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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

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agenda
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

azurix

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

enron

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

enron top marketers electricity and natural gas

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

slide6

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

azurix refinery petrochemical wastewater experience clients of lurgi bamag an azurix company

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

azurix industrial operations corp general experience summary

The Azurix Team

Azurix Industrial Operations Corp.General Experience Summary

Introduction

Products

and Services

Overview

Outsourcing Overview

Total Solution

Business Model

Next Steps

azurix industrial operations corp general experience summary9

The Azurix Team

Azurix Industrial Operations Corp.General Experience Summary

Introduction

Products

and Services

Overview

Outsourcing Overview

Total Solution

Business Model

Next Steps

enron s publicly disclosed outsourcing arrangements

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

the utility island

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

value propositions

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

value propositions13

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

the utility island14

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

products services overview
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
products services overview16
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

products services overview17
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

outsourcing overview
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

outsourcing overview what outsourcing accomplishes
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

outsourcing overview20

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

outsourcing overview how outsourcing works
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

outsourcing overview life cycle cost optimization
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

outsourcing overview23

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

outsourcing overview strategic benefits of outsourcing

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
outsourcing overview financial benefits of outsourcing

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
total solution sm
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:

total solution sm technical expertise
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

total solution sm technical expertise28
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

total solution sm operational expertise
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

total solution sm risk management
Total SolutionSMRisk Management
  • Substantial Risk Transfer
    • Financial
    • Operational
    • Environmental / Regulatory

Introduction

Products

and Services

Overview

Outsourcing Overview

Total Solution

Business Model

Next Steps

total solution sm financial innovation
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

enron teesside operations limited case study

Case Study

Enron Teesside Operations LimitedCase Study

Introduction

Products

and Services

Overview

Outsourcing Overview

Total Solution

Business Model

Next Steps

site history

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

endorsements

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

slide35

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

etol overview

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

enron teesside operations limited etol

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

enron value proposition

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

etol transaction time line

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

energy outsourcing case study owens corning enron

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

one possible deal structure

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

business model

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

next steps
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