- 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

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

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 (%)

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

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

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

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

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

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

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%

S&P 400 Industrials Capital Structures

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%

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%

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

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 (%)

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

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

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

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

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

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

Natural Gas Industry Asset Base June 2001 ($ Million)

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)

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.

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%

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%

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