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Argus Implied Volatility Curve Products Houston, TX Al Pollard Jay Pruett February 2013

Presentation Outline Product Summaries Implied Volatility vs. Historical Volatility Methodology of Implied Volatility Curves Key Advantages of Argus Curves Applications & Uses of Implied Volatilities Implied Volatility Curve Delivery Options Summary

Product Summary - Natural Gas Implied Volatility Curves Argus Natural Gas Implied Volatility Curves 38 Natural Gas Trading Locations (inclusive of NYMEX/Henry Hub) Call & Put strike price surface areas (Implied Volatility Smile ) for 6 natural gas markets: NYMEX/Henry Hub SoCal Border PEPL EP San Juan PG&E City Gate NWPL Rockies Monthly mid-market; prompt year plus 3 years forward

Overview of NG Implied Volatility Excel File Most of you should have received our Nat Gas Implied Volatility Curves for close of business 2/5/13 Total of 7 worksheets in file NYMEX Implied Vols Contains Smile curves for Calls/Puts Also includes bids/offers for ATM straddles SoCal Implied Vols - Contains Smile curves for Calls/Puts PEPL Implied Vols - Contains Smile curves for Calls/Puts EP San Juan Implied Vols- Contains Smile curves for Calls/Puts PG&E CG Implied Vols - Contains Smile curves for Calls/Puts NWPL Rockies Implied Vols - Smile curves for Calls/Puts Other NG Markets No Smile /only ATM Implied Vols for Calls

NYMEX (Henry Hub) Call Option Implied Volatility Curves NYMEX (Henry Hub) Natural Gas Implied Volatilities Trade Date: 1/14/13 Monthly Call Option Implied Volatilities Month: Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 NYMEX/Henry Hub Settlement Price: $ 3.373 $ 3.378 $ 3.412 $ 3.464 $ 3.519 $ 3.574 $ 3.600 $ 3.610 $ 3.639 $ 3.746 $ 3.945 ATM - $2.00 122.5% 104.3% 61.7% 38.6% 35.2% 34.9% 35.9% 35.7% 35.9% 32.8% 28.2% ATM - $1.50 81.2% 67.0% 40.5% 36.7% 33.4% 33.2% 34.1% 34.0% 34.1% 31.1% 27.7% ATM - $1.00 50.3% 45.0% 37.6% 34.0% 30.9% 30.7% 31.3% 32.1% 32.2% 29.4% 27.2% ATM - $0.75 39.5% 42.4% 36.6% 33.4% 30.9% 30.8% 31.2% 31.4% 32.1% 29.6% 27.4% ATM - $0.50 35.9% 40.0% 34.0% 32.8% 31.3% 31.2% 31.4% 31.6% 31.9% 29.7% 27.5% ATM - $0.25 34.8% 37.4% 33.7% 32.5% 31.6% 31.5% 31.6% 31.7% 31.8% 29.7% 27.6% ATM 34.6% 34.7% 33.3% 32.4% 31.9% 31.7% 31.6% 31.7% 31.8% 29.6% 27.6% ATM + $0.25 35.1% 35.3% 33.3% 32.4% 32.0% 31.8% 31.7% 31.8% 31.9% 29.8% 27.7% ATM + $0.50 36.6% 37.1% 33.4% 32.5% 32.0% 31.8% 31.8% 31.9% 32.0% 29.9% 27.7% ATM + $0.75 39.5% 37.6% 34.0% 33.3% 32.1% 31.9% 31.9% 32.0% 32.0% 29.9% 27.8% ATM + $1.00 44.2% 38.1% 34.7% 32.9% 32.4% 31.9% 31.9% 32.0% 32.1% 29.9% 27.7% ATM + $1.50 52.1% 38.3% 36.4% 33.6% 32.8% 32.2% 32.1% 32.2% 32.3% 29.9% 28.0% ATM + $2.00 64.3% 43.7% 38.7% 34.4% 33.2% 32.5% 32.3% 32.4% 32.5% 30.0% 28.2% ATM + $2.50 75.2% 48.8% 40.7% 35.7% 33.5% 32.9% 32.5% 32.5% 32.6% 30.1% 28.3% ATM + $3.00 85.1% 52.3% 42.1% 36.7% 33.7% 35.1% 32.7% 32.7% 32.8% 30.3% 28.4% ATM + $5.00 116.8% 69.7% 58.2% 48.2% 41.1% 37.3% 33.9% 32.8% 32.9% 30.4% 28.6%

