1. John E. Olson, CFA SVP & Chief Investment Officer Sanders Morris Harris Houston, TX 713/220-5151 December 12, 2002 Energy Markets At a Crossroads: Has Deregulation Failed? International Association For Energy Economics The Houston Club

2. Market Trading Profile Since 10/15/01 Market Performance: Latest10/15/01Delta % Standard & Poors' 500 892 1090 -198 -18% Standard & Poors' 400 1015 1264 -249 -20% Dow Jones Industrials 8473 9348 -874 -9% NASDAQ Composite 1367 1696 -329 -19%

3. Daily Energy Trading Profile Energy Conglomerates Energy Conglomerates:Latest 10/15/01 % CMS Energy 8.68 21.72 (60)% Dominion Resources50.02 59.39 (16)% Duke Energy19.25 38.32 (50)% Dynegy 1.14 42.45 (97)% El Paso 6.72 51.46 (87)% Kinder Morgan40.65 50.64 (20)% Williams 2.23 29.15 (92)% Average18.38 41.88 (60)% Enron0.10 33.17 (100)%

4. Daily Energy Trading Profile Merchant Power Independent Power Producers:Latest 10/15/01Delta % AES Corp 2.72 14.87-12.15 -82% Calpine 3.37 26.61-23.24 -87% Dynegy 1.14 42.45-41.31 -97% Mirant Energy 1.85 26.98-25.13 -93% Reliant Resources 2.37 19.10-16.73 -88% Average 2.29 26.00-23.71 -89%

8. “The Efficient Market Hypothesis is the Most Remarkable Error In the History of Economic Theory.” Lawrence Summers Secretary of Treasury President, Harvard College

9. LJM Cayman LP GP LJM Swap Sub LP UBS Enron Interest In $100 Interest In $15,000,000 3,377,697 ENE Shares Shares $3,750,000 1.6 MM ENE Put Options Rhythms @$56.125/sh 5 Yrs Consent to Transfer Shares Value ($100 – 140 MM) Value ($170 – 223 MM) $64 MM Note LJM/Rhythms Transaction Structure

10. The Issues - I Fair Value Accounting Mark to Market Accounting Mark to Model Finance Special Purpose Vehicles/Recourse Issues Phantom Equity Performance Bonuses Structured Finance

11. The Issues - II Disclosures Gains on Asset Sales Off Balance Sheet Asset and Capital Structures Cash vs. Paper Earnings Derivative Positions/Recourse Wall Street Investment Banking vs. Securities Research Stock Options

12. “The Capitalists Are So Hungry For Profits That They Will Sell Us The Rope to Hang Them With.” V.I. Lenin (1920)

13. “ They have failed miserably in their strategy… The Rope we gave them the first time doesn’t have much left to it. Many firms have actually turned it into a noose…. We are not company advocates. We are indifferent.” Standard & Poors Spokesman Thursday, August 1, 2002 Your Friendly Rating Agency

14. “ The California Law was One of the Stupidest Laws Ever Passed on Any Subject at Any Time” Congressman Ed Markey (Dem, Mass) Joint Senate House Energy Conference Thursday, July 25, 2002

15. Maoist Self Criticism? “ Who Were The Idiots Who Passed (California’s) AB 1890 to Deregulate Only Half The Ledger?” State Rep Jim Cuneen Dem. San Jose November, 2002

16. Market Trading Liquidity Henry Hub MMCFD September 2002700 September 20011,900 September 20002,900 September 19993,270 September 19984,210

17. The Energy Marketing Industry Dec. Dec. 2001 2002E Sales/Trading 4,000 – 5,000 1,500 – 2,000 Accounting/Systems 6,000 – 7,000 2,000 – 3,000 Specialists (T&E, Etc.) 2,000 – 3,000 500 – 1,500 Total 12,000 – 15,000 4,000 – 6,500 Source: Ben Schlesinger Associates (2001)

18. “Markets Can Remain Irrational Longer Than You Can Remain Solvent.” John Maynard Keynes

