SECURE TRADING AND CLEARING

1. SECURE TRADINGAND CLEARING

2. SECTION ONE: NGX BACKGROUND

3. Introduction to NGX • Business Concept: • Provide electronic trading and clearing services to North American energy market participants • NGX is a service provider and therefore does not trade or take positions • Headquartered in Calgary, Alberta, Canada • Incorporated in 1993, began trading operations in Feb 1994 • Ownership History • Initial Ownership by Westcoast Energy Inc. • Acquired by OM on Jan 1, 2001 • Acquired by TSX Group March 1, 2004

4. Ownership: Introduction to TSX • TSX Group is a cornerstone of the Canadian financial system and is at the centre of Canada’s equity capital market • TSX Group owns and operates Canada’s two national stock exchanges, the Toronto Stock Exchange, serving the senior equity market, and TSX Venture Exchange, serving the public venture equity market • From its preeminent domestic base, TSX Group’s reach continues to extend internationally, through TSX Markets and TSX Datalinx which provide the trading and data to the global financial community who access Canada’s equity capital market

5. NGX Core Competencies • Electronic Trading • Over 12 years of experience developing and operating high-reliability, high-performance electronic trading systems • Clearinghouse Operations • Physically and financially settled over 850,000 trades • Zero-default history • Liquidity Development • Focus on customers and quality of service • Commitment to the reduction of trading impediments

6. Current NGX Product Locales NGX Products & Services Physical Products Financial Products Upcoming Products ATCO NORTH STATION #2 ALBERTA POWER SWAPS TEP ALBERTA SWAPS NGX INTRA-ALBERTA EMERSON/GREAT LAKES EMPRESS IROQUOIS HUNTINGDON SUMAS SWAPS PARKWAY ST. CLAIR DAWN MALIN MICHCON SWAPS NIAGARA FALLS MALIN SWAPS CHIPPAWA CHICAGO SWAPS NBPL VENTURA PG&E CITYGATE NICOR-NGPL ROCKY MTN SWAPS PG&E CITYGATE SWAPS SOCAL GAS SOCAL GAS SWAPS FUTURES SWAPS HENRY SWING SWAPS LDS FOR GDD

7. Available Forward Curves • Forward curves listed from intraday to five-year forward tenors

8. Current NGX Services • Marketplace • Centralized electronic trading • Standardized contracts • Pipeline balancing instruments • Market advocacy (facilitating transactions) • Market agency (facilitating order entry) • Real-Time Price Index Generation • Clearing House • Assured performance • Trade and counterparty netting • Centralized collateral management • Centralized risk management

9. Operational Statistics • 134 NGX Contracting Parties • “Member” firms eligible to transact through theExchange • List 102 physical and derivative products • Average in Excess of 400 Traders Online Daily • Approximately 100 View-Only Users Online Daily • 2005 Trading Statistics: • Volume = 8.8 Tcf • Transactions = 185,878 • Average Daily Deliveries in Excess of 12.0 Bcf

10. NGX Trading Volume History

11. NGX Product Dispersion

12. SECTION TWO : CLEARING STRUCTURE

13. $ $ $ or Natural Gas $ or Natural Gas CPA CPA NGX Clearing Operations Buyer Seller • NGX Intermediation • NGX acts as buyer to every seller, and seller to every buyer, for the purpose of facilitating anonymous trading and clearing • Private Clearing Operation • Contracting Parties are not mutually exposed to another Contracting Party’s default

14. How is Counterparty Risk Mitigated? • Standard Rules • All Contracting Parties are subject to the same rules and regulations as set forth in the CPA • Contracting Parties must meet minimum creditworthiness test and meet credit requirements on an ongoing basis • Collateral Provisions • The requirement for liquid collateral to be placed on deposit with NGX in advance and in excess of margin requirements provides the security against default • Liquidation Rights • NGX has a number of rights if a Contracting Party default occurs, including the ability to close-out (or accelerate) all forward positions for the defaulting party • Collateral is utilized to cover any liquidated damages

15. How is Counterparty Risk Mitigated? • Backstopping • Delivery risks are mitigated through the use of backstopping services provided by various market participants, including storage facilities, large shippers, and pipeline operators • Backstopping is typically an arrangement for immediate provision of supply/market at a pre-determined price (usually based on index) • Settlement Bank • The settlement bank daylight and overdraft facilities provide for clearing operation liquidity during a default situation and assist in managing timing issues on settlement day • Emergency Fund • NGX provides a trust fund for Contracting Parties to access in the event of an exchange default, backed by a parental guarantee from TSX

16. $ $ $ or Natural Gas $ or Natural Gas Payee Clearing Structure NGX Emergency Fund ($30MM CIBC Mellon Trust) NGX Cash Reserves Deposit Agreement Deposit Agreement Defaulting Party Collateral (100% Coverage Under NGX Exposure Model) Settlement Banking Credit Facility Payer Physical Backstopping (storage)

