Presentation to Wyoming Natural Gas Pipeline Authority: Financing Natural Gas Pipeline Projects in Wyoming August 26, 2003

Merrill Lynch Qualifications

Wyoming Natural Gas Pipeline Authority Coverage Team Ed Burdett Managing Director & Head of the Western Region Greg DawleyJason Wong Vice President Associate Western Public Power Group John Kohansion Analyst Shouq Tarawneh Analyst Financial/ Strategic Advisory Services Investment Banking Public Power Expertise Tax Expertise Rating Agency Advisory Financial Modeling and Structuring Public Finance Industry Strategic Dynamics Timely Access to Key Decision Makers Market Intelligence Story Building/Investor Positioning Consistent Dialogue Global Power & Utility Group Buyside/Sellside Valuation Transaction Structuring Corporate and Municipal Restructurings Knowledge of Market Dynamics/ Industry Players Mergers & Acquisitions “AAA” Rated Counterparty Hedging Strategies and Products Interest Rate Reduction Products Risk Management Energy Price risk Management Fuel HedgingCommodities Investment Grade High Yield Private Placements Market Making Research Coverage Investor Relations Risk Management Fixed Income Credit Analysis Rating Agency Guidance Investor RelationsCredit Attending Rob Barber Managing Director & Co-Head of Public Finance Bryon Rockwell Director Garth Schulz Director Risk Management Mona Payton Director Phil Dobitsch Director Short Term Municipals Kuljinder Chase Managing Director David Koenig Vice President Commodity Trading Chris Fink Managing Director Mark Widener Director David Moffett Associate Utility Group Dave Andersen Managing Director and Head of Syndicate Desk Paul Kuhns Managing Director Underwriting Sales & Trading Bill Rogers Managing Director Scott Trachsel Vice President Debt Capital Markets David Stephens Director Bill Wood Senior Banker Chris Straub Vice President Quantitative Analysis Laurie Coben Managing Director & Head of NY Group Mary Ryan Managing Director Corporate Power & Utilities Investment BankingCapital Markets/Financings

Capital Strength and Stability Merrill Lynch Qualifications  Merrill Lynch’s capital base allows the Firm to:  Commit large amounts of capital across all business lines  Aggressively underwrite our clients’ bonds and provide secondary market liquidity under all market conditions. The Firm routinely commits 20% to 30% of an issue size in capital, and on occasion up to 100%, depending upon market conditions at pricing.  Take an aggressive position limit for municipal trading and underwriting of $1.5 billion, an amount we believe to be among the highest in the industry Merrill Lynch Ratings Aa3/P-1 A+ /A-1 AA-/F1 The size and stability of Merrill Lynch’s capital base allows the Firm to inventory when necessary rather than re-price

Merrill Lynch’s Bankers Have Extensive Experience Working with Public Power Financings  Sacramento Municipal Utility District  Florida Municipal Power Agency  Lower Colorado River Authority  Omaha Public Power District  New York Power Authority  Illinois Municipal Power Agency  Turlock Irrigation District  M-S-R Public Power Agency  Piedmont Municipal Power Agency  City Public Service, San Antonio  Anaheim Public Utilities  Utility Board of Key West  Santee Cooper Merrill Lynch Qualifications  Utah Associated Municipal Power System  Intermountain Power Agency  Los Angeles Department of Water and Power  Southern California Public Power Authority  Northern California Power Agency  Colorado Springs Utilities  Salt River Project  Oklahoma Municipal Power Authority  Nebraska Public Power Agency  Silicon Valley Power  Transmission Agency of Northern California  Pedernales Electric Cooperative  Southern Minnesota Municipal Power Agency Public Power Financings

