J A N U A R Y 1 9, 2 0 0 7J A N U A R Y 1 9, 2 0 0 7 U R G E N T I S S U E S I N E N E R G Y F I N A N C I N G SU R G E N T I S S U E S I N E N E R G Y.

J A N U A R Y   1 9 ,   2 0 0 7

U R G E N T   I S S U E S   I N   E N E R G Y   F I N A N C I N G S

Presented by Paul Neuhedel

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English_General

This presentation was prepared exclusively for the benefit and internal use of the JPMorgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by JPMorgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of JPMorgan.

The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. JPMorgan’s opinions and estimates constitute JPMorgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. JPMorgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects.

Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by JPMorgan.

JPMorgan’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. JPMorgan also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

JPMorgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities Inc., J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A. JPMorgan deal team members may be employees of any of the foregoing entities.

This presentation does not constitute a commitment by any JPMorgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.

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JPMorgan is the market leader in public power

Tax-Exempt Public Power Underwriting 2002 to 2006 ($ billion)

Tax-Exempt Public Power Underwriting 2002 to 2006 ($ billion)

JPMorgan is a leading public power underwriterJPMorgan is a leading public power underwriter

18.5

13.3

12.0

7.1

5.9

4.84.1

1.6

0.7 0.6

J PMorgan GoldmanSachs

Citigroup BearStearns

LehmanBrothers

UBSFinancial

MorganStanley

MerrillLynch

Banc ofAmerica

RBC

JPMorgan led the largest public power transactions in:

2002: JPMorgan led the largest public power financing ever – $11.3 billion for the State of California DWR

2003: $1.4 billion transaction for Memphis Light, Gas and Water

2005: $2.5 billion California Department of Water Resources and $1 billion Puerto Rico Electric Power Authority

Source: Securities Data Corporation as of January 7, 2007

Ranked #1 in Public PowerRanked #1 in Public Power

JPMorgan is the #1 senior manager of public power financings since 2002 with over 25% of the public power market share

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Agenda

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Financing Products

Issues in Energy Financing

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Environmental legislation has costly implications for utilities

Utilities are likely targets when the newly-elected Congress takes on energy issues Congress plans to establish a fund to finance alternative energy sources

– using money from oil companies The new Speaker of the House has demonstrated global warming

concerns – sponsor of the Safe Climate Act of 2006 Over 20 states have renewable energy mandates and almost 30 states

have climate action plans to limit greenhouse gas emissions

A 20% reduction in CO2 emissions for a single 460 MW PC plant could cost $32 million per year

The U.S. is taking a hard look at global warming legislationThe U.S. is taking a hard look at global warming legislation

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Credit perspectives

Moody’s Moody’s 2006-2007 Public Power Outlook projects “continued credit stability” through

2007 Median public rating for public power issuers is an A2

S&P S&P’s Public Power Report Card similarly cites the overall credit stability of the industry Only one non-investment grade rated utility, with 84% of all credits rated at least ‘A-’

Fitch Fitch’s “U.S. Power and Gas 2007” claims public power continues to be a “solid and

predictable sector” Ratings of ‘A’ for wholesale power system and ‘A+’ for retail systems remain the norm

Ability and willingness to pass on costs – automatic pass through

Contracts with members – length and step-up provisions

Offsets to construction risks

Maintenance of competitive position

Credit considerationsCredit considerations

Liquidity levels during construction

Use of proven technology

Potential environmental issues

Recovery of capital costs

Address transmission issues

Industry OutlookIndustry Outlook

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0

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J an-98 J ul-98 J an-99 J ul-99 J an-00 J ul-00 J an-01 J ul-01 J an-02 J ul-02 J an-03 J ul-03 J an-04 J ul-04 J an-05 J ul-05 J an-06 J ul-06

Natural Gas Petroleum Coal

Average costs of fossil fuels ($)1Average costs of fossil fuels ($)1

Source: Electric Power Monthly. November 2006. Available http://www.eia.doe.gov

Natural gas and petroleum prices have risen dramatically in recent years

1 Costs measured in 106 Btu

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10

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Liquids Natural Gas Coal Nuclear Hydropower Renewable excluding Hydro

Energy consumption by fuel, 1980-2030 (quadrillion Btu)Energy consumption by fuel, 1980-2030 (quadrillion Btu)

Source: Annual Energy Outlook 2007 (Early Release)

Energy consumption and demand are on the rise

History Projections

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What is the current environment for financing power projects?

