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Total Solution SM

The Next Evolution of Water and Wastewater Outsourcing. Total Solution SM. Agenda. Introduction . . . The Azurix Team The Azurix/Enron/Baker Hughes Industrial Services (BHIS) team Industrial Experience Value Propositions Products and Services Overview Outsourcing Overview

MikeCarlo
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Total Solution SM

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  1. The Next Evolution of Water and Wastewater Outsourcing Total SolutionSM

  2. Agenda • Introduction . . . The Azurix Team • The Azurix/Enron/Baker Hughes Industrial Services (BHIS) team • Industrial Experience • Value Propositions • Products and Services Overview • Outsourcing Overview • Total SolutionSM • Case Study • Business Model • Next Steps Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  3. The Azurix Team Azurix . . . • Started by Enron in 1998 • Global provider of industrial and municipal water and wastewater services • Operate & Maintain (O & M) • Build, own & operate (BOO) • Monetize, own & operate (MOO) • Principal offices in the U.S., England, Canada, Germany, Mexico, Argentina and Brazil, with U.S. headquarters in Houston • Over $400 million in 1999 revenues Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  4. The Azurix Team Enron . . . • Global provider of industrial and municipal gas, power, communications, engineering and construction services • Principal offices throughout the world, with headquarters in Houston • Over $40 billion in 1999 revenues Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  5. The Azurix Team Enron Top Marketers Electricity and Natural Gas Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Top 5 Power Marketers TWh/year Top 5 Natural Gas Marketers Bcf/day Enron* Enron** Southern Aquila Aquila PG&E Dynegy Duke Duke Dynegy * #1 in U.S. swaps, U.S. options ** #1 in basis swaps, basis options Source: Energy markets March 1999; energy and power risk management industry survey 1999

  6. The Azurix Team BHIS . . . • A leading North American supplier of industrial water and wastewater: • Operations • Maintenance • Engineering services • Over $15 million in 1999 revenues Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  7. The Azurix Team Azurix Refinery & Petrochemical Wastewater ExperienceClients of Lurgi Bamag, an Azurix company Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  8. The Azurix Team Azurix Industrial Operations Corp.General Experience Summary Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  9. The Azurix Team Azurix Industrial Operations Corp.General Experience Summary Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  10. The Azurix Team Enron’s Publicly Disclosed Outsourcing Arrangements Company Arrangement Total Value Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps 1999 Simon Property Group Outsourcing agreement $1,500 MM Owens Corning Outsourcing agreement $1,000 MM Suiza Outsourcing agreement $1,000 MM Archdiocese of Chicago Commodities & services $245 MM Polaroid Outsourcing agreement $200 MM Ocean Spray Commodities & services $115 MM Packaged Ice Outsourcing agreement $100 MM Houston Astros Commodities & services $65 MM Cleveland Browns Outsourcing agreement $10 MM 1998 University of California Commodities & services $300 MM Pacific Telesis Commodities & services $200 MM General Cable Outsourcing agreement $120 MM Lockheed Martin Commodity, services, and outsourcing $75 MM San Francisco Giants Commodities & services $60 MM