Other Natural Gas Implied Volatility Curves AT-THE-MONEY IMPLIED VOLATILITY 1/14/2013 Call Options Term: Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Market: NYMEX/Henry Hub 34.6% 34.7% 33.3% 32.4% 31.9% 31.7% 31.6% 31.7% 31.8% 29.6% 27.6% AECO 39.1% 39.1% 37.6% 36.5% 36.0% 35.8% 35.6% 35.8% 35.9% 33.4% 31.1% ANR - SW 36.0% 36.0% 34.5% 33.6% 33.1% 32.9% 32.8% 32.9% 33.0% 30.7% 28.6% Carthage 35.4% 35.4% 34.0% 33.1% 32.6% 32.4% 32.3% 32.4% 32.5% 30.2% 28.2% Chicago CG 34.3% 34.3% 32.9% 32.0% 31.5% 31.3% 31.2% 31.4% 31.5% 29.3% 27.3% CIG Rockies 37.1% 37.1% 35.6% 34.6% 34.1% 33.9% 33.8% 34.0% 34.0% 31.7% 29.5% Dawn 32.4% 32.5% 31.2% 30.3% 29.9% 29.7% 29.6% 29.7% 29.8% 27.7% 25.8% Dominion 37.2% 37.2% 35.7% 34.7% 34.2% 34.0% 33.9% 34.1% 34.1% 31.7% 29.6% EP San Juan 30.3% 34.4% 34.0% 32.7% 32.5% 31.6% 31.7% 32.0% 32.2% 30.2% 27.9% FGT - Z3 32.4% 32.4% 31.1% 30.2% 29.8% 29.6% 29.5% 29.6% 29.7% 27.6% 25.8% HSC 35.1% 35.1% 33.7% 32.8% 32.3% 32.1% 32.0% 32.1% 32.2% 29.9% 27.9% Iroquois Zone 2 43.0% 43.0% 41.3% 40.1% 39.5% 39.3% 39.2% 39.4% 39.4% 36.7% 34.2% Katy 35.1% 35.1% 33.7% 32.8% 32.3% 32.1% 32.0% 32.1% 32.2% 30.0% 27.9% Kern River 32.9% 33.0% 31.6% 30.8% 30.3% 30.1% 30.0% 30.2% 30.2% 28.1% 26.2% Malin 34.8% 34.8% 33.4% 32.5% 32.0% 31.8% 31.7% 31.9% 31.9% 29.7% 27.7% Michcon CG 34.1% 34.1% 32.7% 31.8% 31.3% 31.1% 31.0% 31.2% 31.2% 29.1% 27.1% NGPL - Midcont. 36.3% 36.3% 34.8% 33.9% 33.4% 33.2% 33.1% 33.2% 33.3% 31.0% 28.9% NGPL - STX 36.0% 36.0% 34.5% 33.6% 33.1% 32.9% 32.8% 32.9% 33.0% 30.7% 28.6% Niagara 35.9% 36.0% 34.5% 33.6% 33.1% 32.9% 32.8% 32.9% 33.0% 30.7% 28.6% NNG Demarc 35.7% 35.8% 34.3% 33.4% 32.9% 32.7% 32.6% 32.7% 32.8% 30.5% 28.5%

Product Summary - Electricity Implied Volatility Curves 19 Electricity Trading locations Call & Put strike price surface areas (Implied Volatility Smile ) for 7 electricity markets: PJM West AD Hub Indiana Hub Mass Hub Mid C SP 15 ERCOT North Zone Monthly mid-market; prompt year plus 3 years forward

Overview of Power Implied Volatility Excel File Most of you should have received our Power Implied Volatility Curves for close of business 2/5/13 Total of 8 worksheets in file PJM West Hub Smile Contains Smile curves for Calls/Puts Indiana Hub Smile - Contains Smile curves for Calls/Puts AD Hub Smile - Contains Smile curves for Calls/Puts Mass Hub Smile - Contains Smile curves for Calls/Puts Ercot North Zone Smile - Contains Smile curves for Calls/Puts Mid C Smile - Contains Smile curves for Calls/Puts SP 15 Smile - Contains Smile curves for Calls/Puts Other ATM Implied Vols No Smile /only ATM Implied Vols for Calls

