board planning session kennesaw, ga march 21, 2011

Board Planning SessionKennesaw, GA

March 21, 2011

Municipal Gas Authority of Georgia

Board Planning SessionMarch 21, 2011 - 2 -

Agenda

2010 Financial Results G&A True-up

Swing Supply Charge

Capacity Management Credits

Storage Programs

Long-Term Supply Projects

2010 Corporate Goal and Incentive Compensation Plan

Proposed 2011 Corporate Goal



Agenda

Conasauga Shale Supply in Georgia

Portfolio III Investments in Member Debt

Draft 2016 Strategic Plan

2010 Audit Results* – Meeting with Ernst & Young (Tuesday morning before MGAG Board Meeting)

* Discussion Materials to be Provided at the Meeting



2010 Financial Results

Actual net G&A represents a favorable variance from budget of $52,000

The overall favorable variance is comprised of the following: Unfavorable variance of approximately $139,000 on G&A

expenses Due primarily to office expansion costs incurred to support new

PGP services

Favorable variance of approximately $47,000 in Revenue Credits due to

Higher than expected revenues from interest income and Main Street administrative fees

Offset somewhat by reserved amounts of almost $600,000 for timing differences and risk related to Pine Needle, MGC and FUEL

Favorable variance of approximately $145,000 in Member billings due to colder than normal weather

Overall favorable variance has been recorded as additional Net Assets



2010 G&A True-Up

BUDGET ACTUAL VARIANCE2010 2010 (UNFAVORABLE)

FAVORABLE

SALARIES & BENEFITS 5,771,230 5,768,877 2,353OFFICE OPERATIONS (BUILDING, TELECOM, SUPPLIES) 507,980 628,884 (120,904)TECHNOLOGY EXPENSES 399,860 434,160 (34,300)PROFESSIONAL SERVICES (LEGAL,CONSULTING,AUDIT) 616,146 610,936 5,210TRAVEL AND MEETINGS 375,650 353,854 21,796OTHER (BOARD MEMBERS, MISC.) 114,200 127,846 (13,646) TOTAL G&A EXPENSES 7,785,066 7,924,557 (139,491)

PGP SERVICE FEES (1,185,000) (1,054,274) (130,726)MAINSTREET FEES A, B, & C (429,655) (515,158) 85,503LONG-TERM SUPPLY ADMIN FEES (410,000) (386,390) (23,610)DEFERRED MAIN STREET REVENUES (375,000) (375,000) 0INTEREST INCOME (145,000) (343,712) 198,712PATRIOTS ENERGY GROUP (306,000) (332,970) 26,970FUEL, INC. FEES (386,718) (286,718) (100,000)RICHMOND ADMIN FEES (277,498) (277,336) (162)PINE NEEDLE REVENUE (110,000) (146,105) 36,105RENTAL INCOME (153,036) (133,830) (19,206)MID-GEORGIA COGEN (139,000) (112,514) (26,486)SUBSCRIBED REGULATORY FEES (50,000) (50,000) 0SEAGD FEES (48,000) (48,000) 0 TOTAL REVENUE CREDITS: (4,014,907) (4,062,007) 47,100

NET G&A EXPENSES 3,770,159 3,862,550 (92,391)TOTAL G&A REVENUE (3,770,159) (3,915,159) 145,000

EXCESS REVENUE - (52,609) 52,609



Background: Southern Storage (CSS) assets were acquired and

financed in 1994 with Storage Revenue Bonds

All debt and deferred balances were fully paid in 2009

Initial returns to Members began in 2009

Transco ESS storage assets were transitioned to active price management in early 2009


Storage Programs




Current Operations: Storage assets are critical to managing load swings during

peak periods Spreads between summer and winter gas prices are used to

pay operating and working capital costs Remaining margins are available for Member returns

Summary of Results Annual net operating income has been strong and reliable as

spread trades have been an effective hedging strategy for several years

Current storage year (2011-12) is partially hedged (40%) Next storage year (2012-13) is 20% hedged Future years are not yet hedged

