1. You Can Fool Mother Nature Presented by Judy Pokorny Chief Risk Officer 2004 Enterprise Risk Management Symposium

2. Weather Events Significantly Impact the Bottom Line of Natural Gas and Electric Utilities “We believe weather explains 10% of gas utility stock movement.” A.G. Edwards Gas Utilities Quarterly Review, January 7, 2004 “Outlook for 2004 and Beyond. In the short term, our financial results will be affected by a number of factors, including weather conditions, …”, Exelon Corporation 2003 Annual Report, MD&A

3. Why Weather Affects Utility Earnings Certain costs fit the definition “variable” These costs are divided by 20-30 year weather statistics Most variable costs are difficult to manage Rate cases are infrequent In Midwest, the trend has been warmer in winter

4. Annual Heating Degree Days Chicago O’Hare Trends

5. Gap Between Rates and Recent Averages

6. Weather is Volatile Monthly HDD’s Chicago O’Hare (30 Year Avg.)

7. Is Weather Risk Strategic or Should it be Insured? Questions to consider What is the sensitivity of the firm to weather ? What is the volatility of weather ? Can the firm withstand an extreme event? Are there internal mitigants?

8. What Are The Alternatives? 1. File rate case frequently 2. Weather normalization clause 3. Offer fixed cost distribution product 4. Derivatives 5. Insurance

9. Alternative Structures of Risk Transfer

10. Result of Purchasing Climatic Insurance PEC Net Income With & Without Weather Insurance