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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 713/220-5151 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 Average20001999199819971996 CMS Energy- Duke Energy-12.620.474.4-18.319.624.42.0 Dynegy-45.0117.6364.4122.7-37.2-24.5162.4 El Paso Energy-36.744.586.713.87.034.680.5 ONEOK-24.932.1110.4-19.9- Williams Cos.- Simple Average-28.841.4112.510.91.528.852.2 S&P 500-12.419.2-9.020.928.433.122.7 Enron Corp.-99.039.988.457.339.7-1.415.4 The Energy Conglomerates 5-Year Stock Market Performance (%)

4 Natural Gas Trading (BCF/D) Volumes19992000 9 mos. 2001 Enron13.925.326.2 Duke10.611.913.5 Dynegy8.89.810.9 El Paso4.46.210.1 Reliant7.19.113.7 Total44.762.374.4 Top 25144.0165.0192.5 Total US51.052.353.1

5 Power Trading (MM MWH) Volumes19992000 9 mos. 2001 Enron386586706 Duke121274257 Dynegy70132187 El Paso79106141 Reliant112201271 Total7681,2991,562 Top 252,3543,7363,807 Total US3,7053,8001,851

6 Energy Market Shares GasPower 2000200120002001 Enron15.3%13.6%15.7%18.5% Duke7. Dynegy5. El Paso4. Reliant5. 38.5% 34.5%41.0% Top 25100.0%

7 Domestic Wellhead Revenues 1970 – 2005E ($ Billions) Year70’s80’s90’s00’s 015.8107.793.8149.8 116.7151.082.3139.1 216.9145.881.5100.7 319.6136.580.3110.1 431.2142.474.2114.0 535.1131.469.9116.7 638.876.699.90.0 744.682.195.20.0 849.872.568.90.0 968. Average33.6112.782.8121.7

8 Revenues ($ Billion):199819992000Q3 Duke Energy8.711.633.652.4 Dynegy10.710.521.540.0 El Paso19.022.347.151.8 Enron27.236.295.4184.2 Reliant Resources4.37.919.138.0 Total70.188.5216.8366.3 Marketing & Trading Results Annual Revenue Trends 1998 - 2001 Annualized

9 EBIT ($mm):199819992000Q3 Duke Energy1332094182,472 Dynegy1732097771,548 El Paso2932629391,264 Enron9681,2992,2523,092 Reliant Resources40194851,080 Total EBIT1,6071,9984,8719,456 Marketing & Trading Results 1998 – Q3 2001 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 (%) 20002001E2002E2003E2004E2005E Marketing & Services30.223.824.824.324.1 Midstream Services2.07.79.811.912.010.8 Transmission & Services0. Global Communications0.0-130.7-82.4-18.410.315.1 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 (%):199920002001E2002E2003E2004E2005E2006E Pipelines21.823.125.223.721.619.617.815.9 Merchant Energy4.014.513.716.117.919.621.322.8 Field Services13.018.015.320.726.132.239.547.7 Production9.931.257.752.747.443.540.637.8 Other-7.1-18.3-27.9-26.0-25.0-23.0-21.0-18.3 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 (%) 199920002001E2002E2003E2004E Electric Operations22.522.321.022.521.820.9 Gas Transmission25.622.522.023.422.621.5 Field Services6.210.712.210.911.412.4 Trading & Marketing7.222.042.934.842.348.3 Global Asset Dev.-3.31.9- Other Energy Services-47.3- Real Estate Operations36.423.318.219.717.316.2 Other Operations-4.5-8.4-29.4-3.6-2.5-1.5 Eliminations & Minority-38.9-75.5-125.1-84.4-88.7-93.7 Total Consolidated15.416.617.417.0 16.9 % Leverage55.359.857.556.855.953.5

15 Imputed ROEs20002001E2002E2003E2004E2005E Pipeline Group242724191512 Portland General13 121087 Capital & Trade192220 19 Energy Services245467807569 Broadband Services-60-80-44-23-81 Corporate & Other-33-51-35-25-19-14 Composite ROEs131415 % 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 Americas26.7-- Europe And Other14.8-- Global Assets7.6-- Pro Forma ECT Total49.118.730.4 Energy Services1.5-- Portland General4.3-- Gas Pipelines3.5-- Broadband Services1.3-- Corporate2.2-- Total61.818.743.1

17 Analyst Salvage Model (Partnerships Added Back) $ BillionsAssetsDebt Good Bank32.011.8E Bad Bank11.15.0E Total Firm43.116.8 RM Assets18.7 Total Assets61.835.5

18 AssetsRMANet Assets Trading41.518.722.8 Global3.0--3.0 Energy Services1.5--1.5 Broadband1.3--1.3 Corporate2.2--2.2 Chapter 1149.518.730.8 Non Chapter 1112.3--12.3 Total Assets61.818.743.1 * Risk Management Assets: Swaps, Options, etc. Bankruptcy Filings – I ($ Billions)

19 Bankruptcy Filings – II ($ Billions) AssetsDebt Trading (ex RMA)22.88.7E Energy Services1.51.0 Broadband1.41.5 Other (Corp. & Global)5.12.0E Total31.813.2 RM Assets18.70.0 Filed Assets49.513.2

20 Bankruptcy Filings – III ($ Billions) AssetsRMAStatus Portland General4.31.8Sold: $2.9B Pipelines3.51.1NNG Sold: $1.5B Global, Etc.4.60.8-- Total12.43.9

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 ($/kw): Coal Fired (A) Gas Fired (B) Gas Fired (C) Gas Fired Base Plant935524 SO2/Nox Control156000 Total Capital Cost1,091524 Heat Rate9,6456,743 10,000 Fuel Price ($/mmbtu)1.355.003.752.50 Capacity Factor75% Levelized Power Cost ($/mwh): Capital Costs20.269.73 Fixed O&M2.941.58 Variable O&M1.631.00 Total Direct Costs24.8312.31 Fuel Costs13.0233.7225.2925.00 Total Power Costs37.8546.0337.6037.31 (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 Region20012002200320042005Total AZNMA_CANVA3,1645,3036,5738,6282,66626,334 ECAR_MAIN7,2268,2818,47810,6513,80038,437 ERCOT6,3756,6052,16151720615,863 FRCC1,9103,7961,3044,46687312,349 MAAC6982,4021,4692,6081,0918,269 MAPP7885834291161,9773,893 NEPOOL1,6614,6241,037394817,797 NWPA7201,5361,4662,4851,0327,239 NYPP2493411,1263,8508386,405 RMPA2956861,0145383482,880 SERC6,98311,21910,34310,4742,46641,485 SPP2,4872,2061,6532,2075699,123 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 2001E3.52.6 2002E6.22.7 2003E8.33.0 2004E4.52.9 2005E0.23.1 Total (BCF/D)22.714.3 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$23.0311.13.00.9139%131% Duke Energy$36.1512.36.92.2102%67% Dynegy$30.3511.79.92.258%65% El Paso Energy$44.5012.27.52.482%64% ONEOK$17.2011.04.61.2110%66% Williams Cos.$26.729.76.12.465%42% Simple Average$29.6611.45.91.886%66% S&P 500$1139.4526.5NM4.1331%192% Enron Corp.

27 Natural Gas Production Average Annual Growth Rates: 1970 - 2000 Annual Change (%) Year70’s80’s90’s00’s 12.8-1.1-0.61.5 20.0- 30.6- 4- 5-7.1-5.8-1.21.5 6-0.7- 8- 90.21.2-0.31.5 Average-0.3%-0.9%0.8%1.6%

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