Propose Member returns of $1.73 million (CSS) and $138,000 (ESS)

Storage Programs




Total $/Dt** Total $/Dt*** Total $/Dt*** Total $/Dt*** Total $/Dt***

Operating Margin 3,757,999$ 1.25$ 3,025,000$ 0.96$ 1,700,000 $ 0.54$ 1,350,000 $ 0.43$ 1,150,000 $ 0.36$

Non-Operating Expense* 220,789$ 0.07$ 297,000$ 0.09$ 350,000 $ 0.11$ 350,000 $ 0.11$ 350,000 $ 0.11$

Net Income 3,537,210$ 1.18$ 2,728,000$ 0.87$ 1,350,000$ 0.43$ 1,000,000$ 0.32$ 800,000$ 0.25$

Member Returns 1,650,000$ 0.55$ 1,737,000$ 0.55$ 1,737,000$ 0.55$ 1,737,000$ 0.55$ 1,737,000$ 0.55$

Project Balance 1,887,210$ 2,878,210$ 2,491,210$ 1,754,210$ 817,210$

Storage Withdrawals (Dt) 2,900,000 3,000,000 3,000,000 3,000,000 3,000,000

% Hedged 100% 40% 20% 0%

* Primarily internal interest expense charged project on working capital

** $/Dt based on maximum storage quantities of 3,013,804 Dt*** Addition of Dublin increased maximum storage quantities to 3,158,371 Dt starting 2010-11

2013-14 Projected

CSS Storage

2009-10 Actual 2010-11 Estimate 2011-12 Projected 2012-13 Projected




Total $/Dt** Total $/Dt** Total $/Dt** Total $/Dt** Total $/Dt**

Operating Margin 412,000$ 1.65$ 205,000 $ 0.82$ 125,000 $ 0.50$ 86,000$ 0.34$ 85,000 $ 0.34$

Non-Operating Expense* 35,000$ 0.14$ 20,000 $ 0.10$ 28,000 $ 0.11$ 28,000 $ 0.11$ 28,000 $ 0.11$

Net Income 377,000$ 1.51$ 185,000$ 0.72$ 97,000$ 0.39$ 58,000$ 0.23$ 57,000$ 0.23$

Member Returns 138,000$ 0.55$ 138,000$ 0.55$ 138,000$ 0.55$ 138,000$ 0.55$ 138,000$ 0.55$

Project Balance 239,000$ 286,000$ 245,000$ 165,000$ 84,000$

Storage Withdrawals (Dt) 240,000 240,000 240,000 240,000 240,000

% Hedged 100% 40% 0% 0%

* Primarily internal interest expense charged project on working capital** $/Dt based on maximum storage quantities of 250,442 Dt

2009-10 Actual 2010-11 Estimated 2011-12 Projected 2012-13 Projected 2013-14 Projected

ESS Storage




Gas Reserves Gas Authority

Alabama and Kansas Coalbed Methane reserves PGP - Portfolios of producing reserves

Pool 1 – MGAG 46% share Pool 2 – MGAG 54% share Pool 3 – MGAG 70% share

Prepayment transactions TEAC and PEAK participation Main Street transactions – JPMorgan, Merrill (2), and RBC

Long-Term Supply Projects




Reserve Diversity Mix of conventional and unconventional reserves Oil reserves are adding significant value

Geographic Diversity 16 states – Greatest Value in Texas / Oklahoma 5,500 + wells – Greatest number in Texas / Alabama

Solid Operating Partners Mix of large / small private and large public companies Generally using industry standard agreements

Operational exposure and risksHedged commodity prices for 5 – 6 yearsOn-going development opportunities

Long-Term Supply Projects – Gas Reserves




Alabama CBM (Energen Operates) Production at 12,000 Mcfe/day Final year of 100 well drilling program (81 complete)