  11. The Azurix Team The “ Utility Island” The Azurix team can be the “utility island” for our customers by providing single-source gas, electricity, water and wastewater outsourcing products and services at lower costs with greater reliability than the traditional business model for procurement of suppliers Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  12. The Azurix Team Value Propositions • World class reliability, safety and regulatory compliance • Monetize non-core assets and re-deploy capital into core business • Reduce operating costs • Focus intellectual and financial resources on core business • Reduce commodity risks via associated Enron services • Business with a reliable, long-term outsourcing partner • Long-term continuous operations improvements and shared savings • Possibility to leverage assets for additional business Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  13. The Azurix Team Value Propositions • For “Utility Island” projects, Azurix team will provide total utilities (gas, electric, water) products and services at significant cost savings with improved reliability • For water/wastewater Operations & Maintenance (O&M) contracts, Azurix team can achieve a 7–10% cost reduction while maintaining water and wastewater service, reliability and quality • Savings increase with increasing scope of work • Must recognize all costs • Capex may be needed to further lower operating costs • For water/wastewater Monetize, Own & Operate (MOO) or Build, Own & Operate (BOO) contracts, Azurix team can competitively “off balance sheet finance” the capital project and reduce existing operations costs by 7–10% while maintaining service, reliability and quality Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  14. The Azurix Team Sources - Surface Groundwater Municipal Supply Alternative Source Power Fuel Water Steam Cooling Process Domestic Chemicals Residuals Wastewater Product or Disposal The “Utility Island” Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  15. Products & Services Overview Glass Manufacturing Fertilizers Industrial Gas Refinery & Refined Products Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps • Metals & Mining • Steel • Copper • Aluminum Food & Beverage Heavy Manufacturing Pulp & Paper Industry Textile Manufacturing Transportation Chemical & Plastic • Size/Multiple Site • Energy Intensity • Water Intensity Industry Segmentation Azurix Services Utility Island Enron Services Capabilities Capabilities Business Model Industry Specific Commodities & Services Facility Services Energy Commodities & Services Water & Waste- Water Services Assets/ Technology Finance Azurix/Enron Capabilities • Plug • Conditioned air • Light • Managed facilities outsourcing • General energy outsourcing • Power, gas, weather, tariff/ regulatory based products • Industrial Power Optionality • Operations & Maintenance • Monetize, Own and Operate • Buy, Own and Operate • Engineer, Procure and Construct • Self generation, • Utility island • Demand-Side Management • Facility management • Asset monetizations • Industrial Power Optionality • Corporate • Asset roll-up • Asset monetization • Pulp & Paper • Chemicals • Refined products • Plastics • Risk management • Payment-in-kind

  16. Products & Services Overview Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Water & Wastewater Products & Services Residual Services Resource Services Operational Services Water Resource Development Instrumentation & Controls Engineering & Construction Operations & Management Power Management Residuals Management Analytical Services Financing Equipment Chemicals

  17. Water treatment systems Storm water management systems Wastewater treatment systems Residuals management systems Cooling water operations Boiler systems Gas supply Electric supply Product hedging Innovative financing Broadband communications capacity Power Management Lighting HVAC Peak demand management Products & Services Overview Candidate systems for outsourcing services include, but are not limited to: Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Potential savings improve with increasing scope of work

  18. Outsourcing Overview • 50% seen as unsuccessful* • Failure is likely if based on lowest perceived price • Emphasis on short-term business concerns • Loss of client/vendor commitment Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps * Source: The Outsourcing Institute

  19. Outsourcing OverviewWhat Outsourcing Accomplishes Traditional Procurement Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Total SolutionSM • Eliminates Multiple Sales Channels • Procurement Costs Reduced • Provides Scale Opportunities • Best Management Practices • Scale in Equipment Purchases • Aggregation of Smaller Projects to Yield Savings • Substantial Risk Transfer • Financial • Operational • Environmental Water Power & Natural Gas Commodity Management Software Vendors Controls Manufacturers Construction Information Management Engineers Equipment Manufacturers Asset Management Operations Maintenance Chemical Usage Facilities Management Consultants Specialty Contractors Lenders Capital Management Internal Treasury

  20. Admin Existing Utility Island Cost Savings Annuity New Fixed Cost Structure Capital SUPPLY CHAIN COSTS O&M Utilities Power Island Water/Wastewater Plant Residuals Processing ASSETS Storm Water System Collection / Distribution System Pretreatment Units Outsourcing Overview Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  21. Take responsibility for internal “Utility Island” Guarantee cost and service delivery Take risk of extracting value over the contract term Service provider with a strategic view of the utility island Best Management Practices Substantial Risk Transfer Financial Operational Environmental Reduced Operating Costs Scale Economies Capital Asset Monetization Savings Monetization Reduced CapEx Obligation Improved Business Focus and Management Control Admin Existing Utility Island Cost Savings Annuity New Fixed Cost Structure Capital SUPPLY CHAIN COSTS O&M Utilities Power Island Water/Wastewater Plant Residuals Processing ASSETS Storm Water System Collection / Distribution System Pretreatment Units Outsourcing OverviewHow Outsourcing Works What We Do What You Receive Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  22. We deploy capital based on a forward view of all input costs and treatment process efficiencies to produce utilities consumption, O&M, and administrative savings Utilities O&M Admin Capital Outsourcing OverviewLife Cycle Cost Optimization Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Guaranteed Savings Anticipated Cost Line Under Traditional Model Customer Cost - Total SolutionSM Model New Cost Curve Additional shared savingsmay be available Time Contract Execution

