APRIL 2008
S T R I C T LY
P R I VAT E
AN D
C O N FI D EN TI AL
IMGA BOARD MEETING
Prepayment market update
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I MG A
B O AR D
ME E T I N G
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credit or to provide any other services.
IMGA
Agenda
Page
Background
1
Market environment
6
13
I MG A
B O AR D
ME E T I N G
Outlook for 2008
IMGA
1
Energy prepayments began in the 1990s, but interest has
surged in the last 24 months
Prepayments completed ($millions)
10,676
9,462
Treasury
Review
B AC KG R O U N D
No energy
prepayments
completed
207
174
Pre-1995
1996
398
1997
749
660
1998
1999
1,698
1,049
775
2000-2003
2003
2004
2005
2006
2007
2008*
*Projects completed 2008 YTD
IMGA
2
How much gas has been prepaid?
Municipal Utilities’ Annual Load Profiles
Prepaid Volumes Comprise 19% of Total Load
Prepaid Annual
Volume
19%
Public Electric
Utilities
33%
Public Gas
Utilities
67%
Non-Prepaid
Annual Volumes
81%
Total = 1800 Bcf

Municipal utilities use approximately 1800 Bcf
of natural gas a year1
 Public gas utilities  1200 Bcf/year
B AC KG R O U N D
 Public electric utilities  600 Bcf/year
Total = 1800 Bcf

For deals completed in 2006 and 2007,
prepaid gas volumes average
approximately 330 Bcf/year through 2015,
or 19% of total load per annum
¹Source: Energy Information Administration
IMGA
3
Natural gas prepayments in 2007
Indiana Bond Bank
$309
Main Street
$528
$527
Southeast
Alabama
$907
Central
Plains
$529
Jan
Feb
Roseville
$198
Mar
Apr
May
Jun
TX GAS
$1,934
Jul
Main Street
$497
Aug
Sep
Long
Beach
$886
SMUD
$758
San Antonio CPS
$644
SCCPA
$500
Salt
River
$1,159
Oct
Nov
Dec
PEAK
$451
Lower Alabama
$383
Denotes JPMorgan involvement as senior manager, gas supplier, commodity swap counterparty or credit provider
B AC KG R O U N D
Market highlights

15 gas prepayments executed in 2007 - $10.2 billion

10 gas prepayments executed in 2006 - $9.6 billion

JPMorgan led the market with $2.2 billion in 2007
IMGA
4
Review of Tennergy project mechanics
JPMorgan
Chase & Co.
Guaranty
Gas
1
JPMorgan
Ventures
2
Gas
Prepayment
Bond
Proceeds
3
Floating
Payment
4
Debt
Service
Municipal
Bondholders
BP Energy
Tennergy
5
Gas
Index gas
minus discount
IMGA and
other participants
Annual Refund
6
BP North
America
B AC KG R O U N D
1
2
Gas Purchase Agreement: Tennergy
pays JPMorgan Ventures (JPMVEC)
upfront for a 20 year supply of firm
natural gas
Bond issuance: To finance the
prepayment, Tennergy sells taxexempt debt secured only by
revenues from the project, nonrecourse to the Participants
3
4
Guaranty: JPMorgan Chase & Co.
unconditionally guarantees
JPMVEC’s financial obligations to
Tennergy
Source of gas: JPMVEC enters
into a 20 year physical natural
gas supply contract with BP
Energy
5
6
Gas Supply Agreement: Tennergy
delivers daily gas volumes to IMGA
and the other participants in
exchange for a floating Index price
less a discount and annual refund
Commodity Swap: Tennergy and
JPMVEC execute matched gas
swaps with BP North America to
convert pricing from fixed to a
floating Index
IMGA
5
Agenda
Page
Background
1
Market environment
6
13
I MG A
B O AR D
ME E T I N G
Outlook for 2008
IMGA
6
Prepayments depend of several value drivers
Interest
Rates
Credit
Markets
Natural Gas
Prices
?
?
?
 Increase in interest rates should produce greater savings
 MMD/LIBOR relationship is at its lowest since June 2003
 As spread widens, prepayment savings will increase
 Tax-exempt prepayment bond spreads are likely to remain wide
 Subprime exposure has pushed supplier credit spreads wider and
even resulted in credit rating downgrades for some
 Absolute levels could be higher but stability has been helpful
 Higher gas prices increase the value of a prepayment
 Shape of forward curve could be more contango
 Lower near-term pricing and less backwardation will support
prepayment savings
MAR KE T
E N V I R O N M E N T
 Longer prepayments typically result in greater savings by
Tenor
capturing more of the taxable vs. tax-exempt differential
 Savings are not always linear
 Seasonal sculpting can increase savings
Prepaid Gas
Volumes
 Increasing prepaid volume later in the project will also improve
savings (backloading)
IMGA
7
High interest rate environment is generally more favorable
 Spread between taxable and tax-exempt rates is a primary value driver
 Historically, the spread between tax-exempt and taxable rates widens as rates rise
 Wider tax-exempt/taxable spreads, or a lower MMD/LIBOR ratio, improves project savings
 Market movements have been severe in 2008, but have recently improved
Historical 10-year AAA MMD vs. 10-year LIBOR1
MMD &
LIBOR Rates
10-year LIBOR
10-year MMD
MMD-LIBOR Spread
LIBOR/MMD Spreads
6%
200
180
160
140
5%
120
MAR KE T
E N V I R O N M E N T
100
80
4%
60
40
Optimal environment: High
rates and high spread
between MMD and LIBOR
20
3%
0
Dec-05
1Reflects
Feb-06
Apr-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Dec-07
Feb-08
Apr-08
market conditions as of April 21, 2008
IMGA
8
Ultimately, it is the combination of interest rates and
credit spreads that are a key factor