19. ONEOK Marketing EBIT 1999-2002E $ MM% 199817 199924+41 200051+113 2001109+114 2002E180+65

20. Investing Credentials Corporate America Last Ten Years EPS Growth % ROE Total Leverage % Payout 199212.710.354.668 199315.112.455.660 199449.717.851.640 19958.017.551.839 199616.118.651.138 19972.417.951.540 1998-8.916.052.745 199931.018.950.535 20007.217.347.931 2001-31.311.048.543 Last Ten Years10.2%15.8%51.6%44%

21. EPS Growth % ROE Total Leverage % Payout 2002E18.912.450.038 2003E20.513.850.032 2004E7.513.650.031 2005E7.913.450.029 2006E7.313.250.028 Next Five Years12.4%13.3%50.0%32% Investing Credentials Corporate America Next Five Years

22. Pipeline ROE’s (%) YearAllowedRealizedSpread 199612.614.62.0 199712.314.72.4 199812.315.02.7 199912.315.12.8 200012.214.42.2 Average12.314.72.4 Sources: NGSA Data

23. Allowed (%) SoCal Gas San Diego G&E 199711.6 199811.6 199911.611.1 200011.610.6 200111.610.6 % Change11.6%11.1% Realized (%) 199716.716.3 199814.117.5 199915.215.8 200016.012.2 200116.016.5 Average15.6 Premium4.0%4.5% California Retail Energy ROE’s Sources: Sempra Energy

24. Major Producer Profitability Latest Book Value2003E % ROE % Leverage BP Amoco17.972.7315.224 Chevron Texaco31.605.1516.333 Conoco Phillips44.994.459.938 Exxon Mobil11.121.9617.613 Royal Dutch Shell17.552.9917.823 Sources: First Call, Zacks, Sanders Morris

25. El Paso Energy Imputed Profitability Profile (December, 2001) Imputed ROEs (%):1999200020012002E2003E2004E2005E2006E 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 ROEs12.317.620.321.021.1 21.421.6 % Leverage67.268.968.867.264.561.257.553.3

26. El Paso Energy Imputed Profitability Profile (November, 2002) Imputed ROEs (%):1999200020012002E2003E2004E2005E2006E 2002E- 2006E Pipelines30.323.933.226.421.122.520.218.921.8 Merchant Energy5.615.019.1-5.0-3.2-2.2-1.4-1.5-2.7 Production13.732.271.935.622.623.322.120.724.9 Field Services18.018.619.36.03.20.5-0.9-1.11.6 Other-9.8-18.9-30.1-9.2-10.6-12.1-12.0-11.8-11.1 Composite ROEs17.018.127.011.69.311.111.211.010.8 Forecast ROE’s (Per SIP) 12.217.019.19.09.110.911.110.910.2

27. Duke Energy Imputed Profitability Profile (%) (December, 2001) 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 DENA7.222.042.934.842.348.3 Global Asset Dev.-3.31.9-0.91.21.52.1 Other Energy Services-47.3-28.61.65.15.26.3 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

28. Duke Energy Imputed Profitability Profile (%) (September, 2002) 1999200020012002E2003E2004E2005E Electric Operations24.736.732.628.329.132.031.2 Gas Transmission27.932.431.125.716.317.117.5 Field Services7.712.19.50.82.16.37.7 DENA4.10.914.12.83.67.88.2 Global Asset Dev.-1.416.612.68.17.78.58.0 Other Energy Services-44.0-38.7-65.4167.482.841.640.7 Real Estate Operations34.826.522.820.118.616.714.7 Other Operations-35.6-37.1-47.1-53.7-55.5-56.8-56.0 Eliminations & Minority-39.3-35.4-32.6-65.0-69.3-77.6-83.4 Total Consolidated16.017.518.513.011.714.0 % Leverage16.016.317.912.711.414.414.5

29. The Williams Companies Imputed ROEs (%) Imputed Average ROEs:200020012002E2003E2004E2005E2006E Energy Marketing & Trading22.423.129.432.033.534.334.5 Gas Pipeline29.121.426.222.620.418.316.6 Energy Services16.49.310.210.49.99.69.4 Other-7.5-6.4-6.9-5.8-4.7-3.8-3.0 Total17.214.017.017.3 17.016.7 cf SIP Profile8.717.417.717.517.116.6 (December, 2001)

