AMERICAN MUNICIPAL POWER – OHIO, INC. (AMP-Ohio)

1. AMERICAN MUNICIPAL POWER – OHIO, INC. (AMP-Ohio)

2. What is AMP-Ohio? • A private, not-for-profit, membership corporation organized in Ohio in 1971 • Exempt from federal income tax under IRC Section 50(c)(12) and Section 115 • Managers power supply arrangements for 119 Public Power Systems in Ohio, Michigan, Pennsylvania, West Virginia, and Virginia 2

3. Project based organization • Largest Municipal energy operation in ECAR • Peak load of approximately 3,500 MW • 1,326 MW of generation; heavily dependent on purchased power • Issues tax-exempt debt based on IRS Private Letter Rulings • AMP-Ohio is not a joint action agency 3

4. AMP-Ohio Members 4

5. Transmission Dependent Utility • Member of both MISO and PJM • About half of AMP-Ohio Members are in MISO and half in PJM 5

6. Member Energy Requirements • Increase in Membership and subsequent increase in load = increase in power supply requirements • Wholesale power market is volatile • Members are asking for stability and price certainty 6

7. AMP-Ohio Plan to Meet Future Energy Requirements • Build base load assets • New 1,000 MW coal-fired plant COD 2012 • Re-power Gorsuch Station to clean coal technology • Additional hydro projects in the Ohio River (150-200 MW) • Additional wind turbines in Ohio and Pennsylvania • Buy existing generating assets • New Power Supply Contracts • For power supply requirements until generation projects in-service • For load growth beyond 2012 7

8. AMP-Ohio Decision to Trade with Higher Rated Counterparties • Most longer term transactions are now with commodity providers (usually investment banking firm) rated in A or AA category as opposed to investor-owned utilities usually rated in BBB range • Power purchase contracts supported by $250 million bank line facility to cover contingent credit assurances • Most EEI agreements between AMP-Ohio and investment banking firms supplying power have a margin of permitted exposure before collateral thresholds are triggered for either party 8

9. AMP-Ohio’s Criteria for a Prepayment of Energy Contracts • AMP-Ohio has been interested in this option since tax law was changed to permit prepayment for energy • Savings. Prepayments offer the potential to generate savings through tax-exempt debt service costs that are lower than the physical delivery price of the power, including the present value discount factor • Free-up credit. No bank line support needed. • Prepayment contract replaces EEI. With prepayment would have no obligation to post collateral. • Goldman performance guarantee 9

10. Long-Term Power Supply Arrangement • After solicitation of several commodity providers in 2005 AMP-Ohio entered into 7 year, 225 MW fixed price 24 x 7 contract with J Aron, subsidiary of Goldman Sachs • Delivery effective 1-1-06 • EEI negotiated contract with collateral threshold for each party • Goldman Sachs parental guarantee (Aa3 Moody’s/A+ S&P/AA- Fitch) • Intent was to enter into tax-exempt prepay transaction 10

11. Roadblocks To Prepayment • Time consuming process • Each investment banking firm proposed a different prepayment structure – too much to consider • Conservative approach by AMP-Ohio and tax counsel - do nothing to jeopardize a future project financing • Be prepared to spend money for legal fees to research proposed structures. • Continuing to explore economic options to guarantee performance of Goldman Sachs 11

12. AMP-Ohio Tax Counsel is • Sidley Austin in New York 12

13. Prepayment Structure A • SPE formed • Proceeds from prepayment tax-exempt bonds are held by SPE and invested in GIC • GIC pays J Aron as power is delivered • GIC proceeds could be returned to AMP-Ohio in event of default • Tax Counsel Advice: High Risk • IRS might say proceeds were not spent for intended purpose 13

14. Prepayment Structure B • Private placement tax-exempt bonds • No recourse to AMP-Ohio if J Aron defaults • Tax Counsel Advice: High Risk • IRS might say that private bonds are taxable 14

15. Prepayment Structure C • AMP-Ohio obtains bank letter of credit to guarantee Goldman performance • Problem: Goldman reluctant to enter into reimbursement agreement with banks 15

16. Prepayment Structure D • Similar to recent gas prepay structure • AMP-Ohio issues tax-exempt bonds to fund prepay • Take-and-pay contracts with members source of payment as J Aron makes commodity deliveries • Bondholder recourse to Goldman if J Aron defaults • Bonds would carry AA3/A+/AA– Goldman credit ratings • Problem: AMP-Ohio still obligated for MTM and credit posting 16

17. Prepayment Structure E • AMP-Ohio buy Credit Default Swap to guarantee Goldman performance • Otherwise a straight forward tax-exempt bond issue • Problem: Cost of CDS might make transaction uneconomical 17

18. Prepayment Structure F • AMP-Ohio issues traditional fixed rate tax-exempt bonds to fund prepayment • No Goldman performance assurance • Problem: AMP-Ohio members might not enter into prepayment without Goldman performance guarantee 18

19. Conclusion • Prepayment structure might not happen • CDS might not be economical • Members might not enter into prepay without performance assurance 19

20. Robert W. Trippe • Chief, Financial Officer • btrippe@amp-ohio.org 20