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I M G A   B O A R D   M E E T I N G
Prepayment market update
S T R I C T L Y   P R I V A T E   A N D 
 C O N F I D E N T I A L
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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 clients subsidiaries,
the Client) in order to assist the Corporation
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,
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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
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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. JPMorgans
opinions and estimates constitute JPMorgans
judgment and should be regarded as indicative,
preliminary and for illustrative purposes only.
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I M G A   B O A R D   M E E T I N G
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Background
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Market environment
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Outlook for 2008
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I M G A   B O A R D   M E E T I N G
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Energy prepayments began in the 1990s, but
interest has surged in the last 24 months
Prepayments completed (millions)
Treasury Review No energy prepayments completed
B A C K G R O U N D
Projects completed 2008 YTD
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How much gas has been prepaid?
Municipal Utilities Annual Load Profiles
Prepaid Volumes Comprise 19 of Total Load
Total 1800 Bcf
Total 1800 Bcf
B A C K G R O U N D

• Municipal utilities use approximately 1800 Bcf of
  natural gas a year1
• Public gas utilities ? 1200 Bcf/year
• Public electric utilities ? 600 Bcf/year

• 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
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Natural gas prepayments in 2007
Indiana Bond Bank 309
SCCPA 500
Southeast Alabama 907
Main Street 528 527
Salt River 1,159
Main Street 497
TX GAS 1,934
Central Plains 529
Feb
Apr
Jun
Aug
Oct
Jan
Mar
May
Jul
Sep
Nov
Dec
Long Beach 886
PEAK 451
SMUD 758
Roseville 198
B A C K G R O U N D
Lower Alabama 383
San Antonio CPS 644
Denotes JPMorgan involvement as senior manager,
gas supplier, commodity swap counterparty or
credit provider
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

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Review of Tennergy project mechanics
Municipal Bondholders
BP Energy
Gas
Bond Proceeds
Floating Payment
Debt Service
Gas
Gas
IMGA andother participants
JPMorgan Ventures
Tennergy
JPMorganChase Co.
Prepayment
Guaranty
Index gas minus discount
Annual Refund
Fixed Payment
Floating Payment
Fixed Payment
Floating Payment
BP North America
B A C K G R O U N D
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
Guaranty JPMorgan Chase Co. unconditionally
guarantees JPMVECs financial obligations to
Tennergy
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 tax-exempt debt secured only by
revenues from the project, non-recourse to the
Participants
Source of gas JPMVEC enters into a 20 year
physical natural gas supply contract with BP
Energy
Commodity Swap Tennergy and JPMVEC execute
matched gas swaps with BP North America to
convert pricing from fixed to a floating Index
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Market environment
Background
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Outlook for 2008
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I M G A   B O A R D   M E E T I N G
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Prepayments depend of several value drivers

• 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

Interest Rates
?
Credit Markets

• 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

?
Natural Gas Prices

• 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

?
M A R K E T   E N V I R O N M E N T
Tenor

• Longer prepayments typically result in greater
  savings by capturing more of the taxable vs.
  tax-exempt differential
• Savings are not always linear

Prepaid Gas Volumes

• Seasonal sculpting can increase savings
• Increasing prepaid volume later in the project
  will also improve savings (backloading)

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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
LIBOR/MMD Spreads
M A R K E T   E N V I R O N M E N T
Optimal environment High rates and high spread
between MMD and LIBOR
1Reflects market conditions as of April 21, 2008
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Ultimately, it is the combination of interest
rates and credit spreads that are a key factor

• Gas suppliers cost of capital is a function of
  LIBOR plus a specific credit spread
• Municipal issuers 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
Credit Spread
VS.
M A R K E T   E N V I R O N M E N T
LIBOR
MMD
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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)
M A R K E T   E N V I R O N M E N T
Source JPMorgan DataQuery, as of April 15, 2008
Source The Wall Street Journal, 01/18/08
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As supplier credit spreads have increased, so
have credit spreads for prepayment bonds

• Prepayment bond ratings are based primarily on
  gas suppliers 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
Spreads (bps)
M A R K E T   E N V I R O N M E N T
Source JPMorgan DataQuery, as of April 15, 2008.
Spreads to MMD.
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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
M A R K E T   E N V I R O N M E N T
JPMorgan forecast as of March 10, 2008
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Outlook for 2008
Background
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Market environment
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I M G A   B O A R D   M E E T I N G
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Outlook for balance of 2008?
Taxable vs Tax-Exempt Rates
Gas Suppliers Cost of Capital
Absolute Level of Interest Rates
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Tax-Exempt Prepayment Bond Spreads
Investor Demand and Market Access
Alternative Funding Structures
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Interest rates expected to trend slightly higher
JPMorgan economic forecast
Interest Rate Forecast ()
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Economic Data1 (ch q/q, saar, unless otherwise
noted)
1 Data as of 4/18/2008 Q4/Q4 change
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Supplier credit spreads have shown some
improvement
5Y Credit default swap spreads (bps)
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Source JPMorgan DataQuery, as of April 15, 2008
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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
LIBOR/MMD Spreads
O U T L O O K   F O R   2 0 0 8
Low of 11 bps
1Reflects market conditions as of April 15, 2008
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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
• Municipal market supply/demand
• Tax-exempt vs. taxable ratios
• News/earnings reports for investment
  banks/commercial banks
• Overall credit cycle

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Tennergy project team
Tennergy Corporation

• Philip Bell 731-422-7212
• pbell_at_tennergy.com
• Mechele Williams 731-422-7254
  mwilliams_at_tennergy.com

McKee Nelson
Bass, Berry Sims
Hunton Williams

• Darrell Smelcer 404-888-4209
• dsmelcer_at_hunton.com
• Lynn Gavin 404-888-4273
• lgavin_at_hunton.com

• Doug Bird 917-777-4666
• dbird_at_mckeenelson.com

• Mark Mamantov 865-521-0365
• mmamantov_at_bassberry.com
• Russ Miller 615-742-7778
• rmiller_at_bassberry.com

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JPMorgan Ventures Energy
J.P. Morgan Securities Inc.
BP Corporation North America

• Lance Etcheverry 214-965-3722
• lance.s.etcheverry_at_jpmorgan.com
• Melissa Houskamp 904-305-4888
• melissa.l.houskamp_at_jpmorgan.com
• Robert Servas 212-834-7155
• robert.c.servas_at_jpmorgan.com

• Chris Calger 212-834-2036
• christopher.f.calger_at_jpmorgan.com
• Mark Lenczowski 212-648-0285
• mark.lenczowski_at_jpmorgan.com

• Troy Black 281-366-4733
• troy.black_at_bp.com
• Don Black 281-366-6993
• donald.black_at_bp.com

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