TRANSITIONING TO A PROFESSIONAL PARTNERSHIP MODEL

1. txho/01211dm5 ENX119.ppt • 12/19/2019 5:44:41 PM DRAFT TRANSITIONING TO A PROFESSIONAL PARTNERSHIP MODEL Presentation to the Board of Directors December 11, 2000

2. txho/01211dm5 ENX119.ppt ENRON’S CONTINUING EVOLUTION • Today’s Enron • Vision • Strategic emphasis • Organizational concept • Yesterday’s Enron • World’s First Natural Gas Major • Growth in traditional asset-based businesses • Corporate Model • World’s Most Innovative Company • New business building around Enron’s core competencies • Networked model • Impact • Substantial shareholder value creation • Global reputation for innovation • Abundance of managerial and commercial talent

3. txho/01211dm5 ENX119.ppt HOWEVER, ENRON NOW FACES THE TYPICAL CHALLENGES OF A HIGHLY SUCCESSFUL COMPANY • Talent retention • Market performance • Perception that “room at the top” is limited given a very young senior leadership team • Perception that current stock options have less upside than those of the past • Reality that several executives have become independently wealthy • Substantial external demand for Enron talent • Current stock valuation implies substantial earnings growth • Creation of additional shareholder value will require even higher growth rates • These growth levels will require the rapid and broad development of new businesses beyond the boundaries of existing business units

4. txho/01211dm5 ENX119.ppt BUILDING THE ENRON OF TOMORROW • Tomorrow’s Enron • Today’s Enron • Vision • Strategic emphasis • Organizational concept • Yesterday’s Enron • World’s First Natural Gas Major • Growth in traditional asset-based businesses • Corporate Model • World’s Most Innovative Company • New business building around Enron’s core competencies • Networked model • World’s Most Valued Company • Broad-based business building development by leveraging intangible capital (i.e., knowledge, talent, networks) • Professional Partnership Model

5. txho/01211dm5 ENX119.ppt WHY A PROFESSIONAL PARTNERSHIP MODEL? • World’s leading corporations all struggle to retain/motivate top talent . . . • . . . relative to leading professional firms • McKinsey & Company • Cravath, Swaine & Moore

6. txho/01211dm5 ENX119.ppt KEY ATTRIBUTES OF SUCCESSFUL PROFESSIONAL PARTNERSHIP MODELS • Unlimited number of senior roles (i.e., continuous growth of the partnership) • Meritocracy for advancement and compensation (not tenure or hierarchy driven) • Transferability of skills and flexibility to pursue multiple career paths • Financial alignment (significant upside and significant risk) that creates strong sense of ownership and mutual accountability • Collegiality and community fostered by common purpose and frequent ad hoc teaming/networks • Non-hierarchical governance; periodic rotation and broad involvement in leadership roles and duties • Strongly held set of shared values

7. txho/01211dm5 ENX119.ppt CREATING A PROFESSIONAL PARTNERSHIP MODEL FOR ENRON • Traditional Corporate Model • Enron’s Professional Partnership Model • High performing partnership • Leadership • Appointed by Board and senior management • Board appoints corporate officers; OTC appoints other key positions; most partners elected by peers • Elected by peers • Organizational structure • Hierarchical line organization (e.g., small number of executives at the top) • Some hierarchy/line authority, but few layers; no limits on number of partners • Relatively flat organization; no limits on number of partners • Governance • Hierarchical • Mix of Board, OTC, and committee leadership • Participative, led by committees • Career paths • Well defined, inflexible career tracks • Mix of traditional career tracks and flexible tracks • Flexible tracks; up or out policy • Advancement • Tenure based; assessed by direct supervisor • Meritocracy based on clear criteria; assessed by peers • Meritocracy based on clear criteria; assessed by peers • Compensation • Some bonus at risk • Significant pay at risk • Significant pay at risk • Accountability • Top down, metric driven • Mutual accountability; holistic • Mutual accountability; holistic