17. Collateral Makeup • Collateral on deposit in excess of CAD $2.8 Billion • Approx. CAD $2.4 Billion LC’s, CAD $0.49 Billion Cash

18. NGX Central Clearing Benefits • Neutral, Independent Risk Management • NGX is impartial and the nature of the clearing business provides a strong incentive to maintain a default-free clearing operation • NGX is not a market participant, does not take a market view and earnings are not directed by commodity prices • Centralized Collateral Requirements • Concentration of capital affords most efficient use across all other contracting parties

19. NGX Central Clearing Benefits • Counterparty Netting Facilities • Central clearing operator and standardized netting rules create an environment to net physical and financial exposures across multiple counter parties and locations • Acceleration, Liquidation, Close-Out Procedure • NGX has embedded, and has enforced, rights of acceleration for all contracts traded through the Exchange to mitigate risks to all Contracting Parties

20. Value Proposition of Clearing • Value of Reduced • Exposure • Will I get paid? • Will my gas get delivered? • Cost of Collateral • Is the risk reduction worth the cost? • Risk Mitigation “Trade-Off” • When a Contracting Party introduces risk to the clearing operation (ex. Receivable exposure or Mark-to-Market losses) they must provide collateral to support the risk • In return, all Contracting Parties that are exposed to the clearing operation due to the introduction of risk (ex. Payable positions and Mark-to-Market gains) are secured against defaults

21. A D C B D C B A A A $10MM $10MM $10MM Collateral Concentration OTC Bilateral Buyer Seller NGX (centralized) Buyer Seller $20MM $30MM $7MM $3MM Access to choose bids/offers from 100+ other market participants under the same collateral umbrella

22. A C B A A C B D D A A 5 Units 5 Units 10 Units Exchange Netting OTC Bilateral Buyer Seller NGX (net effect) Buyer Seller 10 Units Netted 10 10 Units 10 Units 5 Units 5 Units

23. Clearing Statistics • Cleared Transactions • 180,000+ transactions cleared annually • Notional value of transactions consummated through NGX is in excess of CAD $60 Billion annually • Margin • Over 130 corporate margin accounts held by NGX • Manage margin accounts in excess of CAD $4.0 Billion in cash and letters of credit • Settlement • Settlement of $US and $CAD cash streams • Monthly settlement values over CAD $2 Billion processed by the clearing house

24. Oversight • Regulatory • ASC – Exemption order, compliance with operating principles • CFTC – 2(h)(iii) exemption, “Eligible Commercial Market” status • Clearing Bank • TD Bank, NGX’s Clearing Bank, maintains oversight of NGX clearing operations to support credit facility, $300MM daylight, $30MM LC, $20MM demand • Clearing Bank controls segregated collateral accounts • Clearing Bank authorizes movement of funds from collateral accounts • Clearing Bank has full access to NGX trade/clearing data and reporting, ensures collateral accounts are sufficient to manage Contracting Party margin requirements

25. SECTION THREE: RISK MANAGEMENT

26. Performance Risks • Failure to Make/Take Delivery • NGX is exposed to the price at which an alternative supply/market can be found • Risk is managed with backstopping contracts, penalty mechanisms, collateral requirements and credit policy • Failure to Pay • NGX is exposed to receivables risk on settlement dates • Risk is managed with penalty mechanisms, collateral requirements and credit policy • Failure to Provide Collateral • NGX is exposed to the risk that Contracting Parties will not provide sufficient collateral to manage their risks • Risk is managed with liquidation provisions

27. Margin Requirements • Risk Measurement • Performance risks are quantified through NGX’s margining methodology, which attempts to estimate probable worst-case portfolio value • Collateral • NGX collects collateral from Contracting Parties to secure their portfolios and protect the clearing operation from defaults • Margin Triggers • If margin requirements reach 80% of collateral deposited, NGX will request additional collateral • At 90%, NGX may restrict the Contracting Parties trading capabilities • At 95%, NGX is entitled to invoke the liquidation procedure

28. Collateral • Collateral Policy • Contracting Parties must have sufficient collateral to cover their Margin Requirement, utilizing any combination of the forms of collateral and offsets below • Collateral is held to support the Contracting Party’s traded positions and can only be used to remedy a performance failure by the Contracting Party itself • Collateral Requirements • Collateral is accepted in the form of cash and irrevocable letter of credit from an A or higher rated bank • Collateral requirement can be reduced with an accounts payable or positive variation margin offset

