APPA Annual ConferenceJune 21, 2005

Mark SheaBanc of America Securities(720) 956-3326

Natural Gas Supply Acquisition Options

Banc of America Securities provides investment banking and securities products domestically and, on a limited basis, offshore. Other products and services, including products and services that may be referenced in the accompanying materials, may be provided through affiliates of Banc of America Securities. Copyright 2001 Banc of America Securities LLC. Banc of America Securities LLC, member NYSE/NASD/SIPC, is a subsidiary of Bank of America Corporation.

American Public Power Association

BAS Experience

$425,000,000 Municipal Gas Authority of Mississippi, Series 2005 May 2005 Sole manager Located supplier and led supply agreement negotiations

$55,000,000 Municipal Gas Authority of Georgia, Portfolio III Series 2003B July 2004 Partial conversion of Portfolio III Series 2003A to tax-exempt Lead manager

$44,280,000 Southeast Alabama Gas District, Series 2003B June 2004 Partial conversion of Portfolio III Series 2003A to tax-exempt Lead manager

$305,960,000 American Public Energy Agency, Series 2003 A&B December 2003 First natural gas prepay closed under the new IRS regulations Book-running manager Located supplier and led supply agreement negotiations

$83,395,000 Southeast Alabama Gas District, Series 2003A May 2003 Working interest acquisition Book-running manager Identified, analyzed and advised Southeast Alabama Gas District on the reserve purchase.

$121,000,000 Municipal Gas Authority of Georgia, Portfolio III Series 2003A January 2003 Working interest acquisition Book-running manager Identified, analyzed and advised Municipal Gas Authority of Georgia on the reserve purchase.

Select Banc of America Securities Energy Group Natural Gas Transactions 2003 to Present

Long-Term Supply Goals

Municipal long-term gas acquisition goals Enhance delivery reliability Achieve competitive purchase price Reduce price volatility Avoid supplier credit issues Complement existing pipeline positions Build diversified supply portfolio

Primary acquisition methodologies Prepaid forward natural gas contracts Working ownership interests in gas reserves Structured ownership interests in gas reserves

Long-Term Supply Overview

Risk

Reward

PrepaysStructured

Reserve Ownership Working Interest

Ownership

$0.15/MMBtu $0.50/MMBtuDiscount to Index

Global Factors

Exploration & production companies: Have significant excess cash flow Are unwilling to collateralize or credit enhance prepays Have paid down most redeemable debt Are aggressively bidding up prices on producing assets

Interest rate environment is problematic (but improving)

Interest rates are low (but rising)

Taxable - tax-exempt spreads at historical lows (but increasing)

Record municipal issuance (but falling)

The above factors make it difficult to economically execute any natural gas acquisition strategy at this time.

Prepay Economic Factors

“AA”

“A”

“BBB”

“BB”

Structural

Economic

Municipal

Dual

Supplier

Long

Short

TENOR

CREDIT STRUCTURE

COUNTERPARTY

SWAPS

Risk

Economics

Contractual Natural Gas Risks

Explicit Risks

Natural Gas Price Risk

Supplier Risk

Acquiring and owning natural gas reserves entails explicitly accepting many risks which heretofore municipalities have only accepted implicitly.

Implicit Risks

Reserve Risk

Production Risk

Operating Cost Risk

Delivery Risk

Environmental Risk

Other Risks

Ownership - Rewards & Risks

Significant Economics Savings

Improved Supply Security

Supplier Credit Risk Eliminated

Asset Specific Rather Than Global Risk

Price Environment: Discreet vs. Continuous

Ownership Structures

Working Interests

Volumetric Production Payment

Overriding Royalty Interest

Net Profits Interest

Finance able with tax-exempt debt

Yes No Yes Yes

Term of transaction Life of fieldSpecific number

of yearsLife of field Life of field

Reserve risk to buyer Yes Limited Yes Yes

Responsible for opex or capex

Yes No NoYes

(with limits)

Seller accounting treatment *

True SaleDeferred revenue

True sale True sale

Seller tax implications* Capital Gain None Capital gain Capital gain

Buyer’s credit risk to seller

None None None None

Control of Asset Yes No No No

* Participants should consult their tax and accounting advisors with regards to the tax and accounting treatment of these transactions.

Execution

Portfolio Construction

Acquisition Structure

Price Environment

Counterparty

Geography

Joint Action – Spread the Risk

Natural gas is no different than almost all other assets; risk is substantially decreased by building a portfolio.

The goal is to build, over time, a portfolio of supply transactions where the economic benefits received more than compensates for the change in risk profile.

Conclusions

Difficult market for long-term transactions Overheated E&P sector Low interest rates

Limited number of prepays are getting done

Be patient – take a long-term view

Take what the market gives you

Understand how the economics are being generated

Acquire assets in a disciplined manner