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- The Shape Of Things To Come - John E. Olson, CFA SVP & Director of Research Sanders Morris Harris Houston, TX 713/220-5151 IPAA Houston Chapter November.

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Presentation on theme: "- The Shape Of Things To Come - John E. Olson, CFA SVP & Director of Research Sanders Morris Harris Houston, TX 713/220-5151 IPAA Houston Chapter November."— Presentation transcript:

1 - The Shape Of Things To Come - John E. Olson, CFA SVP & Director of Research Sanders Morris Harris Houston, TX 713/ IPAA Houston Chapter November 12, 2001 THE ENRON MELTDOWN

2 The Top 10 Least Popular People in Houston 1. Ken Lay 2. Jeff Skilling 3. Andy Fastow 4. Osama Ben Ladin 5. Mullah Omar 6. Saddam Hussein 7. John O 8. John O 9. John O 10. John O Source: Unrandom Survey

3 YTD 11/30/01 5-Yr Average CMS Energy Duke Energy Dynegy El Paso Energy ONEOK Williams Cos Simple Average S&P Enron Corp The Energy Conglomerates 5-Year Stock Market Performance (%)

4 Natural Gas Trading (BCF/D) Volumes mos Enron Duke Dynegy El Paso Reliant Total Top Total US

5 Power Trading (MM MWH) Volumes mos Enron Duke Dynegy El Paso Reliant Total7681,2991,562 Top 252,3543,7363,807 Total US3,7053,8001,851

6 Energy Market Shares GasPower Enron15.3%13.6%15.7%18.5% Duke Dynegy El Paso Reliant % 34.5%41.0% Top %

7 Domestic Wellhead Revenues 1970 – 2005E ($ Billions) Year70’s80’s90’s00’s Average

8 Revenues ($ Billion): Q3 Duke Energy Dynegy El Paso Enron Reliant Resources Total Marketing & Trading Results Annual Revenue Trends Annualized

9 EBIT ($mm): Q3 Duke Energy ,472 Dynegy ,548 El Paso ,264 Enron9681,2992,2523,092 Reliant Resources ,080 Total EBIT1,6071,9984,8719,456 Marketing & Trading Results 1998 – Q Earnings Profile Annualized Run Rate

10 Standard & Poor’s 400 Returns On Average Equity: 1970 – 2006E Year70’s80’s90’s00’s 010.4%15.6%16.6%22.7% 111.1%14.9%10.9%10.7% 212.0%11.3%12.7%13.8% 314.7%12.3%15.7%14.6% 414.7% 22.8%15.0% 512.4%12.2%22.5%15.1% 614.5%11.6%24.8%14.9% 714.5%15.7%24.6%0.0% 815.2%19.4%21.3%0.0% 917.3%18.8%24.8%0.0% Average13.7%14.6%19.7%15.2%

11 S&P 400 Industrials Capital Structures

12 Dynegy Corp. Imputed Profitability Profile (%) E2002E2003E2004E2005E Marketing & Services Midstream Services Transmission & Services Global Communications Total21.7%17.8%18.8%19.8%20.3%20.4% % Leverage64.5%56.8%56.4%53.6%49.7%48.0%

13 El Paso Energy Imputed Profitability Profile Imputed ROEs (%): E2002E2003E2004E2005E2006E Pipelines Merchant Energy Field Services Production Other Composite ROEs12.3%17.6%20.3%21.0%21.1% 21.4%21.6% % Leverage67.2%68.9%68.8%67.2%64.5%61.2%57.5%53.3%

14 Duke Energy Imputed Profitability Profile (%) E2002E2003E2004E Electric Operations Gas Transmission Field Services Trading & Marketing Global Asset Dev Other Energy Services Real Estate Operations Other Operations Eliminations & Minority Total Consolidated % Leverage