8. txho/01211dm5 ENX119.ppt GOVERNANCE STRUCTURE • Responsibility to shareholders in appointing/removing corporate officers and authorizing major policies and strategy • Board of Directors • Office of the Chairman • Responsible for setting/approving overall corporate policy, personnel management policy, and corporate strategy • Policy Committee • Responsible for tactical, ongoing management • Special Initiatives/ Task Forces • Personnel Committees • Information/ Coordination • Personnel Review Committees (PRCs) • Analyst/ Associate Committee • New business building • Cost reduction • Asset efficiency, return on invested capital, balance sheet improvement • Executive Committee

9. txho/01211dm5 ENX119.ppt ARCHITECTURE FOR ENRON’S PARTNERSHIP • Partners • Obligation to build the organization • Broad skill sets/diverse management responsibilities • Strong people leadership • Evaluated by corporate PRC (higher career/compensation risk) • Non-partners • More focused activities and roles • Pre-defined positions and career tracks • Lower compensation at risk

10. txho/01211dm5 ENX119.ppt TWO LEVELS OF PARTNERSHIP • Expectations • Proven ability to build and grow businesses; demonstrated commercial impact • Extensive followership in organization • Responsibility to lead/participate in corporate governance • Extensive cross-organizational network • Broad, diverse skill base • Managing Director (MD) • Increased • Tenure • Breadth and transferability of skill • Career and compensation risk • Measurable commercial impact (direct or enabling) • Strong intrinsics in problem solving, people leadership, and communications • Deep functional skill set • Vice President (VP)

11. txho/01211dm5 ENX119.ppt THREE TRACKS TO PARTNERSHIP • MD • MD • VP • VP • VP • Director • Director • Director • Manager • Manager • Manager • Analyst/ Associate • Specialist • Specialist • Commercial • Strategic professional and technical • Support • Core commercial activities • Unlimited partnership roles • Multiple career paths to partnership • More career/ compensation risk • Roles critical to supporting commercial activities • Key staff leadership positions eligible for partnership • Fewer partnerable roles/career paths • Traditional technical, infrastructure, and administrative roles • Only role eligible for partnership is organization leader; further movement requires changing tracks • Less career/compensation risk

12. txho/01211dm5 ENX119.ppt DEFINING PARTNERSHIP TRACKS • Commercial • Strategic professional and technical • Support • Roles directly responsible for deal sourcing, structuring, and closing • Transferability of skills • Critical commercial-enabling roles • Role manages significant financial risk • Role cannot easily or should not be outsourced • Role is core to Enron’s mission • Non-core • (oustourcing opportunities) • P/L leaders • Originators • Traders • Investment groups • Business development • Selected members of Finance groups • RAC • Structuring • Selected leadership from • Legal (deal related, tax) • Accounting • HR • IT • Finance • IR / PR • AOPS • Pipeline operators • Critical O&M staff • Legal (compliance, reporting) • Accounting (AP/AR) • HR • IT • IR/PR (support roles) • AOPs

13. txho/01211dm5 ENX119.ppt PERSONNEL ROLES Key roles • Evaluates, elects, and sets compensation for Corporate Policy Committee MDs • Appoints all Corporate Policy Committee and PRC members • Approves MD and VP compensation schemes and evaluation/election criteria • Office of the Chairman • Sets MD and VP evaluation and election criteria • Sets MD and VP compensation levels and “curve tilt” • Hears and decides on MD and VP evaluation/election appeals • Approves election slates from PRCs • Determines partnerable roles • Corporate Policy Committee • MD PRC (Corporate Policy Committee MDs and selected other MDs) • Evaluates, ranks, and elects all MDs • Commercial/Strategic Professional and Technical VP PRC • (selected MDs) • Evaluates, ranks, and elects all Commercial and Strategic Professional and Technical VPs • Support VP PRC • (selected MDs) • Evaluates, ranks, and elects Support VPs

