Message-ID: <16547051.1075840359175.JavaMail.evans@thyme> Date: Sun, 6 Jan 2002 13:43:14 -0800 (PST) From: w..delainey@enron.com Subject: NewCo Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Delainey, David W. X-To: X-cc: X-bcc: X-Folder: \sbeck\Inbox X-Origin: BECK-S X-FileName: sally beck 1-28-02.pst Dear NewCo employees: =20 I wanted to send a note giving you my views on the NewCo opportunity and ne= xt steps.=20 =20 What are those opportunities? In short, to date no competitor has taken En= ron's dominant market position. In most cases, competitiors are retrenchin= g from an aggressive expansion of their deregulated business in order to pr= otect their key regulated franchises or balance sheets. Market liquidity an= d activity is extremely fractured and highly diminished from 2000 levels. = This will create opportunities as bid/offers expand and customers have less= choices to manage key long-term risks. This lack of transparancy and liqui= dity will also provide numerous opportunities, in the commodity, asset and = capital markets, to take advantage of key arbitrages across the North Ameri= can grid. We are faced with an energy asset overhang, in the short run, w= hich is unprecedented since the early nineties. This coupled with market p= articipants selling assets to protect balance sheets will provide many oppo= rtunities to acquire attractive energy assets at good value. However, in th= e long-run, as we emerge from the recession and as highly energy intensive = technology investment resumes, increasing asset values, demand for energy a= nd energy price volatility are highly likely. On the services side, there a= re numerous un-met needs in the market place at this point including demand= side management, distributed generation amongst others that only Enron peo= ple have the complete value chain understanding to make feasible. I also be= lieve that innovation in the energy capital markets can provide value to Ne= wCo and our customers given the blight of liquidity in capital markets. In = short, we are at the eve of an opportunity in the energy markets which has = not been seen since the early nineties. =20 What is NewCo? NewCo will be a private company that will focus on the ener= gy merchant business in North America which will capitalize on the opportun= ities detailed above. These businesses will stretch from production to mar= ket, wholesale through retail primarily in natural gas and electricity in t= he United States and Canada. It will be a portfolio of several key business= es, services and assets supported by a common infrastructure. It will be m= ajority owned by Enron but will have significant outside investment to ensu= re liquidity and legitimacy. It will be re-branded and be operating and sol= vent by mid Q2 at the latest. It will be seeded with a number of Enron ass= ets and contracts that we think add value to our business or provide key cr= edit support. Those assets are conservatively valued at approximately $500 = million to one billion. With asset and new cash investment, NewCo should be= at least a billion dollar company. It will emerge as a non-debtor company = and should be an investment grade rated company. NewCo will employ approxim= ately 100 to 200 people depending on the mix of businesses and assets under= control. These people will be sourced from the existing pool of talent in= Enron and ex-employees. NewCo will have access to all Enron's existing sys= tems and infrastructure. It will be in the market of buying and selling ene= rgy albeit not market making which will be restricted under the non-compete= with Netco.I would expect that we would have a strong business and transac= tional relationship with Netco. =20 What will be NewCo's culture? It will have the benefits of being a small pr= ivate company which will measure success by cashflow generation. It will b= e a small company atmosphere where everyone knows each other. It will be a= group that celebrates success together and works hard towards shared objec= tives. It will have an attractive employee compensation plan particularily= for long term value creation. We will build an organization of integrity = of which people can be proud. It will center its objectives around our cust= omers and the satisfying un-met needs in the market. NewCo will value cust= omer relationships. It will be a partnership and employ an atmosphere of o= pen communication. NewCo will be innovative, agile and nimble. =20 What is next? There will be a meeting in 30C2 at 4:00 PM on Monday to discu= ss issues, questions and comments. There will also be a dinner set up for = 6:30PM on Tuesday at the Capital Grille to provide us an opportunity to spe= nd additional social time to discuss NewCo. NewCo will be located on the 30= th floor. The immediate tasks in hand can be broken into the following: a)= opportunity and business definiton including fully vetted business plans f= or opportunities identified around specific assets or independent of these = assets; b) setting up infrastructure necessary to cure defaults and start p= erforming to key operating assets including managing out of the bankruptcy;= c) modelling cashflows, operating costs, capital requirements and proforma= 's for NewCo; d) working through the NewCo structure and path through bankr= uptcy to solvency, rating and operation; e) scouring Enron for other valuab= le assets not yet identified for NewCo; f) detailed market research; g) as= set acquisition target definition; h) financing and capitalization plan inc= luding raising external investment and i) additional hiring and recruitment= . =20 On a final note, we will need to identify a new name for the company so let= me know your ideas! I look forward to working with you towards reaching sh= ared goals and celebrating the inevitable success. =20 =20 Respectfully, Dave Delainey