American Gas Association

1
American Gas Association

• 2006 Capital Markets Outlook
• March 9, 2006
• Kevin E. Sprouse - Edward Jones

2
Natural Gas - Retail Investor

• Age 50 years
• Annual Income Range 20k - 75k
• Gender Male
• Shares Owned 100 - 500

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2006 Outlook

• Review of Natural Gas Industry Debt
• Interest Rates
• Debt Financing Strategies

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US Utility Debt Financing
Source Bloomberg
5
Average CouponNatural Gas Average (2003 2005)
Source Bloomberg
6
Average MaturityNatural Gas Average (2003 2005)
Source Bloomberg
7

• Where Are We Headed?

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All Weather Strategy

• Call Options
• Long Term Debt
• Differentiation

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Why Use Call Options

• Set Up Next Round of Refundings
• Low Cost Flexibility
• Attractive Libor-Based Funding

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Southern Company Example

• 5.33 Average Coupon
• Portfolio Loaded with Callable Bonds

Source Bloomberg
11
Go Long !
Source Bloomberg
12
Differentiation

• Continuously Offered Notes
• Over 30 programs more being considered
• Over 7 Billion raised in 2005

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Bond Insurance for Utilities

• Only Industry with Access to Insurance
• No Corporations Rated Aaa/AAA
• Greatly Expands Market
• Makes Sub-6 Yields Attractive
• Issuer Saves up to 50 of the Spread

14
Outlook for Retail Debt Markets

• Attractive Execution for Small Offerings
• Inexpensive Optionality
• Competition with Continuous Programs
• Preference for Aaa/AAA Bonds

15
American Gas Association

• 2006 Capital Markets Outlook
• March 9, 2006
• Kevin E. Sprouse - Edward Jones