Kansas CBM (Dart Oil & Gas Operates) Production at 8,400 Mcfe/day Project economics have improved due to operating

efficiencies Dart is continuing to market their interest Small oil play may be developing

Long-Term Supply Projects – Gas Authority Reserves



2010 Financial Results – PGP Pool 1 Map

Cedar Cove

McNic

Cheyenne-Putnam/McNic II

Cymreac

Exploration

Jetta/Permian

HSA/Ward

FGL/Future

Potash Dome/Greka

Tiger/Exco

Field/Sundown

Saga

$268.9 Jan. 2006TX, AR, OK, NM, AL, MS, LA

Sundown

Locations

Saga MT, WY, CO, AL 308 Jan. 2008 $61.0

$329.9

2000

Transaction#

Wells Closed Price

Saga


Board Planning SessionMarch 21, 2011


Pool 1 Continuing to transition administrative services

from largest operating partner (Sundown) to the Gas Authority

Net savings of $2 million per year

Better decision-making capabilities and visibility

Most planned development is focused on oil reserves in West Texas

Developed new database for managing operating decisions and additional accounting activity

Over $20 million in development expected for 2011

Fixed assessments, which began in January 2011, will be used to accelerate debt repayment - 14 -

Long-Term Supply Projects – Public Gas Partners



Transaction

ApacheDavis

Four CornersEdna HollowEast LibertyPine Hollow

Kerr McGeeOrionPetroNovaSagaTGP

Locations

TX, OK, LA

TXKS/OK

KSOKTXOKAL

MT, WY, ALTX, MS, NM

# Wells

170

5302082846

20040

Closed

June 2005

Dec. 2005Oct. 2005Nov. 2006Apr. 2007Nov. 2006Oct. 2007May 2007Jan. 2008

June 2005

Price

$ 67.0

7.51.83.97.1

20.03.33.0

19.05.7

$138.3

Apache TGP

Davis – OK/KS Orion

Davis – TX PetroNova

Kerr-McGee Saga

2010 Financial Results - Pool 2 Map




Pool 2 Wide range of results among various projects /

operators

Potential opportunities could provide significant upside

Texas Gas Partners – S. TX wells– Considering partial sale of partnership interests to

capture value from high current oil prices

– Continuing drilling of oil related reserves

Orion - Oklahoma tight sands project– Shallow oil play is developing in the area

– Pool 2 has interests in 20,000 acres that may be productive

– Recent core analysis had encouraging results - 16 -





Pool 2 Challenges

Fixed assessments, which began in January 2011, will be used to accelerate debt repayment

Davis Oklahoma reserves- Prior operator sold out and transferred operations to the

new owner in late 2010 without proper authorization

- New owner has limited experience and financial resources

– PGP has filed suit against new owner to take over operations

Alabama CBM assets– 10-well pilot program to establish a new field has been

very disappointing and may need to be plugged and abandoned

- 17 -




2010 Financial Results – PGP Pool 3

Louisiana

Oklahoma

Transaction Location

# PDP

WellsOrion-North Fork

OK

LA0

20

180

300

May 2008

Sept 2008

Closed

PurchasePrice Description

$ 7.0

$11.0

$18.0

Hunton Dev Program

CBM PDP + Dev Program

Total Possibl

eWells

CHC Energy




Pool 3 Two existing projects

Early-stage Louisiana CBM project– 20-well pilot program has continued to have

operational issues

– No additional activity while we wait for adjacent operator to complete new wells and share results

Oklahoma Dolomite de-watering project – Drilled 8 wells with existing partners in 2009 – 2010

– Currently drilling 6 additional wells » Existing partners did not participate due to lack of

funding

» Seismic information on one section indicates an unexpected shallow oil-producing formation that could be significant

» New well has been authorized and will be drilled in May / June

- 19 -





Key Assumptions

All key project reserve reports are updated annually by nationally recognized engineering firms

NYMEX pricing for 6 years and then $6.50 flat for gas and $80 flat for oil

Alabama CBM pricing is based on $5.00 long-term gas prices for conservatism

Interest rates averaging 3 – 4 %, based on current debt components and continuing blend of fixed and floating rates