PJM West Hub Call Option Implied Volatility Curves PJM WEST HUB Trade Date: 01/14/13 Monthly Call Option Implied Volatilities Month: Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Market: PJM West Hub Settlement Price: $ 41.75 $ 41.10 $ 40.80 $ 41.80 $ 44.65 $ 55.70 $ 51.80 $ 43.65 $ 40.70 $ 40.60 ATM - $10.00 35.8% 24.2% 33.2% 25.4% 27.8% 25.6% 27.1% 18.9% 18.4% 17.0% ATM - $8.00 35.0% 23.6% 27.9% 23.5% 25.8% 26.2% 27.0% 18.9% 18.5% 17.1% ATM - $6.00 34.8% 23.5% 24.5% 22.7% 24.9% 26.7% 27.0% 18.8% 18.6% 17.2% ATM - $4.00 36.9% 24.9% 23.1% 22.7% 24.9% 26.9% 27.0% 19.8% 18.8% 17.4% ATM - $2.00 38.2% 25.8% 22.5% 22.8% 24.9% 27.0% 27.1% 20.6% 19.1% 18.0% ATM 39.2% 26.5% 22.5% 23.0% 25.2% 27.5% 27.4% 21.2% 19.3% 18.5% ATM + $2.00 41.0% 27.7% 22.6% 23.3% 25.5% 27.8% 28.0% 21.7% 19.5% 18.8% ATM + $4.00 43.1% 28.3% 22.6% 23.6% 25.9% 28.2% 28.7% 22.1% 19.7% 19.1% ATM + $6.00 45.1% 28.6% 23.1% 23.9% 26.1% 28.5% 29.0% 22.3% 20.0% 19.4% ATM + $8.00 46.8% 29.4% 23.6% 24.1% 26.4% 28.8% 29.3% 22.6% 20.2% 19.6% ATM + $10.00 47.6% 29.6% 23.7% 24.2% 26.5% 28.9% 29.4% 22.8% 20.3% 19.8% ATM + $12.00 47.8% 29.6% 23.7% 24.3% 26.6% 29.0% 30.2% 22.8% 20.5% 19.9% ATM + $14.00 48.0% 29.8% 23.8% 24.5% 26.8% 29.2% 31.0% 23.4% 21.0% 20.4% ATM + $15.00 48.3% 29.9% 23.9% 24.6% 26.9% 29.3% 31.1% 23.5% 21.1% 20.5%

Other Electricity ATM Implied Volatility Curves AT-THE-MONEY IMPLIED VOLATILITY Monthly Call Option Implied Volatilities Trade Date: 1/14/2013 Term: Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Market: PJM West Hub 39.2% 26.5% 22.5% 23.0% 25.2% 27.5% 27.4% 21.2% 19.3% 18.5% 19.5% Indiana Hub 31.3% 38.3% 33.7% 29.4% 30.1% 31.2% 31.1% 25.8% 22.8% 22.9% 24.0% Mass Hub 70.3% 33.4% 25.6% 24.7% 24.6% 27.5% 27.8% 22.5% 21.9% 22.2% 24.1% ERCOT - North Zone 52.0% 44.2% 40.8% 40.1% 40.5% 39.2% 39.8% 39.3% 39.3% 39.5% 39.7% Mid C 41.3% 40.4% 55.4% 58.6% 60.1% 37.5% 34.3% 33.0% 30.2% 28.5% 26.9% SP 15 38.6% 35.6% 29.9% 29.3% 32.9% 35.7% 34.5% 33.4% 27.2% 25.4% 24.4% AD Hub 28.0% 25.3% 24.9% 24.6% 24.5% 24.7% 24.6% 24.3% 24.5% 24.6% 24.1% East Hub 41.2% 28.5% 24.5% 25.0% 27.2% 29.5% 29.4% 23.2% 21.3% 20.5% 21.5% JCPL Zone 40.2% 27.5% 23.5% 24.0% 26.2% 28.5% 28.4% 22.2% 20.3% 19.5% 20.5% NI Hub 26.0% 23.3% 22.9% 22.6% 22.5% 22.7% 22.6% 22.3% 22.5% 22.6% 22.1% NP 15 36.1% 33.1% 27.4% 26.8% 30.4% 33.2% 32.0% 30.9% 24.7% 22.9% 21.9% Palo Verde 37.6% 34.6% 28.9% 28.3% 31.9% 34.7% 33.5% 32.4% 26.2% 24.4% 23.4% PEPCO Zone 42.2% 29.5% 25.5% 26.0% 28.2% 30.5% 30.4% 24.2% 22.3% 21.5% 22.5% PPL Zone 40.2% 27.5% 23.5% 24.0% 26.2% 28.5% 28.4% 22.2% 20.3% 19.5% 20.5% PSEG Zone 41.2% 28.5% 24.5% 25.0% 27.2% 29.5% 29.4% 23.2% 21.3% 20.5% 21.5% ERCOT - South Zone 50.5% 42.7% 39.3% 38.6% 39.0% 37.7% 38.3% 37.8% 37.8% 38.0% 38.2% Zone A 68.3% 31.4% 23.6% 22.7% 22.6% 25.5% 25.8% 20.5% 19.9% 20.2% 22.1% Zone G 69.3% 32.4% 24.6% 23.7% 23.6% 26.5% 26.8% 21.5% 20.9% 21.2% 23.1% Zone J 72.3% 35.4% 27.6% 26.7% 26.6% 29.5% 29.8% 24.5% 23.9% 24.2% 26.1%

