Enron North America Commercial Transaction Group Overview Presented to: Associate / Analyst Orientation February 8, 2000 Houston, Texas

1 Commercial Transaction Group Overview Enron North America Commercial Transaction Group Recent Transactions Associate and Analyst Roles

Enron North America

3 Leading Provider of Energy in North America Unparalleled Energy Network and Product Offerings Significantly Benefiting from Changes in Energy Markets Further Expanding Market Presence through e- Commerce

4 Transportation & Distribution Broadband Services Retail Energy Wholesale Energy Energy BusinessesNew Business

5 Gas Pipelines Portland General Transportation & Distribution Energy Businesses Wholesale Energy Services Retail Energy Services Developed Regions –North America –Europe Developing Regions –Asia/Pacific –India –Latin America –Other Enron Energy Services

Increase IBIT: Transportation & Distribution$ 637$ 685 8% Wholesale Energy Operations 968 1,317 36% Retail Energy Services( 119)( 68) 43% Exploration & Production NM Corp. & Other 7( 17) NM Total IBIT$1,621$1,982 22% Interest & Subsidiary Pfd. Dividends( 627)( 732) Minority Interest( 77)( 135) Taxes( 219)( 158) Total Net Income$ 698$ % Earnings Per Share (Diluted)$ 1.00$ % * Recurring 1999 Earnings Summary* (Millions)

7 Physical Volumes (BBtue/d) Income Before Interest and Taxes (Millions) 1996 $401 $654 $ $ $1,317 8,966 12,392 17,970 27,308 32,429 38% CAGR % CAGR 1999 Performance Wholesale Energy Operations and Services

% 40% 75% WholesaleOther Businesses Wholesale Contribution to Enron Income (Estimated Percent of Net Income)

9 Applications Physical Assets Network Contract Access Market Making Physical Delivery Contracts Price Risk Management Contracts Engineering and Construction Peaking & Storage Services Finance Utility Facility Operations & Management Energy Outsourcing Fuel Management Services eCommerce Applications Creation of an Enron Network

10 Profit Opportunities Exist Within and Between Markets Scale and Information Identify Highest Value Opportunities Low Incremental Cost to Enter New Markets Diversification Contributes to Strong Business Growth Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Key Markets

11 Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Key Markets

12 Structural Changes in Wholesale Power Demand Patterns Providing Exceptional Gas-Related Opportunities High Premiums Earned for Flexibility and Services Opportunities in Outsourcing Energy Assets and Supply e-Commerce Applications Differentiating Competitors North America Wholesale Gas Market

13 Contract Term >10Yr 1-10 Yr <1Yr Henry Hub Henry Hub Henry Hub Gas Marketing Activity Marketing Offices Owned and Leased Capacity NYMEX Owned Gas Storage Leased Storage Henry Hub Counterparties Manufacturing Others Producers Utilities Marketers LeasedOwned Storage Capacity (Bcf) Enron’s Wholesale Gas Network

14 United States Canada ,948 10,377 11,463 13, % Natural Gas Physical Volumes (BBtu/d)

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16 Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Key Markets

17 North America Wholesale Power Market Deregulation Provides Enormous Opportunities –Divesting of Generation Assets –Access to Industrial Energy Load Further Changes in Regulatory Environment will Facilitate Access to Utility Territories Customers Need Price Risk Management Services to Compete More Effectively

E Peaking Generation (MW) ,800 1,300 Contract Term Counterparties Utilities Others Marketers Municipal Manufacturing <1Yr >5Yr 1-5Yr MAAC MAIN Palo Verde Hub Entergy Hub Cinergy Hub Palo Verde Hub Entergy Hub Cinergy Hub Palo Verde Hub Entergy Hub Cinergy Hub COB Hub Palo Verde Hub PJM Hub Cinergy Hub ComEd Hub TVA Hub MAPP ERCOT FRCC SERC ECAR SPP WSCC NPCC Power Marketing Activity Transmission Grid Marketing Offices NYMEX Marketing Hub Power Plants In Operation Under Development Enron’s Wholesale Power Network

Power Physical Volumes (Million MWh)

20 Futures Wholesale Delivered Futures Wholesale Source: EIA Electric Power Annual; EIA Natural Gas Monthly; McGraw-Hill Gas (Bcf/d) Power (Million MWh) 400 2,000 6,000 10,000 14,000 18, North America Power Market Offers Significant Growth Prospects

Enron AEP Aquila Avista PG&EDuke Reliant CitizensWilliams Source: Natural Gas Week Southern Enron’s Lead Power Market Position First Nine Months 1999 (Million MWh)

