W Geneva December, 2007 World Meteorological Organization Simple Heating Degree Day Program

W 2 Weather and Natural Gas Distribution Temperature and Gas Utilization are tightly correlated

W 3 Weather and Natural Gas Distribution Gas Distribution companies have weather risk: -warm winters, which reduce volumes of gas utilized -residential and light commercial (e.g. shops, office buildings) customers There are two components in managing the gas distributor’s weather risk: 1. Weather Protection in US usually based on Heating Degree Days (ºF) 2. Company Commercial Economics Weather Risk for Gas Utilities

W 4 Example Weather Temperature and HDDs Weather Station: City in Northeastern U. S. HDDs = max([65ºF – {Daily Tmax + Daily Tmin}/2],0)

W 5 Example Weather 1.Understanding of weather environment in which company operates 2.Quantification of weather risk 3.Stochastic modeling for risk analysis and pricing purposes Purpose of Weather Analysis

W 6 Example Weather Weather Factors City in Northeastern U. S. – Oct/Sept HDD Norms – 30 Year Norm ,179.0 HDDs ,112.4 HDDs ,994.2 HDDs – Trailing Decade ,043.2 HDDs ,042.8 HDDs ,984.8 HDDs

W 7 Example Weather Weather Factors City in Northeast U. S. – HDD Trends

W 8 Example Weather Other factors to establish a data series: –Changes in instrumentation –Changes in location –Changes in reporting procedures Weather Factors

W 9 Commercial Considerations How does a change in temperature affect changes in volume of consumption? –Segmentation of customer base. –Patterns of gas usage: Equipment (age, technology, efficiency) Building practices (insulation, windows, etc.) Local customs Local topography –Geographical relationship of customers in relation to the weather station Result: establish change in volume of gas consumed per unit of change in temperature Sensitivity to Weather - Volume

W 10 Commercial Considerations What is the economic impact of changes in temperature (i.e. of changes in volumes)? –Cost of natural gas to distributor Contracted supply Anticipated open market (spot) supply –Price of sale to customer Regulated: rate structure Unregulated: contracted and market price Result: Establish change in economics due to change per unit of temperature Sensitivity to Weather - Cost

W 11 Commercial Considerations What is the critical point at which weather adversely affects company economics? –Volume and price –Cost of gas –Operating costs –Financial obligations –Regulatory constraints Result: Determine trigger point for HDD program payments Sensitivity to Weather – Critical Level of Risk

W 12 Commercial Considerations 1.Critical Point: 3,750 HDDs (Oct/Sept) 2.Value of Change in HDDs: $mm,mmm/HDD at critical point 3.Risk Coverage: to no more than 100 year return period Commercial Conclusions

W 13 Example Program Weather Probabilities Combining Enterprise Factors and Weather Factors 36.5%tile 1.30%tile

W 14 Example Program Outline Example Program BuyerNatural Gas Distribution Utility CoverageLoss of Revenue resulting from adversely warm weather. Weather RiskTotal aggregate HDDs calculated during the Period Weather StationCity Airport WBAN _____ Period1 October 200Q – 30 September 200R HDD Limit US$mm,mmm Attachment3,750 HDDs Exit3,100 HDDs PaymentUS$mm,mmm for every total aggregate HDD less than the Attachment, subject to a maximum payment of (650 x US$mm,mmm) PremiumUS$x,xxx,xxx

W 15 Example Program Hypothetical Outcome Example Program

W 16 Example Program Weather Probabilities Program Impact

W 17 Commercial Considerations Settlement: Rapid settlement: within x days (usually 5 days) of publication of preliminary data, subject to revision within 95 days (final data) Final Commercial Point

W 18 Conclusions 1.Access to historical data Identification of station(s) Validation of data Missing data Validation of analysis Fallback stations 2.Data about stations Instrumentation history Location history Recording procedures 3.Access to current data Monitor weather status Efficient, effective settlement Fallback as needed 4.More extensive requirements for Portfolio Management

W 19 Disclaimer Willis Structured Financial Solutions Limited ("WSFSL") is an investment business authorized and regulated by the UK Financial Services Authority. Willis Securities, Inc. ("WSI"), is a licensed broker dealer authorized and regulated by the NASD and is a member of SIPC. Willis Capital Markets ("WCM") is a trading name of WSFSL and WSI. Reinsurance products are placed through Willis Re Inc. in the United States and through Willis Limited in the UK. Willis Re, Willis Limited, WSFSL and WSI are Willis Group companies. These materials have been prepared by WCM for the WCM client or potential client to whom such materials are addressed in connection with an actual or potential mandate or engagement and may not be used or relied upon for any other purpose. These materials are based upon information provided by or on behalf of the company and other potential transaction participants from public sources or other sources.. WCM assumes no responsibility for independent investigation or verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the company management or obtained from public sources, WCM has assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of company management (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. This communication was designed for use by the WCM client or potential client and is being furnished and should be considered only in connection with other information, oral or written, being provided by WCM in connection herewith. The information contained herein is not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. Nothing in this communication constitutes an offer or solicitation to sell or purchase any securities and is not a commitment by WCM (or any affiliate) to provide or arrange any financing for any transaction or to purchase any security in connection therewith. WCM assumes no obligation to update or otherwise revise these materials. This communication has not been prepared with a view towards public disclosure under any securities laws and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without the prior written consent of WCM. Information contained within this communication may not reflect information known to other employees in any other business areas of Willis Group and its affiliates.