15 Imputed ROEs E2002E2003E2004E2005E Pipeline Group Portland General Capital & Trade Energy Services Broadband Services Corporate & Other Composite ROEs % Total Leverage57%59%56%52%49%45% Enron Corp Imputed Profitability Profile (%)

16 Enron Asset Profile ($ Billions) Capital & Trade (ECT):9/30/01 Risk Mgmt Assets Adjusted Assets Americas Europe And Other Global Assets7.6-- Pro Forma ECT Total Energy Services1.5-- Portland General4.3-- Gas Pipelines3.5-- Broadband Services1.3-- Corporate2.2-- Total

17 Analyst Salvage Model (Partnerships Added Back) $ BillionsAssetsDebt Good Bank E Bad Bank E Total Firm RM Assets18.7 Total Assets

18 AssetsRMANet Assets Trading Global Energy Services Broadband Corporate Chapter Non Chapter Total Assets * Risk Management Assets: Swaps, Options, etc. Bankruptcy Filings – I ($ Billions)

19 Bankruptcy Filings – II ($ Billions) AssetsDebt Trading (ex RMA) E Energy Services Broadband Other (Corp. & Global)5.12.0E Total RM Assets Filed Assets

20 Bankruptcy Filings – III ($ Billions) AssetsRMAStatus Portland General4.31.8Sold: $2.9B Pipelines3.51.1NNG Sold: $1.5B Global, Etc Total

21 Natural Gas Industry Asset Base Yearend, 1994 Data ($ Million)

22 Natural Gas Industry Asset Base June 2001 ($ Million)

23 Base Load Economics Coal vs. Natural Gas Capital Cost ($/kw): Coal Fired (A) Gas Fired (B) Gas Fired (C) Gas Fired Base Plant SO2/Nox Control Total Capital Cost1, Heat Rate9,6456,743 10,000 Fuel Price ($/mmbtu) Capacity Factor75% Levelized Power Cost ($/mwh): Capital Costs Fixed O&M Variable O&M Total Direct Costs Fuel Costs Total Power Costs (A)= $5.00 Gas (Conventional Wisdom) (B)= Breakeven Coal/Gas Economics With New CoGen Plant (6,743 Heat Rate) (C)= Breakeven Coal/Gas Plant Economics With Old Gas Plant (10,000 Heat Rate)

24 Expected Level of Capacity Additions Region Total AZNMA_CANVA3,1645,3036,5738,6282,66626,334 ECAR_MAIN7,2268,2818,47810,6513,80038,437 ERCOT6,3756,6052, ,863 FRCC1,9103,7961,3044, ,349 MAAC6982,4021,4692,6081,0918,269 MAPP ,9773,893 NEPOOL1,6614,6241, ,797 NWPA7201,5361,4662,4851,0327,239 NYPP ,1263, ,405 RMPA , ,880 SERC6,98311,21910,34310,4742,46641,485 SPP2,4872,2061,6532, ,123 32,55847,58237,05246,93615,948180,075 Of the total expected additions of 180,000 MW, 55% are already under construction or operating. The Midwest and Southeast account for 44% of total additions and 50% of the additions not yet under construction.

25 Projected Gas Production Needs 2001E – 2005E (Billion Cubic Feet Daily) Year Industry Total Our Total 2001E E E E E Total (BCF/D) Current Production (May, 2001)53.5 Imputed Five Year Growth43%27% Average Annual Growth Rate8.5%5.4%

26 The Energy Conglomerates 2002 Multiples PricePrice or P/E to Per Share:11/30/0102ECFFOBookAAGRROE CMS Energy$ %131% Duke Energy$ %67% Dynegy$ %65% El Paso Energy$ %64% ONEOK$ %66% Williams Cos.$ %42% Simple Average$ %66% S&P 500$ NM4.1331%192% Enron Corp %14%

27 Natural Gas Production Average Annual Growth Rates: Annual Change (%) Year70’s80’s90’s00’s Average-0.3%-0.9%0.8%1.6%


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