22 Gas Power 23.4 Enron Aquila PG&E Duke SouthernDynegy Coral ReliantTransCanada AEP Natural Gas and Power Volumes Enron’s Lead Market Position First Nine Months 1999 (TBtue/d)

23 Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Key Markets

24 Portfolio by Industry $1.5 Billion Value as of 12/31/99 Energy Pulp & Paper, Steel and Other Enron’s Merchant Investments Extension of Products Provided to Customers Comprises Equity and Debt Investments in Energy-Related Businesses Capital and Finance Expertise Leverages Enron’s Position in Energy-Related Markets

25 Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Key Markets

26 Enron’s Transactions Enron’s Volumes (Thousand Tonnes) ,589 26,732 Customers Include Coal Producers, Generators and Utilities Providing Comprehensive Management Services – Physical Delivery – Price and Volume Risk Management – Investment Capital Largest Wholesale Marketer of Coal in U.S. Market Maker for Emissions Credits Enron’s Coal Business Coal Fuels 57% of U.S. Generation Changing Regulations Create Market Uncertainty and Opportunities for Enron Increased Competition Demands Price Certainty and Supply Flexibility Forward Market Developing Market Developments Coal

27 Enron’s Transactions Financial Physical Enron’s Notional Volumes (Thousand Tonnes) ,507 6,868 Lead Provider in U.S. of Risk Management Services Providing Structured Customized Solutions –Energy Commodities –Risk Management Products Enron’s Pulp & Paper Business Industry Experiences Extreme Price Volatility Price Uncertainty Results in Inefficient Capital Structures Market Developments Serving Large, Energy-Intensive Industrial Customers Pulp and Paper

28 Enron North America Continued Goals Remain Leading Provider of Energy in North America Create Unparalleled Energy Network and Product Offerings Continue to Drive Changes in Energy Markets Further Expand Market Presence through e-Commerce

Commercial Transaction Group

30 Transaction Development Customer ENA Origination Transaction Development Commodity Structuring Wanda Curry Ed McMichael-gas Bernie Aucoin-power Eric Groves Transaction Accounting Wanda Curry Roger Ondreko Shannon Bedrich Chris Sherman Treasury Mike Jakubik Joe Deffner Portfolio Val./Reval. Andrea Reed Technical Analysis Wayne Mayes Capital Structuring Andrea Reed Legal Mark Haedicke Jeff Hodge-commodity Lance Schuler - M&A Chris Gaffney Tax Jordan Mintz Stephen Douglas Morris Clark RAC Rick Buy Mark Ruane - RAROC Dave Gorte-Underwriting Bill Bradford - Trade Credit. Regulatory Rick Shapiro

31 Contact and Qualification Opportunity Conceptualization LOIs Term Sheets Bids Due Diligence Definitive Agreements Closing Relationship Management... increase the Velocity and Scalability of Deal Closings... Origination Transaction Development Deal execution and closing Commercial responsibility –Success of individual deals –Making 2000 Plan targets Shared ownership of deals –Origination = External “QB” –Transaction Development = Internal “QB” –Complimentary overlap of roles Point of involvement will vary, but generally centers on LOIs/Term Sheets

32 Commodity Structuring Primary Roles –Liaison between origination & trading Translate new deals into necessary portfolio positions –Centralized Pricing Financial and physical curves –Responsible for execution Actual Values = Anticipated Economics –Control function Risk identification

33 Commodity Structuring Pricing A Deal –Breaking deal into appropriate risk buckets –Work with Traders to price (bid/offer) each component part –Coordinate risk analysis with research –Run total valuation –Ensure all risks are appropriately hedged –If any risk is unhedgeable, communicate probability of occurrence and value exposure to risk manager –Responsible for risk books properly reflecting positions and valuation

34 Commodity Structuring Structuring responsible for complete hand off –Trading desks –Risk management (Book positions correct) –Reporting - Originations granted –Logistics –Economics –Client Services –Accounting

35 ENA Treasury Source capital from external sources –Commercial Banks, Insurance Companies, Investment Banks, Capital Markets, Private Investors Structure financings to optimize cost of funds and market execution Provide price signals to originators Manage ENA balance sheet and cash flow by monetizing and syndicating existing assets Create funding vehicles as necessary to provide ease of execution Syndicate various risks to financial markets as necessary