Implied Volatility vs. Historical Volatility Volatility Implied - derived from current market option prices Historical - calculated from historical market price returns Implied Volatilities A more representative way of quantifying the market s expectation of the future price range for a particular commodity vs. historical volatilities

Methodology Liquid Markets Market straddle quotes are obtained for the natural gas and electricity markets to calculate ATM implied volatilities Argus uses a modified Black-Scholes option valuation model Argus uses a 365 day year (vs. 252 trading days) Remaining strike price implied volatilities are calculated using market option prices when available or prior day relationships to the ATM option strike prices when no market data is available ( Smile ) All Call and Put Implied Volatility curves are tested to make sure no arbitrage conditions are violated prior to releasing the curves to Argus customers

Methodology Illiquid Markets Illiquid natural gas and electricity implied volatility curves are only available for ATM strike prices Typically NO options trade for illiquid markets Illiquid implied volatility curves are useful for valuing real options contained in physical assets, financial contracts, etc. All illiquid implied volatility curves are based on a reference market that does contain market-traded options A reference market must have a strong correlation between its forward prices and the forward prices for the illiquid market in question. The implied volatility curve for the illiquid market is derived from the reference market s implied volatility and historical volatility forward curves and the illiquid market s forward curve historical volatility.

Key Advantages of Argus Implied Volatility Forward Curves Argus produces implied volatility Call & Put strike price surface areas ( Smile ) for multiple gas and power markets This information is generally not available from energy industry data providers. Implied Volatility smiles are dynamic - regularly updated with market information as data becomes available Back-testing has shown that Argus implied volatility smile curves have been very accurate.

Key Advantages of Argus Implied Volatility Forward Curves (Continued) Multiple Data Suppliers Wide range of data sources provide current market option pricing information Brokers only have access to their own brokerage desk pricing data Independent and objective Argus does not participate in energy markets Complete and comprehensive No pricing gaps, all prices are marked within the term 3+ year term on Implied Volatility products (currently through 2016) Illiquid trading hubs are marked Published Methodology Not a Black Box ; adheres to Argus Code of Conduct and Compliance standards Access to Risk Management Group

Some Applications for Argus Implied Volatilities Asset valuation (for assets that contain real options ) Natural Gas Storage Power Generation Assets physical tolls, physical heat rate options Synthetic Assets financial heat rate options, etc. Natural Gas & Electricity Option Valuation MTM of option portfolios Implied Volatility curve validation Market Risk Analysis VaR, PFE, Inputs for Monte Carlo simulations

Implied Volatility Curve Delivery Options Implied Volatility products are delivered by 5pm CST, each business day as follows: Argus FTP site (CSV file) Email (Excel spreadsheet) most of you received this product over the past day via email Third party data provider such as ZE Power, Globalview & LIM (Morningstar)

Summary Independently-produced Implied Volatility curves are an integral part of today s energy business Argus brings a wealth of experience using the same rigorous procedures as all other Argus products Argus methodologies are transparent and documented Multiple sources of market data support coverage of both liquid and illiquid markets

Any questions?

Al Pollard VP Risk Management Services al.pollard@argusmedia.com Jay Pruett Risk Management Services jay.pruett@argusmedia.com Copyright notice All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit www.argusmedia.com/trademarks for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.

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