texas cristobal mega transco growth options synergy savings executive summary february 4 2000
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Texas-Cristobal Mega-Transco Growth Options & Synergy Savings Executive Summary February 4, 2000. PricewaterhouseCoopers LLP PricewaterhouseCoopers Securities LLC. Objectives. This Engagement Evaluates areas of revenue growth

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texas cristobal mega transco growth options synergy savings executive summary february 4 2000
Texas-Cristobal Mega-TranscoGrowth Options & Synergy SavingsExecutive SummaryFebruary 4, 2000

PricewaterhouseCoopers LLP

PricewaterhouseCoopers Securities LLC

1

objectives
Objectives
  • This Engagement
    • Evaluates areas of revenue growth
    • Examines commercial, strategic, and organizational aspects of each option
    • Provides a preliminary value assessment
    • Provides a preliminary assessment of synergy savings in:
      • Operations & Maintenance (O&M) costs
      • General & Administrative (G&A) costs
  • Broader Objectives
    • To assist Texas in its
      • internal examination of the value of the deal
      • initial discussions and negotiations

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PricewaterhouseCoopers Securities

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growth options synergy categories
Growth Options & Synergy Categories
  • Five Growth Options
    • Improve Pricing & Network Utilization
    • Implement Radical Outsourcing and Technology Joint Ventures
    • Acquire Transmission Assets and Performe O&M for Others
    • Develop Merchant Facilities
    • Enhance Rights-of-Way
  • Synergy Savings
    • Lower O&M costs
    • Lower G&A costs
    • Synergies apply to both pipes and wires

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texas value proposition
Texas’ Value Proposition
  • Texas brings superior commercial, strategic, and organizational expertise to the mega-transco
    • An overall P/E four times that of Cristobal partners
    • A proven track record of creating value
    • Ability to design and commercialize innovative products and services
    • Regulatory knowledge and expertise
    • Successful track record of spinning off businesses
    • Superb organizational and management skills

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growth option 1 improved pricing network utilization
Growth Option 1 - Improved Pricing & Network Utilization
  • Definition

Increase electric and gas throughput and profits through innovative pricing and products

  • Preliminary Value

Potential EBITDA of $42 - $125 MM

  • Timeframe

40%, 75%, and 100% in years 1, 2, and 3

  • Key Success Factors
    • Optimize realtime gas and electric information
    • Regulatory approval of rates

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growth option 2 implement radical outsourcing technology joint ventures
Growth Option 2 - Implement Radical Outsourcing & Technology Joint Ventures
  • Definition
    • Adopt radical outsourcing of non-core functions
    • Implement new network technologies by sharing risks with technology innovators
  • Preliminary Value
    • Potential EBITDA of $31 - $50 MM
  • Timeframe
    • 25%, 50%, 75%, and 100% in years 1, 2, 3, and 4
  • Key Success Factors
    • Willingness to strip staffing to strategy, finance, and contracting
    • Ability to implement cutting edge technologies

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growth option 3 acquire transmission assets and perform o m for others
Growth Option 3 - Acquire Transmission Assets and Perform O&M for Others
  • Definition
    • Acquire other RTOs or transmission assets from utilities
    • Take on O&M responsibilities of others
  • Preliminary Value
    • Potential EBITDA of $53 - $151 MM
  • Timeframe
    • May be slow to develop
    • 25%, 50%, and 75% in years 3, 4, and 5
  • Key Success Factors
    • Aggressive bidding for assets and contracts
    • Utilities’ willingness to sell assets

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growth option 4 develop merchant facilities
Growth Option 4 - Develop Merchant Facilities
  • Definition
    • Develop new transmission facilities explicitly for open access
    • Decide when and where to build electric or gas transmission lines
  • Preliminary Value
    • Longer term option with little or no potential value in the five year horizon
  • Timeframe
    • Slow to develop
  • Key Success Factors
    • Ability to recongnize new capacity and line siting needs (gas versus electric)
    • Ability to gain rapid regulatory and right-of-way approvals

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growth option 5 enhance rights of way
Growth Option 5 - Enhance Rights-of-Way
  • Definition
    • Add new energy facilities to existing lines and rights-of-way
    • Site new cable, fiber optic, and telecommunications lines
    • Implement existing rights-of-way for alternative uses such railroad or for tourism
  • Preliminary Value
    • Longer term option with little or no potential value in the five year horizon
  • Timeframe
    • Slow to develop
  • Key Success Factors
    • Ability to recognize implementable alternative uses of existing RoW
    • Ability to gain regulatory approval

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range of ebitda contributions from growth options
Range of EBITDA Contributions from Growth Options

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synergy savings operations maintenance
Synergy Savings - Operations & Maintenance
  • Definition
    • Achieve Texas’ level of O&M costs per mile in Cristobal’s gas network
    • “Texasize” the O&M practices in Cristobal’s electric network
  • Preliminary EBITDA Contribution
    • Pipes-to-Pipes $84 MM
    • Pipes-to-Wires N/A
  • Timeframe
    • 50% in year 1, 100% in year2

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synergy savings general administrative
Synergy Savings - General & Administrative
  • Definition
    • Achieve Texas’ level of G&A costs per mile in Cristobal’s gas network
    • “Texasize” the G&A practices in Cristobal’s electric network
  • Preliminary EBITDA Contribution
    • Pipes-to-Pipes $14 MM
    • Pipes-to-Wires $4 MM
  • Timeframe
    • 50% in year 1 and 100% in year 2

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total ebitda contributions

$ Million

Months from Approval

Note: Values for growth options are mid points of estimated EBITDA range

Total EBITDA Contributions

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incremental market value from growth synergy

$ Million

Incremental Market Value from Growth & Synergy

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incremental market value at 17x ebitda
Incremental Market Value at 17X EBITDA

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relative contributions of growth and synergies overtime at ebitda x17
Relative Contributions of Growth and Synergies Overtime(At EBITDA x17)

All figures in $ Million

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conclusions
Conclusions
  • The realization of incremental market value at several multiples of EBITDA is possible only through the participation of Texas in the mega-transco deal
  • The EBITDA contributions from growth options and synergy savings range from $94 million in year 1 to $318 million in year 5
  • At 17 multiple, the incremental market value of growth and synergy savings represent $1.6 billion in year 1 to $5.4 billion in year 5
  • These values represent increments over mega-transco’s preliminary market value of $17 billion of 9% in year 1 and 32% in year 5
  • Additional EBITDA contributions may be realized for other growth options once more information becomes available

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