36 Portfolio Management & Valuation Valuation of Merchant Investments –Utilize rigorous modeling tools to consistently determine probabilistic and deterministic market values for private assets Merchant Portfolio Reporting (MPR) –Track mark-to-market valuation of public assets based on live exchange pricing –Determine mark-to-market valuation of structured credits based on daily fixed income market activity –Assist with developing and evaluating Merchant Asset hedge strategies Liaison between origination, accounting and reporting By definition, Merchant Investments are held for a finite period of time and then harvested

37 Transaction Support Ensure accounting for a transaction matches the intended economics of the transaction Assist in structuring transactions to achieve most favorable accounting outcome Facilitate with Arthur Andersen on significant transactions

38 Transaction Support Areas of accounting expertise: –Mark to market for significant trading contracts –Fair value accounting treatment for merchant investments –Monetization of financial assets –Off-balance sheet financing structures through special purpose vehicles –Due diligence support for proposed acquisitions –Leasing structures –Power plant development/turbine acquisition transactions considering real estate accounting rules

39 Technical Analysis Support technical aspects of ENA projects Engineering expertise in areas of: –Asset construction –Transmission –Distribution –Storage Coordinate engineering, cost estimation, bid processes and construction –EE&CC / NEPCO –Third parties

40 Capital Structuring Primary Roles –Support the transaction development team by structuring deals and taking them through all internal approval processes Involved in modeling financial statements to support valuation metrics Work closely with other departments, such as Accounting, Tax, Legal, Commodity Structuring, Treasury, RAC, and Portfolio Management to close deals Skills Required –Strong interest in Finance –Modeling skills –Understanding of financial statements –Understanding of debt and equity instruments –Strong Excel skills (especially financial functions)

Recent Transactions

42 Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Enron North America

43 Long Term Gas Supply Hub Services Wholesale Electric Supply Supply Peoples’ Natural Gas Requirements -5 Year Term -270 MMcf/d -10% of Natural Gas Consumed in Chicago Target Market Area Representing 5% of U.S. Natural Gas Consumed Increase Liquidity & Flexibility at Chicago City Gate - Access Multiple Supply Basins - Interconnect With 6 Major Pipelines Enron Marketing Risk Management National Reach Peoples Storage Assets Transportation Regional Expertise Provide Key Services to Peoples’ Retail Power Markets - Wholesale Power Supply - Risk Management Acquire and Optimize Transport Capacity Within Enron’s Broader Portfolio Provide Weather Risk Management Services Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments Peoples Energy

44 Significant Opportunities in Managing Full Requirements Power Contracts Natural Gas Emissions Coal Crude Products Pulp and Paper Power Weather Merchant Investments The United Illuminating Company (U.I.) Long-Term Power Outsourcing for Major Northeastern Utility Serving 314,000 Customers Assumes and Optimizes U.I.’s Power Purchase Agreements Significantly Increases Enron’s Power Portfolio Facilitated by Unparalleled Capabilities –Load Forecasting, Volume Management and Superior Systems

45 Provides Reliability of Supply at Known Cost and Increases Power Portfolio Flexibility Denver Caledonia, MS Bismark Caledonia, MS Brownsville, TN Lincoln, IL Gleason, TN In Development and Construction In Operation New Albany, MS July 98Sept 98 Feb 99 May 99June 99 Sites Permitted & Began Construction Gas Turbines Delivered TestingCommercial Operations 1999 Peaker Timeline Identified Market Opportunity ComEd Hub Marketing Hubs TVA Entergy Hub Cinergy Hub Nymex West Fork, IN 1,300 MW Peaking Capacity Developed and Constructed in Less than 12 Months – Utilized Resources Across Enron’s Networks – Commissioned June ,500 MW Peaking Capacity in Construction – Strategic Locations – Commercial Operation Due Mid- Year 2000 Sites for Additional 1,500 MW Peaking Capacity under Development Power Generation – Peaking Plants Natural Gas Coal Crude Products Power Emissions Pulp and Paper Weather Merchant Investments

46 Natural Gas Emissions Coal Crude Products Power Weather Merchant Investments Pulp and Paper Ft. Union Gathering System Interconnecting Pipelines Powder River Basin Basin Dominated by Small to Mid- Sized Independent Producers Enron is Providing Capital to Develop Gas Reserves and Build Gathering and Compression Systems Creates New Volumes for Fort Union Pipeline in Which Enron has an Equity Interest Strategically Positions Enron to Expand Services to Producers in Most Active Basin in U.S.

Associate and Analyst Roles

48 Analyst and Associate Roles Epicenter of Enron earnings machine Exposure to numerous key Enron groups High impact / high visibility Direct responsibility and accountability for top transactions