Long-Term Supply Projects – Expected Results




Long-Term Supply Projects – Expected Results

Transaction Description Supplier / Operator

Member Volumes

(MMBtu/ d) Term ThroughCents

Under SpotPortfolio III Series A Energen CBM 12,000 2025 + $1.30

Portfolio III Series B DART CBM 8,500 2025 + ($0.20)

Portfolio III - PGP Pool 1 Sundown and Saga 10,000 2025 + ($0.60)

Portfolio III - PGP Pool 2 Apache, Davis, others 3,000 2025 + ($0.50)

Portfolio III - PGP Pool 3 Orion, CHC 1,000 2025 + TBD

Total Portfolio Projects 34,500

PEAK prepay BP Corporation 1,600 July-16 $0.25

TEAC prepay Goldman Sachs 8,400 July-26 $0.59

Main Street - 2006 A JP Morgan 13,000 January-22 $0.46

Main Street - 2006 B Merrill Lynch 13,000 January-22 $0.46

Main Street - 2007 A Merrill Lynch 5,500 August-28 $0.67

Main Street - 2010 A RBC 5,000 July-40 $0.20

Total Prepayment Projects 46,500

Total Long-Term Supply Projects 81,000




Portfolio project obligations include Direct debt and liquidity at the Gas Authority, and Indirect debt owed by PGP

$307 million total debt, including proportionate share of PGP debt

Combination of long-term bonds, short-term notes and bank lines of credit

Combination of fixed and floating interest rates with approximately half in committed, fixed-rate obligations

Maintaining portion of debt in short-term, variable-rate structures is avoiding significant additional interest expense $100 million at 3% higher fixed-rate bonds would cost an

additional $3,000,000 in interest per year Short-term rates have averaged less than 3.5% over last 10

years

Long-Term Supply Projects – Debt Management




Long-Term Supply Projects – Debt ManagementFebruary 2011(In $ millions) MGAG Total Current Fixed

Pool 1 Pool 2 Pool 3 rates VariableAvailable capacityLines of credit - unfunded Liquidity for ST Notes 25 33 17 75 0.50% V Liquidity for Ops & Capex 4 4 8 0.50% V PGP LOCs - liquidity 38 38 0.60%Total available 29 37 38 17 121

Short-term debt MGAG LOC - Wells Fargo 13 2 20 35 2.00% V MGAG LOC - JP 12 12 2.00% V PGP LOCs - Wells/JP/Scotia 37 37 2.00% V MGAG Short-Term tax-exempt notes 47 61 31 139 1.00% VTotal short-term debt 72 63 37 51 223

Long Term Debt:MGAG Taxable 10-yr bonds 44 9 36 89 5.30% FPGP Tax-Exempt Bonds 123 123 3.20% FTotal long-term debt 167 9 0 36 212

Total Debt - MGAG 116 72 0 87 275Total Debt - PGP 123 0 37 0 160Total Debt - MGAG and PGP 239 72 37 87 435

Long-term as % of total funded debt 70% 13% 0% 41% 49%Wtd avg interest rate 3.09% 1.82% 2.62% 3.11% 2.84%MGAG Proportionate Share 143 50 26 87 307

Public Gas Partners




Analysis of Individual Projects Within LT SuppliesActual Proposed Est Est Est Proposed09/10 10/11 11/12 12/13 13/14 $/Dt

PIII - Alabama CBM 5,000,000 5,200,000 7,000,000 7,000,000 6,500,000 1.19$ PIII - Kansas CBM (500,000) (500,000) (500,000) (500,000) (0.16)$ PIII - PGP - Pool 1 500,000 (6,000,000) (4,600,000) (3,800,000) -$ PIII - PGP - Pool 2 (2,600,000) (2,100,000) (1,800,000) -$ PIII - PGP - Pool 3Portolio Total 5,500,000 4,700,000 (2,100,000) (200,000) 400,000