14. txho/01211dm5 ENX119.ppt PARTNER EVALUATION CRITERIA • Organizational impact • Demonstrated ability to build and grow businesses • Extensive followership; recognized people developer • Collaboration/networking across the organization • Internal committee participation/leadership (e.g., PRC) • Special project team leadership • External reputation and network • Recruiting leadership • Commercial impact • Identifiable value creation • Direct financial impact • Business building • Deal completion/closing skills • Creativity/innovation • Deal identification • Structuring (finding the value in a deal) • Risk management/business judgment • Customer relationship development and management (upsell) • Individual skills • Problem solving • People leadership • Communication • Specialized knowledge • Project management (meeting deadlines, etc.) • Teamwork • VP, MD • Manager/ • Director • Analyst/Associate

15. txho/01211dm5 ENX119.ppt CURRENT COMPENSATION PRINCIPLES • Compensation tenets • Relative level of compensation at-risk for partners • Partners have more compensation at risk than a typical corporate executive • Increasing variability/ spread in compensation ranges by level • Corporate-wide bonus pools for each partnership level • Options/ restricted shares • Cash bonus • Base • salary • VP • Range of MD compensation

16. txho/01211dm5 ENX119.ppt CHALLENGES IN COMPENSATING PARTNERS FOR NEW BUSINESS BUILDING VENTURES • Methodology • Challenges/implications • Approach 1 • Use salary, cash bonus, and Enron corporate options/ restricted shares as the sole tools to compensate all partners • Easy to lose focus on the importance of business building • Partners reluctant to donate best people to a new venture with more distant and indirect impact on stock price • û • Approach 2 • Create special incentives (e.g., formulaic compensation vehicles) to be shared by those individuals directly involved with the creation of new businesses • Violates key tenet of partnership (i.e., single profit pool) • Value of new ventures may not be readily or accurately reflected in stock price • Leaders with formulaic compensation may be reluctant to “pull the plug” on non-performing businesses • û • Approach 3 • Create specific compensation vehicles linked to building new businesses, but with distributed ownership across entire partnership • Aligns entire leadership group toward creation of new businesses • Allows partners to have a portion of compensation tied to long term Enron growth in a vehicle other than stock price • ü

17. txho/01211dm5 ENX119.ppt NEW BUSINESS OPPORTUNITY CATEGORIES AND FUNDING SOURCES • Type of growth opportunity • Funding sources • Existing core business growth opportunity (e.g., Enron Europe, Enron Japan) • Enron equity • Future or potential core business (e.g., Networks, original EES, Data Storage) • Deferred partnership compensation • Non-core business ventures that leverage proprietary knowledge (e.g., NewPower Corp., Wind)

18. txho/01211dm5 ENX119.ppt IMPACT OF PARTNERSHIP INTEREST IN NEW BUSINESS GROWTH • 1. • Increased support across the organization for new businesses • EES • EBS • 2. • Increased accountability/ “pushback” from partnership group for key decisions • Azurix • EI

19. txho/01211dm5 ENX119.ppt GOVERNANCE • An independent Board will ensure integrity and consistency in key compensation issues by • Identifying which new business ventures are placed in each category • Determining funding sources and proportions • Approving specific valuation methodology, take-out provisions, and caps

20. txho/01211dm5 ENX119.ppt RELATIVE IMPACT OF HYBRID COMPENSATION APPROACH • Equity interest in new businesses • Options/restricted shares • Cash bonus • Base salary • Range of MD compensation • VP

21. txho/01211dm5 ENX119.ppt BUILDING THE ENRON OF TOMORROW • Tomorrow’s Enron • Today’s Enron • Vision • Strategic emphasis • Organizational concept • Yesterday’s Enron • World’s First Natural Gas Major • Growth in traditional asset-based businesses • Corporate Model • World’s Most Innovative Company • New business building around Enron’s core competencies • Networked model • World’s Most Valued Company • Broad-based business building development by leveraging intangible capital (i.e., knowledge, talent, networks) • Professional Partnership Model