  23. Actual Operating Costs of an Outsourced Industrial Wastewater Facility PSL RCRA Hazardous Classification of Solids BTU System Installed TC Benzene 5 New Employees Lab Expansion 16.6% increase in BOD, 20.1% increase COD, 17.7% increase in Solids August Plant 800 36.1 % December Plant 900 December Costs ($) March BTU System Removed EQ TKS From 1982 to 1998 Increase of 4 Hourly Employees 28% Increase in Flow TC 55% Increase in Solids BTU BENZENE 17% Increase in BOD 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Time Actual Operating Costs Actual Labor Costs Projected Operating Costs w/o Manufacturing and Inflation Projected Cost w/o Optimization Outsourcing Overview Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  24. Water Power & Natural Gas Software Vendors Controls Manufacturers Construction Engineers Equipment Manufacturers Operations Maintenance Chemical Usage Consultants Specialty Contractors Lenders Internal Treasury Outsourcing OverviewStrategic Benefits of Outsourcing Traditional Procurement Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Outsource Partner Strategic Benefits Azurix Enron BHIS • Enhanced focus on core business • Redeployment of intellectual, financial, and physical capital • Focal point of accountability • Substantial risk transfer • Extended enterprise relationship with a strong partner • Best-in-class utility operations

  25. Water Power & Natural Gas Software Vendors Controls Manufacturers Construction Engineers Equipment Manufacturers Operations Maintenance Chemical Usage Consultants Specialty Contractors Lenders Internal Treasury Outsourcing OverviewFinancial Benefits of Outsourcing Traditional Procurement Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Financial Benefits Outsource Partner Azurix Enron BHIS • Predictable unit and facility management costs • Immediate, guaranteed savings • Lower operating costs • Costs can be linked to business • Access to capital

  26. Total SolutionSM • Technical Expertise • Operational Experience • Risk Management • Financial Innovation Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps The 4 components of Total SolutionSM are:

  27. Total SolutionSMTechnical Expertise • In-house engineering staff • Implement point-source treatment solutions • Treatment processes: • Physical • Chemical • Biological • Power and natural gas management • Water resource development • Competent understanding of industrial waste streams Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  28. Total SolutionSMTechnical Expertise • Environmental / Permitting • Specialized construction services (EPC) • Process engineering • Instrumentation and controls • Design / Build • Process performance guarantees • Commissioning and start-up Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  29. Total SolutionSMOperational Expertise • Manage and administer industrial pretreatment programs • Workforce management union / non-union • Incentive based operational agreement format . . . Shared savings • World Class Reliability, Safety Performance and Regulatory Compliance • Many Years of Experience Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  30. Total SolutionSMRisk Management • Substantial Risk Transfer • Financial • Operational • Environmental / Regulatory Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  31. Total SolutionSMFinancial Innovation • Off-balance sheet asset treatment • Project financing • Capital and operating leases • Performance based partnership structures • Access to capital Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  32. Case Study Enron Teesside Operations LimitedCase Study Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  33. Case Study Site History 1940s • ICI develops Wilton site for chemical operations • Enron constructs the 1,875 MW Teesside Power Station located on the Wilton site and becomes the majority shareholder in the new facility • Enron acquires ICI‘s Teesside Utilities and Services (TUS) business for approximately $500 million and establishes Enron Teesside Operations Limited (ETOL) to service the entire site Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps 1993 1998

  34. Case Study Endorsements Our confidence in Wilton has recently been underlined by the significant new investment we are putting in here. . . Targor Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps . . .We very much value the ‘can do’ attitude and flexibility. . . DuPont The logistics infrastructure is very good indeed and compares with the best you can find. . . Union Carbide . . .highly skilled workforce. . .forward thinking and open minded. . . BP-Amoco