TEAC - Goldman 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 0.59$ PEAK - BP Corp 100,000 100,000 100,000 100,000 100,000 0.17$ MS - ML and JP 2006 A&B 4,100,000 4,400,000 4,400,000 4,400,000 4,400,000 0.46$ MS - ML 2007A 24,400,000 1,600,000 1,600,000 1,600,000 1,600,000 0.67$ MS - RBC 2010A 500,000 500,000 500,000 -$ Total Prepaid Supplies 30,400,000 7,900,000 8,400,000 8,400,000 8,400,000

Sale to Richmond (JP & ML) incl G&A (2,100,000) (2,100,000) (2,100,000) (2,100,000) (2,100,000) ML 2007A G&A deferral (2,800,000) Retained MS and PGP Cash 4,200,000 2,300,000 1,700,000Total Offsets / Sales to Others (4,900,000) (2,100,000) 2,100,000 200,000 (400,000)

Total LT Supply Rebates 31,000,000 10,500,000 8,400,000 8,400,000 8,400,000




Expected Long-Term Supply Project Results

Actual Proposed Est Est Est09/10 10/11 11/12 12/13 13/14

Total LT Supply Rebates 31,000,000 10,500,000 8,400,000 8,400,000 8,400,000

Monthly Project Credits 1,700,000 1,900,000 0 0 0

Monthly Credits - Cents per dt 0.05 0.05

Annual LT Supply Rebates 29,300,000 8,600,000 8,400,000 8,400,000 8,400,000

G&A Transfer 250,000

Working Capital Reserve (20,000,000)

Total Cash Available - LT Supplies 9,550,000 8,600,000 8,400,000 8,400,000 8,400,000

Annual LT Returns - Cents per dt 0.28$ 0.25$ 0.24$ 0.24$ 0.23$

Other Returns

Storage returns - Southern 1,650,000 1,737,000 1,737,000 1,737,000 1,737,000

Storage returns - Transco 100,000 138,000 138,000 138,000 138,000

Portfolio Reserve Interest 100,000 30,000 30,000 50,000 50,000

Total Cash Returns 11,400,000 10,505,000 10,305,000 10,325,000 10,325,000

Total Benefits - Cents per dt 0.34$ 0.31$ 0.29$ 0.29$ 0.29$ Estimated Volume 34,000,000 34,000,000 35,000,000 35,560,000 36,120,000



Based on Net Benefits to Members Cost of Membership above Spot Index

General & Administrative Costs (G&A) Swing Supply Charge

Less: Savings from Membership Portfolio Savings and Current Year Reserves Capacity Release Revenues and Swing Supply

Returns Storage Project Net Operating Revenues/Expenses

Drives Incentive Compensation Plan Pays out only if Corporate Goal achieved 80% based on Corporate results 20% based on Group results Multiplier between 0 and 1.1 for individual

performance

Corporate Goals and Incentive Compensation Plan

2010 Corporate Goal




2010 Corporate Goal

2010 2010Goal

AverageActual

AverageGoal

IndividualActual

IndividualGoal Actual ($/MMBtu) ($/MMBtu) ($/MMBtu) ($/MMBtu

Cost of Membership Above Index:G&A Budget Estimate 3,620,551$ 3,715,305$ 0.106$ 0.109$ 0.090$ 0.100$

Swing Supply Charge 2,000,000 1,975,348 0.059 0.058 0.088 0.089

Total Cost 5,620,551$ 5,690,653$ 0.165$ 0.167$ 0.178$ 0.188$

Savings from Membership:Portfolio Cash Returns (monthly and annual) 12,200,000$ 10,500,000$ 0.359$ 0.309$ 0.328$ 0.288$

