

Temperature and Gas Utilization are tightly correlated

Gas Distribution Company: HDDs and Residential Gas Volumes Sold

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

Jan 2

00X

Mar 20

0X

May 20

0X

Jul 2

00X

Sep 20

0X

Nov 20

0X

Jan 2

00Y

Mar 20

0Y

May 20

0Y

Jul 2

00Y

Sep 200

Y

Nov 20

0Y

Jan 2

00Z

Mar 20

0Z

May 20

0Z

Jul 2

00Z

Sep 20

0Z

Nov 20

0Z

HDDs

ºF

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

mm

btu

HDD Total Non-Industrial Gas

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Weather and Natural Gas Distribution

Gas Distribution companies have weather risk: - warm winters, which reduce volumes of gas utilized- residential and light commercial (e.g. shops, office buildings)

customers

There are two components in managing the gas distributor’s weather risk:

1. Weather• Protection in US usually based on Heating Degree

Days (ºF) 2. Company Commercial Economics

Weather Risk for Gas Utilities

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Example Weather

Temperature and HDDs

Weather Station: City in Northeastern U. S.HDDs (ºF) NE US City

2,500

3,000

3,500

4,000

4,500

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

HD

Ds

(ºF)

Actual HDDs

Average November-March Tmin and Tmax NE US City

20

25

30

35

40

45

50

55

60

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

TºF

Avge Tmin Avge Tmax

HDDs = max([65ºF – {Daily Tmax + Daily Tmin}/2],0)

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Example Weather

1. Understanding of weather environment in which company operates

2. Quantification of weather risk3. Stochastic modeling for risk analysis and

pricing purposes

Purpose of Weather Analysis

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Example Weather

Weather Factors

City in Northeastern U. S. – Oct/Sept HDD Norms

– 30 Year Norm 1951-1980 4,179.0 HDDs1961-1990 4,112.4 HDDs1971-2000 3,994.2 HDDs

– Trailing Decade1981-1990 4,043.2 HDDs1991-2000 4,042.8 HDDs2001-2006 3,984.8 HDDs

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Example Weather

Weather Factors

City in Northeast U. S. – HDD Trends

Oct/Sept HDDs (ºF) NE US City1961-2006

3,000

3,500

4,000

4,500

5,000

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

HD

Ds

(ºF)

Actual Detrended

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Example Weather

Other factors to establish a data series:

– Changes in instrumentation – Changes in location– Changes in reporting procedures

Weather Factors

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Commercial Considerations

How does a change in temperature affect changes in volume of consumption?

– Segmentation of customer base.– Patterns of gas usage:

• Equipment (age, technology, efficiency)• Building practices (insulation, windows, etc.)• Local customs• Local topography

– Geographical relationship of customers in relation to the weather station

Result: establish change in volume of gas consumed per unit of change in temperature

Sensitivity to Weather - Volume

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What is the economic impact of changes in temperature (i.e. of changes in volumes)?

– Cost of natural gas to distributor• Contracted supply• Anticipated open market (spot) supply

– Price of sale to customer• Regulated: rate structure• Unregulated: contracted and market price

Result: Establish change in economics due to change per unit of temperature

Sensitivity to Weather - Cost

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What is the critical point at which weather adversely affects company economics?

– Volume and price – Cost of gas– Operating costs– Financial obligations – Regulatory constraints

Result: Determine trigger point for HDD program payments

Sensitivity to Weather – Critical Level of Risk

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1. Critical Point: 3,750 HDDs (Oct/Sept)2. Value of Change in HDDs: $mm,mmm/HDD at critical point3. Risk Coverage: to no more than 100 year return period

Commercial Conclusions

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Example Program

Weather Probabilities

Combining Enterprise Factors and Weather Factors

HDDs Cumulative Probability DistributionCity in NE US: Oct/Sept HDDs

3,000

3,500

4,000

4,500

5,000

100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0%

Percentile

HD

Ds

(ºF)

gas distribution company parameters

36.5%tile

1.30%tile

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Example Program

Outline Example Program

Buyer Natural Gas Distribution UtilityCoverage Loss of Revenue resulting from adversely warm

weather.Weather Risk Total aggregate HDDs calculated during the PeriodWeather Station City Airport WBAN _____Period 1 October 200Q – 30 September 200RHDD Limit US$mm,mmmAttachment 3,750 HDDs Exit 3,100 HDDsPayment US$mm,mmm for every total aggregate HDD less than

the Attachment, subject to a maximum payment of (650 x US$mm,mmm)

Premium US$x,xxx,xxx

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Example Program

Hypothetical Outcome Example Program

Example HDD ProgramActual Oct/Sept HDDs

3,250

3,750

4,250

4,750

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

HDDs

recoveries

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Example Program

Weather Probabilities

Program Impact

HDDs Cumulative Probability DistributionCity in NE US: Oct/Sept HDDs

3,000

3,500

4,000

4,500

5,000

100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0%

Percentile

HD

Ds

(ºF)

effect of program

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Settlement:

Rapid settlement: within x days (usually 5 days) of publication of preliminary data, subject to revision within 95 days (final data)

Final Commercial Point

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Conclusions

1. Access to historical data• Identification of station(s)• Validation of data• Missing data• Validation of analysis• Fallback stations

2. Data about stations• Instrumentation history• Location history• Recording procedures

3. Access to current data• Monitor weather status• Efficient, effective settlement• Fallback as needed

4. More extensive requirements for Portfolio Management

19 W

Disclaimer

•Willis Structured Financial Solutions Limited ("WSFSL") is an investment business authorized and regulated by the UK Financial Services Authority. Willis Securities, Inc. ("WSI"), is a licensed broker dealer authorized and regulated by the NASD and is a member of SIPC. Willis Capital Markets ("WCM") is a trading name of WSFSL and WSI. Reinsurance products are placed through Willis Re Inc. in the United States and through Willis Limited in the UK. Willis Re, Willis Limited, WSFSL and WSI are Willis Group companies. •These materials have been prepared by WCM for the WCM client or potential client to whom such materials are addressed in connection with an actual or potential mandate or engagement and may not be used or relied upon for any other purpose. These materials are based upon information provided by or on behalf of the company and other potential transaction participants from public sources or other sources.. WCM assumes no responsibility for independent investigation or verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the company management or obtained from public sources, WCM has assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of company management (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. This communication was designed for use by the WCM client or potential client and is being furnished and should be considered only in connection with other information, oral or written, being provided by WCM in connection herewith. The information contained herein is not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. Nothing in this communication constitutes an offer or solicitation to sell or purchase any securities and is not a commitment by WCM (or any affiliate) to provide or arrange any financing for any transaction or to purchase any security in connection therewith. WCM assumes no obligation to update or otherwise revise these materials. This communication has not been prepared with a view towards public disclosure under any securities laws and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without the prior written consent of WCM. Information contained within this communication may not reflect information known to other employees in any other business areas of Willis Group and its affiliates.

Geneva December, 2007

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