Enron Mail

Date:Sun, 6 Jan 2002 13:43:14 -0800 (PST)

Dear NewCo employees:
I wanted to send a note giving you my views on the NewCo opportunity and ne=
xt steps.=20
What are those opportunities? In short, to date no competitor has taken En=
ron's dominant market position. In most cases, competitiors are retrenchin=
g from an aggressive expansion of their deregulated business in order to pr=
otect their key regulated franchises or balance sheets. Market liquidity an=
d activity is extremely fractured and highly diminished from 2000 levels. =
This will create opportunities as bid/offers expand and customers have less=
choices to manage key long-term risks. This lack of transparancy and liqui=
dity will also provide numerous opportunities, in the commodity, asset and =
capital markets, to take advantage of key arbitrages across the North Ameri=
can grid. We are faced with an energy asset overhang, in the short run, w=
hich is unprecedented since the early nineties. This coupled with market p=
articipants selling assets to protect balance sheets will provide many oppo=
rtunities to acquire attractive energy assets at good value. However, in th=
e long-run, as we emerge from the recession and as highly energy intensive =
technology investment resumes, increasing asset values, demand for energy a=
nd energy price volatility are highly likely. On the services side, there a=
re numerous un-met needs in the market place at this point including demand=
side management, distributed generation amongst others that only Enron peo=
ple have the complete value chain understanding to make feasible. I also be=
lieve that innovation in the energy capital markets can provide value to Ne=
wCo and our customers given the blight of liquidity in capital markets. In =
short, we are at the eve of an opportunity in the energy markets which has =
not been seen since the early nineties.
What is NewCo? NewCo will be a private company that will focus on the ener=
gy merchant business in North America which will capitalize on the opportun=
ities detailed above. These businesses will stretch from production to mar=
ket, wholesale through retail primarily in natural gas and electricity in t=
he United States and Canada. It will be a portfolio of several key business=
es, services and assets supported by a common infrastructure. It will be m=
ajority owned by Enron but will have significant outside investment to ensu=
re liquidity and legitimacy. It will be re-branded and be operating and sol=
vent by mid Q2 at the latest. It will be seeded with a number of Enron ass=
ets and contracts that we think add value to our business or provide key cr=
edit support. Those assets are conservatively valued at approximately $500 =
million to one billion. With asset and new cash investment, NewCo should be=
at least a billion dollar company. It will emerge as a non-debtor company =
and should be an investment grade rated company. NewCo will employ approxim=
ately 100 to 200 people depending on the mix of businesses and assets under=
control. These people will be sourced from the existing pool of talent in=
Enron and ex-employees. NewCo will have access to all Enron's existing sys=
tems and infrastructure. It will be in the market of buying and selling ene=
rgy albeit not market making which will be restricted under the non-compete=
with Netco.I would expect that we would have a strong business and transac=
tional relationship with Netco.
What will be NewCo's culture? It will have the benefits of being a small pr=
ivate company which will measure success by cashflow generation. It will b=
e a small company atmosphere where everyone knows each other. It will be a=
group that celebrates success together and works hard towards shared objec=
tives. It will have an attractive employee compensation plan particularily=
for long term value creation. We will build an organization of integrity =
of which people can be proud. It will center its objectives around our cust=
omers and the satisfying un-met needs in the market. NewCo will value cust=
omer relationships. It will be a partnership and employ an atmosphere of o=
pen communication. NewCo will be innovative, agile and nimble.
What is next? There will be a meeting in 30C2 at 4:00 PM on Monday to discu=
ss issues, questions and comments. There will also be a dinner set up for =
6:30PM on Tuesday at the Capital Grille to provide us an opportunity to spe=
nd additional social time to discuss NewCo. NewCo will be located on the 30=
th floor. The immediate tasks in hand can be broken into the following: a)=
opportunity and business definiton including fully vetted business plans f=
or opportunities identified around specific assets or independent of these =
assets; b) setting up infrastructure necessary to cure defaults and start p=
erforming to key operating assets including managing out of the bankruptcy;=
c) modelling cashflows, operating costs, capital requirements and proforma=
's for NewCo; d) working through the NewCo structure and path through bankr=
uptcy to solvency, rating and operation; e) scouring Enron for other valuab=
le assets not yet identified for NewCo; f) detailed market research; g) as=
set acquisition target definition; h) financing and capitalization plan inc=
luding raising external investment and i) additional hiring and recruitment=
On a final note, we will need to identify a new name for the company so let=
me know your ideas! I look forward to working with you towards reaching sh=
ared goals and celebrating the inevitable success. =20
Dave Delainey