Gas supplier’s cost of capital is a function of LIBOR plus a specific credit spread

Municipal issuer’s cost of capital is a function of MMD plus a specific credit spread
Illustration - Taxable funding levels vs. tax-exempt prepayment pricing
Credit
Spread
Prepayment Value
VS.
Credit
Spread
MAR KE T
E N V I R O N M E N T
LIBOR
MMD
Gas Supplier
Municipal Issuer
IMGA
9
Gas suppliers’ credit spreads have increased sharply since
August 2007
 As financial institutions have taken over $206 billion of write-
downs on their exposure to subprime mortgages
 These write-downs created anxiety among investors and, in
part, led to investors demanding increased credit spreads
5Y Credit default swap spreads (bps)
360
320
280
240
JPM organ (Aa2/AA-/AA-)
Bank of America (Aa1/AA/AA)
Citigroup (Aa3/AA-/AA)
Goldman Sachs (Aa3/AA-/AA-)
M errill Lynch (A1/A+/A+)
200
160
MAR KE T
E N V I R O N M E N T
120
80
40
0
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Source: JPMorgan DataQuery, as of April 15, 2008
Source: The Wall Street Journal, 01/18/08
IMGA
10
As supplier credit spreads have increased, so have credit
spreads for prepayment bonds

Prepayment bond ratings are based primarily on gas supplier’s credit

Prepayment bond credit spreads in some cases have increased more on a percentage
basis than gas suppliers credit spreads have increased
10Y MMD vs. the spreads of prepayment bonds
MMD
Rates
10Y MMD
4.4%
JPMorgan (Main Street Series A)
Spreads (bps)
225
Goldman Sachs (TEAC)
4.2%
Merrill Lynch (Main Street Series B)
200
Citigroup (Salt Verde)
175
4.0%
MAR KE T
E N V I R O N M E N T
150
3.8%
125
3.6%
100
75
3.4%
50
3.2%
25
3.0%
Feb-07
0
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Source: JPMorgan DataQuery, as of April 15, 2008. Spreads to MMD.
IMGA
11
Gas market dynamics appear stable
 The stability in gas prices, especially compared to the rates and credit markets, has been
conducive to the execution of prepayments
 A gas curve that is more contango would create more savings
 Natural gas prices are notoriously unpredictable due to their correlation with weather
NYMEX natural gas curve as of April 23, 2008
12.5
NYMEX Natural Gas Front-Month Forecast
12
11.5
11
Current Fwd
JPMorgan*
Q1
-
-
Q2
10.80
8.50
Q3
Q4
2008
11.08
11.24
8.10
8.97
8.95
7.50
10.5
MAR KE T
E N V I R O N M E N T
10
9.5
9
8.5
8
Jul-08
Jul-10
Jul-12
Jul-14
Jul-16
Jul-18
Jul-20
Jul-22
Jul-24
Jul-26
Jul-28
*JPMorgan forecast as of March 10, 2008
IMGA
12
Agenda
Page
Background
1
Market environment
6
13
I MG A
B O AR D
ME E T I N G
Outlook for 2008
IMGA
13
Outlook for balance of 2008?
Taxable
vs
Tax-Exempt Rates
Gas Supplier’s
Cost of Capital
Tax-Exempt
Prepayment
Bond Spreads
Investor Demand
and
Market Access
Alternative Funding
Structures
O U T L O O K
FO R
2 00 8
Absolute Level of
Interest Rates
IMGA
14
Interest rates expected to trend slightly higher
JPMorgan economic forecast
Interest Rate Forecast (%)
04/18/08
Current
06/30/08
Q2
Forecast
09/30/08
Q3
Forecast
12/31/08
Q4
Forecast
03/31/09
Q1
Forecast
Fed Funds Target
2.25
1.75
1.75
1.75
1.75
3-Month LIBOR
2.91
2.15
1.95
2.00
2.15
3-Month T-bill
1.35
0.90
0.85
1.05
1.20
2-Year T-note
2.17
1.50
1.80
1.90
2.00
5-Year T-note
2.95
2.65
3.00
