Agbeli Ameko

WRMA ANNUAL MEETING 2005

FRONT END SYSTEMS PANEL©First Enercast Financial, Inc.

THE ROLE OF FRONT-END SYSTEMSIN FINANCIAL WEATHER MARKETS

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STRATEGIC OBJECTIVES IN FRONT-END SYSTEMS

• Simplify weather market information for cross-industry application

• Monetize the weather markets to highlight its financial relevance

• Improve integration with other weather sensitive financial markets

SimplifySimplify

• Transparency

• Availability

• Reporting

• Display

• Transparency

• Availability

• Reporting

• Display

MonetizeMonetize

• “$” – value

• “$” – impact

• “$” - risk

• “$” – correlation

• “$” – value

• “$” – impact

• “$” - risk

• “$” – correlation

IntegrateIntegrate

• Energy futures

• Spot markets

• Equities

• Leading indicators

• Energy futures

• Spot markets

• Equities

• Leading indicators

FRONT END SYSTEMS OBJECTIVES

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SIMPLIFY…

• Front-end systems play a key role in closing informational asymmetries • Facilitate in reporting to help create a more transparent market• Make weather markets “understandable” to non-insiders

• Front-end systems can help create clear processes for new entrants• Easy GUIs to help translate weather market data into actionable information• Front-end systems will move to “fewer numbers…more value” model

targeted to specific end user segments

• Front-end systems play a key role in visualizing weather for non-insiders

EXAMPLE

End User

OR

Weather Market Insiders GUI

End User

Weather Markets for Non-Insider

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MONETIZE…

• Most industrial end-users, natural gas traders, utilities, etc. do not understand what one HDD is worth to their operation

• Front-end systems must convert weather market prices into dollar (“$”) values

• Front-end systems can also incorporate client specific data to determine the “$-impact” of weather on their real-time business operations

• Front-end systems must monetize the relative financial impact• I.e. comparison to 10yr &30yr averages or client historical mean

EXAMPLE

CONTRACT PRICE

QUANTITY HS2H 5010 50

End User

CONTRACT PRICE

CHANGE CHICAGO 5010 $2500

OR

Block Trades for Insiders

End User

Block Trades for non-Insider

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INTEGRATE…

• Front-end systems serve as the key cross-commodity interface to the market• Integration will help the weather markets grow

• Linked to systems for power trading, natural gas purchasing, and research• Linked to financial accounting and billing systems• Linked to pipeline, storage, metering, and other operational systems

• Integration through the creation of new weather market instruments and indices• Hurricanes - risk and evacuation indices• Equities - “Weather Strength Indices”• Commodities - “buy/sell” signals based on weather markets for technical analyst

EXAMPLE

-30

-20

-10

0

10

20

30

40

50

4.5

5

5.5

6

6.5

7

CME % Dev Natural Gas

Natural Gas vs. CME Weather Market Price Deviation From Normal

CME Cool August DownN Responds

NG Summer High

NG Summer LowWX Market Reversal

EXAMPLE

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CONCLUSIONS

• Simplified front-end systems will allow for weather markets to continue to grow into a truly cross-industry financial instrument

• Monetization of weather market information will give CFOs in all industries a tool to directly manage the link of weather to their balance sheet

• Front-end systems will lead the way in the integration of weather derivatives with other financial markets such as fuels, electricity, and equities

• Front-end systems are at the forefront of the weather derivatives market penetration into new cross-industry segments

Contact

Agbeli AmekoFirst Enercast Financial1775 Sherman St., Suite 2825Denver, CO 80302(303) 860-7495 (phone)agbeli@firstenercastfinancial.com