Investors are requiring a premium for non-recourse energy projects

Rating agencies are applying greater levels of scrutiny, particularly to Liquidity levels Fuel sources Competitive position Rate setting mechanisms (ability and

willingness) Counterparty risk Ability of customer base to absorb

higher prices without material increase in delinquency rates

Concerns over potential changes in transmission protocol and grid operations by FERC

Investors are beginning to focus on financial risks associated with environmental issues

PositivePositive

Demand for high quality paper remains strong although credit spreads have narrowed as investors seek yield

Issuers implementing “full disclosure” are rewarded by investors

Historically low interest rate environment and current yield curve make both short and long-term debt financing attractive

Relative to IOUs and independent producers, public power utilities and cooperatives are viewed more favorably and are able to attract capital at a lower cost

Given the recent volatility in oil and gas, investors are more receptive to coal-fired projects

Investors like proven technologies

NegativeNegative

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Next wave of generation projects

Coal-fired baseload plants Oklahoma Municipal Power Authority: 950 MW Red Rock Generation Facility Wisconsin Public Power Inc.: 300 MW baseload plant in Escanaba Illinois Municipal Power Agency/Indiana Municipal Power Agency: partners in

Trimble County Unit No. 2, a 732 MW facility Intermountain Power Agency: 2 unit, 1,650 MW Intermountain Power Project Orlando Utilities Commission: 285 MW “clean” coal gasification plant at

Stanton Energy Center

Gas-fired projects Southern California Public Power Authority’s Magnolia project Vernon’s Malburg Generating Station

Risks associated with building Cost overruns Schedule delays New environmental regulations Cost inflation Use of unproven technologies

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Options for long-lead time financings

Long Term Debt The cash market is an attractive option in the current low interest rate

environment

Short Term Debt Auction Rate Securities (ARS) Variable Rate Demand Bonds (VRDBs)

Syndicated Loans

Index Bonds CPI Bonds % Libor Bonds

Hedging/Derivative products Finance Commodities

Energy Prepayments

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Syndicated loans can help meet utilities’ liquidity needs

Wide product spectrum in credit services Letters of Credit Liquidity Facilities Loans

— Term Loans— Revolving Lines of Credit — Bridge Financing

JPMorgan Chase Bank, N.A. can provide credit solutions Strong ratings of Aa2/P-1 (stable), AA-/A-1+ (stable), and A+/F-1+

(positive) from Moody’s, S&P, and Fitch, respectively Renown credit analysis and innovation Innovative solutions for clients that blend derivatives and credit products Strong record of agenting multi-bank deals fairly and smoothly JPMorgan was ranked as the “Best Credit House” of 2006 by Credit

Magazine

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CPI Bonds

What are CPI bonds?

CPI bonds overviewCPI bonds overview

What drives investor demand for municipal CPI bonds?What drives investor demand for municipal CPI bonds?

In the current market there is significant demand for Municipal CPI Bonds, especially from institutional investors looking for inflation hedging investments

Municipal CPI Bonds are floating rate bonds that pay a fixed spread over the trailing percentage change in the Consumer Price Index (CPI)

To date, issuers of Municipal CPI bonds have swapped them either to a fixed rate or BMA plus a fixed spread

In the current market, the Issuer can take advantage of this market opportunity and save 10 or more basis points relative to traditional fixed rate bonds in selected maturities

Discussions with investors, as well as recent CPI Bond issues, indicate demand for “AAA” insured CPI bonds in the 8 to 20 year maturity range

The prospects for inflation have generated increased investor interest in inflation-linked products

Buyers of Municipal CPI bonds may be looking to express a view on inflation, fix a real rate of return and/or diversify their investment portfolio

Municipal CPI bonds offer a number of advantages relative to alternative investments

Commodities and stocks generally increase in value with rising inflation. However they do not provide direct or explicit inflation hedges, and are taxable

Tax-exempt money market funds are exempt but do not explicitly provide an inflation hedge

Treasury Inflation Protected Securities (TIPS) principal accretion structure generates “phantom” income and therefore have adverse tax implications

CPI +

Spread

Issuer

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What are % of LIBOR bonds?

Issuer

% of LIBOR

+ Spread

% of LIBOR

Bonds

Maturities range 10-30 years and can be bullets or amortizing structures

Interest based upon 67% of 3 month LIBOR plus a fixed spread Could be structured using a different reference rate, such as 1 month LIBOR or a constant maturity swap rate

(i.e., 5 or 10 year CMS rate)

Interest Paid Quarterly, with an Actual/Actual day count convention Could be structured to pay with a different frequency or day count basis

May give Issuer a call option in 5 to 10 years

Investors do not have a put to the Issuer

Bonds are insured or highly rated (AA- or above)

Issuer sells bonds through a public offering to investors Can be incorporated into multi-modal documents similar to VRDBs, if requested

Typical Bond StructureTypical Bond Structure

Why are % of LIBOR bonds so desirable to investors?Why are % of LIBOR bonds so desirable to investors?

Certain investors evaluate the % of LIBOR Bonds by comparing the % of LIBOR bonds swapped-to-fixed basis versus traditional fixed rate bonds When compared to 20 year fixed rate bonds, the % of LIBOR bonds swapped-to-fixed would carry a lower all-in yield in the current

market Given the 5 year call on the bonds, a % of LIBOR bonds swapped-to-fixed would have a higher all-in yield in the current market

In addition, the current yield of the % of LIBOR bond is much higher than can be achieved in the current market on a long dated fixed rate bond due to the flatness of the yield curve

% of LIBOR bonds are a good diversification tool for this class of investor If rates increase, fixed rate bonds will depreciate but the % of LIBOR bonds outperform, offering an attractive hedge

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Financial hedging products

Hedging products

Tax reform risk

Treasury rates

Credit spreads

Muni bonds vs.

