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Texas-Cristobal Mega-Transco Growth Options & Synergy Savings Executive Summary February 4, 2000

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

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  1. Texas-Cristobal Mega-TranscoGrowth Options & Synergy SavingsExecutive SummaryFebruary 4, 2000 PricewaterhouseCoopers LLP PricewaterhouseCoopers Securities LLC 1

  2. 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 2 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  3. 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 3 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  4. 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 4 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  5. 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 5 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  6. 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 6 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  7. 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 7 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  8. 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 8 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  9. 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 9 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  10. Range of EBITDA Contributions from Growth Options 10 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  11. 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 11 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  12. 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 12 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  13. $ Million Months from Approval Note: Values for growth options are mid points of estimated EBITDA range Total EBITDA Contributions 13 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  14. $ Million Incremental Market Value from Growth & Synergy 14 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  15. Incremental Market Value at 17X EBITDA 15 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  16. Relative Contributions of Growth and Synergies Overtime(At EBITDA x17) All figures in $ Million 16 PricewaterhouseCoopers Securities PricewaterhouseCoopers

  17. 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 17 PricewaterhouseCoopers Securities PricewaterhouseCoopers

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