3.05
3.15
10-Year T-note
3.74
3.80
4.05
4.10
4.15
30-Year T-bond
4.52
4.65
4.85
4.90
4.90
Security
Source: JPMorgan, MorganMarkets.
O U T L O O K
FO R
2 00 8
Economic Data1 (%ch q/q, saar, unless otherwise noted)
07Q4
08Q1
Real GDP
0.6
0.0
(1.0)
3.0
1.5
2.5
0.9
Consumer Prices
5.0
4.3
3.4
2.2
2.2
4.0
3.0
Unemployment (%, sa)
4.8
4.9
5.2
5.5
5.6
-
-
1
*
08Q2 08Q3 08Q4
2007* 2008*
Data as of 4/18/2008
Q4/Q4 change
IMGA
15
Supplier credit spreads have shown some improvement
5Y Credit default swap spreads (bps)
360
320
280
240
JPM organ (Aa2/AA-/AA-)
Bank of America (Aa1/AA/AA)
Citigroup (Aa3/AA-/AA)
Goldman Sachs (Aa3/AA-/AA-)
M errill Lynch (A1/A+/A+)
200
160
120
80
O U T L O O K
FO R
2 00 8
40
0
Oct-07
Dec-07
Jan-08
Apr-08
Source: JPMorgan DataQuery, as of April 15, 2008
IMGA
16
The MMD/LIBOR relationship has rebounded from extreme levels
 The spread on 10 year MMD vs. 10 year LIBOR bottomed at just 11 basis points from a high of
nearly 170 basis points on July 6th , it has since rebounded by approximately 60 basis points
 Though the future is uncertain, market movement in recent weeks is encouraging
2008 10-year AAA MMD vs. 10-year LIBOR1
MMD &
LIBOR Rates
10-year LIBOR
10-year MMD
MMD-LIBOR Spread
LIBOR/MMD Spreads
5.00%
120
4.75%
100
4.50%
80
4.25%
4.00%
60
3.75%
40
O U T L O O K
FO R
2 00 8
3.50%
20
3.25%
Low of 11 bps
3.00%
4-Jan
1Reflects
0
11-Jan 18-Jan 25-Jan
1-Feb
8-Feb
15-Feb 22-Feb 29-Feb
7-Mar
14-Mar 21-Mar 28-Mar
4-Apr
11-Apr
market conditions as of April 15, 2008
IMGA
17
What does this mean for prepayments?
 Potential for continued market improvement and project execution
 MMD vs. LIBOR spread
 Supplier credit spreads
 Prepayment bond spreads
 Is investor demand returning to the fixed rate bond market?
 Long term market seeing some strength
 Size constraints improving
 Can additional projects get done with variable rate financing structure?
 Credit availability
 Prepaid supplier funding considerations
 Additional termination events
 Prepayment market depends on future market technicals and economic news
O U T L O O K
FO R
2 00 8
 Municipal market supply/demand
 Tax-exempt vs. taxable ratios
 News/earnings reports for investment banks/commercial banks
 Overall credit cycle
IMGA
18
Tennergy project team
Tennergy Corporation
• Philip Bell – 731-422-7212
pbell@tennergy.com
• Mechele Williams – 731-422-7254
mwilliams@tennergy.com
O U T L O O K
FO R
2 00 8
Bass, Berry & Sims
Hunton & Williams
• Mark Mamantov – 865-521-0365
mmamantov@bassberry.com
• Darrell Smelcer – 404-888-4209
dsmelcer@hunton.com
• Russ Miller – 615-742-7778
rmiller@bassberry.com
• Lynn Gavin – 404-888-4273
lgavin@hunton.com
J.P. Morgan Securities Inc.
JPMorgan Ventures Energy
• Lance Etcheverry – 214-965-3722
lance.s.etcheverry@jpmorgan.com
• Chris Calger – 212-834-2036
christopher.f.calger@jpmorgan.com
• Melissa Houskamp – 904-305-4888
melissa.l.houskamp@jpmorgan.com
• Mark Lenczowski – 212-648-0285
mark.lenczowski@jpmorgan.com
McKee Nelson
• Doug Bird – 917-777-4666
dbird@mckeenelson.com
BP Corporation North America
• Troy Black – 281-366-4733
troy.black@bp.com
• Don Black – 281-366-6993
donald.black@bp.com
• Robert Servas – 212-834-7155
robert.c.servas@jpmorgan.com
IMGA
19