BMA/LIBOR swaps

Issuer trading

spread vs. muni market

Tax reform risk

Treasury rates

Credit spreads

Muni bonds vs.

BMA/LIBOR swaps

Tax reform risk

Treasury rates

Credit spreads

Treasury rates

Credit spreads

Treasury rates

Greater liquidity /Less expensive

Less liquidity /More expensive

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Energy risk management is a high priority

Utilities should work to institutionalize energy risk management as part of the utility’s overall risk management program

Natural gas and electricity risk can be bifurcated between physical and financial risks Price and supply can be managed separately Systematic price hedging can be advantageous Structured transactions can offer significant value

Emissions markets continue to develop with much more active interest from Institutional Investors

An energy hedging program can help reduce price volatility, decreasing exposure to prices through periods of extreme price increases and reducing impact on a utility’s budget

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Emissions markets

The marketThe market

US SO2 market is illiquid and challenged by highly inelastic supply/demand side The nature of the market creates natural longs and shorts who are compelled to buy

or sell with little sensitivity to price

The vast majority of S02 allowances trade through the OTC Broker Market. Other sources of liquidity include: Direct bilateral deals OTC via Intercontinental Exchange (ICE) NYMEX Futures (Clearport only) Chicago Climate Exchange Futures

Prices are highly volatile and depend heavily on current supply and demand

Natural Shorts: Large coal intensive generators

Market makers, Suppliers: Banks, Hedge Funds, Utilities, Municipalities

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Emissions markets hedging transactions

The marketThe market

Spot Market Purchases / Sales Transactions are settled via electronic transfer between buyers/sellers EPA allowance

accounts.

Physically Settled Options Typically trade in larger volumes than the market for spot purchases/sales

Forward Market Purchases / Sales Allows customers to lock in current allowances prices while delaying the settlement

and associated cash flows until a future date Customers generally execute these transactions only with highly rated counter

parties.

Financially Settled Swaps & Options Used when customer has exposure to price fluctuations in the emissions markets but

does not have a need for the actual physical allowances.

Vintage Swaps Allows naturals to manage their allowance position across the different vintage years Historically done as a like-kind exchange. Recently the ability of these transactions to

achieve this tax benefit has been disputed.

Emission Lending Arrangements Natural longs can earn a small rate of interest on idle allowances in their EPA

accounts or borrow allowances to meet compliance obligation.

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Selected tax-exempt commodity prepayment transactions ($ millions)Selected tax-exempt commodity prepayment transactions ($ millions)

Renewed interest in energy prepayment projects

Prior to Treasury ReviewPrior to Treasury Review

Prior to Treasury review, energy prepayment transactions were well received in the market

There were over 20 municipal transactions completed with a total par amount of over $2 billion

JPMorgan was involved in 9 gas prepayments prior to the Treasury review process

Since the new regulations, JPMorgan has led 5 energy prepayments totaling over $4.0 billion

There continues to be strong interest in prepayment transactions from municipal utilities

Benefits of commodity prepaymentsBenefits of commodity prepayments

Long term, reliable gas supply

Discounted price to index

Take-and-pay gas contract

Standard NAESB based terms

Firm deliveries with attractive force majeure provisions

No bond or other financial obligations under non-recourse structures

Key drivers: interest rates, credit spreads, tenor, natural gas prices, prepayment volumes, contract terms

APEA $306.0

MGAG $57.5$57.3

MGAG $59.3

MGAG $115.9

MGAG $178.2

MGAG $104.3

TEAC $174.6

FGU $115.6

Tennergy $234.2

MGAG $68.1

APEA $185.9

APEA $294.7

PEAK $199.8

MEAC$130.7

MGAM $72.9

MLGW$1,400.0

MGAM $425.0

Treasury ReviewNo transactions

completed

PEAK$1,030.7

NGAC$240.0

Tennergy$746.0

TEAC$1,994.

5

LMGA$223.7

FGU$694.2

Main St.

$1,055.9

MEAC$649.0

TX MGAS

$2,336.4

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Gas

Prepayment

Debt

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Floating

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JPMorganVentures Energy Issuer

MunicipalBondholders

JPMorgan Chase & Co. Guaranty

2

1

4

5

How does the basic prepayment structure work?

Participant(s)

Gas

FloatingPayment

3

SwapCounterparty

3

1 4Issuer and JPMVEC execute matched commodity swaps with AA/Aa category counterparty to convert pricing from fixed to a floating IndexJPMorgan Chase & Co. (Aa3/A+) guarantees JPMVEC delivery obligation to the Issuer

Issuer prepays JPMVEC for a 10/12/15/20 year supply of firm natural gas

Issuer issues tax-exempt debt secured by revenues from the project, which includes gas sales and swap receipts

Issuer delivers daily gas volumes to Participant(s) in exchange for a floating Index price less a discount

2 5

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