  35. Case Study ETOL • Overview • One of the largest chemical parks in Europe • ETOL makes available an integrated utilities and site services offering to all of the companies located on the Wilton site • ETOL clients at the Wilton site include: • Air Products Amines • BP/Amoco Polyethylene • Dupont Polyester, Nylon • Huntsman Titanium dioxide, Polyurethanes, Aromatics • ICI Olefine, Analine, Nitrobenzene, Chlorine, Ethoxylate • Targor (Montell) Polypropylene • Terra Nitrogen Fertilizer • Union Carbide Ethylene Oxide • ETOL facts: • 50 years of operating experience at the site • High reliability and security of supply (99.5% On time, in full in 1997) • Approximately 560 employees Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  36. Case Study ETOL - Overview • ICI divested TUS to Enron and outsourced their utilities to Enron, which created ETOL • ETOL functions: • provide utilities and services to all Wilton site companies • operate infrastructure at the Wilton site • Product and Services offering: • Utilities - Power, Steam, Compressed Air, Industrial Gases, Demineralized Water, Waste Water Processing/Treatment • Services - Asset Protection (Fire Brigade, Site Security Team), Logistics, Facility Management, Storage, Engineering Services, Laboratory Services • Operated Infrastructure: • Combined heat and power generation (144 MW) • Water demineralization unit • Utility infrastructure (site grid, transformers) • Industrial and Natural gas supply piplines • Fire Brigade (Fire truck) • Rail infrastructure (connected to national rail system and harbor) • Warehouses • Land for expansion (~480 acres) Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  37. Case Study Enron Teesside Operations Limited (ETOL) Air Products Hydrogen Production Hydrocarbon Hydrogen Methane Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Steam ETOL Coal Oil Gas • CUSTOMERS: • Air Products • BP-Amoco • Du Pont • ICI • Huntsman • Targor • Terra Nitrogen • Union Carbide Steam Fuel CHP Demineralized Water Power Power Power Air Compressor Water Plant Water Oxygen BOC Air Separation Unit Storage & Throughput Nitrogen Effluent Treating Waste Other Services

  38. Case Study Enron Value Proposition • Optimize utility system • Power: 1.7 million MWh/yr • Steam: 5 million tons/yr • Provide risk management products and services for clients • Finance infrastructure improvements and site expansion • Allow customers to focus on their core competencies Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  39. Case Study ETOL Transaction Time-Line • September 1998 Initial discussions, site visits, and due diligence • October 1998 Information processing, additional talks • November 1998 Contracts negotiated and signed • January 1, 1999 Transaction executed, ~ $500 MM Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

  40. Case Study Energy Outsourcing Case Study: Owens Corning-Enron Profile Contract terms Services offered Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps • $60 million guaranteed savings to Owens Corning • 10-year duration • $1 billion overall contract value • Up-front and continuous cash stream to Owens Corning • Additional savings from deregulation expected for both partners • 20 U.S. facilities • $120 million annual energy spending • Heavy use of interruptible contracts • $500,000 excess spend during 1999 summer Midwest price spikes • Supply management of all commodities • Financing and construction of infrastructure projects • Acquisition of existing mobile back-up generators • JV between 2 partners for “deeper” savings “We have selected Enron because they can address the volatility we are facing nationwide, and also provide the capital necessary to further drive down our energy consumption and costs.” Glen Hiner, Chairman & CEO, Owens Corning

  41. Business Model One Possible Deal Structure Commodity Service Arrangements Utility Service Arrangements Utility Infrastructure Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Capital Markets Optimizes for Value Capital & Utility Management Resources (GP) Utility Management Joint Venture $Returns Assigns “Utility Assets” Defined Utility Quantities Defined Utility Pricing LP Distributions Tax Benefits Customer or Affiliate(s) (LP) Customer Complex

  42. Business Model Business Model Preliminary Survey Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps Preliminary Survey - Review condition of assets, understand process flow, meet operations people Exclusive MOU - Protect Intellectual Property which is the heart of achieving the value propositions. Memorializes the commitment to the principal of working together as partners instead of the typical client/vendor relationship Due Diligence - Detailed review of plant operating history, asset condition, savings projections, establish mutual goals and expectations Co-Management (Customer Choice) - Jointly Operate plant to “test drive” each other and verify savings strategies, 60-120 day period. Contract negotiated during this period Azurix Compensation for Savings - If contract not signed, Azurix receives 100% of co-management savings plus savings for one year after end of co-management, if co-management utilized Final Contract Documents - Definitive Agreements signed and implemented Project Implementation - Begin contract operations No Sufficient savings? Project Ends Yes Exclusive MOU Due Diligence Co-Management (Customers Choice) and/or: Contract Negotiations No Project Ends Compensation for identified savings Sign Contract? Yes Final Contract Documents Project Implementation

  43. Next Steps • One - two day plant survey to assess cost reduction and operating improvements potential • If so, sign MOU and begin Due Diligence Introduction Products and Services Overview Outsourcing Overview Total Solution Business Model Next Steps

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