30. The Williams Companies Imputed ROEs (%) Imputed Average ROEs:200020012002E2003E2004E2005E2006E Energy Marketing & Trading22.424.8-18.3-8.4-6.0-4.6-3.5 Gas Pipeline29.129.332.229.428.227.627.0 Energy Services16.49.414.27.58.89.810.4 Other-7.5-6.8-13.6-12.1-9.5-8.1-6.9 Total17.215.93.34.56.07.07.8 cf SIP Profile18.82.03.65.05.96.7 % Total Leverage (Pfds as Equity)56.264.655.957.153.154.050.9 % Total Leverage (Pfds as Debt)62.969.568.769.265.8 62.8 (September, 2002)

31. 30 TCF Gas Market in 2012? Gas Wells: 10,000/year to 20-25,000/year 10 Year Spending Needs: $B Gas Gathering 10 Pipelines45-50 Domestic E&P 645 Source: National Petroleum Council

32. EIA 2003 Forecasts Gas Supply – (TCF) 200120152025 Dry Gas Production19.523.826.8 Net Imports Canada3.64.45.3 Mexico-0.1-0.2-0.3 LNG0.21.02.1 Subtotal3.75.27.7 Total Gas Supply23.229.034.5

33. 200120152025 Deepwater5.05.56.0 Coal Bed Methane1.63.03.5 Other – USA12.915.317.3 Total Supply19.523.826.8 EIA 2003 Forecasts Domestic Production

34. Drilling Scenarios Gas Well Drilling & Reserve Replacement Trends 2002-2011E Years Production (TCF) Reserve Adds (Bcf/Well) % Reserve Replacement Gas Wells Needed % Reserve Replacement Gas Wells Needed 1992-20011861.0268136,00068136,000 2002E-2011E 1% Growth2091.0070146,000100209,000 2% Growth2210.9080196,000100245,000 3% Growth2340.8085249,000100275,000

35. Natural Gas Production Average Annual Growth Rates: 1970 - 2000 Annual Change (%) Year70’s80’s90’s00’s 05.91.32.90.8 12.8-1.1-0.62.4 20.0-7.10.8-4.0 30.6-9.71.41.5 4-4.78.54.01.5 5-7.1-5.8-1.21.5 6-0.7-2.41.41.5 70.33.50.31.5 8-0.22.91.5 90.21.2-0.31.5 Average-0.3%-0.9%0.8%1.0%

36. 2Q03E3Q03E4Q03E Inte+E&P (mmcf/d)1893218854188271902418924188841880919094 Seq. Change-4.5%-0.4%-0.1%1.0%-0.5%-0.2%-0.4%1.5% Y over Y Change-6.9%-7.2%-5.4%-4.0%0.0%0.2%-0.1%0.4% U.S. Natural Gas Production: Steep Declines in 2002, Even with More Spending, Might not See Growth in 2003

37. Production Decline Rate of Base: 16%17%15%17% 19% 22%23% 25% 19%20%22% U.S. Natural Gas Production History* Indicates 29% 2002 Decline Rate 0 10 20 30 40 50 60 Bcfd 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Pre-1990 Drilling Year: 26%29% 1990199119921993 1995 19971998 2000 199419961999 2001E2002E * Representing 94% of Total U.S. Natural Gas Production Includes Data Supplied by Petroleum Information Corporation; Copyright 1990-2002 Petroleum Information Corporation Chart Prepared by and Property of EOG Resources Inc.; Copyright 2002

38. Natural Gas Futures 2001200220032004 2005

39. Crude Oil Futures 2001200220032004 2005

40. Domestic Wellhead Revenues 1970 – 2006E ($ Billions) Year70’s80’s90’s00’s 015.8107.793.8150.1 116.7151.082.3137.6 216.9145.881.5118.4 319.6136.580.3134.5 431.2142.474.2129.3 535.1131.469.9125.2 638.876.699.9120.9 744.682.195.20.0 849.872.568.90.0 968.081.182.80.0 Average33.6112.782.9130.9