Portfolio Reserve Interest 100,000 30,688 0.003 0.001 0.001 0.000

Swing Supply Savings 1,500,000 2,067,795 0.044 0.061 0.066 0.093

Capacity Credits 2,700,000 2,966,474 0.079 0.087 0.017 0.014

Storage Net Income * 2,400,000 2,913,000 0.071 0.086 - - Total Savings: 18,900,000$ 18,477,957$ 0.556$ 0.543$ 0.412$ 0.395$

Net Benefit of Membership below Index: (13,279,449)$ (12,787,304)$ (0.391)$ (0.376)$ (0.234)$ (0.207)$

Smyrna 2010 Projected Low Member




2010 Corporate Goal Results - ¢ Below Spot

Weighted Average Payout – 0%

Goal - Average Payout % Goal - Individual Payout %Maximum (0.441) 125% (0.284) 125%Stretch (0.416) 100% (0.259) 100%Target (0.391) 75% (0.234) 75%Actual (0.370) 0% (0.198) 0%

Cents below Index



Proposed 2011 Corporate Goal

2010 2010 20112011

Average2011

IndividualGoal Actual Goal ($/MMBtu) ($/MMBtu)

Cost of Membership Above Index:

G&A Budget Estimate 3,620,551$ 3,715,305$ 3,718,457$ 0.106$ 0.098$

Swing Supply Charge 2,000,000 1,975,348 2,000,000 0.057 0.088

Total Cost 5,620,551$ 5,690,653$ 5,718,457$ 0.163$ 0.186$

Savings from Membership:

Portfolio Cash Returns 12,200,000$ 10,300,000$ 8,400,000$ 0.240$ 0.222$

Portfolio Reserve Interest 100,000 30,688 50,000 0.001 0.000

Swing Supply Savings 1,500,000 2,067,795 1,250,000 0.036 0.059

Capacity Credits 2,700,000 2,966,474 2,200,000 0.063 0.014

Storage Net Income 2,400,000 2,913,000 1,600,000 0.046

Total Savings: 18,900,000$ 18,277,957$ 13,500,000$ 0.386$ 0.296$

Net Benefit of Membership below Index: (13,279,449)$ (12,587,304)$ (7,781,543)$ (0.222)$ (0.110)$

Note: 2011 Averages $/MMBtu are based on 2011 budgeted volumes versus 2010 actual volumes to minimize the impact of weather related fluctuations



2011 Proposed Corporate Goal

2010 and 2011 Corporate Goal Comparison

2010 Average

2011 Average

2010 Individual

2011 Individual

Maximum (125%) (0.441) (0.268) (0.284) (0.145) Stretch (100%) (0.416) (0.243) (0.259) (0.120) Target (75%) (0.391) (0.218) (0.234) (0.095)




Existing and proposed Member Debt in excess of the SPP threshold ($1 million) presents an opportunity for Portfolio III investment

PIII is authorized to invest in municipal debt obligations with at least an ‘A’ credit rating

PIII would benefit from investments through higher investment earnings on excess cash

Members would benefit through access to lower current interest rates




Potential investments

Same legal structure as Small Projects Pool Supplemental Contract

General Obligation of the Member

Rates established including small premium over market rates

0.50%

Lease AmtCurrent Interest

Market Interest

Member Interest Rate

1st Yr Premium

1st Yr Interest

Buford Refunding - matures 2014 2,755,000$ 5.20% 2.00% 2.50% 13,775$ 68,875$ Warner Robins Refunding - matures 2026 4,150,000$ 5.85% 4.25% 4.75% 20,750$ 197,125$ Eatonton Expansion - Reynolds Plantation - 2021 2,000,000$ n/a 3.75% 4.25% 10,000$ 85,000$ Tri-County Expansion - Reynolds Plantation - 2021 2,500,000$ n/a 3.75% 4.25% 12,500$ 106,250$ Total 11,405,000$ 57,025$ 457,250$

Potential Member Debt for PIII Investment

board planning session kennesaw, ga march 21, 2011

Documents

fuelfavorable variance

unfavorable variance

winter gas prices

financial resultsactual

member debtdraft

member billings

financial resultstotal

southern storage css