29. Risk Measurement • Accounts Receivable/Payable • A calculation of the value of gas delivered • Margin requirements are increased if gas has been taken prior to payment, and decreased if gas has been delivered prior to payment • Variation Margin (Mark-to-Market) • A calculation of the price at which a forward position could be instantaneously liquidated given current market prices • Initial Margin • A calculation of the probability of a movement in market prices during a two-day holding period • Initial margin coverage protects against a prolonged liquidation

30. Position Tracking • Consolidation and Netting • Positions within each product and date range are consolidated into gross long and short positions • Liquidation risk is managed against the net of the long and short positions • Instruments and Date Ranges • Trades across all instruments in a product are grouped by date ranges in real-time • Instruments may overlap, but date ranges are unique • Ex. A M-Nov instrument and a WB-Nov instrument would each populate a position for November 1 to November 30th

31. Physical Risk Management Payment Exposure - Margined at full value Current Month Exposure - Deliveries margined at full value - Open position initial margin - Variation margin all positions • Forward Position Exposure • - Open position initial margin • Variation margin all • positions 30 Days 25 Days 60 Months Last Day of Delivery Month 25th of Payment Month 1st of Delivery Month

32. What are Initial Margins? • Defined • Initial Margin is an estimation of the value to which the clearing house might be exposed during a period of liquidation • Initial Margin is intended to measure potential change in a value of a portfolio beyond the last mark-to-market price during a period of liquidation • How Does NGX Utilize Initial Margin? • NGX applies initial margin to Contracting Parties’ net open positions that would be subject to liquidation in the event of a default • Initial margin acts as additional position coverage that NGX can utilize in the event of a default to ensure that the clearing operation remains secure

33. Initial Margin Methodology • Utilization of VaR • NGX utilizes a Value-at-Risk methodology to determine initial margins • VaR is a method of assessing risk that uses standard statistical techniques routinely used in a variety of technical fields • NGX’s VaR calculation measures the worst expected price change in a date range for a product over a given time interval under normal market conditions at a given confidence level • VaR, while imperfect and subject to several limitations, provides a measurement tool that has historically been an accurate measure to evaluate potential exposure in a portfolio

34. Margin Offsetting • Accounts Receivable/Payable • All receivables/payables are offset across all NGX products • Variation Margin (Mark-to-Market) • All mark-to-market calculations are offset across all NGX products • Initial Margin • Initial margins apply only to net open positions for each forward date range in each product • Limited cross-margining (ie. Initial margin reductions for highly correlated, yet non-identical hedged positions) is provided today for short-term fixed-price positions • A project is currently underway to provide portfolio offsets for highly correlated positions in liquid products across both time and locations

35. Margin Example • Example • On Tuesday, December 27th, BUYCO (buyer) purchases 5,000 GJ/Day of the NGX Intra-Alberta month of January 2006 physical contract from SELLCO (seller) at a price of CAD $14.000/GJ • Position Management • As soon as the transaction is matched, BUYCO shows a net long position of 5,000 GJ for each day from January 1 to January 31, thus a total net long position of 155,000 GJ (ie. 5,000 GJ/Day multiplied by 31 days) • Conversely, SELLCO shows a net short position of 5,000 GJ for each day from January 1 to January 31, thus a total net short position of 155,000 GJ

36. Margin Example • Initial Margin • Immediately following the creation of the long and short positions, initial margin is applied • The initial margin rate for January is currently CAD $2.300/GJ (17% of price), as statistically generated by NGX • Both BUYCO and SELLCO have initial margin added to their margin requirement for CAD $356,500 (155,000 GJ multiplied by $2.300/GJ) • The initial margin requirement will remain in place, unchanged, until one of the following events occurs: • Either BUYCO or SELLCO offset all or part of their open long/short position, thus reducing their initial margin requirement to zero, or; • The January long/short position becomes a current month position on January 1st

37. Margin Example • December 27th to December 31st Margin Requirements • The following table illustrates the margin requirements for the January position through each remaining day in December:

38. Margin Example • January 1st to January 31st Margin Requirements • The following table illustrates BUYCO’s margin requirements for the January position through each remaining day in January: * Initial margin rate for the rest of January changes on January 1st to reflect higher spot market volatility, uses $2.600/GJ in the example

39. Margin Example • January 1st to January 31st Margin Requirements • The following table illustrates SELLCO’s margin requirements for the January position through each remaining day in January: * Initial margin rate for the rest of January changes on January 1st to reflect higher spot market volatility, uses $2.600/GJ in the example

40. Questions and Contact Information Gary Gault – Vice President 403.974.1707 gary.gault@ngx.com Dan Zastawny – Vice President, Clearing & Compliance 403.974.4335 dan.zastawny@ngx.com Kenny Foo – Clearing Manager 403.974.1737 kenny.foo@ngx.com Natural Gas Exchange Inc. Suite 2330, 140 4th Avenue SW Calgary, Alberta Canada T2P 3N3 Phone 403.974.1700 Fax 403.974.1719