 Actively trading financially settled products for Natural Gas  Natural Gas – NYMEX forwards and swaps (prompt month to 10 years) – NYMEX option structures (prompt month to 5+ years) – Financial Basis Swaps - US and Canada (prompt month to 10 years) – Physical forwards (All major locations)  Developing infrastructure for:  Crude Oil (within the month) – Financial Swaps (1 month to 5 years) – Options (Caps, Collars, Floors and Exotics) – Outright and differentials to WTI and Brent  Oil Products (within the month) – Heating Oil, Jet Fuel, Gasoline, Diesel, Residual Fuel Oil, NGL Swaps – Forwards and futures – Spot and term – Options (Avg price, zero cost collars, Exotics) Capabilities of Energy Markets and Trading  Electricity  Currently trading in PJM/NY/NEPOOL Market  Forwards and Strips (next day to 2+ years)  Options (Daily, Monthly and Calendar)  Heat Rate Swaps and Options Merrill Lynch Qualifications

El Paso Natural Gas  $15.7 billion sale of Costal Corp.  $5.8 billion merger of El Paso/Sonat Inc. Northern Border Partners  $190 million Equity Offering Questar  $200 million Senior Notes  $250 million Senior Notes Enbridge Energy Partners LLP  $178 million sale of gathering and treating company  $110 million acquisition of AltaGas stake The Williams Cos.  $780 million divestiture of Trans Canada Pipelines- Midstream Assets  $800 million Senior Notes  $693 million Senior Notes  $625 million Senior Notes Capabilities of Oil and Gas Investment Banking  Merrill Lynch’s strong experience with energy companies provides the Authority with the expertise from both the corporate and public finance sectors  Merrill Lynch’s 70 person Energy and Power Group has completed more transactions than any other firm  Lead manager on approximately $20 billion of midstream public debt offers since 1993  Financial advisor on $68 billion (47%) of midstream M&A transactions since 1998  Worked on transactions for such Rocky Mountain Region-involved companies such as: Kinder Morgan Energy Partners  $ 8.2 billion acquisition of Westcoast Energy  $1 billion Notes  $400 million floating rate and senior notes

Market and Industry Update

(1)As of August 20, 2003 Market Update and Analyses Current and Historic (5-Year Average) Yield Curves (1) Rate

Interest Rates are near Historical Lows (1) Tax-Exempt Market Update Low Interest Rates Have Compressed the Ratio Between Taxable and Tax-Exempt Debt (1)Rates as of August 18, 2003

 The last two months has seen historically dramatic interest rate increases:  The recent bond market correction is greater than any three month loss for bonds dating back to 1927 Recent Volatility Interest Rate Markets

Merrill Lynch Interest Rate Outlook As of August 1, 2003 Market Update and Analyses Rate

Financing Options

Wyoming’s Natural Gas Basins Wyoming has many underutilized natural gas supply basins….. Financing Options  Big Horn  Denver-Cheyenne  Green River  Laramie  Overthrust  Powder River  Thrust Belt  Williston  Wind River

QUESTAR CORPORATION Financing Options  Colorado Interstate Gas Company, an El Paso Company  Kinder Morgan Interstate Gas Transmission LLC  Northern Plains Natural Gas Company  Questar  Williston Basin Interstate Pipeline Proposed Wyoming Natural Gas Pipelines/Projects Proposed pipeline projects on the drawing board to help export Wyoming natural gas from companies such as:

 The funding environment for natural gas projects is challenging  Companies wanting to build natural gas pipeline projects have had a difficult time raising cost effective capital:  Creditworthiness of shippers  Parent companies under credit stress  Bank facility market very expensive if available at all  Investors avoiding energy sector  Before the Authority became proactively involved in the Wyoming marketplace, potential pipeline projects could only look to the market for financing options.  Project Finance most commonly used funding structure for pipeline projects Financing Options Funding Environment

Financing Options  Deal most likely secured by shipper agreements for life of bonds  Most transactions below investment grade  70 percent debt structure is aggressive in today’s market  Credit rating will follow closely with lowest-rated shippers  Deals rarely longer than 15 years without direct guarantee from pipeline owner Project Finance General Project Finance Deal Parameters:

 926-mile interstate pipeline transporting gas from Rocky Mountains to California  Kern River closed on purchase of original pipeline from Williams Companies on March 27, 2002  $875 million Project Financing secured by credit facility closed on June 21, 2002  Variable rate structure increasing over term of facility  $1.2 billion expansion project initiated construction on August 6, 2002  -717-mile loop pipeline from Lincoln County, Wyoming to Kern County, California  $836 million of its 4.893% Senior Notes with a final maturity of April 30, 2018 closed on June 1, 2003 to terminate credit facility  Senior notes share pari passu in all collateral available to Kern River’s senior noteholders Financing Options Project Finance Project Finance Example: Kern River Gas Transmission Company

Results:  Credit Ratings: Standard & Poor’s A-/Moody’s Baa  70 percent debt and 30 percent equity  Financing secured by binding long-term year firm transportation agreements with 17 different shippers  Minimum debt service coverage of 1.55X  Running near capacity since opening in spring of 2003 of 1.73 billion cubic feet per day Project Finance Project Finance Example: Kern River Gas Transmission Company Financing Options

Project Finance WPA Example: Cheyenne Plains Pipeline Gas Company Project Financing Options  Proposed 380 mile 30/36-inch natural gas pipeline from Cheyenne Hub to Kansas  In service goal of August 2005  Up to 1.8 bcfd of capacity  Financing needs of $332 million to $410 million.  14 transportation service agreements for 10-year+ provide 100% subscription  Current subscription period for 36-inch pipeline still outstanding  60 percent debt and 40 percent equity proposed

Project Finance WPA Example: Cheyenne Plains Pipeline Gas Company Project Financing Options  The credit rating for this project financing will be a mix of all the shipper participants  Cheyenne Plains Project Subscription Amounts and Shipper Credit Ratings

(1)Advocate for Wyoming Natural Gas Marketplace - Authority continues to address issues such a permitting, regulation, market aggregation, and legislative support (2)Issuing Authority for Project’s Bonds - Providing State tax-exemption (3)State of Wyoming Investment Participation - State invests funds in bonds issued by Authority (4)State of Wyoming Moral Pledge - State backs project debt service if project revenues fail to meet required levels (5)State of Wyoming Revenue Pledges - State provides revenues to back reserve fund or otherwise pay debt service Potential Role of Authority in Funding Gas Pipelines Financing Options By enhancing the financing of new gas pipelines, the State will benefit through increased economic activity

 The State of Wyoming Treasurer’s Office is considering the option of purchasing revenue bonds backed by Authority  The State could also utilize funds from its “rainy day fund” to purchase bonds in the market if necessary.  This potential market support would be very helpful during the marketing and pricing of the related bond transaction  Must ensure that investments meet fiduciary requirements of State  This participation enhances the marketability of the issue but not the credit State Investment Participation Financing Options

 State of Illinois “Energy For Illinois” 2001 Coal Revival Initiative  $3 billion in State authorization intended to lure coal companies interested in building coal-burning power plants – State moral obligation backing up to $300 million in revenue bonds provide additional credit enhancement for project(s).  State must cover shortfalls on bond payments – Kicks in once reserve fund tapped  Governor notifies and General Assembly then approves an appropriation to replenish the reserve  Less valuable in times of governmental fiscal stress State Moral Obligation Example Financing Options

(1)Help Cheyenne Plains to continue to pursue FERC approval goal of April 1, 2004 (2)Help project to receive bridge financing once approved/bond anticipation notes (3)Pursue legislative changes, if desired, during the Wyoming 2004 Budget Session, which convenes February 9, 2004 (4)Utilize moral pledge or revenue pledge structure, if approved by the State Legislature, to help issue 10-year fixed rate bonds at a cost lower than a stand-alone project financing Recommended Next Steps for WPA WPA Example: Cheyenne Plains Pipeline Gas Company Project Financing Options

101 California Street, Suite 1225 San Francisco, California Tel: (415) Fax: (415) Contact Information Ed Burdett, Managing Director and Head of Western Region Ed Burdett, Managing Director and Head of Western Region 350 South Grand Ave., Suite 2830 Los Angeles, California Tel: (213) Fax: (213) Greg Dawley, Vice President Greg Dawley, Vice President

Presentation to Wyoming Natural Gas Pipeline Authority: Financing Natural Gas Pipeline Projects in Wyoming August 26, 2003 NY000WUA.ppt 08/22/ :43 AM (1)